Decision impact statement

American Express International Inc v Commissioner of Taxation

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Court Citation(s):
[2009] FCA 683
2009 ATC 20-113
73 ATR 173

Venue: Federal Court of Australia
Venue Reference No: NSD 216 of 2007, NSD 219 of 2007
Judge Name: Emmett J
Judgment date: 19 June 2009
Appeals on foot:
Yes.
Appeal to be heard before Full Federal Court on 26 November 2009

Impacted Advice

Relevant Rulings/Determinations:

Subject References:
Goods and Services Tax
charges described as late payments and liquidated damages under charge card and credit card facilities
whether there was a relevant supply of an interest
whether such charges are consideration in connection with a financial supply
whether charge card and credit card facilities are payment systems within the meaning of r 40-5.12 of the A New Tax System (Goods and Services Tax) Regulations 1999 (Cth) (GST regulations)

Précis

Outlines the interim Tax Office response to this matter which concerns the GST treatment of fees incurred for late payment under charge card and credit card facilities. Whether the fees are consideration for an input taxed financial supply?

Brief summary of facts

In calculating the amount of input tax credits to which it was entitled, the Applicants (together, hereafter referred to as "Amex") adopted a revenue-based apportionment methodology to determine their Extent of Creditable Purpose (ECP) under subsection 11-30(3) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) as follows:

[1-(revenue derived from input taxed supplies) / total revenue] x 100.
In this formula, Amex excluded the following fees from the numerator while including them in the denominator:

a)
late payment fees received in respect of the credit card facility; and
b)
amounts described as "liquidated damages" received in respect of the charge card facility.

The fees referred to in a) and b) above are collectively referred to as the "Fee payments".

In doing so, Amex treated the Fee payments as compensatory payments for damages or losses and not consideration for an input taxed financial supply. Accordingly, the calculation of the ECP increased, resulting in a larger input tax credit entitlement than would otherwise be available and a corresponding reduction in net amount.

Issues decided by the court

The issue in dispute was whether, in calculating Amex's ECP under subsection 11-30(3) of the GST Act, the Fee payments form part of the consideration for supplies other than input taxed financial supplies; and specifically:

i)
whether the Fee Payments are consideration for a supply of an interest in or under a debt, credit arrangement or right to credit by Amex; and
ii)
if so, whether the supply was not a financial supply because it was a supply of, or an interest in or under a payment system under item 4 in the table in regulation 40-5.12 of the GST Regulations.

The Commissioner's view was that the Fee payments represented consideration for, or in connection with, the supply of an interest in a debt, credit arrangement or right to credit, and were, therefore, consideration for, or in connection with, an input taxed financial supply.

Credit arrangement

His Honour rejected the Commissioner's view and concluded that the contract between Amex and a card holder is not one under which the obligation of the card holder to pay an amount (the minimum amount in relation to the credit card facility or the full amount owed in relation to the charge card facility) to the card issuer is deferred - accordingly, there is no credit arrangement (paragraph 48 of the judgement). However, his Honour did recognise that in the case of the credit card facility, there will be a credit arrangement or a right to credit in relation to the deferral, after the due date for payment of the minimum amount, of the remaining balance after payment of the minimum amount. The payment of interest in relation to that deferral would be consideration in connection with the operation of the credit card facility (paragraph 37).

In connection with

His Honour then dealt with the question of whether the Fee payments can be said to be payments in connection with the credit arrangement or right to credit (in relation to the credit card facility), or a supply of a debt (in relation to both the credit card and charge card facilities). In referring to examples for item 2 in the table in regulation 40-5.09 set out in Part 2 of Schedule 7 to the GST Regulations, his Honour concluded that the Fee payments are not consideration in connection with opening, keeping, operating, maintaining or closing the relevant facility. A card holder becomes liable to make the payment only because the card holder has failed to perform the contractual obligation under the terms of the credit or charge card facility. His Honour then concluded that the Fee payments are not consideration in connection with a financial supply (paragraphs 56-59).

Payment system

His Honour then dealt with the contention by Amex that the supply is not a financial supply because it is a supply of an interest in or under a payment system. Based upon the reasoning set out in Visa International Service Association v Reserve Bank of Australia (2003) 131 FCR 300, his Honour concluded that, for the purposes of the GST Act, the card systems operated by Amex constitutes a payment system. Accordingly, his Honour found that there is no financial supply involved in the operation of either the charge card facility or the credit card facility by Amex (paragraph 70).

Tax Office view of Decision

The Tax Office respectfully disagrees with the decision of Emmett J and has appealed to the Full Federal Court against the decision. The appeal is listed to be heard by the Full Federal Court on 26 November 2009.

The Tax Office's interim approach to be taken pending the outcome of the appeal to the Full Federal Court and any further appeal by either party is outlined below in the section headed 'Administrative Treatment'.

A further or amended Decision Impact Statement will be published when the outcome of the appeal to the Full Federal Court and any further appeal is known.

Administrative Treatment

Refund requests

Any requests for refunds for additional input tax credits as a result of the decision will be held pending the outcome of the Tax Office's appeal to the Full Federal Court and any further appeal by either party.

Taxpayers who consider they are entitled to a refund of GST may notify the Tax Office of their intention to seek a refund by lodging a notification of entitlement to GST refund in accordance with s 105-55 of Schedule 1 to the Taxation Administration Act 1953 for the purposes of the time limits for recovery of refunds under that section.

For further information and for access to an online form to notify the Tax Office, visit the Tax Office website at www.ato.gov.au.

Compliance Action

The Tax Office will defer commencing compliance action in respect of apportionment methodologies that are affected by the current decision pending the outcome of the appeal.

Where compliance action has commenced and one of the issues under review involves financial supplies apportionment methodologies that are affected by the current decision, the Tax Office will not finalise the apportionment issue pending the outcome of the appeal.

Accordingly, taxpayers may wish to delay pursuing finalisation of compliance action that is affected by the decision until the conclusion of the appeal process. Alternatively, the Tax Office and the taxpayer may agree to exclude any assessment in regard to apportionment.

Private Rulings

Any private ruling requests in regard to apportionment methodologies which do not appear to rely on this decision will be finalised in accordance with normal Tax Office processes. However, where there is a belief that the methodology relies wholly or in part on this decision, a private ruling will not be issued pending finalisation of the appeal.

Further, taxpayers will be given an option of having their private ruling request put 'on hold' pending the resolution of the appeal or having the Tax Office officially 'refuse to rule'. Given the fact that the Tax Office will not be providing rulings on issues covered by this decision, taxpayers may decide to withdraw any such ruling requests.

Implications on current Public Rulings & Determinations

Any implications will be considered when any decision of the Court becomes final, after the appeal process is completed.

Implications on Law Administration Practice Statements

None identified.

Legislative References:

A New Tax System (Goods and Services Tax) Act 1999 (Cth)


A New Tax System (GST) Regulations 1999 (Cth)


Payment Systems (Regulation) Act 1998 (Cth)


Taxation Administration Act 1953 (Cth)

Case References:
American Express International Inc v Commissioner of State Revenue
[2004] VSCA 193
10 VR 145
57 ATR 483

In Re Charge Card Services Limited
[1989] 1 Ch 497

Collector of Customs v Pozzolanic Enterprises Pty Limited
43 FCR 280
115 ALR 1

Commissioner of Taxation v Amway of Australia Limited
141 FCR 40
[2004] FCAFC 273
57 ATR 339
2004 ATC 4893

Prime Wheat Association Limited v Chief Commissioner of Stamp Duties
(1997) 42 NSWLR 505
37 ATR 479
97 ATC 5015

UG Insurances Pty Ltd v Commissioner of Stamp Duties for the State of New South Wales
[1973] HCA 31
128 CLR 353
4 ATR 60

Other References:
GSTR 2002/2
GSTR 2004/1
GSTR 2006/3

American Express International Inc v Commissioner of Taxation history
  Date: Version:
You are here 26 October 2009 Identified
  29 April 2011 Identified
  30 September 2011 Response
  7 February 2012 Resolved