Edited version of your private ruling

Authorisation Number: 1012459956006

Ruling

Subject: Supply of other GST-free health goods under section 38-47 of the GST Act.

This ruling withdraws and replaces GST private ruling (Authorisation Number 1012436488365).

Question:

Is the supply by X of three SPF 30+ products (Subject Products) GST-free pursuant to section 38-47 of the A New Tax System (Goods and Services) Tax Act 1999 (GST Act)?

Answer:

No, the supply by X of the Subject Products is not GST-free pursuant to section 38-47 of the GST Act.

Relevant facts and circumstances:

Ruling request

The ruling request described the Subject Products as sunscreen compounds for use on human skin, in particular the face and neck area, which contain a blend of non-nano chemical sunscreens which provide users with a broad spectrum SPF 30+ protection. The ruling request stated that the Subject Products are 'therapeutic sunscreens' regulated by the Therapeutic Goods Administration (TGA), as distinct from 'cosmetic sunscreens' which are regulated with respect to ingredients by the National Industrial Chemicals Notification Assessment scheme and regulated with respect to labelling by the ACCC.

Summaries of the Australian Register of Therapeutic Goods (ARTG) entries for 'medicine listed' in respect of the Subject Products were attached to the ruling request. The ARTG entries listed as Standard Indications 'sunscreen SPF 30 +' and 'broad spectrum sunscreen' and listed the Active Ingredients for each Subject Product as:

· Bemotrizinol;

· Butyl methoxydibenzoylmethane;

· Octocrylene;

· Octyl methoxycinnamate; and

· Phenylbenzimidazole sulfonic acid.

The ruling request stated that, as broad spectrum sunscreens, the Subject Products contain ingredients which offer protection against both UVA and UVB radiation, whereas sunscreens which are not labelled broad spectrum generally offer only minimal protection against UVA radiation.

The ruling request referred to a number of ancillary features of the Subject Products which complement the use of the Subject Products as a sunscreen, including:

… ingredients which provided moisturising and antioxidant effects to the user.

The ruling request stated that the levels of active moisturising ingredients in the Subject Products are substantially below the level of such ingredients in X's dedicated moisturising products.

The ruling request stated that X has targeted the product category containing the Subject Products as daily use products to minimise the effect of incidental and substantial sun exposure in contrast to the traditional role of sunscreen as something applied only on occasions when substantial sun exposure is anticipated.

X advised that the Subject Products are sold from a limited number of retailers, specialist skin care businesses and department stores and that the marketing material produced in respect of the Subject Products was limited to:

· A Scientifically Referenced Marketing Dossier (dossier) used as a reference by skin experts engaged in selling the Subject Products;

· Posters for the Subject Products;

· Packaging for the Subject Products; and

· X' website.

In submissions in support of the ruling reference was made to the requirement in clause 4 of the GST-free Supply (Health Goods) Determination 2011 (Determination) that the relevant goods be either required to be included in the Australian Register of Therapeutic Goods or be in a class of goods required to be so included. It was submitted that the Subject Products are of a class listed at Item 7 in Schedule 4 to the Therapeutic Goods Regulations 1990, i.e.

Sunscreen preparations for dermal application (other than preparations for the treatment of a disease, condition, ailment or defect specified in Part 1 or 2 of Appendix 6 to the Therapeutic Goods Advertising Code), if:

a. The claimed sun protection factor has been established by testing according to the method described in Standards AS/NZ 2604:2012, as in force from time to time; and

b. The performance statements and markings on the label comply with that Standard; and

c. The sun protection factor stated on the label is:

(i) 4 or greater

In relation to the further requirement in clause 4 of the Determination that the Subject Products are 'of the kind described in an item in Schedule 1' to the Determination, it was submitted that item 5 in Schedule 1 applied, i.e.

Sunscreen preparations for dermal application that:

a) Are marketed principally for use as sunscreen; and

b) Have a sun protection factor of 15 or more.

It was submitted that the Subject Products satisfied the words 'sunscreen preparations for dermal application' as they are manufactured for application to the skin to reduce the incidence of skin damage caused by exposure to the sun. It was submitted that the Subject Products satisfied the criteria set out in Issue 2.d in the ATO's GST Pharmaceutical Health Forum Issues Register:

Issue 2.d. - what are 'sunscreen preparations for dermal application'?

A sunscreen preparation is a preparation, manufactured or compounded, for application to the skin (including the lips), to reduce the incidence of skin damage caused by exposure to the rays of the sun.

Sunscreen preparations may be presented for use in forms other than creams and lotions for example, gels, balms and mousses.

In relation to the requirement in paragraph (a) of Item 5 that the sunscreens are 'marketed principally for use as sunscreen', it was submitted that the Courts have not considered the meaning of those words in the context of the Determination, but the Federal Court has considered the meaning of the expression 'beverages, and ingredients for beverages, of a kind marketed principally as food for infants or invalids' in Cascade Brewery Co Pty Ltd v Commissioner of Taxation [2006] FCA 821. The ruling request referred to the Federal Court's decision at Para 11:

The words 'marketed principally as food for infants' in item 13 requires an examination of the content of the advertising and other marketing in fact carried out by the taxpayers or competitors in the market…

and at Para 24, referring to the discussion of 'marketed principally' in SST 11:

This approach is consistent with the dictionary meanings of 'marketing'. Thus The Macquarie Dictionary refers to 'the total process whereby goods are put onto the market'. The Australian Oxford Dictionary refers to 'the action or business of promoting and selling products, including market research and advertising'.

The ruling request then discussed the dossier, the poster and packaging.

In relation to the dossier, it was submitted that the Subject Products are intended to be marketed by way of professional recommendation, including trained retail consultants (skin experts) who use the dossier as a reference source. It was submitted that the position and content of section 1 of the dossier (General UV and Sunscreen Information), which takes up half of the dossier, emphasises the primary function of the Subject Products as sunscreens. It was submitted that the second section covers the use of the Subject Products as sunscreens as well as their ancillary features plus product information such as ingredients and an explanation as to why a predecessor product was reformulated to create the Subject Products.

In relation to the posters it was submitted that in the headline in large text on the posters refers to the sunscreen properties of the Subject Products and that the presentation of 'SPF 30+' in enlarged and coloured text again emphasize the sun protection properties of the Subject Products. It was submitted that the image on the posters is intended to convey the incidental sun exposure that occurs on a daily basis which is consistent with the marketing message that the Subject Products are a daily use product for incidental as well as substantial sun exposure.

It was submitted that features on the packaging of the Subject Products cite a number of attributes (e.g. Broad Spectrum formula and high SPF rating) which are connected with use of the Subject Products as sunscreens and that the appearance of sunscreen-related features towards the top of each list of key features emphasises the relative importance of those features in the marketing of the Subject Products. It was submitted that 'fast-absorbing, non-whitening' also related to the function of the Subject Products as sunscreens because those words differentiated the Subject Products from other sunscreens which can be opaque or difficult to rub into the skin.

It was submitted that a logo on the front of the packaging referred to a category of X's products which have SPF ratings of 15 or higher. Reference was made to the instructions and product warnings on the boxes for all of the Subject Products:

Directions: Apply daily to face and neck. Apply generous amounts to clean, dry skin 15-20 minutes before sun exposure, and again after swimming or towelling.

Warning: Avoid direct contact with eyes. Prolonged exposure to the sun should be avoided. Suitable protective clothing, hat and eyewear should be worn at all times.

It was submitted that these directions and warnings are relevant to the marketing of the Subject Products and consistent with those of other sunscreens.

It was submitted that the Subject Products satisfied the requirement in paragraph (b) of Item 5 in the Determination that sunscreen preparations have a sun protection factor rating of 15 or more as each has been independently certified as having an SPF of more than 30.

The ruling request referred to edited versions of GST private rulings in which the ATO had accepted that certain supplies were GST-free pursuant to section 38-47 of the GST Act.

The earlier ruling:

In a ruling dated 20 March 2013 (Authorisation Number 1012436488365) the ATO ruled that the supply by X of the Subject Products is not GST-free pursuant to subsection 38-47(1) of the GST Act.

Request for informal review:

X requested an informal review of the earlier ruling plus a meeting with the ATO in order to provide the ATO with a better understanding of the Subject Products.

Meeting:

At the meeting it was explained that X produced the predecessors to the Subject Products because vitamin A (which reverses skin damage) causes sensitivity to sun and because a United States study recommended that people wear a sunscreen daily because even limited daily sun exposure over a number of years causes photo-ageing of the skin.

In the mid-2000s bemotrizonal became available as a chemical sunscreen (as opposed to physical sunscreens based on particles such as zinc) and was included as an active ingredient in the subsequent iteration of the product, i.e. the Subject Products. The Subject Products were listed with the TGA some time before they became available for sale because the Subject Products must be manufactured at a TGA-licensed facility.

Australian Order Form:

At the meeting X provided a copy of an Australian Order Form for X's products in which the Subject Products were listed under one specific product category while other moisturisers were listed in a separate 'moisturise' category.

Dossiers:

X also explained that X produces marketing dossiers in respect of its products because those products are sold under professional recommendation by skin experts who are trained at facilities around Australia.

At the meeting it was pointed out that, in contrast to two dossiers for products in the 'moisturise' category, the dossier for the Subject Products commences with a section containing 'general UV and sunscreen information', including the effects of sun exposure over time, 'what is SPF', and the difference between physical and chemical sunscreens (including advice that the Subject Products were formulated with only non-physical sunscreens (therefore no nanoparticles) and that bemotrizinol offers more coverage against UVA rays than physical sunscreens). It was submitted that section 2 of the dossier describes a 'delivery mechanism' for sunscreen and that the questions and section 3 ('Q and A') explains why there was no need to use zinc in the Subject Products.

X confirmed that consumers do not see the dossiers.

Packaging comparison:

At the meeting X supplied and compared a box for a product in the 'moisturise' category with the boxes for the Subject Products. It was submitted that the words on the front of the boxes for the Subject Products were descriptors of the type of sunscreen that the Subject Products are and of the delivery mechanism for that sunscreen.

Competitor products supplied GST-free:

Ultraceuticals then produced three similar products plus tax invoices which indicated that certain products supplied by competitors to X are supplied GST-free by a major Australian retailer

Visit to Department Store:

We then visited X's retail area at a Department Store. In addition to a service point and shelves of X's products there was a counter with testers of various products set out on glass tiles which were labelled, e.g. 'cleanse', 'moisturise'. The skin expert then produced and explained a 'Prescription' form which she completes in duplicate in respect of each client which records the date, the client's name and skin type, plus boxes which are ticked to indicate the client's 'key skin concerns', e.g. 'fine lines and wrinkles', 'age spots'. The Prescription then sets out a table of products which the skin expert recommends.

Brochure:

During the visit to the department store we obtained a copy of a brochure for the Subject Products.

The front page of the brochure features the images appearing on the poster plus 'For your best ever skin'. The next two pages address 'what is ultraviolet radiation?', what is Sun Protection Factor?', 'why broad spectrum?', and the double-page in the middle of the brochure features images of the Subject Products plus text which indicates that the Subject Products provide three benefits.

The next page addresses the progression from predecessor products to the Subject Products. The following page of the brochure describes the various formulations of the Subject Products. On the back cover of there are responses to questions about the protection offered by and use of the Subject Products.

Visit to another department store:

A visit by the ATO to another department store indicated that a customer may also purchase X's products without dealing with a skin expert or receiving a Prescription but by simply selecting a product and paying for it.

E-mail:

By e-mail X's adviser provided the following comments on the earlier ruling (Authorisation Number 1012436488365).

It was submitted that the earlier ruling approached the 'marketed principally for use as sunscreen' test from the perspective of a volume-driven 'supermarket' sunscreen whereas the Subject Products are niche, high-end goods targeted towards sophisticated buyers which are typically marketed by way of professional recommendation in specialist retailers. Consequently, when applying the 'marketed principally for use as sunscreen' test to the Subject Products, the earlier ruling:

Failed to refer to the dossier, which is effectively the 'bible' for the consultants selling the Subject Products;

Failed to grasp the manner in which X's products are displayed in department stores, i.e. co-located along brand lines rather than functional lines, and incorrectly drew the conclusion the Subject Products are principally marketed as moisturisers rather than sunscreens because they are displayed in store alongside X's other products; and

Failed to take into account the relationship between the Subject Products and the rest of X's range (a number of which contain active ingredients which result in photosensitivity for users), as evidenced by the Prescription form and the Australian Order Form which clearly delineate the key steps in the marketing process, including a separate category of products which each have as their common feature an SPF rating of 15 or greater, and which includes the Subject Products.

The earlier ruling incorrectly treated 'moisturiser' as a description of the Subject Products, rather than as a reference to the delivery medium and/or characteristic of the sunscreen.

The earlier ruling placed undue emphasis on a previous ruling under the sales tax regime (presumably SST 12), rather than relying on a judgement of the Federal Court (Cascade Brewery) on a provision in the GST law which is drafted in almost identical terms.

The earlier ruling failed to take into account the accepted approach to legislative construction which states that 'classifications of goods attracting exemptions or beneficial rates should be liberally construed unless the text or context requires a narrow construction' whereas there is no basis which justifies a narrow construction in the present case.

The earlier ruling did not take into account the wider class or genus of goods when applying the 'marketed principally' test. That is to say, the marketing of competitors to the Subject Products was not expressly considered to any degree.

ATO IDs and edited versions of GST private rulings:

It was noted in the ruling request that the ATO has ruled that the supply of flavoured and unflavoured SPF 30 lip balms (ATO ID 2001/102), of sunscreen combined with insect repellent (ATO ID 2001/630), and of moisturising products with UV protection (GST private ruling Authorisation Number 71010) is GST-free.

The decision in ATO ID 2001/102 (as amended on 6 June 2007) was that the supply of flavoured and unflavoured SPF30+ lip balms was GST-free pursuant to section 38-47 of the GST Act and the GST-free Supply (Health Goods) Determination 2005. The ATO considered that the same interpretation should be given to 'marketed principally for use as sunscreen' in the Determination as was given to 'marketed principally for use as sunscreen' in the Sales Tax (Exemption and Classification) Act 1992. As the lip balms were sales tax exempt under the Sales Tax (Exemption and Classification) Act 1992 the ATO decided that they must satisfy the 'marketed principally for use as sunscreen' test in the 2005 Determination.

ATO ID 2001/630 (as amended on 6 June 2007) has been withdrawn. The decision in ATO ID 2001/630 was that the supply of SPF 15 sunscreen preparations, some of which contained insect repellent, was GST-free pursuant to section 38-47 of the GST Act and the 2005 Determination as the products were required to be included in the ARTG, had a SPF of 15 or more, and were marketed principally for use as sunscreen.

In GST private ruling (Authorisation Number 71010) issued in 2007 (71010) the ATO ruled that the supply of seven sunscreen products was GST-free pursuant to section 38-47 and the 2005 Determination. The ATO considered that the seven products were multi-use preparations as described in chapter 4 of SST 12 and, for the purposes of the 'marketed principally' test considered brand name, direction for use, product name, labelling, advertising, and product location.

In addition to the GST private rulings referred to by X, the ATO located three other GST private rulings: In GST private ruling (Authorisation Number 32443) issued in September 2003 (32443) the ATO ruled that the supply of a SPF25 product was not GST-free pursuant to section 38-47 of the GST Act and the GST-free (Health Goods) Determination 2000 (No.2). For the purposes of the 'marketed principally for use as sunscreen' test in that Determination the ATO applied SST 12 and considered product name, labelling and packaging, advertising and consumer information, and retail outlets and product location.

In a GST private ruling (Authorisation Number 10279) issued in 2002 the ATO ruled that the supply of a 3 in 1 make up with SPF 30+ was not GST-free pursuant to section 38-47 of the GST Act as it was marketed principally as a make up, concealer, or foundation.

In a GST private ruling (Authorisation Number 1011321121654) issued in May 2010 (101132) the ATO ruled that the supply of a sunscreen lotion formulated for sensitive skin was GST-free.

Relevant legislative provisions:

A New Tax System (Goods and Services Tax) Act 1999, section 38-47.

Reasons for decision:

The Determination

Section 38-47 of the GST Act states:

(1) A supply is GST-free if it is a supply of goods of a kind that the Health Minister, by determination in writing, declares to be goods the supply of which is GST-free.

(2) However, a supply is not GST-free under subsection (1) if the supplier and the recipient have agreed that the supply, or supplies of a kind that include that supply, not be treated as GST-free supplies.

For the purposes of subsection 38-47(2) it was confirmed in the ruling request that X has not agreed with any recipient that any supply of the Subject Products or supply of a kind that includes such a supply, not be treated as a GST-free supply.

On 13 December 2011 the Health Minister made the GST-free Supply (Health Goods) Determination 2011 (Determination) which commenced on 31 December 2011. Clause 4 of the Determination states:

For the purposes of subsection 38-47(1) of the ACT, the supply of goods of the kind described in an item in Schedule 1 is GST-free if, under the Therapeutic Goods Act 1989, the goods are required to be included in the Australian Register of Therapeutic Goods or are goods in a class of goods required to be included in the Australian register of Therapeutic Goods.

and item 5 in Schedule 1 to the Determination refers to:

Sunscreen preparations for dermal application that:

a) Are marketed principally for use as sunscreen; and

b) Have a sun protection factor of 15 or more.

Required to be included in the ARTG:

For the purpose of the requirement in clause 4 of the Determination that the goods are required to be included in the Australian Register of Therapeutic Goods (ARTG), regulation 10 of the Therapeutic Goods Regulations 1990 states that therapeutic goods of a kind mentioned in Part 1 of Schedule 4 to those regulations are to be included in the part of the ARTG for listed goods. Item 7 in Part 1 of Schedule 4 refers to:

Sunscreen preparations for dermal application (other than preparations for the treatment of a disease, condition, ailment or defect specified in Part 1 or 2 of Appendix 6 to the Therapeutic Goods Advertising Code), if:

a. The claimed sun protection factor has been established by testing according to the method described in Standards AS/NZ 2604:2012, as in force from time to time; and

b. The performance statements and markings on the label comply with that Standard; and

c. The sun protection factor stated on the label is:

(i) 4 or greater

SST 12 states (Para 4.6) that a sunscreen that is included on the ARTG must show its registration or listing on its labelling. The Subject Products display the relevant ARTG listing numbers on both the packaging and the boxes. SST 12 also states (Para 4.7) that a certificate issued by the TGA verifying the inclusion of a sunscreen on the ARTG is evidence that the requirement in Item 91 is met. X attached copies of public summaries of the listings of each Subject Product on the ARTG and we accept that the requirement in clause 4 of the Determination that the Subject Products are required to be included in the ARTG is met.

Sunscreen preparations for dermal application:

Item 5 in the Determination refers to:

Sunscreen preparations for dermal application

Issue 2.d in the ATO's Pharmaceutical Health Forum Issues Register (which is stated to be a public ruling for the purposes of the Taxation Administration Act 1953) states:

What are 'sunscreen preparations for dermal application?

1. A sunscreen preparation is a preparation, manufactured or compounded, for application to the skin (including lips), to reduce the incidence of skin damage caused by exposure to the rays of the sun.

2. Sunscreen preparations may be presented for use in forms other than creams and lotions for example, gels, balms and mousses.

We are satisfied that each of the Subject Products is a preparation manufactured for application to the skin to reduce the incidence of skin damage caused by exposure to the rays of the sun and is therefore a sunscreen preparation for dermal application.

Marketed principally as a sunscreen - the appropriate test

The ruling request stated that Cascade Brewery Company Limited v C of T [2006] FCA 821 (Cascade Brewery) was adopted in framing the submissions on whether the Subject Products are 'marketed principally for use as sunscreen' and referred to Sundberg J's decision in Cascade Brewery at Para 11:

The words 'marketed principally as food for infants' in item 13 requires an examination of the content of the advertising and other marketing in fact carried out by the taxpayers or competitors in the market…

and at Para 24, which refers to the approach taken to the 'marketed principally' test in SST 11:

This approach is consistent with the dictionary meanings of 'marketing'. Thus The Macquarie Dictionary refers to 'the total process whereby goods are put onto the market'. The Australian Oxford Dictionary refers to 'the action or business of promoting and selling products, including market research and advertising'.

The ruling request then stated that the marketing materials in relation to the Subject Products were 'substantially limited' to the dossier, the posters, the packaging and X's website (although the content of the website was not discussed because the Subject Products were 'yet to have a significant presence' on the website), and discussed the content of each.

In our view Cascade Brewery does not support the approach taken in the ruling request. Sundberg J's reference to (Para 11):

…an examination of the content of the advertising and other marketing in fact carried out by either the taxpayer or by competitors in the market.

was part of a distinction drawn by Sundberg J between the 'aim' and the 'content' of advertising and marketing. Earlier in the judgment Sundberg J noted (Para 10) that Cascade's witnesses had given evidence about the 'aim' of Cascade's advertising campaign (i.e. that it was aimed at mothers of very young children). Sundberg J then compared that evidence with Sundberg J's findings (set out in paragraph 9 of the judgment) which were based on the content of the marketing (Para 11):

…that is to say, on what a reader of the labels, the Bounty bag brochure and the print advertisements or a viewer of the television advertisements would derive from them.

When Sundberg J subsequently discussed the meaning of 'marketed principally' in detail in the judgment Sundberg J referred (Para 24) to the definition of 'marketing' in The Macquarie Dictionary:

the total process whereby the relevant goods are put onto the market

and noted (Para 23) that Cascade relied on SST 11, that (Para 26) the Commissioner 'did not disavow SST 11', referred to paragraph 3.24 of SST 11:

Marketing principally means the most important or the most significant of all the ways in which the product is marketed. Marketing involves an examination of the activities of the sellers of the relevant goods.

and stated (Paras 23-4):

The document [i.e. SST 11] goes on to say that consideration may be given to the name of the goods, their price, the labelling on any containers, literature or instructions accompanying the goods, how they are packaged, how they are packaged, how they are promoted or advertised, and how they are distributed.

This approach is consistent with the dictionary meanings of 'marketing'. Thus The Macquarie Dictionary refers to 'the total process whereby goods are put onto the market'. The Australian Oxford Dictionary refers to 'the action or business of promoting and selling products, including market research and advertising'.

In the 'Discussion' section of the judgment (Paras 46 - 60) Sundberg J considered several of the indicators mentioned in paragraph 3.24 of SST 11 (i.e. labelling, literature or instructions packed with the goods, how the goods are promoted or advertised) and found that there was nothing in the content of the labels of the product to indicate that the product was suitable for consumption by children under six months (Para 46), that the content of the Bounty brochure marketed the product to parents of children at large rather than any particular age group (Paras 49 - 50), that advertising on billboards and parenting magazines was directed at people generally and not specifically directed at children (Para 52), and that advertising in a women's magazine marketed the product as a healthy treat for parents and their children (Para 57).

We therefore consider that, when the Cascade Brewery decision is considered as a whole, Sundberg J does not endorse the approach taken in the ruling request of examining only the content of the dossier, the poster and the packaging.

Nor do we agree with the statement in the ruling request that the approach taken in the ruling request is 'broadly in keeping' with the approach taken by he ATO in Issue 2.e. Issue 2.e requires reference to be made to the total process through which the goods are put on the market, requires consideration of indicators such as product name, labelling and packaging, advertising, consumer information, retail outlets in which the goods can be purchased and product location within those retail outlets, and states that 'marketed principally for use as sunscreen' in the Determination takes the same meaning as 'marketed principally for use as a sunscreen preparation for humans' in Item 91, thereby importing the approach taken in SST 12.

We do agree, however, with the statement made by Sundberg J (Para 11) that a 'marketed principally' test does not turn upon the aims of the advertising and promotion programs in respect of the subject product but on:

…the content of the marketing, that is to say, on what a reader of the labels, the Bounty bag brochure, and the print advertisements or a viewer of the television advertisements would derive from them.

X' advisers expressed concern that the earlier ruling (Authorisation Number 1012436488365) placed undue emphasis on 'a ruling under the sales tax regime' (presumably SST 12) rather than relying on Cascade Brewery. We consider that we are obliged to apply SST 12 to the Subject Products. Law Administration Practice Statement PSLA 2003/3 states (Para 8) that in making decisions about interpretative issues (such as those which arise in a request for a private ruling) ATO officers must identify and apply the relevant ATO precedential view and (Para 5) that the ATO precedential view is set out in documents such as public rulings issued by the ATO.

Issue 2.e is stated to be a public ruling and addresses the issue of what factors are to be taken into account in determining whether a sunscreen preparation is marketed principally for use as sunscreen for the purposes of the Determination:

In determining whether a sunscreen preparation is ' marketed principally for use as a sunscreen preparation' reference is to be made to the total process through which the goods are put on the market. Indicators include the product name, labelling and packaging, advertising, consumer information, retail outlets in which the goods can be purchased and product location within those retail outlets.

It is considered that the same interpretation is to be given to the meaning of the phrase 'marketed principally for use as a sunscreen preparation' used in the Health Minister's Determination as was given to the phrase 'marketed principally for use as a sunscreen preparation for humans' used in item 91 of Schedule 1 to the Sales Tax Act.

Accordingly, supplies of sunscreen preparations for dermal application with an SPF rating factor of 15 or more, an ARTG number and which satisfied the 'marketed principally for use as a sunscreen preparation for humans' test used in item 91 of Schedule 1 to the Sales Tax Act, are GST-free.

The interpretation given to 'marketed principally for use as a sunscreen preparation for humans' in Item 91 is set out in Chapter 4 of SST 12:

Marketed principally for use as a sunscreen preparation for humans

4.4 Principally means 'in the chief place; above all; pre-eminently' and is defined in the sales tax law to include exclusively (see paragraph 2.4). The manner in which sunscreen products are marketed needs to be determined in accordance with the guidelines set out in paragraphs 2.4 and 2.5. Some further comments on marketing are provided in paragraphs 4.8 to 4.16.

4.5 A sunscreen is a cream or lotion applied to the skin to screen it from ultraviolet rays and prevent sunburn. A preparation is something prepared, manufactured or compounded. A sunscreen preparation is a preparation applied to the skin to reduce the incidence of skin damage caused by exposure to the sun. Sunscreen preparations may also be presented for use in other forms, for example, gels, balms and mousses.

Paragraph 4.4 of SST 12 refers to paragraphs 2.4 and 2.5 of SST 12 which state:

2.4 Where sales tax exemption depends on how goods are marketed, it is possible for products with common ingredients to be classified differently if they are marketed differently. For exemption to apply under Item 78, goods must be marketed principally as drugs or medicines. In the sales tax law, principally includes exclusively. The ordinary meaning of principally is 'in the chief place; above all; pre-eminently'.

2.5 The term marketed is not defined in the sales tax legislation. The ordinary meaning of the term is the total process whereby goods are put on the market. With some goods, a number of factors need to be taken into account to determine how they are marketed. This involves consideration on a case by case basis of relevant indicators, none of which may be definitive in its own right. Examples of some indicators are product name, labelling and packaging, advertising, consumer information and point of sale.

SST 12 also refers (Para 1.3) to the discussion of the 'marketing test' in Chapter 3 of SST 11. SST 11 states (Para 3.24) that 'marketed principally' means the most important or the most significant of all the ways in which the product is marketed, that marketing involves an examination of the activities of the sellers of the relevant goods, and that consideration may be given to the name of the goods, the price of the goods, the labelling on any containers for the goods, literature or instructions packed with the goods, how the goods are packaged, how the goods are promoted or advertised, and how the goods are distributed.

SST 12 also refers (Para 2.5) to Case 10/97 97 ATC 167 which considered the exemption in the Sales Tax (Exemptions and Classifications) Act 1935 for 'boxes, case and crates manufactured in Australia for use in marketing goods manufactured in Australia'. When discussing the meaning of 'marketing' McMahon DP referred (Para 21) to a definition in The Macquarie Dictionary, i.e. the total process whereby goods are put on to the market, and (Para 23) the CCH Macquarie Dictionary of Business:

Any range of business activities directed towards facilitating and satisfying the demand for goods and services of customers, business and government…marketing also aims at making the product more attractive to customers than the products offered by competing firms in the private business sector…

and concluded (Para 25):

Whatever approach is adopted in giving content to the word 'marketing' it would seem that core requirements include promotion and sale of products with or without delivery.

As noted above, SST 12 states (Para 4.4) that the manner in which sunscreen products are marketed needs to be determined in accordance with the guidelines set out in paragraphs 2.4 and 2.5 of SST 12. Paragraph 4.4 of SST 12 also states that paragraphs 4.8 to 4.16 of SST 12 provide further comments on the application of the 'marketed principally' test to sunscreen preparations:

Categories of sunscreen products

4.8 Paragraphs 4.9 to 4.16 provide guidelines to assist in determining the marketed principally test for several categories of products that have SPF ratings.

Traditional sunscreen preparations

4.9 Traditional sun protection products provide sun protection for persons engaged in many outdoor activities. Examples of activities include sunbaking, swimming, sailing, playing sport and working in the field. Traditional products are generally supplied in cream, lotion, milk and mousse formulas.

4.10 Some features common to traditional sunscreen preparations are:

a name that makes sun protection prominent, by including words like 'Sunscreen Cream', 'Sunscreen Lotion', or 'Blockout';

an SPF rating clearly shown on the label; and

the inclusion of directions for use, for example, 'Reapply every 2 hours', 'Apply 20 minutes before going out into sun' and 'Reapply if wiped with towel'.

4.11 A traditional sunscreen protection product meets the tests of Item 91 where the product is included in the ARTG and it can be demonstrated that the product has either no cosmetic attributes or any cosmetic attributes are not marketed above the sun protection attribute.

Multi-purpose preparations

4.12 In response to shifting consumer expectations, multi-purpose products have been developed for use on the skin, particularly the face, neck and hands. These products are sometimes referred to as secondary sunscreens. They promote cosmetic benefits and provide a level of sun protection appropriate for less extreme conditions or transient exposure to the sun. Examples of transient exposure include going to and from indoor work, doing the shopping, spending a short time outdoors and picking up the children from school.

4.13 Some multi-purpose preparations are marketed under well known cosmetic brand names. The degree of effect, if any, an established cosmetic brand name has on a product's marketing is a question that must be considered together with other relevant marketing factors. Directions for use provided for multi-purpose products are another marketing consideration. The absence of certain directions seen on traditional sunscreen preparations, for example, 'Reapply if wiped with towel', do not preclude a product from exemption. These directions are generally inappropriate for multi-purpose products and, as a general rule, are not included on labelling. However, other directions explaining how and when to apply a product are relevant to the question of how a product is marketed.

4.14 The presence of SPF wording in a product's labelling, in itself a relevant marketing consideration, does not necessarily mean the product satisfies the marketed principally test of Item 91.

4.15 There is also a range of sunscreen products marketed for specific application to the lips. Many products in this range are multi-purpose. For exemption to apply, these products must satisfy the two tests contained in Item 91.

4.16 In determining whether a multi-purpose lip product is marketed principally as a sunscreen preparation, a reference to cold or wind protection, moisturising qualities, or the addition of colourings or flavours, does not necessarily prevent the product from qualifying for exemption but may be relevant when considered in conjunction with other marketing factors.

4.17 If it can be demonstrated that a multi- purpose product is a sunscreen preparation with cosmetic benefits, rather than a cosmetic or toilet preparation with sun protection benefits, the Item 91 marketed principally test is met.

Application of the relevant indicators to the Subject Products:

Product name:

Although the ruling request did not discuss this indicator separately, when discussing the poster it was submitted that the names of the Subject Products refer to the sunscreen properties of the Subject Products and that the use of 'SPF 30+' in the names of the Subject Products also emphasises the sun protection properties of the Subject Products.

We are aware that the TGA's Australian regulatory guidelines for sunscreens (November 2012, Chapter 4) (Guidelines) state (Para 4.2):

As required by subsection 3(2) of the Labelling Order and section 7 of the Sunscreen Standard AS/NZ 2604:2012, the main label on the container and the main label of the primary pack (for example, carton), if any, must contain all of the following information:

The product name

Note: The use of the term 'sunblock' is not acceptable as part of a product name (or elsewhere on the label). The term is a misnomer because sunscreens filter to varying degrees but do not completely block the sunburning radiation

All of the following information must be included somewhere on the label(s) or container:

A statement of the purpose or purposes of the product

Notes:

The purpose of a product can generally be made obvious by it being called a 'sunscreen' or 'moisturiser with sunscreen' or 'moisturiser' with an SPF stated on the label…

For the purposes of the 'marketed principally' test, however, we are not concerned with any regulatory requirements concerning product name, but with what a consumer would derive from the name of each Subject Product.

The name of each Subject Product includes several nouns, one of which is 'moisturiser'. In our view a consumer would derive from the appearance the nouns in the name of each Subject Product that each Subject Product is a 'multi-purpose preparation' as described in SST 12 (Paras 4.12-4.13):

In response to shifting consumer expectations, multi-purpose products have been developed for use on the skin, particularly the face, neck and hands. These products are sometimes referred to as secondary sunscreens. They promote cosmetic benefits and provide a level of sun protection appropriate for less extreme conditions or transient exposure to the sun.

Some multi-purpose preparations are marketed under well known cosmetic brand names.

We consider that some consumers would derive from the names that each Subject Product provides cosmetic benefits and most consumers would derive from those names that each Subject Product provides both a cosmetic benefit (i.e. moisturises the skin) and a level of sun protection. Most consumers would also derive from the names that each Subject Product offers the skin a high level of protection, whether from dehydration, the sun, and or other elements. Overall, we consider that a consumer would derive from the name of each Subject Product that the Subject Product provides both cosmetic and sun protection benefits.

Before reaching that conclusion we compared the names of the Subject Products with the names of the three competitor products which X purchased GST-free. The product names of two of those products do not indicate any cosmetic benefit in addition to protection from the sun and therefore differ from the names of the Subject Products.

We also compared the names of the Subject Products with the names of products which have been the subject of favourable GST private rulings, although the secrecy provisions limit the extent to which we can discuss those GST private rulings. The edited version of 71010 states that the names of the relevant products 'indicate that they provide protection against UV rays'. We have confirmed that the names of those products begin with the brand name which is immediately followed by 'UV Protection'. We consider that this differentiates the products in 71010 from the Subject Products.

The edited version of 101132 states that the name of the relevant product 'indicates that the product provides protection against UV rays and has a sun protection factor of 15 or more'. We have confirmed that the product name begins with a brand name followed by 'UV' and 'SPF 30+.

Packaging and labelling - box:

In the ruling request it was submitted that the front of the box containing each Subject Product listed a number of attributes (e.g. SPF, broad spectrum) connected with the use of the Subject Product as a sunscreen and that the appearance of these attributes towards the top of the list emphasized their relative importance in the marketing of the Subject Products.

At the meeting X contrasted the labelling on the front of the box for the Subject Products with the front of the box for a moisturiser produced by X and submitted that the words on the front of the box containing each Subject Product were descriptors of the type of sunscreen that each Subject Product is and of how that sunscreen is delivered.

According to the Guidelines, some of the words appearing on the front of the box containing each Subject Product are required to appear on the main label on the container and primary pack of any sunscreen listed in the ARTG by either the Therapeutic Goods Order No. 69, Therapeutic Goods Advertising Code, Australia/New Zealand Standard AS/NZ 2604:2012 sunscreen products - evaluation and classification, or Required Advisory Statements for Medicine Labels (RASML). Those labelling requirements are:

the product name;

the name of the dose form, for example 'lotion';

the sun protection factor preceded by 'SPF' and a category description such as 'very high protection';

the statement 'broad spectrum', provided the product meets the relevant criteria in AS/NZ 2604/2012;

the net quantity of the goods (e.g. volume in ml); and

the ARTG listing number preceded by AUST L

Whatever the reason for certain words appearing on the front of the box containing each Subject Product, those words form part of the 'total process' whereby the Subject Goods are 'put on the market' and it is necessary to determine what a consumer (who is unlikely to be aware of statutory labelling requirements) derives from those words.

As stated above, we consider that the appearance of the name of each Subject Product on the front of the box indicates that the Subject Product provides both cosmetic and sun protection benefits. The name of each Subject Product appears in large bold text on the front of the box. A consumer would associate some of the words appearing on the front of the box immediately beneath the name of the Subject Product ('very high protection sunscreen Broad Spectrum UVA-UVB') with a sunscreen. However, it is less clear whether a consumer would associate the other words appearing on the front of the box with a sunscreen or with cosmetic benefits.

The label on one side of the box lists the active sunscreen ingredients and their proportions (mg/g) using Australian Approved Names, plus storage instructions which, according to the Guidelines, are required to appear on the main label or a side panel. The rear of the box sets out material which is required by the TGA to be included somewhere on the label of a listed sunscreen, including:

'a statement of the purpose or purposes of the product' (the notes to the Guidelines state that the purpose of the product can be made obvious by calling it a 'sunscreen', or 'moisturiser with sunscreen' or moisturiser with an SPF stated on the label);

'directions for use' (the notes to the Guidelines state that this includes statements that the product should be applied 20 minutes before sun exposure, re-applied after swimming or towelling); and

'warning statements' as required by the RASML (including that the product should be kept out of the eyes, prolonged sun exposure should be avoided, it is important to wear protective clothing, hats and eyewear when exposed to the sun).

The manner in which information is set out on the rear of the box appears to follow the statement of purpose/directions/warning format stipulated by the Guidelines. The statement of purpose for each subject Product lists the sun protection benefit before referring to the two cosmetic benefits, but the material beneath that sentence refers to cosmetic benefits. The 'directions' and 'warning' statements relate to the use of each Subject Product as a sunscreen.

In our view a consumer who reads the front of the box would first see the product name (which, in our view, indicates that each Subject Product is a preparation with cosmetic and sun protection benefits) followed by words which refer first to the sunscreen benefits of each Subject Product and then to cosmetic benefits. A consumer would derive from the front of the box that each Subject Product provided both sun protection and cosmetic benefits. This impression would be confirmed if the consumer then read the statement of purpose on the rear of the box.

At the meeting it was submitted that the words appearing on the front of the box were descriptors of the type of sunscreen each Subject Product is and of the delivery mechanism for that sunscreen. We do not agree.

Packaging and labelling - pump tube:

Each Subject Product comes in a pump tube which has information printed front and back. Tester pump tubes of each Subject Product were on display at one of the department stores.

The front of the pump tube repeats the words appearing on the front of the box. For the reasons set out above in relation to the boxes, we consider that a consumer would derive from the front of the pump tube that each Subject Product provides both sun protection and cosmetic benefits.

The rear of the pump tube sets out the 'Directions' and 'Warning' which appear on the back of the box plus the list of active ingredients which appears on the side of the box, but does not set out the statement of purpose..

In our view a consumer would derive from the information on the pump tube that each Subject Product is a multi-purpose preparation which provides both cosmetic and sun protection benefits.

Advertising - the poster:

In the ruling request it was submitted that in the headline in large text on the poster refers to the sunscreen properties of the Subject Products and that the presentation of 'SPF 30+' in enlarged and coloured text again emphasize the sun protection properties of the Subject Products. It was submitted that the image on the poster is intended to convey the incidental sun exposure that occurs on a daily basis which is consistent with the marketing message that the Subject Products are a daily use product for incidental as well as substantial sun exposure.

The Guidelines state (Para 4.5) that advertisements for therapeutic sunscreens are required to comply with the Therapeutic Goods Advertising Code 2007, the object of which is to ensure that the marketing and advertising of therapeutic goods to consumers is conducted in a manner that promotes the quality use of therapeutic goods, is socially responsible and does not mislead or deceive the consumer. Clause 4(2) of the Code prohibits an advertisement for a therapeutic good from doing a number of things, including leading a person to believe that harmful consequences may result from a therapeutic good not being used, but there is an exception to that prohibition for sunscreen preparations if claims made are consistent with public health messages.

The headline of the poster is the name of the Subject Products. For the reasons set out above when discussing the name of each Subject Product, we consider that a consumer would derive from that name that each Subject Product provides both cosmetic and sun protection benefits.

We do not agree with the submission that 'SPF 30+' is presented in enlarged text - it is presented in text which is the same size as the rest of the name. We agree that 'SPF30+' is in coloured text but this does not alter our conclusion about what a consumer would derive from the name of each Subject Product.

The poster lists three benefits of the subject Products, including antioxidant protection. We assume that as the poster is not a label, it can make antioxidant claims in respect of the Subject Products without offending the TGA. In our view a consumer would derive from the list of benefits on the poster that each Subject Product offers three benefits, two of which are cosmetic.

We do not agree with the submission in the ruling request that the image conveys the incidental sun exposure that occurs on a daily basis. In our view the image conveys the healthy glow that one would expect to achieve from a product that provides the benefits listed in the poster, i.e. protects the skin from UVA and UVB rays, provides sustained hydration, and provides antioxidant protection.

We consider that the poster indicates that each Subject Product provides both cosmetic and sun protection benefits.

We have compared the poster with any advertising referred to in the edited versions of GST private rulings which classified sunscreens as GST-free. The edited version of 71010 states that the relevant products were:

…marketed as a result of the Australian government's major campaign to raise awareness of the need for protection from the sun and…specifically marketed to meet the identified need for a sunscreen which was more suitable for, and overcame the perceived barriers for daily use of a sunscreen.

We can confirm that in 71010 the taxpayer obtained the endorsement of the Australian Skin Cancer Foundation and used the statement 'recommended by the Skin Cancer Foundation' in print, television and website advertising.

The edited version of 101132 states that the relevant product was:

…marketed as a high protection sunscreen designed for skin commonly irritated by sunscreen ingredients, with additional moisturising and care qualities.

We can confirm that the taxpayer provided copies of advertising artwork which indicated that the product was advertised as a supersensitive high protection sunscreen designed for skin commonly irritated by sunscreen ingredients.

Consumer information - the brochure:

We consider that the brochure is 'consumer information' in terms of SST 12 (Para 2.5) as it was available at the point of sale at the department store. The brochure begins with a discussion of 'what is ultraviolet radiation' and 'what is sun protection factor?'. As this part of the brochure makes no reference to the Subject Products, we consider that a consumer would consider this to be general information.

The benefits of the Subject Products are set out separately on a double page in the middle of the brochure and refer to three benefits, only one of which is sun protection.

In our view a consumer would derive from the brochure that each Subject Product offers both cosmetic and sun protection benefits.

The dossier:

In the ruling request it was submitted that the dossier in respect of the Subject Products is relevant to the 'marketed principally for use as sunscreen' test because the Subject Products are supplied on professional recommendation by a skin expert who uses the dossier as a reference source.

The earlier ruling did not refer to the dossier.

We do not consider that the dossier is particularly relevant to the 'marketed principally for use as sunscreen' test. At the meeting X confirmed that consumers do not see the dossier and an ATO officer visited a department store and was able to select X's products without speaking to a skin expert.

The dossier is similar to the evidence given on behalf of the taxpayer in Cascade Brewery about the aim of the relevant marketing program. Sundberg J considered that a 'marketed principally' test instead required an examination of the content of the marketing, i.e. what a consumer would derive from labels, brochures and advertising.

Even if the dossier was considered relevant to the 'marketed principally' test, we note that section 2 (which discusses the Subject Products) repeats and expands on the material appearing in the brochure and we consider that a consumer would derive from any messages conveyed by a skin expert based on the dossier that each Subject Product provides three benefits, two of which are cosmetic.

Point of sale - department store:

In the ruling request it was stated that the Subject Products are found in the department stores at dedicated counters staffed by trained skin experts.

We accept that, because of the terms of the arrangement between X and the department stores, the Subject Products are required to be located with the rest of X's products.

Our visits to both department stores revealed that the Subject Products are shelved with other products in a specific category.

At the meeting it was submitted that the specific category name referred to sun protection which supports the view that the Subject Products are marketed principally for use as sunscreen. A distinction was drawn products in the specific category and products in the 'moisturise' category.

Based on the names of each product (including the Subject Products) appearing in the specific category we consider that a consumer would derive from the names of those products that those products provide cosmetic and sun protection benefits and offer skin protection, whether from the effects of dehydration, the sun, or some other element. Consequently we do not agree that a consumer would derive from the categorisation of the Subject Products in the department stores that the Subject Products are principally for use as sunscreens.

Point of sale - website:

In our view the 'total process' by which the Subject Products are 'put on the market' includes X's website.

In respect of each of the Subject Products the website sets out an overview, list of ingredients and reviews. The overview for each Subject Product is identical to the material which appears on the back of the box. In our view a consumer would derive from the overview that each Subject Product is a multi-purpose preparation which offers both sun protection and cosmetic benefits.

We also consider that the categorisation of the Subject Products on the website and the overviews of the Subject Products are relevant to the submissions made concerning the relationship between the Subject Products and the rest of X's range, i.e. that the Subject Products and other products in the specified category are fundamentally different from the products in the 'moisturise' category and are marketed principally for use as sunscreen.

According to the website, the specified category comprises a number of products. The website overview for each of the Subject Products refers to each Subject Product offering the skin 'protection' which is more than just protection from the sun. The website overviews for products in the 'moisturise' category state that those products 'nourish', 'repair', and 'hydrate' the skin.

A consumer browsing X's website would derive from this categorisation of products and the website overviews that products in the 'moisturise' category offer hydration of the skin and that the Subject Products and other products in the specified category offer hydration plus skin protection (which is more than just protection of the skin from the sun).

While we agree with the submission that products (including the Subject Products) in the specified category differ from products in the 'moisturise' category, we do not agree with the submission that this categorisation of products indicates that the Subject Products are marketed principally for use as sunscreen. In our view products in the specified category are marketed as offering both cosmetic and sun protection benefits.

Australian Order Form and box:

As consumers do not see the Australian Order Form we do not consider that it is relevant to the 'marketed principally' test.

Marketed principally for use as sunscreen:

After considering the name of each Subject Product, the labelling on the box and pump tube, the contents of the brochure and the poster, and the points of sale (at both department stores and X's website) we have concluded that each Subject Product is a 'multi-purpose preparation' per SST 12 which provides both cosmetic and sun protection benefits.

Taking into account the meaning given to 'principally' in SST 12 (Para 2.5) i.e. 'in the chief place', 'above all', 'pre-eminently', we do not consider that the relevant indicators suggest that the Subject Products are marketed principally for use as sunscreen as required by the Determination.

In the ruling request it was submitted that the antioxidant protection and moisturising features of each Subject Product were ancillary and complemented its use as a sunscreen. We do not consider that a consumer would derive that from either the name of each Subject Product, the reference to both cosmetic and sun protection benefits on the front of the box and pump tube, the statement of purpose on the rear of the box, the poster (which sets out three benefits), the brochure (which also sets out three benefits), or the website overviews of products in the specified category and the 'moisturise' category.

Consequently we do not consider that each Subject Product is marketed 'in the chief place', 'above all', or 'pre-eminently' for use as sunscreen.

In terms of the test applied to multi-purpose preparations by SST 12 (Para 4.17) the relevant indicators suggest that each Subject Product is a cosmetic preparation with sun protection benefits.