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31 Mar 14 Travel company liable to GST on supplies to non-resident travel agents - ATS Pacific

The Full Federal Court (Edmonds, Pagone and Davies JJ) has rejected the taxpayer's appeals and upheld the Commissioner's cross-appeals from the decision of Bennett J in ATS Pacific Pty Ltd v FCT [2013] FCA 341 (15 April 2013).

Bennett J held that an Australian travel company (ATS), which carried on an enterprise of contracting for and making supplies to non-resident travel agents ("NR Travel Agents") in relation to accommodation and other travel services in Australia ("Products") which were then provided to non-resident tourists ("NR Tourists) by Australian service providers, was liable to GST in respect of the supply of the Products.

Specifically, Bennett J held that the taxpayer contracted to supply, or ensure the supply of, the Products to the non-resident tourists, and their supply was not exempt under s 38-190 of the GST Act. In contrast, Bennett J held that the amount by which the fees charged by the taxpayer to the non-resident travel agents exceeded the cost of the Products (referred to in the judgment as "the margin"), being a fee for the arranging and booking service provided by the taxpayer (which the Court held was a separate supply), was GST-free pursuant to item 2 in the table in s 38-190(1) of the GST Act.

On appeal, Edmonds J (with whom Pagone and Davies JJ agreed) characterised the issues on the appeals as follows:

"The fundamental issue on the appeals is the proper characterisation of ATS’ supplies to the NR Travel Agents for the purpose of applying s 38-190 of the GST Act. In the face of the primary judge’s conclusion below, the issue here is whether the primary judge erred, as ATS contends her Honour did, in not characterising the supplies made to the NR Travel Agents as a single GST-free supply of 'booking or arranging services' in respect of which the consideration received by ATS was wholly attributable."

His Honour characterised the issues on the cross-appeals as follows:

"The fundamental issue on the cross-appeals is whether the primary judge erred, as the Commissioner contends her Honour did, in finding that ATS made GST-free supplies of booking and arranging services to NR Travel Agents for the separate consideration of the margin."

In terms of the supply from ATS to the NR Travel Agents, Edmonds J said, at para 45:

"Thus, I am of the view that, having regard to the matters listed by the primary judge at R [125], it was open to her Honour to find that the supply made by ATS to the NR Travel Agents was to be properly characterised as a promise by ATS that ATS would ensure that when the NR Tourists came to Australia they would be provided with the Products the NR Tourists had paid for, and that there was no error on the part of her Honour in so finding."

As to the accommodation component of the supply, Edmonds J held that it was a "supply of real property" and therefore taxable - see para 50 of his judgment.

As to the other components, although prima facie within iem 2(b) of the table in s 38-190(1), and therefore GST-free, they were excluded from that item by the exception in s 38-190(2), which refers to the supply of a right to acquire something the supply of which would be connected with Australia and would not be GST-free. On this basis, the supply of these components was also taxable.

Accordingly, the taxpayer's appeals were dismissed.

In relation to the Commissioner's cross-appeals, Edmonds J held that it was not open to Bennett J to find or conclude that there were two supplies from ATS to NR Travel Agents, which her Honour characterised as the Products and the supply of ATS’ arranging services, when it was not in dispute, either before her Honour or on appeal, that the Australian Providers supplied the Products, not ATS.

Edmonds J said at paras 64-65

"In my view, the question of whether there is one or two supplies and if there are two, their characterisation, in particular whether one is ancillary or incidental to the other, also has to be approached from a practical and business point of view: see Westley Nominees Pty Ltd v Coles Supermarkets Australia Pty Ltd [2006] FCAFC 115; (2006) 152 FCR 461 at [59], rather than from any separate treatment or quantification in the text of the contract or related tax invoice. Such an approach impels one to the conclusion here that there is one supply – the supply of the promise characterised by the primary judge in the terms referred to in R [122] and [123] (see [11] above) – or if that embodies a supply of arranging services by ATS, it is part and parcel of the promised package for which there is a single indivisible consideration and the further supply is to be regarded as ancillary and incidental to '[t]he critical supply'.

Such a conclusion better accords with the policy design of taxing such consumption in Australia manifest in the extrinsic material referred to in [3] above, including the 2005 changes 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: under the primary judge’s conclusion on the fundamental issue on the cross-appeals, a cost element (ATS’ mark-up) of the NR Tourists’ consumption of the Products was excluded from the tax base."

Accordingly, it followed that the margin was not GST-free and the Commissioner's cross-appeals were upheld.

ATS Pacific Pty Ltd v FCT [2014] FCAFC 33 (Full Federal Court; Edmonds, Pagone and Davies JJ; 27 March 2014).


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