Sales Tax Determination

STD 95/12

Title: Credit claims: value of tax-advantaged computer programs in mobile phones

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FOI status:

may be releasedFOI number: I 1014684

Background

From 1 January 1993 to 9 May 1995 the sales tax legislation provided a taxable value concession for goods that incorporated Tax-advantaged computer programs (TACPs) embodied in non-permanent microchips.

During that period, a number of manufacturers and wholesalers of mobile phones were able to establish that their products contained TACPs and determine the value applicable to them. These taxpayers were given private rulings from the Australian Taxation Office (ATO) on the value to be excluded from their taxable value calculations. Other manufacturers and wholesalers experienced difficulty in determining whether their products contained TACPs and in arriving at a valuation.

In September 1994, the ATO issued a public ruling stating that it was reviewing the sales tax treatment of mobile phones and while this review was being conducted, persons unable to ascertain a value could reduce the taxable value of their mobile phones by 32%, if they contained TACPs.

However the interim ruling did not resolve the issue of quantifying overpaid sales tax for the period between 1 January 1993 and September 1994. In the 1995 Budget, the concession for TACPs was removed from 9 May 1995. Subsequently, the ATO and the Australian Mobile Telecommunications Association have developed an agreed basis for settling credit claims where sales tax has been overpaid on mobile phones during the period 1 January 1993 and 9 May 1995.

Issue

How can refund or credit claims for the period 1 January 1993 to 9 May 1995 be resolved?

Decision

Credit claims relating to mobile phones may be resolved on the following basis:

1.

Where sales tax has been overpaid on mobile phones during the period 1 January 1993 to 9 May 1995, a refund or credit claim will be allowed to the extent of 25% of the taxable value of those goods (the exception being those mobile phones which contained OTP-EPROMs, for which the relevant period is 1 January 1993 to 3 April 1995), provided that:

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the amount of sales tax subject to the refund or credit claim has not been passed on, or if so, has been refunded to the person who purchased the goods; and

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any person who wishes to accept this offer, either submits an amended refund claim, reducing the amount claimed to the proposed figure, or agrees to waive any objection and appeal rights in respect of the part allowance of the original claim, by 31 December 1995.

2.

Any person who has not lodged a refund claim or who has not claimed any credits in their returns may now do so using the 25% agreed value for TACPs.

Persons who have claimed credits in their returns in excess of 25% of the taxable value of the mobile phones may adjust those credit claims, without penalty, to reflect this agreed value, provided this adjustment occurs no later than the return due on 21 April 1996. Where a person has already deducted credits in returns for a greater amount and does not adjust them, they will need to be able to substantiate their claim. If the Taxation Office subsequently finds that a sales tax credit has been overclaimed, the penalty provisions of the sales tax legislation may apply.

Persons who have lodged refund claims with the ATO that have not been determined and maintain that they are entitled to a credit in excess of 25% of the taxable value, have until 31 December 1995 to provide information supporting that claim.

Date of effect

This determination is effective immediately.

Reasons

We have based our decision on the following legislative provisions:Section 14 of the Sales Tax Assessment Act 1992

In relation to credit claims for TACPs in mobile phones, the ATO view has been that, as a general principle, where a person has sold mobile phones that were tax advantaged and the taxable value of those mobile phones was not reduced by an amount attributable to the TACPs, sales tax has been overpaid by that person.

A credit entitlement would therefore be available to the person who has paid the sales tax to the ATO, provided the amount of sales tax overpaid has not been passed on to another person, or if so, has been refunded to that other person. The outstanding issue has been determining the amount of any tax overpaid.

Members of the Mobile Telecommunications Industry have argued that, for a range of equity and policy reasons, an industry value was required. Furthermore, the ATO has been told that many members of the industry would find it hard to establish a precise value for TACPs, due to a number of factors, including:

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difficulty identifying particular goods containing qualifying TACPs;

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reluctance of suppliers to provide information concerning the cost of the TACPs in the mobile phones sold by them; and

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the increasing level of sophistication of mobile phones sold during the period resulted in significant variations to the value of the TACPs of one phone as compared to another.

The decision set out in this determination has been agreed on the basis of information provided by industry members and other trade experts in relation to the valuation of TACPs in mobile phones.

It recognises the difficulties mentioned previously and the potential costs of compliance for taxpayers and administration costs for the ATO in establishing precise valuation figures on a case by case basis.

Any manufacturer or wholesaler of mobile phones who does not wish to be party to the agreement may still establish an individual value for the TACPs in their mobile phones and discuss that value with the ATO.

Communication of the Decision

This determination has been made available for publication by the sale tax publishing houses. It will be distributed by the Australian Mobile Telecommunications Association to its members and by the ATO to sellers of mobile phones that are registered as sales taxpayers.

Commissioner of Taxation
22 November 1995

References

ATO references:
NO NAT 95/9529-5

Related Rulings/Determinations:

STD 95/2

Subject References:
Mobile Phones
tax-advantaged computer programs

Legislative References:
- FBTA 14