Brambles Holdings Limited v. Federal Commissioner of Taxation.

Judges: Barwick CJ
Gibbs J
Mason J
Jacobs J

Murphy J

Court:
Full High Court

Judgment date: Judgment handed down 2 November 1977.

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Murphy J.: The export incentive scheme provided by the Pay-roll Tax Assessment Act 1941 (Cwlth) (as amended) gives a financial benefit to the employer by a rebate of pay-roll tax based on increases in exports above the annual average of the exports effected by it in a specified base period. The rebate was proportioned to the increase in the value of the exports. (For convenience, I refer to exports without distinguishing production for export and other refinements the Act dealt with). The base period was originally the 2 years ended 30 June 1960 (see Pay-roll Tax Assessment Act 1961). It later became movable (see Pay-roll Tax Assessment Act 1968) which ensured that taxpayers entering into export were treated equitably with established exporters.

The intention of the Act (to increase Australian exports) could easily have been defeated by arrangements which switched the export business from an established exporter to one not previously engaged in export (for example, to a subsidiary or associated company). The entitlement could have arisen even without any increase in Australian exports. The legislation, however, contained provisions to meet this. Section 16B of the Pay-roll Tax Assessment Act 1961 authorised appropriate adjustments in the base period exports of a producer for export who acquired an existing business enterprise, and also required an adjustment in the base period exports if any employer disposed of an export business. This resulted in equitable treatment of both the seller and the purchaser of an export business. Under sec. 16C(4), where the Commissioner was satisfied that arrangements had been made between an employer and another with a view to their affairs being so arranged or conducted that the employer would obtain a greater rebate than that to which he otherwise would have been entitled, the rebate allowable was not to exceed the amount to which the employer would have been entitled if the arrangements had not been made.

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ATC 4494

Section 16T(1) (inserted in 1968) was a provision of general application. It states:

``Where the Commissioner is satisfied that arrangements have been made between any persons with a view to the affairs of those persons being so arranged or conducted that this Division, or the Division for which this Division was substituted, would have effect more favourably in relation to one of those persons than would otherwise have been the case, the amount of any increase in export sales, or of any rebate entitlement, of that person shall not exceed the amount that would, in the opinion of the Commissioner, have been the amount of that increase in export sales or of that rebate entitlement if those arrangements had not been made.''

These provisions were obviously included to ensure an equitable application of the incentive and to avoid unintended effects. The legislative intent was, broadly, to reward a real increase in Australian export but to deny the reward where there was only an apparent increase because of the transfer of the exports from one person to another (by acquisition of the export business or other arrangement).

In my opinion, the word ``arrangement'' in sec. 16T is not to be read as ``re-arrangement''. The arrangement in this case is within the contemplation of sec. 16T(1). Closely associated parties have made an arrangement to transfer the export business so that, even without any increase in exports, credit will (except for sec. 16T) be given to the appellant for the whole of the relevant exports.

The evidence compels the conclusion (which was not really disputed) that the appellant's main (but not only) motive in entering into the arrangement was to obtain the export certificates and the entitlement to pay-roll tax rebate. This conclusion is not necessary to attract the operation of sec. 16T. Section 16T(1) deals with genuine arrangements, those which are normal commercial dealings. If the arrangements were not genuine, the incentive would not be payable for the reason that the exports were not really being made by the taxpayer.

Section 16T(1) seems to me to be designed to meet, amongst other things, the case where export sales are in a commercial sense transferred by some arrangement other than a transfer of business enterprise (which is covered by sec. 16B). The purpose is to ensure that the export incentive is received only by those who increase their exports in a way which is not the result of an arranged switch (by a sale of the export business or other arrangement) of exports which would otherwise have been made. If A takes over export sales which would have been made by B by simple competition or through other circumstances which do not amount to a sale of the business (within sec. 16B) or other arrangement (within sec. 16T(1)), the whole of the increase becomes available for the incentive.

Section 16T(1) is not equivalent to sec. 260 of the Income Tax Assessment Act 1936 (Cwlth) (as amended). The operation of the export incentive scheme (and of sec. 16T(1) within it) is significantly different from the operation of the income taxation system (and of sec. 260 within it).

The appeal should be dismissed.

ORDER:

Appeal allowed with costs.

Decision of the Taxation Board of Review No. 1 set aside and in lieu thereof order that the objection be allowed.

Matter remitted to the Commissioner to reassess in accordance with the reasons for judgment of this Court.