Excise guidelines for duty-free shops

• This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

3 LICENSING: Assessing applications

3.1 PURPOSE

This Chapter deals with:

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licensing criteria

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records you need to keep

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licence conditions

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securities

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what happens if your licence is not granted

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what will happen if your licence is granted

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how to renew your licence, and

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penalties that can apply to offences in relation to making an application.

3.2 INTRODUCTION

We have the discretion whether to grant or refuse a licence. We base our decision on the information you supply.

Subsection 39A(2) of the Excise Act provides that if we consider certain criteria exist, they can be the basis for refusal.

Those criteria include:

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you, or a director, officer, shareholder or an associate are not 'fit and proper'

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you do not have, or do not have available to you, the skills and experience required to carry out the activity that would be authorised by the licence

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the physical security of the premises is not adequate

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the plant and equipment to be used at the premises is not suitable

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you will not have a market for the goods

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you would not be able to keep proper books of account for audit purposes

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the grant of a storage licence would delay liability for duty, or

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it is necessary to refuse to grant the licence to protect the revenue.

These criteria are explained in more detail at Section 3.3 .

How any of these criteria affects a particular licence application depends on the facts in each particular case. There are, however, some criteria that are critical, for instance:

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whether you are 'fit and proper'

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the existence of a market, and

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protection of the revenue.

3.3 POLICY AND PRACTICE

3.3.1 LICENSING CRITERIA

'Fit and proper' person or company

The nature of the entity applying for the licence will affect who is assessed as being fit and proper ^[73] :

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if it is an individual, the individual is assessed

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if it is a partnership, each partner is assessed, and

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if it is a company, the company is assessed.

Persons other than the applicant can also be assessed as to whether they are fit and proper. These persons are:

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another person who would participate in the management or control of the premises that is the subject of the licence application ^[74]

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if the applicant is a company, any director, officer or shareholder of the company that would participate in the management or control of the company ^[75] , and

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certain associates of the applicant (associates can be people or companies). ^[76]

Meaning of 'fit and proper'

The term 'fit and proper' ^[77] is not defined in the Excise Act or the Excise Regulation. Fit and proper is dependent on the purpose of the legislation and the proposed activities of the person concerned. In general, qualities of diligence, honesty and the likelihood of observance of the law are pivotal characteristics to be taken into account in considering fitness and propriety. In an excise context, we are assessing the suitability of the people who will have access and control over ' excisable goods ' if a licence is granted.

The Excise Act provides a definitive list of factors that we will take into account in determining whether a person or company is fit and proper. These factors generally relate to:

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any prosecution history

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solvency

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the honesty of information provided by the applicant

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compliance with tax obligations, and

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licensing history, if applicable.

In assessing these factors, we will consider whether your circumstances demonstrate that you are diligent, honest and likely to observe excise laws.

A single factor will not necessarily be determinative of whether a person or company is fit and proper. It will depend on the facts and circumstances of each case.

The weight afforded to each factor in reaching a decision about whether a person or company is 'fit and proper' is a matter for us to decide after considering all relevant information.

Some factors apply to both individuals and companies; others are specific to individuals or to companies.

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individual or company ^[78]

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whether, within a year of lodging the application, the person or company has been charged with

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an offence under the excise legislation, or

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an offence under Commonwealth, state or territory law punishable by imprisonment for one year or longer (for an individual) or by a fine of 50 ' penalty units ' or more

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whether, within 10 years of lodging the application, the person or company has been convicted of

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an offence under the excise legislation, or

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an offence under Commonwealth, state or territory law punishable by imprisonment for one year or longer (for an individual) or by a fine of 50 penalty units or more

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the extent of the person's or company's compliance, within 4 years of lodging the application, with any law administered by us – for example, income tax or goods and services tax (GST)

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whether the person has held an excise licence which has been cancelled or varied to no longer cover one or more premises, or

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the person's or company's financial resources.

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individual only ^[79]

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whether the person has participated in the management or control of a company that has had its excise licence cancelled or varied to no longer cover one or more premises

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whether the person is an undischarged bankrupt

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any misleading statement made in the application by the person, and

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where any false statement was made in the application – whether the person knew it was false

False and misleading statements are discussed in Where a person makes false or misleading statements in their application .

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company only ^[80]

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whether a receiver has been appointed over the property, or part of the property, of the company

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whether the company is under administration under the Corporations Act 2001 (Corporations Act)

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whether there is a current deed of company arrangement in place under Part 5.3A of the Corporations Act, or

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whether the company is being wound up.

Where a person makes false or misleading statements in their application

It is important that you provide information that is accurate and complete. If your application (that is, your completed application form, any supporting documentation and any oral statements made) contains false or misleading statements ^[81] , we will take this into account.

Misleading statements

The term 'mislead' is not defined in the Excise Act. The Australian Oxford Dictionary ^[82] defines 'mislead' as:

1.

cause (a person) to go wrong, in conduct, belief, etc.

2.

lead astray or in the wrong direction.

A misleading statement does not have to successfully mislead us, but it can be taken into account if it was reasonably foreseeable that we could have been misled when assessing the application.

Misleading may be by omission as well as what has been said.

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Example 3A

You advise us that you have installed a state-of-the-art security system at your premises. You failed to advise us that a design fault has resulted in repeated false alarms to the point where you have switched off the security system and have no intention of re-engaging it. The design fault cannot be remedied. The only security in operation at the premises is a rusty padlock.

The information you provided, while not false, could lead us to believe that your premises are secure. This is misleading and may be taken into account in determining whether you are fit and proper.

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False statements

If you make a false statement, we will consider whether you knew the statement was false. ^[83]

In essence, a statement is false if it is not true. A false statement may be made expressly, such as stating you have no criminal convictions when, in fact, you have been convicted. A false statement may also be made by omission, such as leaving a blank response to the question on your application form in relation to criminal convictions when, in fact, you have been convicted.

Associates that can be assessed under the fit and proper person test

To avoid situations where people with a high risk of non-compliance can exercise control over licence holders or excisable goods, certain associates ^[84] can be assessed under the fit and proper person test.

The word 'associate' effectively takes it meaning from the Income Tax Assessment Act 1936 and is summarised below.

An associate of a natural person (otherwise than in the capacity of trustee) includes ^[85] :

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a relative ^[86] of the individual – for example, their spouse, parent, sibling, uncle or aunt

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a partner of the individual or a partnership in which the individual is a partner

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if a partner of the individual is a natural person otherwise than in the capacity of trustee, the spouse or child of the partner

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a trustee of a trust under which the individual or their associate benefits, or

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a company under the control of the individual or their associate.

Although an associate includes a spouse, a legally married spouse of a person who lives separately and apart on a permanent basis is not an associate. ^[87]

An associate of a company includes ^[88] :

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a partner of the company or a partnership in which the company is a partner

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if a partner of the company is an individual, the spouse or child of the partner

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a trustee of a trust under which the company or their associate benefits

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another entity (a company, partnership, trustee or an individual) or its associate (or associates) who controls the company, or

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another company which is under the control of the company or the company's associate.

The control of a company looks to whether another entity (including individuals):

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has sufficient influence over the company, or

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holds a majority voting interest in the company.

An associate of a trustee includes an entity or an associate of the entity that benefits or is capable of benefiting either directly or indirectly under the trust. ^[89]

For a partnership, an associate includes each partner of the partnership or associate of the partner. ^[90]

Skills and experience

Skills and experience ^[91] are not defined in the Excise Act or the Excise Regulation. There is no case law regarding skills and experience in an excise context.

In forming an opinion as to whether you have the required skills and experience, we will consider your ability to:

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carry out the activity requiring a licence

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conduct a business, and

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comply with excise obligations.

It is important to note that you, as the applicant, do not necessarily need to possess the skills and experience yourself provided that you can demonstrate that you will use another person's skills and experience – for example, by hiring them or using a consultant. Should that be the case, we will assess the other person's skills or experience.

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Example 3B

Mr X, as a Director of Z Duty Free Co, applies for a storage licence with permission to sell duty free.

Neither Mr X nor any of his staff have the skills and experience to comply with the company's excise obligations. This poses a risk that excisable goods may be sold without adequate record keeping [AC1] and may adversely affect revenue and compliance.

Therefore, when assessing this element of subsection 39A(2) in isolation, Z Duty Free Co would fail the requirements of skills and experience. However, a decision on granting a licence is made based on an assessment of all elements of subsection 39A(2).

Z Duty Free Co may choose to address the deficiency in skills and experience by such measures as appointing a manager who has the relevant skills and experience.

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Physical security of the premises

Physical security ^[92] relates to measures that prevent unauthorised access to excisable goods and thus protects against theft or loss of goods and excise revenue.

In forming an opinion about the physical security at the premises, we will consider:

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the nature of the site

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the kinds and quantities of goods to be kept, and

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the procedures and methods adopted to ensure the security of goods.

Consideration of the nature of the site can include:

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construction (for example, floor, walls, ceiling, windows and doors) and whether material is difficult to penetrate or remove

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barriers (for example, fences or wire) to a standard that would prevent unauthorised access

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locks and bars

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alarms, security lighting, security guard patrols or closed-circuit TV cameras

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physical security of all warehouse facilities within the site, and

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fire alarms, smoke detectors, sprinklers and other similar safety and protection devices.

Consideration of the kind and quantity of goods to be kept at the site can include:

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the ease with which goods can be handled – for example, cartons of cigarettes are easier to move than cartons of beer

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the rate of excise duty applicable to the goods (goods that attract a greater rate of excise duty represent a greater revenue risk), and

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the greater the quantity of excisable goods to be dealt with, the higher the level of physical security that would be required.

Consideration of the security procedures and methods can include:

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a gate security system that identifies all people accessing the site and confirms their right to do so

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a gate security system that identifies the type and quantity of all goods entering and leaving the site

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a surveillance system

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procedures to handle and retain information from surveillance system (if there is one)

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access control – for example, by limited distribution of keys, access swipe cards or codes

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security responses when breaches are detected – for example, back-to-base system, and

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an independent security audit function to oversee the security procedures and methods.

Suitability of plant and equipment

Plant and equipment ^[93] are considered suitable if they are capable of performing the intended tasks and will allow you to properly account for excisable goods and calculate the correct amount of excise duty.

Market for the goods

For this criterion, we are primarily concerned with the presence of an available market ^[94] within Australia. That market must be legal. Licensing is concerned with minimising the risk of excisable goods entering an illicit market in Australia and the resultant loss of revenue.

You must provide sufficient information to identify your proposed market.

You may be able to demonstrate that you have a market by, for example, supplying:

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evidence of contracts (including 'in principle' contracts) you have negotiated (for example, a contract to lease an area, at an international airport, to be used as a duty-free shop), or

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a business plan which outlines the market you have identified.

Ability to keep proper books of account

This criterion is whether you can keep 'proper books of accounts and records' that enable us to audit those records. ^[95]

You may be asked to demonstrate:

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the recording systems you intend to use, whether they are manual or electronic

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where an electronic record-keeping system is used, systems documentation showing details such as screens, reports available and security controls, and

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the internal documentation supporting the recording systems, ensuring that the recording systems will record sufficient detail.

Delay liability for duty (storage licence only)

This criterion only relates to an application for a storage licence where the granting of the licence would delay liability for the duty. ^[96]

It is our view that we may refuse to grant a storage licence where the granting of the licence would delay payment of duty beyond the point of storage occurring in the normal wholesale distribution of the goods.

This criterion is not relevant for duty-free shops.

Protect the revenue

The term 'necessary to protect the revenue' ^[97] is not defined in the Excise Act.

The meaning of 'protect the revenue' was considered by Deputy President Forgie in Martino and Australian Taxation Office. ^[98] She said, at [50–52]:

… The expression "protect the revenue" is not defined in the Act and I am not aware of any authorities that have considered it. The word "revenue" has been considered in Stephens v Abrahams [1902] VicLawRp 123; (1902) 27 VLR 753 by Hodges J. … Hodges J took:

" … the 'revenue' to be moneys which belong to the Crown, or moneys to which the Crown has a right, or moneys which are due to the Crown … "

The ordinary meanings of the word "protect" include "keep safe, take care of" ... and they would seem to be the senses in which the word is used in the expression "protect the revenue". Mr Martino's licence may only be cancelled if it is necessary to take care of the money belonging to the Crown in right of the Commonwealth. That has the aspect of ensuring that the Commonwealth receives all that it should in the form of any excise that is ultimately payable in respect of tobacco originally grown on Mr Martino's farm and keeps all that it receives. It also has the aspect of not spending more of the Commonwealth's money than need be spent in carrying out its supervisory duties and responsibilities under the Act and in ensuring that the tobacco is not marketed illegally in Australia, and so avoid the payment of excise duty, if it cannot be marketed legally.

What is meant by the word "necessary"? I have taken the view that the meaning adopted by Allen J in State Drug Crime Commission of NSW v Chapman (1987) 12 NSWLR 447:

"As to the word 'necessary' it does not have, in my judgment, the meaning of 'essential'. The word is to be subjected to the touchstone of reasonableness. The concept is one as to what reasonably is necessary in a commonsense way."

While this case was in relation to tobacco, the finding is equally applicable to duty-free shops. 'Protect the revenue' therefore means ensuring that the Commonwealth receives the full amount of excise duty that is ultimately payable and we do not spend more Commonwealth funds than necessary to carry out our responsibilities.

3.3.2 LICENCE CONDITIONS

Licence conditions form part of your licence. If you fail to comply with a condition, we may suspend or cancel your licence. ^[99]

All excise licences are subject to certain conditions imposed by:

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the Excise Act, and

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us (special conditions).

We are able to add, vary or modify special conditions even after the licence has been granted. ^[100] We will notify you in writing if we do so and provide you with an amended licence that includes the amended conditions.

Conditions imposed under the Excise Act

You must advise us in writing within 30 days if ^[101] :

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you or any person participating in the management or control of a licensed company or premises is charged with or convicted of

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an offence against a provision of the Excise Act, or

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an offence against a law of the Commonwealth, a state or a territory that is punishable by imprisonment for a period of one year or longer or by a fine of 50 penalty units or more

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you become bankrupt

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a person not listed in the licence application starts to participate in the management or control of premises covered by the licence or of the company, as the case may be

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there is a change in the membership of a partnership that holds a licence

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a company that holds a licence comes under receivership, administration or begins to be wound up

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there is a change that substantially affects the physical security of premises covered by the licence or plant and equipment used in relation to excisable goods at the premises, or

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you hold a storage licence and you cease to keep and store goods at premises covered by the licence.

Special conditions

We can also impose special conditions on your licence if we find it necessary to protect the revenue or ensure compliance with the Excise Act. ^[102] ' Directions issued under section 50 ' of the Excise Act to keep specified records, furnish specified returns, retain records for a specified period and produce those records on demand are included as a special condition on each licence.

Examples of conditions that have been imposed under this provision are:

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the trustee for a trust is to notify the Collector of the appointment of a new trustee in writing and prior to the appointment of the new trustee

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limits to the volume of excisable product you can access annually

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the requirement to undertake regular stocktakes, and

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ensuring that ' underbond ' stock is readily identifiable and quantifiable and reporting on LAG products.

The examples of special conditions given above are only for illustrative purposes. The decision to impose special conditions is considered on a case-by-case basis.

You can apply to have these special conditions varied, revoked or added. We will consider and advise you of our decision.

If you are not satisfied with any decision we make about a special condition, you can ask for a review by lodging an objection. ^[103]

For more information about your review rights, refer to Chapter 10 Reviews and objections.

3.3.3 SECURITIES

We can use conditions as a mechanism to increase the level of protection of the revenue or to ensure compliance with the Excise Act. However, prior to granting the licence, we may also require you to provide a security to achieve the same result. Even if we do not require a security prior to the granting of the licence, we may ask for a security at a later time. We can also ask you to increase the value of any security you may already have given. ^[104]

A security can be a bond, guarantee, cash deposit or similar financial product for an amount of money which may be forfeited if there is a failure to comply with the Excise Act. It is not necessary for a liability to arise as a result of the failure to comply for the security to be forfeited. There is no statutory limit to the amount of a security but the amount is generally set by reference to the level of revenue at risk.

We cannot apply these securities against other tax debts.

We review securities every 3 years, at which time they may be extended, revised or cancelled.

You cannot object to a decision to require a security. However, there may be other avenues for review – for example, you may seek an informal review of our decision.

For information about your review rights, refer to Chapter 10 Reviews and objections.

3.4 PROCEDURES

3.4.1 IF A LICENCE IS NOT GRANTED

If we do not grant a licence (or we grant you a licence that does not cover all the premises applied for), we will notify you of the decision and provide you with an explanation for our decision.

If you are not satisfied with our decision, you can ask for a review by lodging an objection within 60 days of the day we notify you. ^[105]

For information about your review rights, refer to Chapter 10 Reviews and objections.

3.4.2 IF A LICENCE IS GRANTED

If we grant you a licence, we will send it to you. We will also provide you with an establishment number or numbers for the premises specified on your licence. This will be needed in some of your dealings with us.

You may receive a visit or phone call from us to ensure you understand your obligations and check whether you need further assistance.

3.4.3 MORE INFORMATION

If you need more information on duty-free shops, contact us via ATO Online Services or the other options listed on Contact us about excisable alcohol .

We will ordinarily respond to written information requests within 28 days. If we cannot respond within 28 days, we will contact you within 14 days to obtain more information or negotiate an extended response date.

3.5 PENALTIES THAT CAN APPLY IN RELATION TO APPLICATIONS

You commit an offence punishable upon conviction if you ^[106] :

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intentionally make a statement to an officer, reckless as to the fact that the statement is false or misleading in a material particular, or

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intentionally omit from a statement made to an officer any matter or thing, reckless as to the fact that without the matter or thing the statement is misleading in a material particular.

The maximum penalty is 50 penalty units. ^[107]

3.6 TERMS USED

Excisable goods

Excisable goods are goods on which excise duty is imposed. Excise duty is imposed on goods that are listed in the Schedule, and manufactured or produced in Australia.

For operators of duty-free shops, this will include:

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alcohol goods that are produced or manufactured in Australia and are subject to excise, and

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imported alcohol goods that have undergone a process of manufacture or production in Australia – for example, high-strength imported whisky which has been reduced by adding water (in Australia) before it is bottled, constitutes manufacture or production for excise purposes. Vodka imported in bulk and repackaged in Australia, does not constitute manufacture for excise purposes.

This will not include:

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other imported alcohol goods (because these goods are subject to customs duty)

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wine (which is generally subject to wine equalisation tax), and

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cigarettes and other tobacco goods as there is currently no licensed manufacture of tobacco in Australia.

For more information about customable alcoholic beverages, refer to Chapter 22 of Schedule 3 to the Customs Tariff Act 1995.

Examples of excisable goods include Australian-made:

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beer

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spirits, and

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pre-mixed drinks known as ready-to-drink beverages.

Penalty units

The value of a penalty unit is contained in section 4AA of the Crimes Act 1914, and is indexed regularly. The dollar amount of a penalty unit is available at Penalties .

Section 50 direction

This is a written instruction issued under section 50 of the Excise Act to a licensed manufacturer, or proprietor of premises covered by a licence, to keep specified records, furnish specified returns, retain records for a specified period and produce those records on demand by us. This instruction is part of the licence.

Underbond

This is an expression not found in excise legislation but it is widely used to describe goods that are subject to excise control. Excisable goods that are subject to excise control are commonly referred to as 'underbond goods' or as being 'underbond'. This includes goods that have not yet been delivered into the Australian domestic market and goods moving between premises under a movement permission.

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Amendment history

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You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).

References