Decision impact statement

Electrical Goods Importer and Commissioner of Taxation

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Court Citation(s):
[2009] AATA 854
2009 ATC 1-018
74 ATR 982

Venue: Administrative Appeals Tribunal
Venue Reference No: 2008/4523
Judge Name: Block DP
Judgment date: 6 November 2009
Appeals on foot:
No.

Impacted Advice

Relevant Rulings/Determinations:

• GSTR 2000/19
• GSTR 2000/11

Subject References:
Third party rebates
Adjustment events
Consideration

Précis

Outlines the Tax Office's response to this case which concerned a cash back payment by an importer of electrical goods to a domestic purchaser of those goods. The issue was whether the payment changes the consideration for any supply by the importer for GST purposes.

Decision Outcome:

Favourable

Brief summary of facts

The taxpayer imports electrical goods, and sells them to retailers. The retailers then on-sell the electrical goods to their customers.

In 2004, 2005 and 2007, the taxpayer ran a promotion to give "cash back" to domestic purchasers of some of its products in the promotional period.

Under the cash back promotion, the taxpayer provided retailers with advertising material and cash back vouchers. The taxpayer would also visit retailers to brief them on the terms of the cash back promotion.

Retailers that sold qualifying products to customers would provide their customers with cash back vouchers. A customer would send the voucher to the taxpayer together with the original tax invoice. The taxpayer would assess the claim against the qualifying criteria, and if the claim was valid, send the customer a cheque for the appropriate cash back amount. The amount of cash back provided was no greater than $400.

The cash back promotion was instigated, and to a large extent managed, by the taxpayer.

The taxpayer claimed that the payment of the cash back amount reduced its net amount by either reducing the consideration for the supply of the electrical good to the retailer if the payment was in the same tax period as the supply of the electrical good, or gave rise to an adjustment event if it occurred in a subsequent period.

Issues decided by the court or tribunal

The Tribunal considered that cash back payments by the importer did not have the effect of changing the consideration for the supplies by the taxpayer to retailers.

The Tribunal held that the words "in connection with" in the definition of consideration must be construed by reference to a supply. When the customer claims the amount of his cash back entitlement and payment is made by the taxpayer, that payment is not made in connection with either the supply by the taxpayer to the retailer, or the supply by the retailer to the customer. The consideration for each of those supplies remains unaltered.

Tax Office view of Decision

The decision supports the view in paragraph 40 of GSTR 2000/19 (as amended by an addendum issued on 17 December 2003):

An entity (such as a manufacturer) may offer to make a payment to a third party end user if the end user acquires a thing from another entity (such as a retailer). Typically, the manufacturer will make the payment directly to the end user independently of the retailer. The payment is made pursuant to a separate agreement between the end user and the manufacturer but not involving the retailer. A payment made in these circumstances cannot give rise to an adjustment event. It does not change the consideration received by the retailer for the supply by the retailer to the end user, nor does it change the consideration received by the manufacturer for the supply by the manufacturer to the retailer. A change in the consideration for these supplies cannot occur independently of the retailer. [footnotes omitted]

There was some argument as to whether the payment was made independently of the retailer. However, the Tax Office considers that in this case the administrative assistance provided by retailers did not provide a sufficiently strong link to the supplies from the taxpayer to retailers for the cash back to constitute a price adjustment for those supplies. In this respect, it is relevant that the Tribunal found that the cash back promotion was instigated, and to a large extent managed, by the taxpayer.

Administrative Treatment

Implications on current Public Rulings & Determinations

The decision is consistent with the Tax Office's existing rulings.

However, since the decision was handed down, the GST Act has been amended to provide for adjustments for third party rebates. These amendments operate in relation to payments made on or after 1 July 2010. If the relevant criteria in section 134-5 of the GST Act are met, an entity in the position of the taxpayer making a payment on or after 1 July 2010 will be entitled to a decreasing adjustment. The Tax Office will update GSTR 2000/19 to take account of this legislative amendment.

Implications on Law Administration Practice Statements

None

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999 (GST Act)
9-15
19-10

Case References:
HP Mercantile Pty Ltd v FCT
(2005) 143 FCR 453
60 ATR 106
2005 ATC 4571

TT-Line Company Pty Limited v FCT
[2009] FCA 658
2009 ATC 20-110
72 ATR 982

FCT v Reliance Carpet Co Pty Ltd
[2008] HCA 22
68 ATR 158
2008 ATC 20-028

Hatfield v Health Insurance Commission
(1987) 15 FCR 487

Elida Gibbs Ltd v Customs and Excise Commissioners
[1997] All ER 53
[1996] ECR I-5339