Category Archives: Appeals

International cases update – November 2012

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In November 2012 the following judgments dealing with GST/VAT were handed down in the UK, NZ and Canada.  It was a busy month.

I have previously published posts discussing the decisions of the UK Tax Tribunal in Borough Council of King’s Lynn and West Norfolk v Revenue & Customs [2012] UKFTT 671 (see here) and Dixons Retail plc v Revenue & Customs [2012] UKFTT 666 (see here).

I also published a post discussing the decision of the NZ Supreme Court in Stiassny and others v Commissioner of Inland Revenue [2012] NZSC 106 – see here.

Finally, the Tax Court in Canada handed down an interesting decision in Mac’s Convenience Stores Inc v The Queen [2012] TCC 393 dealing with the GST treatment of payments received by the owner of convenience stores for the provision of ATMs for a bank – some of the ATMs were owned by the bank  and some by the taxpayer.  The Court also considered the scope of the words “relate to”. Where the ATMs were owned by the bank, the taxpayer argued that the fees were consideration for an exempt supply of financial services, being “arranging” a financial service.  The Revenue argued that the dominant element of the supply was real property (i.e., the space in the stores) and the taxpayer’s conduct was “akin to the role that any landlord would play when providing space for an ATM”.  The Court agreed with the Revenue, essentially because the taxpayer took no active role in the operation of the ATMs and was largely a bystander with respect to the ATM transactions.  For the ATMs owned by the taxpayer, the issue was whether the taxpayer could claim input tax credits for the acquisition of the ATMs, notwithstanding that it was using the ATMs to make financial supplies.  The taxpayer relied on the exception which allowed entities (which are not financial institutions) to claim credits for property or services consumed “in the course of making supplies of financial services that relate to commercial activities of the registrant.  The Court rejected the Revenue’s contention that the words “relate to” require that the financial service must be incidental or ancillary to the entity’s primary business operations and must facilitate those business operations.  Adopting the ordinary meaning of “relate to” (having a very wide scope), the Court found that the taxpayer need only establish that there is “some connection” between the making of a supply of a financial service in respect of which credits are claimed and the taxpayer’s other activities. The Court noted that this is a much lower threshold than suggested by the Revenue.  The Court found that the taxpayer’s ATM operations did “relate to” its other convenience store activities.

United Kingdom

Upper Tax Tribunal

  • HMRC v European Tour Operators [2012] UKUT 377 – VAT – Exempt services – Item 1(d) of Group 9 of Schedule 9 VATA 1994 – Whether membership subscriptions of a trade association constitute exempt supplies – Case remitted to First-tier Tribunal for further findings of fact – Appeal allowed to that extent
  • Marcus Webb Golf Professional v HMRC [2012] UKUT 378 – VAT – exemption in Item 2 of Group 6, Schedule 9, VATA 1994 – whether tuition supplied by an individual teacher acting independently of an employer – relevance of principle of fiscal neutrality – appeal dismissed
  • Tanjoukian v HMRC [2012] UKUT 361 – VAT – Sale of vehicle registration marks – Whether transaction zero rated as an international supply – Place of supply in UK – Whether transaction involving a transfer or assignment of rights within para 1 of schedule 5 to VATA 1994 – Whether the DVLA a taxable person – Whether sale of registration marks by the DVLA an economic activity – Appeal dismissed
  • HMRC v Volkswagen Financial Services (UK) Ltd [2012] UKUT 394 – VAT – partial exemption special method – hire purchase transactions – taxable supplies of motor vehicles and exempt supplies of credit – whether residual cost inputs have a direct and immediate link with and are cost components of taxable supplies of motor vehicles – whether a methodology which attributes 50% of residual input tax to taxable supplies is fair and reasonable.
  • HMRC v UK Storage (SW) Ltd [2012] UKUT 359 – Value Added Tax – were storage units immovable property? – held no – was right to store goods in units exempt supply of licence to occupy land or standard rated supply of storage services? – held if units were immovable property then exempt supply of licence to occupy land otherwise standard rated supply of storage services – was single supply a supply of licence to occupy land or of storage services? – held single supply of storage services – appeal allowed

First-tier Tax Tribunal

  • Aabsolute Bond Ltd v Revenue & Customs [2012] UKFTT 672 – VAT – tax warehouse – assessment relating to goods considered to be missing – corresponding excise duty assessment withdrawn as out of time – whether VAT liability affected – no – whether assessment should have been made by reason of allegedly incomplete or incorrect return rather than under s 73(7B) VATA 1994 – no – whether a supply of goods at or before the duty point – held, on facts, goods delivered to warehouse and removed in circumstances constituting supplies – subject to adjustment, assessment confirmed and appeal dismissed
  • Borough Council of King’s Lynn and West Norfolk v Revenue & Customs [2012] UKFTT 671 – VAT – Overpayment – Whether consideration for a supply – No – No VAT charge on overpaid amounts – Appeal allowed – to see my post click here
  • Cloud Electronics Holdings Ltd v Revenue & Customs [2012] UKFTT TC02368 – VAT – input tax – professional fees incurred by holding company – whether there has been a supply of services – whether services used for business purpose
  • Dixons Retail plc v Revenue & Customs [2012] UKFTT 666 – claim for refund of VAT where retailer accounted for VAT on sales of goods for which customers fraudulently presented credit or debit cards and the retailer received payment from the card operator and retailer no obliged to repay the payments once frauds discovered – referral of question to ECJ – to see my post click here – to see my post click here
  • Mark Young (t/a The St Helens) v Revenue & Customs [2012] UKFTT TC02371 – VAT – s 49 VATA  – whether transfer of a business as a going concern where no supply by outgoing trader to new trader – yes on facts – whether legitimate expectation means not liable to VAT – stayed pending

New Zealand

Supreme Court

Canada

Tax Court

  • Mac’s Convenience Stores Inc v The Queen [2012] TCC 393 – whether service charge received for allowing the Automated Banking Machines of third party bank on the appellant’s convenience stores consideration for an exempt supply of financial services or a taxable supply of real property – whether appellant entitled to input tax credits for the purchase of ATMs – whether the ATMs “relate to” the other activities of the convenience stores
  • Tran v The Queen [2012] TCC 404 – whether acupuncture services performed by the appellant’s clinic are exempt supplies s a listed health service
  • Palangio and The Queen [2012] TCC 405 – whether taxpayer carrying on commercial activities and making taxable supplies – whether reasonable expectation of profit

NZ Supreme Court dismisses appeal by receivers for refund of GST

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Yesterday the NZ Supreme Court handed down its decision in Stiassny and others v Commissioner of Inland Revenue [2012] NZSC 106  where the Court dismissed an appeal against the decision of the Court of Appeal that the claim for a refund of GST by the receivers appointed to the partners in a GST-registered partnership should be struck out.

The case is interesting as it considers the question of whether the receivers of the partners (who were not appointed as receiver to the partnership) were personally liable to pay GST on the sale of partnership property. A similar question may arise under s 58 of the GST Act.  Secondly, the case discusses the scope for a claim based on restitution.  An outline of the facts and my analysis of the decision of the Court of Appeal can be accessed here.

Were the receivers personally liable for GST?

The Court of Appeal rejected the Commissioner’s contention that the receivers were personally liable for the GST of the partnership.  Before the Supreme Court, the Commissioner ran the same argument, being that the provisions of s 57 and s 58 (dealing with the GST consequences of “incapacitated entities”) should be given a construction which was consistent with their purpose, being to make the receivers liable for the GST of the partnership (notwithstanding that the partnership itself was not in receivership).

The Supreme Court rejected the argument for similar reasons to the Court of Appeal – essentially that the argument required words in s 57 to be ignored and additional words to be put into s 58.  The decision is another example of the limits of a “purposive” construction to statutory construction.

Can the receivers recover the GST paid?

The first argument of the receivers was that the payment of GST was made by them, rather than by the partnership.  This argument was rejected on the basis that the documents lead to the conclusion that it was simply not arguable that the GST payment was made otherwise than from a partnership bank account with funds to which it had title.

The second argument was that because the proceeds held by the receiver were insufficient to discharge the obligations owing by the partnership to secured creditors, those funds were held on bare trust for the secured creditors and, in equity the payment to the Commissioner utilised the property of the secured creditors, which can be recovered. This claim was rejected because of the effect of the introduction of the Personal Property Securities Arrangement regime which gives a creditor priority over a security interest in the funds paid to the creditor.

The third argument was that the payment had been made because of a mistake by the receivers or because they were, in practical terms, compelled to make it.  The Supreme Court agreed that the receivers were making a mistake about the law when they wrongly caused the partnership to pay the GST – they wrongly thought they were personally liable for the GST so paid it to protect their personal position. The Supreme Court also observed that it was well-settled that someone who makes a payment acting on a view of the law which a court later declares to be wrong, may be able to recover it.  In this context, the basis of the claim was to recover a payment made by mistake to the wrong creditor, to someone who would not have been paid but for the mistake.

The Supreme Court nevertheless found that the third argument failed on restitutionary principles.  This is because the partnership did owe the Crown the GST which was paid, therefore the Commissioner gave good consideration in accepting the payment in discharge of the debt.  Also, there could be no suggestion that the Commissioner induced the mistake – he made no demand for payment.  There was no unjust enrichment to the Crown at the expense of the partnership.

Commissioner issues Decision Impact Statement for Qantas

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On Friday the Commissioner issued his Decision Impact Statement for the decision of the High Court in Commissioner of Taxation v Qantas Airways Ltd [2012] HCA 41.

Some highlights from the Commissioner’s views in the statement include:

  1. The decision does not cause any significant change in the way the Commissioner approaches ‘supply’ or the nexus between supply and consideration.
  2. In cases where a payment is made on entry into a contract which secures rights (whether conditional or not) to a further supply, the Commissioner considers that the payment will be consideration for a supply consisting of at least the provision of those rights (and entry into the corresponding obligations), even if the further contemplated supply is not ultimately made
  3. There is nothing in the Qantas decision that would suggest that supplies need to be ‘dissected’ into their component parts, or that the focus of GST should be on contractual rights and obligations instead of performance.
  4. The Commissioner maintains the view, as recognised in his public rulings, that in many cases, the entry into contractual obligations and corresponding creation of rights should be construed, where relevant, as part of a composite supply that includes the performance of those obligations.

The views of the Commissioner in the Decision Impact Statement will likely cause much discussion.  For my part, I am not sure that matters 2, 3 and 4 sit comfortably together.

PSLA issued on retaining GST refunds pending verification; Appeals update on “son of holdback” – Commissioner lodges Cross Appeal

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In the wake of the Multiflex decision, Tax and Superannuation Laws Amendment Act (2012 Measures No.1) Act 2012 was introduced to amend the Taxation Administration Act 1953 to allow the Commissioner of Taxation to hold refunds for verification prior to payment.  Yesterday, the Commissioner published PSLA 2012/6 ‘Exercise of the Commissioner’s discretion under section 8AAZLGA of the Taxation Administration Act 1953 to retain an amount that would otherwise have to be refunded’.  The purpose of the practice statement is to provide guidance to tax officers on when it is reasonable to exercise the Commissioner’s discretion to delay a refund amount pending verification of the taxpayer’s entitlement to the amount.

An analysis of the practice statement will be posted next week.

Appeals update

In September the Tribunal handed down its decision in in AP Group Limited and Commissioner of Taxation [2012] AATA 617, finding that the taxpayer’s objection was partially allowed, on the basis that certain incentive payments were not consideration for a supply.  The Tribunal handed down its interim decision in July 2012, [2012] AATA 409.

The Federal Court portal shows that on 12 October 2012 the taxpayer lodged an appeal to the Federal Court.  Also, on 19 October 2012 the Commissioner lodged a cross-appeal.  Given both parties have appealed, it would appear that the Federal Court will have an opportunity to consider one of the fundamental planks of GST, namely whether payments are consideration for, or in connection with, a supply.

The matter has been set down for directions on 6 November 2012.  Because the decision was by two Deputy Presidents, the appeal can be heard by the Full Federal Court (rather than a single Judge) if considered appropriate. One would expect that this would likely be the case.

My post discussing the Tribunal’s decision can be accessed here.

International cases update – October 2012: analysis of three decisions with Australian implications

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In October the following decisions dealing with VAT and GST were handed down in the UK and Canada.  From my research no decisions were handed down in New Zealand.

This month I have analysed three decisions, each of which has potential interest in the Australian context:

  • Whether a payment received under a Settlement Agreement in respect of the breach/termination of an agreement is taxable in Canada: Surrey City Centre Mall Ltd v The Queen 2012 TCC 346.  The Canadian legislation has a specific deeming provision which treats payments for the breach of an agreement to make a taxable supply to be consideration for that taxable supply.  Australia contains no such provision and whether such a payment is taxable depends on whether it is consideration “in connection with” a supply. Under the current view of the Commissioner in GSTR 2001/4, the payment would not appear to be subject to GST as it is in the nature of damages.  However, the recent decision of the High Court in Qantas gives cause to revisit the issue.  My analysis of the decision can be accessed here.
  • Whether the supply of “hot food” in UK is taxable or zero-rated: Sub One Limited T/A Subway v HMRC [2012] UKUT 34.  The Upper Tribunal found that the subjective test applied by the Courts since 1988 was contrary to EU law, which required that an objective test be applied.  This raises the question of whether the test to be applied in Australia is subjective or objective.  My analysis of the decision can be accessed here.
  • Whether the sale of goods sold online where a charge was imposed for postage involved the single supply of delivered goods (all taxable) or two supplies: Orchardcrown Ltd v Revenue & Customs [2012] UKFTT 608. The Tribunal applied the established principles in Card Protection Plan and found there was a single supply.  In light of the recent decision of the High Court in Qantas, this raises the question of whether that test will continue to be applied here.  My analysis of the decision can be accessed here.

United Kingdom

Upper Taxation Tribunal

  • HMRC v The Rank Group Plc [2012] 347 – whether imposing VAT on gaming machines a breach of the principle of fiscal neutrality
  • Sub One Limited T/A Subway v HMRC [2012] UKUT 34 – Value Added Tax – zero-rating – Value Added Tax Act 1994 Schedule 8 Part II Group 1 Note (3)(b)(i) – food – toasted sandwiches and meatball marinara – whether heated for the purposes of enabling it to be consumed at temperature above ambient air temperature – whether legislation and/or interpretation and/or application thereof infringed principle of fiscal neutrality – whether FTT findings irrational – application to adduce further evidence – for my case analysis click here

Tax Tribunal

  • Damazda International UK Ltd v Revenue & Customs [2012] UKFTT 615 – Value Added Tax Act 1994 sec 84(7B) &  Sch 11 para 6A – Directive 2006/112 Art 273 – Direction to keep records – scope of appeal jurisdiction – proportionality – risk of tax loss – appeal allowed
  • Isle of Wight Council v Revenue & Customs [2012] UKFTT 648 – Value Added Tax – Taxable person – Local authority – Provision of off-street car parking – Impact of exemption on relevant market – Distortion of competition – Whether local authorities taxable persons in respect of provision of such parking – Questions referred to ECJ for determination – Application of ruling of ECJ (Case C-288/07) – EC Council Directive 77/388, art 4(5) (now art 13 of Directive 2006/114)
  • Kandiah Skandamoorthy v Revenue & Customs [2012] UKFTT 638 – VATA 1994 s73 – incomplete records – assessment to ‘best of their judgment’ – whether all relevant evidence taken into account – prolonged delays by taxpayer – appeal dismissed
  • Orchardcrown Ltd v Revenue & Customs [2012] UKFTT 608 – VAT – output tax – supply of goods with charge for postage – whether a single supply – whether supplier acts as agent for customer in contracting with Royal Mail – Customs & Excise Commissioners v Plantiflor Ltd considered – single supply by appellant – no agency established – appeal dismissed
  • Pinevale Ltd v Revenue & Customs [2012] UKFTT 606 – Value Added Tax – Reduced rate supply – Energy saving materials – Insulation for roofs – Polycarbonate panels for conservatories – Panels supplied to create new roof – Panels supplied to replace existing panels – Radiation reflector strips installed in  existing panels – Whether energy saving materials comprising insulation for roofs – Appeal allowed

Canada

Tax Court

First anniversary – a year in review

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Today marks the first anniversary of this site going live.

The past 12 months have been a busy time for GST in Australia.  We have seen a number of decisions by the Courts and Tribunals, significant legislative change and activity by the ATO.  Some of the highlights include:

  • one decision of the High Court (Qantas); two applications for special leave to appeal to the High Court by the Commissioner (Qantas – successful, Multiflex – unsuccessful); four decisions of the Full Federal Court – three in favour of the taxpayer (Unit Trend, Multiflex, Qantas) and one in favour of the Commissioner (MTAA Superannuation Fund), two decisions of the Federal Court (ECC Southbank, Yacoub), plus multiple decisions of the Tribunal
  • Legislative developments including: self assessment for GST from 1 July 2012; the Commissioner’s ability to retain refunds pending investigation (s 8AAZLG of Schedule 1 to the TAA); exposure draft for new GST refund provisions (proposed Division 36 of the GST Act)
  • The Commissioner has published four GST Rulings, eight GST Determinations, 12 ATO IDs dealing with GST issues, and around 600 private rulings dealing with GST issues have been published on the ATO’s Private Ruling Register

In my view, there will continue to be a lot of activity in the area of GST.  Some things to look forward to over the coming year include:

I would like to thank those people who have supported this site during the last year.  In the past year the site (and its various pages) has received in excess of 18,000 views and 130 people have signed up to receive updates by way of email.  These statistics appear to reflect the level of interest in GST in Australia and the continued activity in the area.

Tribunal affirms 75% penalty and 20% uplift where taxpayer failed to report sales of residential apartments

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In Subloo’s Investments Pty Ltd and Commissioner of Taxation [2012] AATA 703 the Tribunal affirmed the Commissioner’s decision to impose penalties of 75% plus an uplift of 20% because of the repetition of the conduct of the taxpayer in failing to report the sales of residential apartments.  In this case, the penalties almost equated to the GST shortfall.

For the first three tax periods in question, the applicant lodged activity statements claiming input tax credits but failed to record the sale of apartments during those periods, resulting in refunds being paid to the applicant.  For the remaining tax periods, the applicant failed to record any of the sales made. An audit by the ATO showed a GST shortfall of $534,018 and a shortfall penalty of $460,447.95 was made.  This was based on a base penalty of 75% (intentional disregard) and, except for the first month, the base penalty be increased by 20% because of the repetition of the conduct.

The applicant did not contest the GST shortfall, nor the characterisation of its conduct as intentional disregard.  The only issue was whether the penalties should be remitted.  The essential argument appeared to be that the applicant’s financier, without their consent, applied the GST component of the sales to reduce the mortgage debt rather than paying the GST and the project then got into financial difficulties.  The Tribunal found no basis for remission, essentially because the applicants chose not to account for GST for 18 months and chose not to contact the Commissioner to explain such difficulties that they may have been experiencing.

International cases update – September 2012 – single vs multiple supplies and possible impact of Qantas

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In September 2012 the following cases dealing with VAT issues were published in the UK.  From my research there were no significant cases published in New Zealand or Canada.

It is notable that two of the decisions of the Tribunal involved the perennial question of whether a transaction involved a single supply or multiple supplies for VAT purposes.  My analysis of these decisions can be found here.  Also, as discussed in my analysis, one wonders whether the recent decision of the High Court in Qantas will impact on how Australian Courts will approach this question going forward.

United Kingdom

First Tier Tribunal

  • Chipping Sodbury Golf Club v Revenue & Customs [2012] UKFTT 557 – VAT – sporting exemption for golf clubs – Article 13A(1)(m) Sixth Directive – members’ subscriptions – single supply or multiple supplies – Card Protection Plan considered – held single supply – profit making proprietary clubs – whether entitled to exemption – no – appeals dismissed
  • Colin Summers & Christopher Summers v Revenue & Customs [2012] UKFTT 590 – VALUE ADDED TAX — registration — whether appellants trading as single partnership or as two differently constituted partnerships — on the evidence, two separate partnerships — appeal allowed
  • Goals Soccer Centres plc v Revenue & Customs [2012] UKFTT 576 – VAT – Single or multiple supplies; five-a-side football; Pitch hire agreements and management services of sports leagues; whether single supply or multiple supplies, whether artificial to split or artificial to combine; tests to be applied and factors to be taken into account; relevance of the principle of fiscal neutrality
  • Goodman Equine Ltd v Revenue & Customs [2012] UKFTT 565 – VAT – input tax claim refused – horse trading – is business test satisfied – no
  • JIB Group Ltd v Revenue & Customs [2012] UKFTT 547 – VAT – INPUT TAX – was professional independent trustee of pension schemes entitled to deduct VAT on services of third party advisers relating to schemes? – held yes – are amounts paid by schemes in relation to advisers’ services consideration for supplies of services by trustee? – held yes – do principles of legitimate expectation, fiscal neutrality and equal treatment lead to different result? – held no – appeal allowed
  • Lakeside Collector Cards v The Commissioners Revenue & Customs [2012] UKFTT 563 – VALUE ADDED TAX – Input tax – Change from cash accounting – Return submitted 2½ years late – Capping provisions – Whether input tax capped as from time return due or from time received by Respondents – Status of Respondents’ manual published on Internet considered
  • Lok’nstore Group Plc v Revenue & Customs [2012[ UKFTT 589 – VAT – INPUT TAX – partial exemption – whether standard method and special method produce fair and reasonable attribution of input tax – held yes – whether special method proposed by Appellant produces fairer and more reasonable result than standard method – held yes – appeal allowed
  • Nathaniel David Roden and Rebecca Catherine Roden v Revenue & Customs [2012] UKFTT 586 – VAT –  let of hotel accommodation by undisclosed agent – deemed supply by and to agent under s47(3) VATA – whether deemed supply to agent necessarily has same VAT status as deemed  supply by agent – no – whether Item 1(d) of Group 1 to Schedule 9 VATA only exempts supplies to physical user of accommodation – no – appeal allowed in principle
  • Westminster College of Computing Ltd v Revenue & Customs [2012] UKFTT 579 – VAT – EXEMPT SUPPLIES – education – whether appellant school – held no – whether appellant college of institution of UK university– held no – appeal dismissed

High Court allows Commissioner’s appeal in Qantas

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Today the High Court handed down its decision in Commissioner of Taxation v Qantas Airways Ltd [2012] HCA 41.  By a majority of 4:1 (Heydon J dissenting) the Court allowed the Commissioner’s appeal and found that Qantas was liable to pay GST with respect to fares for travel which was not taken by passengers.

In summary, the view of the majority was that upon entry into the contract with passengers, Qantas made a taxable supply for consideration (being the fare) and GST was payable and attributable to the tax period in which the fare was received.  At [33] the majority said as follows:

The Qantas conditions and the Jetstar conditions did not provide an unconditional promise to carry the passenger and baggage on a particular flight.  They supplied something less than that.  This was at least a promise to use best endeavourrs to carry the passenger and baggage, having regad to the circumstances of the business operations of the airline.  This was a “taxable supply” for which the consideration, being the fare, was received.

My initial comment is that while this case involved the GST implications of a transaction which did not proceed to completion, the majority’s conclusion would appear to apply to all contracts, regardless of whether those contracts complete or not.  Accordingly, whenever a party enters into a contract and receives consideration (or provides an invoice), that party makes a taxable supply, with the supply being the entry into the obligations and or the provision of rights to the recipient.  This may raise a number of difficulties going forward.

In his dissenting judgment, Heydon J essentially approved of the reasons given by the Full Court.  In doing so, his Honour found that the expression “supply for consideration” connoted a bargained-for exchange of value for performance and identified the flight as what the passenger paid for. His honour also found that an interpretation of s 9-5 fastening on the latter supply (ie, the flight) conforms more closely to practical reality.

Case analysis of Unit Trend Services v COT – Division 165 and anti-avoidance

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On 19 August 2012 the Full Federal Court handed down its decision in Unit Trend Services Pty Ltd v Commissioner of Taxation [2012] FCAFC 112.  This was an appeal by the taxpayer from the decision of the Tribunal in The Taxpayer and Commissioner of Taxation [2010] AATA 497. In a majority decision (2:1), the Full Court allowed the taxpayer’s appeal and found that Division 165 did not apply because the GST benefit was “attributable” to a choice, election, application or agreement that is expressly provided for in the GST law.  The taxpayer did not appeal the finding of the Tribunal that obtaining the GST benefit was the dominant purpose (and principal effect) of entering into the scheme.

My analysis of this decision can be found here.