A.P. GROUP LIMITED v FC of TMembers:
SE Frost DP
R Deutsch DP
Administrative Appeals Tribunal, Sydney
MEDIA NEUTRAL CITATION:
 AATA 409
SE Frost (Deputy President) and R Deutsch (Deputy President)
1. This case is about the GST treatment of "incentive" payments which are commonly made by motor vehicle manufacturers and distributors to motor vehicle dealers.
2. The Applicant is the GST representative member of a group of companies engaged in motor vehicle dealerships throughout Australia. The various group companies, to which we will also refer for convenience as "the Applicant", sell new and used motor vehicles, for all the major marques, as well as providing repair and maintenance services to their customers. In the course of carrying on its enterprise the Applicant receives, from time to time, incentive payments from those motor vehicle manufacturers or distributors (collectively, "manufacturers") from which the Applicant sources the vehicles that it sells.
3. The manufacturers' payment types are many and varied. Those which we are asked to consider do not by any means cover the entire range of incentive arrangements in place across the industry. In fact, we are asked to determine the GST treatment of only five particular payment arrangements. The arrangements are all different from each other. They are motivated by different considerations. They are calculated, and paid, by reference to different criteria. They may become triggered by different events in the distribution chain as motor vehicles move along the path from manufacturer, through dealer, to the end customer. The differences are such that the arrangements give rise to different GST outcomes.
4. The particular arrangements we are asked to address are those dealing with:
- (a) "fleet rebates" received from Toyota Motor Corporation Australia Limited (Toyota);
- (b) "run-out model support payments", also received from Toyota;
- (c) "transit/interest protection payments" received from GM Holden Ltd (Holden); and
- (d) target incentive payments received from:
- (i) Ford Motor Company of Australia Limited (Ford), for the achievement of specified sales targets ("retail target incentive payments"); and
- (ii) Subaru (Aust) Pty Limited (Subaru), for the achievement of specified purchase targets ("wholesale target incentive payments").
5. Historically, the Applicant and the manufacturers have dealt with the payments, for GST purposes, as if the Applicant is liable to GST on receipt of the payment, and the manufacturer is entitled to a corresponding input tax credit. However, it seems that at some stage they started to question that practice. The Applicant now considers that no GST is payable. It notified the Commissioner of a possible entitlement to a refund of overpaid GST. However, the Commissioner made an assessment which treated the payments as subject to GST. The Applicant objected against the assessment and, when the objection was disallowed, it applied to the Tribunal for review of the objection decision. The parties have agreed to use the months of May 2007 and March 2008 (the "relevant tax periods") as sample months for testing the issues involved.
6. The essential issue in the case is how the various payments should be characterised for GST purposes. We have to decide whether the payments are properly characterised as consideration for supplies made by the Applicant. If they are, then the Applicant will have made taxable supplies and GST will be payable. If not, then GST will have been overpaid.
7. There is a second issue which arises if we decide that GST is not payable to any extent. That issue concerns the Commissioner's power to withhold refunds of overpaid tax, in reliance on s 105-65 in Schedule 1 to the Taxation Administration Act 1953 (Administration Act). It is an important issue, and it raises questions about the Tribunal's jurisdiction. We deal with it in  to  below.
8. The concept of "taxable supply" is central to this dispute. Analysis of that expression requires a consideration of other fundamental GST concepts - "supply" and "consideration". All three of those expressions are defined in the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).
9. In accordance with s 9-5 there are four elements to a taxable supply. In the context of these incentive payments the only element that we need to consider is the one in s 9-5(a): whether the Applicant has made a "supply for consideration".
10. Section 9-10 explains that a supply is "any form of supply whatsoever", and then notes that it includes a supply of goods, a supply of services, and:
an entry into, or release from, an obligation:
- (i) to do anything; or
- (ii) to refrain from an act; or
- (iii) to tolerate an act or situation.
11. As far as "consideration" is concerned, s 9-15 provides as follows:
- (a) any payment, or any act or forbearance, in connection with a supply of anything; and
- (b) any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.
- (2) It does not matter whether the payment, act or forbearance was voluntary, or whether it was by the *recipient of the supply.
- (2A) ...
- (2B) ...
- (3) ...
THE APPLICANT'S ACQUISITION OF MOTOR VEHICLES
12. The Applicant does not acquire motor vehicles direct from the manufacturer. Instead, it acquires them under bailment arrangements, by which the Applicant, on behalf of an independent finance company, orders new vehicles from the manufacturer. The vehicles are sold by the manufacturer to the finance company but they are shipped direct to the dealership to be used as trading stock.
13. The finance company owns the vehicles until the Applicant finds a customer for the vehicle. Immediately prior to the sale of the vehicle to the Applicant's customer, title in the vehicle passes from the finance company to the Applicant. In this way, the Applicant is able to pass on good title in the vehicle.
14. These arrangements apply to all new vehicles, whether purchased by the Applicant for its floor stock or purchased to meet a specific customer order. During the bailment period the finance company charges bailment fees to the Applicant for the right to display the goods for sale. These charges are treated as consideration for taxable supplies made by the finance company to the Applicant.
15. We were told that arrangements of this kind are very common in the motor vehicle industry. They are sometimes referred to as "floor plan" arrangements.
16. It is now necessary to record some of the detail of the manufacturers' dealer agreements, and also the specific terms and conditions under which the incentive programs were conducted and the payments were made. We will deal with each manufacturer in turn.
THE TOYOTA ARRANGEMENTS
The Toyota Dealer Agreement
17. The current Dealer Agreement between Toyota (referred to in the agreement as "TMCA") and the Applicant was entered into in 2003. Clause 1.1 of the Dealer Agreement notes that the document "sets out the terms on which TMCA appoints the Dealer as a dealer in Toyota Products".
18. The Agreement provides in clause 1.2 that at all times, the Dealer must "do its best" to further the objectives of:
- • promoting and maintaining the "excellent reputation inherent in the Toyota name and Toyota Products"; and
- • achieving and maintaining a dominant market share for Toyota Products.
19. Dealers must at all times maintain and display Toyota products in "first class condition" (clause 3.10). They must also:
- • "actively and effectively advertise Toyota Products and promote the sale of Toyota Products" (clause 5.13);
- • "complement advertising and merchandising programs undertaken by TMCA" (clause 5.13.1); and
- • "comply with all rules and conditions that govern the Dealer's participation in marketing or incentive programmes" (clause 5.13.2).
20. A number of procedural requirements are imposed on the Dealer, including the following:
- • orders for Toyota Products must be submitted in accordance with procedures prescribed by Toyota (clause 3.1);
- • all of Toyota's operating and procedure manuals, technical data sheets, policy directives, bulletins and other relevant documentation must be complied with (clause 5.14); and
- • a retail sale must be notified to Toyota within one business day after it takes place (clause 6.1).
21. Finally, by clause 6.3, a Dealer "must not sell a Toyota Product at a price that is higher than a price recommended by TMCA and notified to the Dealer in writing at any time".
The Toyota "fleet rebates"
22. For many years Toyota has operated a fleet sales program that provides for discounted retail prices for vehicles sold to specific classes of customer, including government and business enterprises. Fleet discounts vary depending upon fleet customer categories including Platinum, Gold and Silver categories. The relevant Toyota Fleet Plan, dated 1 July 2005, explains that it is Toyota, and Toyota alone, that determines the level of fleet discount that applies to each level of fleet status.
23. For the Platinum, Gold and Silver categories, Toyota specifies a minimum level of discount that is to be offered to customers for each of the motor vehicle variants in the Toyota range. In other words, for the different fleet categories, Toyota specifies a maximum selling price that a dealer may charge the customer.
24. There are three broad scenarios under which the Applicant may sell a vehicle to a fleet customer at a discounted price. Either:
- • a fleet customer will purchase from the Applicant a vehicle already held in stock by the Applicant ("scenario 1"); or
- • a fleet customer will provide to the Applicant the vehicle specifications it desires. The Applicant will order a vehicle with those specifications from Toyota, and sell the vehicle to the customer once it has taken delivery from Toyota ("scenario 2"); or
- • a customer will negotiate a pricing structure directly with Toyota. Toyota will deliver a vehicle from Toyota's stock to the Applicant, specifically to fulfil the fleet order. The Applicant will sell the vehicle to the customer for the price previously negotiated between the customer and Toyota ("scenario 3").
25. Under scenarios 2 and 3, since Toyota knows at the time of delivery of the vehicle to the Applicant that the vehicle is destined for a fleet customer, Toyota will reduce the wholesale selling price of the vehicle to take account of the discounted retail selling price.
26. Under scenario 1, Toyota will have previously sold the vehicle to the Applicant, through a finance company, for the "normal" wholesale selling price. In recognition of the eventual retail sale to a fleet customer, Toyota will provide support to the Applicant by paying to it what is described as a "fleet rebate".
27. The Toyota Fleet Plan sets out the conditions under which dealers are eligible to receive payments under the fleet sales program. The Plan states (original underlining):
- 2.15 Fleet Rebates are conditional upon customers receiving their full published benefits. Discounts must be passed on to the fleet customer for at least the full published amount, as determined at time of the customer order.
- 2.16 If the full recommended discount is not passed on to the fleet customer by the Dealer, as determined at the order date, then TMCA will reverse the fleet claim payments in full for those sales .
- 2.17 The full provision of discounts to fleet customers is a specific focus of the TMCA Audit function.
- 2.19 Where no published fleet discount exists, Dealers must at least pass on the full value of the rebate claimed from TMCA as a minimum discount to the client.
28. The Plan also explains at clause 2.7 that the dealer is to register the order in Toyota's Customer Order Sales Information (COSI) system and, at clause 2.8, that:
The payment of fleet claims is triggered by the entry of the motor vehicle registration details in [COSI].
Fleet sales not correctly entered into [COSI] in line with the current Retail Sales Advice Policy will result in the waiving of the Dealer's fleet claim. ...
The Toyota "run-out model support payments"
29. A run-out model support payment program was operated by Toyota for many years, although only at specified times during a given year. It was designed to ensure that models that were not current were sold by dealers on a timely basis - in other words that all old models were sold before too many of the new models appeared on the showroom floor.
30. The framework for the run-out model support payments is set out in Toyota's Incentive Program Rules and Conditions; the details were provided in monthly sales bulletins issued from time to time. An example provided to the Tribunal is the "Eastern Region Sales Bulletin" issued on 4 January 2005. That bulletin was accompanied by a "Sales and Marketing Participation Form", which was used by dealers to indicate their agreement to participate in the program for that month, and an "Incentive Matrix" which set out the amounts that Toyota would pay dealers in respect of specified models within the Toyota range.
31. That particular program was targeted at various models carrying a 2004 compliance plate. The desired outcome was to reduce floor stock of the 2004 models in preparation for the introduction of the 2005 range. Participating dealers acknowledged, in the Sales and Marketing Participation Form, that:
- • they would not make offers of alternative cash discounts or deals that were less advantageous to customers than the specified advertised promotions;
- • they would comply with the relevant conditions in the Incentive Program Rules and Conditions; and
- • the listed national consumer offers were recommended advertising prices.
32. The Participation Form noted that:
A vehicle is deemed eligible for the applicable bonus to support the consumer offer as set out above when it is SOLD - REGISTERED - DELIVERED - RDR'd within the eligible program period.
33. ("RDR'd" is Toyota jargon which, as we understand it, means entered into the Toyota sales recording system.)
34. The Participation Form and the Incentive Matrix, taken together, explained that a participating dealer was entitled to receive from Toyota the amount of $455 for a 2004 Toyota Echo (3 door manual hatch, with "genuine air") if it was advertised for $13,990.
35. A similar program was announced in February 2008 through Bulletin S19/2008, in which the focus was the sale of 2007 compliance plate vehicles. It also provided that the incentives were available for:
Vehicles purchased, RDR'd & delivered during February 1st - 29th 2008.
36. Mr John Conomos AO, who was for many years the Senior Executive Vice President, and then Executive Chairman, of Toyota, explained in his witness statement (at ):
Although the expectation is that the dealer will have to further discount this 2004 stock, these payments differ from fleet rebates in that they are not required by TOYOTA to be passed onto the customer in order for the dealer to obtain them. All of the payments in this matrix are paid to the dealer irrespective of the retail price agreed between the dealer and the customer. All the dealer is required to do to obtain the payment is to record the retail sale in TOYOTA's system in the period allowed by TOYOTA.
37. Mr Conomos' oral evidence suggested something slightly different - that the dealer would be entitled to the payment simply for having the specified stock in its showroom at the specified time. He said at page 160 of the transcript (emphasis added):
MR CONOMOS: ... And that money would be transferred based on the number of vehicles in stock. That money was resident with that dealer for that period, until the car was sold . We never took it back if it didn't sell within that month, so the money was transferred in runout sense to them to facilitate an easier exit for that older model car.
MR CORDARA: So they got the money as a lump sum?
MR CONOMOS: Yes.
MR CORDARA: And did you ever have a problem about people who had got the money, but didn't then sell the cars, or does that not really happen in real life?
MR CONOMOS: Generally speaking, the money was transferred to the dealer and in many instances, they are entrepreneurs, and provided they fulfilled our expectation, I don't recall that we actually did an audit on actually whether every dollar went on every car to every customer. So, in other words, if he had 10 cars in stock, and he took $10,000 worth of support, the dealers were generally pretty good, in principle . They would apply it to that car to run it out . ...
38. We do not doubt Mr Conomos' understanding of the practical administration of the program. His oral evidence indicates that the strict requirements of the program may not always have been enforced. Nevertheless, it is clear from the documentation, and we find, that it was the retail sale of the vehicle by the Applicant, and its recording in the Toyota sales system, that entitled the Applicant either to receive the payment, or to retain it in the event that Toyota had paid it earlier. We note that, unlike the Fleet Sales Program, it was not a requirement that a dealer pass on the full extent of the Toyota payment as a discount to the price offered to the customer.
THE HOLDEN ARRANGEMENTS
The Holden Dealer Agreement
39. The current Dealer Agreement (called a "Dealer Sales & Service Agreement") between Holden and the Applicant was entered into in 2007. The Agreement records the parties' objective of establishing or continuing "a mutually beneficial business relationship that will provide the Dealer with high-quality lines of motor vehicles and associated products, and access to best practice commercial and marketing plans".
40. The Dealer is appointed to "actively promote, sell and service the Products ... and to promote and sell the Parts ..." (clause 2.1(a)). By clause 8.1, the Dealer agrees to "use its best endeavours to promote and maximise sales" of Holden products, to "act in the best interests" of Holden and the dealer network, and to comply with the "standards, procedures or guidelines" contained in relevant Holden documentation. Clause 13.1 of the Agreement provides that the Dealer must "operate its business to meet or exceed the Performance Criteria specified" for various items, including promoting and selling Holden products.
The Holden "transit/interest protection payments"
41. As explained earlier in these reasons, the Applicant does not purchase vehicles directly from the manufacturer, but from an interposed wholesale finance company. The finance company pays the manufacturer for the vehicle, in full, as soon as it is dispatched from the manufacturer's assembly plant. In turn, the finance company immediately imposes a finance charge on the Applicant from the date of dispatch, even though it may take some days before the vehicle arrives at the Applicant's premises, and some days in addition to that before the vehicle will be in a saleable condition.
42. Recognising that these arrangements require the Applicant to pay finance charges during periods when either:
- • the Applicant does not have physical possession of the vehicle; or
- • the vehicle, although in the Applicant's possession, is not yet ready for sale or display,
Holden pays allowances to the Applicant to "compensate" it for those finance charges.
43. The allowances go by various names. They are sometimes called "transit allowances", "TI allowances", "pre-delivery allowances", "PDI allowances" or "delivery allowances". In these reasons we have labelled them "transit/interest protection payments" because that is the way they were referred to by the parties. In Holden's "Retail Policies & Procedures" document, they are referred to as "Delivery Allowances" and "Pre-delivery Allowances", and are described as follows:
Holden will provide Dealers with allowances to compensate for interest fees charged to Dealers by their financiers whilst vehicles are in transit from the assembly plant or port of entry to the Dealer. These allowances will be calculated based [on] the period nominated in days required for vehicle shipment to the nominated delivery destination. The allowances will be calculated at the prevailing Bank Bill Rate plus a margin of 150 basis points (1.5%)
Holden will provide Dealers with allowances to compensate for the period required to pre-delivery new vehicles. These allowances provide for four (4) days interest compensation. The allowances will be calculated at the prevailing Bank Bill Rate plus a margin of 150 basis points (1.5%)
44. ("Pre-delivery" of a vehicle involves a dealer undertaking inspection, mechanical checks, cleaning and other services as specified by Holden.)
45. Holden generates a recipient created tax invoice in respect of the allowances, and pays the allowances to the Applicant twice monthly. The recipient created tax invoice and the payment amount are both GST-inclusive.
THE FORD ARRANGEMENTS
The Ford Dealer Agreement
46. The current Dealer Agreement between Ford and the Applicant was entered into in 2007.
47. The Agreement provides in clause 4.1 that the Dealer must "vigorously and actively promote the retail sale" of Ford products, and "use its best endeavours to energetically and satisfactorily develop the potential" for those sales. The Dealer's operations must "reflect favourably on the reputation of" the Dealer itself, other Ford dealers, Ford and Ford products (clause 4.15).
48. Any vehicle orders or order estimates placed on Ford by the Dealer must be "in the form and on the dates specified by Ford" (clause 6.1); orders for parts must be "in the form and manner specified by Ford", and unless otherwise agreed, must be made through Ford's scheduled stocking order system (clause 7.1). Clause 13.2 provides:
To ensure the proper and orderly marketing, sale or Service of Ford Marketed Products, Ford may, in its discretion, issue to Authorised Ford Dealers, Bulletins (including but not limited to Ford Dealer Confidential Bulletins) or amend Bulletins.
The Ford "retail target incentive payment" program
49. In September 2006 Ford introduced a sales incentive program known as the "Drive for Success" Dealer Reward Program. The program was outlined in detail in a bulletin issued on 8 September 2006 by Ford to its dealers. That bulletin was referred to as DCB (Dealer Confidential Bulletin) 2006/248 and it noted that the program was:
... designed to assist in increasing our sales and share by rewarding Dealers who achieve volume growth ...
50. The bulletin was supported by a 6-page document described as the "Rules and Conditions" of the program.
51. Set out in tabular form and attached to the DCB was a list of all the incentives that Ford would pay if a dealership met its monthly and its quarterly sales targets. Each dealership was given a monthly Bronze target and a monthly Silver target as well as quarterly Bronze, Silver, Gold and Platinum targets. The targets were set by Ford based in part on the dealership's past performance. There were different groupings of dealerships based mainly on the size of the dealership. Dealership rewards were based solely on meeting the various monthly and quarterly targets.
52. The targets were based on the number of eligible motor vehicles delivered in a qualifying period, but they did not take into account the value of those motor vehicles. If the dealership failed to meet a monthly target it would not receive the nominated monthly incentive. If it achieved the Bronze target and not the Silver target it would be rewarded on the basis of achieving the Bronze target. If it achieved the Silver target, it would be rewarded on the basis that it had reached the Silver target and not on the Bronze target.
53. The dealer would be called upon to go online to discover the Bronze, Silver, Gold and Platinum targets and would then be in a position to understand precisely how many vehicles of the eligible type the dealership would need to sell to eligible customers in a given timeframe to secure the designated monetary incentive payment. Thus, for example, under the table attached to DCB 2006/248 the dealership, which was given the identifier of Group 1, would receive a $5,000 payment if it achieved the required number of eligible sales for the relevant month for a Bronze Target or a $10,000 payment if it achieved the Silver Target.
54. Payments were made by Ford in the months following the end of each quarterly campaign period. Not all sales in a particular month were counted towards the targets. Only sales to eligible customers of eligible vehicles were counted. Eligible customers and vehicle types were identified in the DCB as were ineligible customer types.
55. Thus, for example, the buyer type "Commonwealth Government" was specifically identified as an Ineligible Customer and accordingly any vehicles sold to that buyer type would not count for the purposes of the program. On the other hand, buyer types described as "Retail" or "Business Fleet Plan" were described as eligible customers and accordingly purchases by those buyer types would qualify for inclusion in the program.
56. The program also specified what were eligible vehicles and in the relevant DCB these were described as "[a]ll models in the Ford new vehicle range, including Ford Performance Vehicles...".
57. Vehicles that counted towards the target
- • sold and delivered to an eligible customer during the relevant period; and
- • reported in Ford's Vehicle Information System ("VIS").
58. Once a motor vehicle had been delivered to the customer the "deal pack" details (the various documents associated with the sale of a motor vehicle to a customer), including delivery details, were entered into the VIS. Ford conducted periodic audits of these deal packs to ensure that deliveries of motor vehicles were recorded in the correct periods.
59. About the middle of the month following the end of an incentive period Ford would issue a recipient created tax invoice showing the amount of the incentive plus 10% for GST, and payment would follow shortly thereafter.
60. Ford was given the final say in all decisions and as part of the Rules and Conditions the program payment was stated to be "final and binding", such that no payment would be the subject of challenge by any dealer, dealer principal or any other person.
THE SUBARU ARRANGEMENTS
The Subaru Dealer Agreement
61. The current Dealer Agreement between Subaru and the Applicant was entered into in 2004. It notes in clause 6.1 that Subaru publishes, from time to time, Dealer Plans, Dealer Policies and Dealer Bulletins which are "incorporated into, and form part of, this Agreement to the extent to which they are not inconsistent with this Agreement".
62. Clause 8.8 of the Agreement notes that Subaru will suggest a recommended retail price "which is only a recommendation" but a Dealer may not sell for a greater price without Subaru's prior written consent.
63. By clause 9.1, a Dealer must "act in the best interests of" Subaru, must "reasonably vigorously promote" Subaru products, and must "comply with any Dealer Plans, Dealer Policies, Dealer Bulletins or other directions" from Subaru.
64. Clause 12.1 provides that any orders placed by the Dealer for vehicles and parts must be in accordance with Subaru's policies.
The Subaru "wholesale target incentive payment" program
65. Subaru operates a program known as the VFOS wholesale target program. VFOS, which is Subaru's Vehicle Forward Order System, is the system by which dealers place all new vehicle orders with Subaru.
66. The terms and conditions applicable to the VFOS wholesale target program that was in place for the relevant tax periods were notified to dealers in a Sales Bulletin issued by Subaru on 18 June 2004 and identified as Bulletin NS056 2004.
67. The program operated in respect of eligible new vehicle orders placed by a dealership with Subaru during the months in which the program operated. Under the program Subaru would set a monthly maximum ordering entitlement for each dealership in respect of each particular model and configuration of motor vehicle. This maximum ordering entitlement was based on the size and purchase history of the particular dealership in question. A dealership could not order any more than the maximum ordering entitlement set by Subaru for any month.
68. A program payment to the Applicant was triggered when the Applicant ordered in excess of a specified percentage of the Applicant's maximum order entitlement. Subaru set that figure at 70%. Once that percentage was met, Subaru paid the Applicant its VFOS entitlement, which was 1.5% of the dealer invoice price for each vehicle ordered from Subaru.
69. The VFOS entitlement became payable to the Applicant in the month following the month in which the vehicle obtained its Australian compliance plate. The payment was automatically made by Subaru, with no requirement for the Applicant to submit a claim.
70. VFOS entitlements did not necessarily arise in every month. This is because some months were designated, by Subaru and at its discretion, as "VFOS free".
71. Subaru performed an annual audit of each dealership to ensure compliance with the VFOS wholesale target program's terms and conditions. If the audit determined that a dealership had not met its obligations under the VFOS wholesale target program, Subaru would reverse any incorrectly paid incentive and might, at its discretion, suspend future program benefits.
72. The VFOS incentive was one component of a broader program described as the Subaru Structured Margin Program, the primary objectives of which included to support the growth and development of the Subaru brand and to support the growth and development of the Subaru network. In addition to meeting the ordering targets that were stipulated by Subaru, to be eligible for the payment a dealership was required to fulfil the other requirements of the program which included the ordering of vehicles in a specified manner and providing certain information to Subaru. We were not told of any instances in which a payment was withheld where the relevant target had been met on the basis that the dealership had failed to otherwise honour its obligations under the terms of its relationship with Subaru.
73. There was no requirement under the terms of either the VFOS program or the Structured Margin Program for a sale to occur to a third party in order for a dealership to be entitled to the VFOS payment. The only requirement was that the dealership purchase an amount of motor vehicles equal to or exceeding the relevant target wholesale threshold from Subaru. If that were achieved the payment would automatically follow in the following month. As the Sales Bulletin stated:
From July 1, 2004, VFOS will be paid to the ordering dealer at the end of the month following invoice, regardless of whether the vehicle has been retailed.
THE COMMISSIONER'S CASE
74. The Commissioner contends that the incentive payments represent consideration for supplies made by the Applicant. He puts his case on two alternative bases.
The Commissioner's first argument
75. His first argument is that the Applicant makes supplies to the manufacturer, and that the payments are properly characterised as consideration for those supplies. Specifically:
- • the definition of "supply" in s 9-10 of the GST Act is "just about as wide as possible";
Saga Holidays Ltdv Commissioner of Taxation  FCAFC 191; 156 FCR 256
- • the ordinary meaning of the word includes the "provision, furnishment, conferral or giving of something";
Westley Nominees Pty Ltdv Coles Supermarkets Australia Pty Ltd  FCAFC 115; 152 FCR 461
- • what the Applicant did, under the relevant dealer agreements and the various incorporated documents, bulletins, promotions, policies and manuals, amounts to the making of a supply by the Applicant to the manufacturer;
- • the concept of "consideration" within s 9-15 of the GST Act is broader than that necessary to support a simple contract;
TT-Line Company Pty Ltdv Commissioner of Taxation  FCA 658; (2009) 72 ATR 982
- • the incentive payments were payments "in connection with", "in response to" or "for the inducement of" the supplies that the Applicant made to the manufacturer; and
- • the Applicant therefore made taxable supplies.
The Commissioner's second argument
76. His second argument is that the payments are characterised as consideration for the retail sales of the vehicles by the Applicant to the end customer. However, the Commissioner does not rely on his second argument in relation to either:
- • the transit/interest protection payments received from Holden; or
- • the wholesale target incentive payments received from Subaru.
77. The elements of the Commissioner's second argument are that:
- • s 9-15(2) of the GST Act provides that consideration may be provided by someone other than the recipient of the supply;
- • where a vehicle has been sold under one of the relevant incentive payment programs, the consideration for the supply by the Applicant of that vehicle to a retail customer is made up of two parts - one part was paid by the customer and the other part was paid by the manufacturer in the form of the incentive payment;
- • it is irrelevant that the retail customer may be unaware of the existence of, or the amount of, the incentive payment;
- • the only thing that matters is that the incentive payment is "in connection with", "in response to" or "for the inducement of" the retail sale of the vehicle; and
- • the Applicant is therefore liable to GST on the incentive payment.
THE APPLICANT'S CASE
78. The Applicant's submissions can be summarised as follows:
- • we must decide what the payments were for;
- • we need to answer that question by reference to the entirety of the relevant commercial relationships;
- • in the context of the entire commercial relationships, the promises and obligations accepted by the Applicant are not properly regarded as supplies that it makes to the manufacturer;
- • there was no substantial relation, in a practical business sense,
Berryv Commissioner of Taxation  HCA 70; (1953) 89 CLR 653
- • the true character of the payments was that of third party discounts to the underlying vehicles purchased or (in the case of the transit/interest protection payments) compensation; and
- • the payments do not amount to third party consideration provided by the manufacturer to the Applicant in connection with the supply to the retail customer.
The Commissioner's first argument
79. A critical question in the context of the Commissioner's first argument is whether, by performing (or agreeing to perform) the obligations imposed by the Dealer Agreements and the various sales bulletins and incentive flyers, the Applicant made a supply to the manufacturer. If it did, then the next question is whether any of the incentive payments are consideration for such a supply.
80. Examples of the types of obligations to which the Applicant commits in the Dealer Agreements and the incentive documents are:
- • to do its best to promote and maintain the manufacturer's reputation;
- • to use its best endeavours to promote and maximise sales;
- • to advertise and promote products;
- • to maintain and display manufacturer-supplied vehicles in first class condition;
- • to comply with rules and conditions imposed by the manufacturer in relation to such issues as ordering product and recording and/or notifying sales;
- • to provide full published discounts to customers;
- • not to make offers less advantageous than those advertised; and
- • to act in the best interests of the manufacturer.
81. Given the breadth of the concept of supply - "any form of supply whatsoever", and specifically "an entry into ... an obligation to do anything" - it is not hard to see why the Commissioner submits that the Applicant made a supply to the manufacturer when it did, or agreed to do, any of those things. But there is an air of unreality in such an outcome. One could just as readily conclude that a retailer makes a supply to its wholesaler by taking on an obligation to pay for the goods it purchases, or that the wholesaler makes a supply not only of its goods, but also of the promise to deliver those goods in a timely fashion. When one overlays onto the concept of "supply" the similarly broad concept of "consideration" - which includes not only payments but also any "act or forbearance in connection with a supply" - it would follow, on this analysis, that the retailer probably makes a taxable supply to the wholesaler (of a promise to pay for the goods) and also that the wholesaler makes an entirely unexpected taxable supply of the promise to deliver goods on time.
82. The Applicant notes in its written submissions that both this Tribunal and the Federal Court have, for GST purposes, "characterised supplies based on the true and substantial nature of the supply, a substance and reality approach, recognition that GST is a practical business tax and that what needs to be identified is the essence or sole purpose of the transaction". Those submissions refer to
AGR Joint Venture and Commissioner of Taxation  AATA 1870; (2007) 70 ATR 466, which was referred to with approval in
Qantas Airways Limited v Commissioner of Taxation  FCAFC 113 (although we note that the Full Court's decision in Qantas has been appealed to the High Court).
83. In this regard, the Commissioner responds in his written submissions as follows (original emphasis; footnotes omitted):
[W]hether AP Group made supplies to the manufacturers is not an enquiry assisted by an attempt to divine the 'essence or sole purpose of the transaction.' While that kind of analysis in the past has been considered useful in deciding whether there was one supply or two; or the identity of a particular supply in respect of which consideration was provided; it has no logical role to play in identifying whether there was a supply at all . It simply deflects from the real question: whether AP Group made supplies in respect of which the incentive payments it received was consideration.
84. That seems a curious position for the Commissioner to take. It is hard to discover the merit in a proposition that the "essence" or "purpose" of a transaction should be disregarded at the stage of identification (is there a supply?), but brought into focus only at the characterisation stage (what is the supply?). It seems to us that any criteria that are relevant to one stage are quite likely to be relevant to the other. And having regard to "essence" and "purpose" throughout the enquiry is likely to lead to a GST outcome that reflects the realities of the commercial arrangement, rather than the "chaotic vista" that Mr Cordara predicted, where everything is a supply, everything is consideration, and everything is connected with everything.
85. In the context of the overall business relationships and contractual arrangements between the Applicant on the one hand, and the various manufacturers on the other, we do not think that the Applicant's acceptance of the obligations or the making of the promises is properly viewed as the making of supplies to the manufacturers. Instead, they are part of the foundation underpinning the relationships, the background to the bargain the parties have made - in a sense, the rulebook by which the game is to be played.
86. If we are wrong with that, and the Applicant is to be regarded as making supplies to the manufacturers, we nevertheless do not think it is making taxable supplies to them. The incentive payments are not made "for", or even "in connection with", any such supplies. There is no nexus between the payment of the incentives and the making of the promises, the performance of the obligations, or the compliance with the manufacturers' various rules and policies. The Commissioner's submissions do not grapple with the indisputable truth that, on his argument, the Applicant always carries on its business in a particular way (as it has agreed with the manufacturers to do), but it only gets paid for doing so in circumstances which warrant the payment of an incentive; otherwise the supply is provided for free. We do not see how that can possibly be so.
87. Finally, and also in support of his first argument, the Commissioner refers to the judgment of the Full Federal Court in
Commissioner of Taxation v Secretary to the Department of Transport (Victoria)  FCAFC 84; (2010) 188 FCR 167. He submits:
Just as the taxi-cab operator [...] made a supply to the Department of Transport, so too did AP Group to the manufacturers. There is, in many respects, a logical affinity between 'MTPT Payments' considered in the Department of Transport case and incentive payments. One essentially need only substitute one for the other:
at , per Kenny and Dodds-Streeton JJ. Commissioner of Taxationv Secretary to the Department of Transport (Victoria)  FCAFC 84
We accept that, as the Commissioner argued, each MPTP Payment was, in effect, a subsidy for taxi-cab travel for a MPTP Member. Under the MPTP the DOT assumed an obligation to fund in part the use of taxi-cabs by persons unable to take ordinary public transport. This did not mean, however, that there was only one supply, being the supply of transport to the MPTP Member. On the contrary, there were two supplies: the supply of transport to the MPTP Member and the supply to the DOT of the transport of the MPTP Member. That is, in transporting the MPTP Member in conformity with the MPTP, the taxi-cab operator provided the service to the DOT of transporting the MPTP Member. This proposition can be made good in a number of ways. First, having regard to what we have said at , the taxi-cab operator was doing what the DOT had in effect asked him to do when the Member MPTP Card was validated and the MPTP trip was authorised, upon the basis that the DOT would make a MPTP Payment (i.e., that the DOT would pay the MPTP component of the fare). Secondly, the supply of this service of transporting the MPTP Member to the DOT enabled the DOT to fulfil its objects under the Transport Act and to perform its functions.
88. The effect of this submission is that the supply of a vehicle to the Applicant's retail customer is at the same time the supply, by the Applicant to the manufacturer, of the service of supplying the vehicle to the customer. It is difficult, with respect, to imagine a more tortured analysis of what is a fundamentally simple transaction, a sale of goods.
89. The Commissioner's first argument must fail.
The Commissioner's second argument
90. The Commissioner is on somewhat firmer ground with his second argument. This argument focuses on the supply of the vehicles, by the Applicant, to its retail customers, and advances the proposition that the three particular incentive payments - the Toyota fleet rebate, the Toyota run-out model support payment and the retail target incentive payment made by Ford - are consideration for the supply of a vehicle to the retail customer.
91. The Commissioner notes, correctly, in his written submissions at , that the concept of consideration under s 9-15 of the GST Act is broader than that necessary to support a simple contract:
TT-Line Company Pty Ltd v Commissioner of Taxation  FCA 658; (2009) 181 FCR 400, per Stone J at . It includes "any payment, or any act or forbearance, in connection with a supply of anything" and "any payment, or any act or forbearance, in response to or for the inducement of a supply of anything".
92. The Applicant meets the Commissioner's argument by suggesting that the payments are properly characterised as third party rebates - payments made by the manufacturer to the Applicant to reduce the price paid by the Applicant for the vehicle. (The reference is to "third party" rebates because it is the finance company, and not the manufacturer, who supplies the vehicle to the Applicant.) The Applicant then says that the Commissioner cannot succeed in his argument that the payments are "consideration" for supplies that the Applicant makes, unless he first "disengages" the payments from their status as rebates,
93. Whether or not the "third party rebate" label is an appropriate one, the Applicant is wrong about the need to disengage that status before the "consideration" argument can succeed. As Gleeson CJ, Gummow, Heydon, Crennan and Kiefel JJ said in
Commissioner of Taxation v Reliance Carpet Co Pty Ltd  HCA 22; (2008) 236 CLR 342 at 352:
The circumstance that the deposit forfeited to the taxpayer had various characteristics does not mean that the taxpayer may fix upon such one or more of these characteristics as it selects to demonstrate that there was no taxable supply. It is sufficient for the Commissioner's case that the presence of one or more of these characteristics satisfies the criterion of "consideration" for the application of the GST provisions respecting a "taxable supply".
94. In her witness statement, Ms Margot Knowles, the Group Fleet Manager of a group of dealerships within the Applicant's GST group, described the Toyota fleet rebate as "a discount to the purchase price paid" by the Applicant.
95. In support of his second argument the Commissioner relies principally on the Full Federal Court judgment in
TT-Line Company Pty Ltd v Commissioner of Taxation  FCAFC 178; 181 FCR 400. That was a case in which the Commonwealth provided to a ferry operator a "rebate", to compensate the operator for a price reduction provided to a passenger under the Bass Strait Passenger Vehicle Equalisation Scheme. Emmett J in the Full Court explained the Scheme as follows, at :
Clause 7.1 of the [Ministerial] Directions provides that a rebate provided by a service operator to an eligible passenger is to take the form of a reduction to the passenger's vehicle fare. Upon taking a booking for the carriage of a passenger, a service operator must determine whether the passenger is an eligible passenger for the purposes of the Scheme. Under clause 7.3, where a service operator determines that a passenger is an eligible passenger, the operator must, concurrently with the payment for a booking, deduct from that person's passenger vehicle fare a rebate determined in accordance with Schedule 1 to the Directions.
96. His Honour went on, at -:
The Scheme provides a rebate to eligible passengers, not to operators. A passenger does not actually pay the full fare to TT Line. Rather, the Scheme contemplates that an operator such as TT Line will charge a passenger the net fare after deducting the amount of the rebate, on the basis that the operator will then claim reimbursement from the Commonwealth of the rebate allowed to the passenger. Mr Egan was an eligible passenger and his vehicle was an eligible passenger vehicle. Accordingly, under the Scheme, Mr Egan was entitled to a rebate in order to reduce the cost to him of travelling across Bass Strait to Tasmania and return. TT Line had no entitlement to the rebate. Rather, it was entitled to be reimbursed for the amount of the rebate that it allowed to Mr Egan. Mr Egan received the benefit of the rebate, since he paid to TT Line only the net fare, calculated after deducting the rebate.
The correct analysis of the arrangement is that the fare for the transport services provided by TT Line to Mr Egan was, in aggregate, $910, being $574 paid by him plus the rebate of $336 given to Mr Egan by the Commonwealth. That is the consideration received by TT Line for providing the transport services to Mr Egan. Accordingly, that is the amount upon which GST should be calculated. That is to say, the sum of $336 received by TT Line from the Commonwealth was part of the consideration for the supply of transport services to Mr Egan. The primary judge was correct in concluding that the payment received by TT Line from the Commonwealth was a payment in connection with the supply by TT Line of transport services to Mr Egan.
97. Edmonds J, with whom Perram J agreed, said at :
The payment by the Commonwealth to the appellant in respect of the appellant's supply of the transport services to Mr Egan needs to be understood for what it is: reimbursement of the rebate the appellant provided Mr Egan at the time he purchased his ticket. The consideration for the supply of the transport services to Mr Egan included not only what he paid, but the amount of the rebate he was granted by the appellant, which rebate was paid by the Commonwealth to the appellant by way of reimbursement.
98. The Commissioner submits that there is no relevant distinction between that case and this. The Applicant, on the other hand, seeks to distinguish the case on the basis that:
- • in TT-Line, the customer, not the ferry operator, was entitled to the rebate, whereas here it is the Applicant who receives the payment;
- • the Applicant's customers, unlike the passenger in TT-Line, are "rarely" or "never" aware of the amount of the payment made to the Applicant; and
- • the passenger in TT-Line had the option of paying the full price for the travel and claiming the rebate from the government, but the Applicant's customer has no corresponding option.
99. In relation to the fleet rebates and the run-out support payments, none of those distinguishing features matter.
100. As far as the customer's lack of awareness of the amount of the payment is concerned, the Commissioner says (original emphasis):
The GST Act does not however manifest any intention that the recipient of a supply must have knowledge of all the consideration that is provided in connection with a particular supply. As s 9-15(2) expressly provides, consideration May be provided by someone other than the recipient of the supply. To limit the concept of consideration to only that which the recipient "knows", is to recognise a limitation on the operation of s 9-15 that is simply not there.
101. We agree.
102. The question is simply whether the payment is "in connection with" the supply of the vehicle to the customer. In
American Express International Inc v Commissioner of Taxation  FCA 683; (2009) 73 ATR 173, Emmett J said at :
The phrase in connection with signifies, in its broadest sense, any relationship between two subject matters, no matter how remote. The phrase is capable of describing a spectrum of relationships ranging from the direct and immediate to the tenuous and remote ...
103. However, that is not to say that, in the context of s9-15 of the GST Act, a "tenuous" or "remote" connection with a supply will be enough to constitute consideration.
104. But here we are not dealing with a connection of that nature. Rather, the fleet rebate paid by Toyota has a direct and immediate connection with the supply of a vehicle to a fleet customer. That is because the supply of the vehicle is the very act that triggers the payment of the rebate.
105. Similarly, and for the same reason,
106. The last remaining payment type is Ford's retail target incentive payment. It is clear from the "Drive for Success" program that the payment is triggered at the time, and by reason, of the Applicant's recording of a level of new sales for a relevant period of eligible vehicles to eligible customers in excess of a specified target set by Ford. Significantly, though, and unlike the fleet rebates and the run-out model support payments, the target incentive payment has no nexus with any one particular supply. It is a payment made in connection with supplies generally, or perhaps more accurately, it is a payment made in connection with the making of supplies generally.
107. The use of the word "supply", in the singular, in section 9-15 (and also in the s 195-1 definition of "consideration") implies that the payment must relate to a supply rather than to supplies in general, or the making of supplies in general. That focus on the singular is found throughout Division 9 - where, although the headings to particular sections (including s 9-5, s 9-25 and each of its subsections, s 9-30, s 9-40, s 9-70, s 9-75, s 9-80 and s 9-85) are in the plural, the text is in the singular. The relevant provisions are directed towards the identification of a supply, and the consideration for it. The identification of global amounts is part of a different enquiry: see, for example, the provisions relating to "net amounts" in Division 17.
108. In our view, the retail target incentive payment is not a payment "in connection with" a supply, and so it is not consideration. This conclusion is not affected by s 23 of the Acts Interpretation Act 1901 ("... unless the contrary intention appears ... words in the singular number include the plural ...") because, in our view, it is a deliberate drafting technique which demonstrates a contrary intention.
SUMMARY OF OUR CONCLUSIONS
109. Our conclusions are summarised as follows:
|Commissioner's first argument - Consideration for a supply to the manufacturer?||Commissioner's second argument - Consideration for a supply to the customer?|
|Run-out model support payments||No||Yes|
|Transit/interest protection payments||No||Argument not relied on|
|Retail target incentive payments||No||No|
|Wholesale target incentive payments||No||Argument not relied on|
COMMENT ON s 105-65 IN SCHEDULE 1 TO THE ADMINISTRATION ACT
110. Section 105-65 provides that the Commissioner "need not" refund overpaid GST to a taxpayer in certain circumstances.
111. During the hearing we raised with the parties the question whether the Commissioner had, in fact, decided not to refund an overpaid amount to the Applicant. We also asked whether, even if that did occur, the Tribunal has jurisdiction to review such a decision.
112. The Commissioner's written submissions note at  that on 10 June 2010, "the Commissioner advised A. P. Group that it was not entitled to a GST refund in respect of the incentive payments it had received from the manufacturers". A footnote reference directs us to the document at pages 27-29 of the T-documents. That document does indeed say that the Applicant is "not entitled to a refund or credit", but the conclusion seems to be based on the Commissioner's view that the Applicant had not overpaid GST in the first place. It may be, then, that this is not the document that records the Commissioner's decision to withhold the refund under s 105-65.
113. In any event, and as notified to the parties during the hearing, we would appreciate the benefit of their views in relation to the Tribunal's jurisdiction to review such a decision under s 105-65, if indeed one has been made. Accordingly we will convene a directions hearing to set a timetable for dealing with that issue.
114. Since we have found that the Applicant has overpaid GST in respect of the transit/interest protection payments, the retail target incentive payments and the wholesale target incentive payments, it seems that there will need to be some adjustment made to the assessment. However, for the time being, we will delay making a formal decision until we resolve the s 105-65 issue.
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