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13 Nov 14 Decision Impact Statement - ATS Pacific

The ATO has published a Decision Impact Statement in relation to the decision of the Full Federal Court in ATS Pacific Pty Ltd v FCT [2014] FCAFC 33; 2014 ATC 20-449.

The case concerned the characterisation, for GST purposes, of supplies made by an inbound tour operator (ATS) to its non-resident travel agent clients relating to the provision, in Australia, of the components of a tour package (Products) by Australian-based entities (Australian Providers) to non-resident tourist clients of the NR travel agents (NR tourists).

The Decision Impact Statement makes observations in the following terms.

The Federal Court at first instance (Justice Bennett) found that the taxpayer made two supplies; the supply of a promise to ensure that the Products would be supplied to a NR tourist (which was taxable) and the supply of arranging or booking services (which was GST-free). The consideration for the former was the price the taxpayer was liable to pay the Australian Provider for the Product, and the consideration for the latter was the taxpayer's margin.

The Full Court agreed with the primary judge's conclusion that the supply of the promise is not GST-free, but provided its own reasoning, noting that:

  • For the accommodation component of a tour package - the supply of a promise that a hotel proprietor would provide accommodation to a NR tourist is a supply of 'real property' within the meaning of that term in s 195-1 of the GST Act, and thus it does not fall within the scope of the GST-free exemption in s 38-190(1).
  • For the non-accommodation component of a tour package - the supply of a promise that Australian Providers would provide goods and services 'carries with it a right to acquire those goods and services'. This, together with the fact that the supply of the goods and services would be connected with Australia, means that the supply of the promise is excluded from being GST-free by s 38-190(2).

However, the Full Court found that the primary judge erred in finding that ATS supplied a GST-free arranging service, in addition to the supply of the promise. Specifically, the Full Federal Court found:

  • The relevant question is whether, in addition to the supply of the promise, there is 'another non-ancillary, non-incidental supply from ATS to the NR Travel Agents'.
  • The adoption of a practical and business point of view 'impels one to the conclusion here that there is one supply - the supply of the promise...- or if that embodies a supply of arranging services by ATS...[the supply of arranging services] is to be regarded as ancillary and incidental.
  • The conclusion that there is one taxable supply 'better accords with the policy design of taxing such consumption in Australia manifest in the extrinsic material... which made it clear that Australia asserted jurisdiction to tax the value of the supply from the NR Travel Agents to the NR Tourists but was content to settle for tax on the supply by ATS to NR Travel Agents in order to simplify compliance and administration'.

The High Court refused the taxpayer's application for special leave to appeal on 17 October 2014. For a copy of the transcript of the special leave application, go here

The ATO's view of the Full Court's decision is stated as follows:

"Although the decision relates to specific facts, the Commissioner remains of the view (for the reasons set out in the Decision Impact Statement which the Commissioner issued in response to the primary judge's decision) that the decision applies to all ITOs [inbound tour operators] which:

  • transact as principal (and not as an agent of a NR travel agent);
  • are engaged by NR travel agents to enter into contracts with Australian Providers for the provision of Products to NR tourists

Under the court's reasoning, the supplies made by these ITOs to their NR travel agent clients are properly characterised as supplies of promises to ensure Products are provided.

The supplies are wholly taxable...

The court's decision has no implications for an ITO in relation to the supply of any given Product if:

  • The contract for the supply of that Product is between the NR travel agent and the Australian Provider, with the result that the NR travel agent has rights against the Australian Provider in the event the Product is not provided.
  • The ITO acts as agent of the NR travel agent, and is not itself a party to the contract."

The Decision Impact Statement also sets out the administrative treatment that the Commissioner will apply to inbound tour operators that have transacted as principal and have an outstanding amount due to the ATO (as a result of treating their margin or entire supply as GST-free).


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