Interim Decision Impact Statement
ATS Pacific Pty Ltd v Commissioner of Taxation
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 FCAFC 33
2014 ATC 20-449
Venue: Federal Court
Venue Reference No: NSD 991 of 2013; NSD 994 of 2013
Judge Name: Edmonds, Pagone, Davies JJ
Judgment date: 27 March 2014
Appeals on foot: The taxpayer lodged an application for special leave to appeal to the High Court on 23 April 2014.
Decision Outcome: Favourable to the Commissioner
Impacted AdviceRelevant Rulings/Determinations:
- After the finalisation of any High Court proceedings, the Commissioner will review the impact of the Court's decision on ATO precedential documents including:
- Goods and Services Tax Industry Issues - Land product supplied to non-residents (as principal)
- GSTR 2001/8
- GSTR 2005/6
- GSTR 2006/9
Characterisation of supply
Inbound tour operator
|The final Decision Impact Statement (DIS) will be issued after the finalisation of the High Court proceedings.|
Outlines the ATO's interim approach to this case, particularly in relation to taxpayers that have either underpaid their GST liability or over-claimed GST refunds, as a consequence of relying on the decision of the Federal Court at first instance.
Brief summary of facts
The taxpayer, an inbound tour operator (ITO), entered into contracts with numerous non-resident travel agents ('NR travel agents') relating to the provision, in Australia, of the components of a tour package ('Products') by Australian-based entities ('Australian Providers') to non-resident tourist clients of the NR travel agents ('NR tourists'). The Products included accommodation in hotels and serviced apartments, transfers, car hire, tour guides, meals, and similar products and services.
Many dealings between the taxpayer and the NR travel agents occurred through the taxpayer's website which allowed NR travel agents to (amongst other things):
- review the Products of the Australian Providers that were available for booking by the taxpayer;
- access lists of tariffs, inclusive of the taxpayer's fees, for the Products;
- build a tour package for a NR Tourist by selecting particular Australian Providers and their Products; and
- obtain (in many cases) instant confirmation that the taxpayer was able to book the Products selected.
The terms and conditions on the website stated that the amount the taxpayer charged included both the cost of the Products and a fee for arranging the Products.
Once agreement with an NR travel agent had been reached, the taxpayer entered into contracts with Australian Providers relating to the provision of Products to the NR tourists. In doing so, the taxpayer acted as principal, and not as an agent of the NR travel agent. The taxpayer was obliged to pay the Australian Providers and claimed the associated input tax credits.
Issue and Decision at First Instance:
At issue was the character of the supply (or supplies) made by the taxpayer to its NR travel agent clients.
On 15 April 2013, the Federal Court at first instance (Justice Bennett) found that the taxpayer made two supplies; the supply of a promise to ensure that the Products would be supplied to a NR tourist (which was taxable) and the supply of arranging or booking services (which was GST-free). The consideration for the former was the price the taxpayer was liable to pay the Australian Provider for the Product, and the consideration for the latter was the taxpayer's margin.
The taxpayer appealed from the finding that it made a taxable supply of a promise, and the Commissioner cross-appealed from the finding that the taxpayer made a GST-free supply of arranging or booking services.
The Full Federal Court's Decision:
The Full Federal Court dismissed the taxpayer's appeal and allowed the Commissioner's cross-appeal.
The Court held that the taxpayer made one supply only, and that this supply was properly characterised as the supply of a promise to a NR travel agent to ensure that the Products were supplied to the NR tourists. The Court found that this supply was wholly taxable, and that no part of the supply was GST-free.
The Full Federal Court's decision overturns the decision of Justice Bennett at first instance.
As noted previously, the taxpayer applied for special leave to appeal the Full Federal Court's decision on 23 April 2014.
Taxpayers that lodged in accordance with Justice Bennett's decision
In the previous version of this interim DIS, the Commissioner advised affected taxpayers that they may lodge GST returns in accordance with Justice Bennett's decision (for any activity statements lodged on or after 15 April 2013), without the Commissioner amending their assessments. The Commissioner noted, however, that if he was successful in his cross-appeal, he would, subject to further appeal processes being exhausted, seek to recover:
- any unpaid GST on the margin that results from lodging in this manner; and
- any refunds paid to taxpayers that, following Justice Bennett's decision, claimed refunds of GST they paid on the margin in previous tax periods.
Consistent with the emphasised text above, the Commissioner will only seek to recover the amounts in question if, after the finalisation of any High Court proceedings, the Full Federal Court decision stands.
Affected taxpayers do, however, have the option of self-revising activity statements and voluntarily paying the relevant amounts now. For any taxpayer that chooses to do this, the general interest charge (GIC) applying to the amounts in question will be remitted in full (providing the self-revisions and payments are made within 28 days of the publication of this version of the interim DIS).
Taxpayers that choose to pay amounts now should contact the following ATO officer by email or by phone to confirm that the appropriate revisions to activity statements have been made and the resulting liabilities paid. This will ensure that any applicable GIC is remitted:
Craig Morelande - ATO Debt - Strategic Recovery
PH: (07) 3149 5173
Refund requests for previous tax periods
Some taxpayers have made requests for the Commissioner to exercise the discretion under section 105-65 of Schedule 1 to the Taxation Administration Act 1953 to refund GST they paid on the margin in previous tax periods. The Commissioner appreciates the effort that these taxpayers have gone to in providing data to support their requests. However, the Commissioner will cease to consider these requests (which are based on Justice Bennett's decision at first instance). Should the High Court overturn the Full Federal Court's decision, the Commissioner will resume consideration of the requests, if appropriate.
The Full Federal Court decision overturns Justice Bennett's decision at first instance. The Commissioner expects that affected taxpayers will lodge activity statements in accordance with the Full Federal Court decision.
Taxation Administration Act 1953
Section 105-65 Schedule 1
ATS Pacific Pty Ltd v Commissioner of Taxation
 FCA 341
2013 ATC 20-383
ATS Pacific Pty Ltd v Commissioner of Taxation  FCA 341, at paragraphs 123 and 149
At paragraphs 45 and 64
At paragraphs 60 to 64
Published on 6 September 2013 (which can be accessed via the reference section)