Excise guidelines for duty free shops

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Chapter 3 - Licensing: assessing applications

Purpose

This chapter deals with:

• licensing criteria
• records you need to keep
• licence conditions
• securities
• assessing your application to renew your licence
• what happens if your licence is not granted
• what will happen if your licence is granted
• how to renew your licence, and
• penalties that can apply to offences in relation to making an application.

3.1 Introduction

The Excise Act provides us with the discretion whether to grant or refuse a licence. We base the decision on the information you supply.

However subsection 39A(2) of the Excise Act provides that if we consider certain criteria exist they can be the basis for refusal.

In summary those criteria are:

• whether you or an associate are not 'fit and proper'
• whether you do not have, or have available to you, the skills and experience required to carry out the activity that would be authorised by the licence
• the physical security of the premises is not adequate
• the plant and equipment to be used at the premises is not suitable
• you will not have a market for the goods
• you would not be able to keep proper books of account for audit purposes
• the grant of a storage licence would delay liability for duty, or
• it is necessary to refuse to grant the licence to protect the revenue.

These criteria are explained in more detail at section 3.2.

How any of these criteria affects a particular licence application depends on the facts in each particular case. There are, however, some criteria that are critical, for instance:

• you are not 'fit and proper', and
• protection of the revenue.

3.2 Licensing criteria

3.2.1 'Fit and proper' person or company

The nature of the entity applying for the licence will affect who is assessed as being fit and proper:

• if an individual, the individual is assessed
• if a partnership, each partner is assessed, and
• if a company, the company is assessed.

Persons other than the applicant can also be assessed as to whether they are fit and proper. These persons are:

• another person who would participate in the management or control of the premises that is the subject of the licence application
• if the applicant is a company, then any director, officer, or shareholder of the company that would participate in the management or control of the company, and
• certain associates of the applicant (associates can be people or companies).

What does fit and proper mean?

The term 'fit and proper' ^[42] is not defined in the Excise Act or Excise Regulation. Fit and proper is dependent on the purpose of the legislation and the proposed activities of the person concerned. In general qualities of diligence, honesty and the likelihood of observance of the law are pivotal characteristics to be taken into account in considering fitness and propriety. In an Excise context we are assessing the suitability of the person applying for a licence to have access and control over excisable goods.

The Excise Act provides a definitive list of factors that we will take into account in determining whether a person or company is fit and proper. These factors generally relate to:

• any prosecution history
• solvency
• the honesty of information provided by the applicant
• compliance with tax obligations, and
• licensing history.

In assessing these factors we will consider whether your circumstances demonstrate that you will be diligent, honest, and likely to observe excise laws.

A single factor will not necessarily be determinative on its own of whether a person or company is 'fit and proper'. It will depend on the facts and circumstances of each case.

The weight afforded to each factor in reaching a decision about whether a person or company is 'fit and proper' is a matter for us to decide. We are deciding whether the person or company is fit and proper, and will do so after considering all relevant information.

Some factors apply to both individuals and companies; others are specific to individuals or to companies. These factors are:

• Individual or company:
  • whether, within a year of lodging the application, the person or company has been charged with :
    • an offence under the excise legislation, or
    • an offence under Commonwealth, State or Territory law punishable by imprisonment for one year or longer (for an individual), or by a fine of 50 penalty units or more
  • whether, within 10 years of lodging the application, the person or company has been convicted of :
    • an offence under the excise legislation, or
    • an offence under Commonwealth, State or Territory law punishable by imprisonment for one year or longer (for an individual), or by a fine of 50 penalty units or more
  • the extent of the person's or company's compliance, within four years of lodging the application, with any law administered by us (for example, income tax, GST)
  • whether the person has held an excise licence which has been cancelled, or
  • the person's or company's financial resources.
• Individual only
  • whether the person has participated in the management or control of a company that has had its excise licence cancelled
  • whether the person is an undischarged bankrupt
  • any misleading statement made in the application by the person, and
  • where any false statement was made in the application - whether the person knew it was false.

False and misleading statements are discussed below in 'Where a person makes false or misleading statements in their application'.

• Company only
  • whether a receiver has been appointed over the property, or part of the property, of the company
  • whether the company is under administration under the Corporations Act 2001 (Corporations Act)
  • whether there is a current deed of company arrangement in place under Part 5.3A of the Corporations Act, or
  • whether the company is being wound up.

Where a person makes false or misleading statements in their application ^[43]

It is important that you provide information that is accurate and complete. If your application (that is, your completed application form, any supporting documentation and any oral statements made), contains false or misleading statements we will take this into account.

Misleading statements

With regard to this element, the term 'mislead' is not defined in the Excise Act. The Australian Oxford Dictionary, 2004, 2 ^nd edn, Oxford University Press, Melbourne defines 'mislead' as follows:

• cause (a person) to go wrong, in conduct, belief, etc.
• lead astray or in the wrong direction.

A misleading statement does not have to successfully mislead us, but it can be taken into account if it was reasonably foreseeable that we could have been misled when assessing the application.

Misleading may be by omission as well as what has been said.

Example 3A You advise us that you have installed a state of the art security system at your premises. While true, you failed to advise us that a design fault has resulted in repeated false alarms to the point where you have switched off the security system and have no intention of re-engaging it. The design fault cannot be remedied. The only security actually in operation at the premises is a rusty padlock. The information you provided, whilst not false, could lead us to believe that your premises are secure. This is misleading.

False statements

We can only take false statements into account if you knew they were false. ^[44]

In essence, a statement is false if it is not true. A false statement may be made expressly, or via omission. An example of the former is where you state you have no criminal convictions when in fact you have been convicted. An example of the latter would be to leave the question on your application form in relation to criminal convictions blank when in fact you have been convicted. In both instances, a false statement has been made.

Who are the associates that can be assessed under the for fit and proper person test? ^[45]

To avoid situations where people with a high risk of non-compliance are able to exercise control over licence holders, certain associates can be assessed under the fit and proper person test.

The word associate effectively takes it meaning from the Income Tax Assessment Act 1936 and is summarised below:

• An associate of a natural person (otherwise than in the capacity of trustee) includes
  • a relative ^[46] of the individual, for example, their spouse, parent, sibling, uncle, aunt
  • a partner of the individual or a partnership in which the individual is a partner
  • if a partner of the individual is a natural person otherwise than in the capacity of trustee, the spouse or child of the partner
  • a trustee of a trust under which the individual or their associate benefits, or
  • a company under the control of the individual or their associate. ^[47]

Although an associate includes a spouse, a legally married spouse of a person who lives separately and apart on a permanent basis is not an associate. ^[48]

• An associate of a company includes
  • a partner of the company or a partnership in which the company is a partner
  • if a partner of the company is an individual, the spouse or child of the partner
  • a trustee of a trust under which the company or their associate benefits
  • another entity (a company, partnership, trustee or an individual), or its associate(s) who controls the company, or
  • another company which is under the control of the company or the company's associate. ^[49]

The control of a company looks to whether another entity (including individuals):

• has sufficient influence over the company, or
• holds a majority voting interest in the company.

An associate of a trustee includes an entity or an associate of the entity that benefits or is capable of benefiting either directly or indirectly under the trust. ^[50]

For a partnership an associate includes each partner of the partnership or associate of the partner. ^[51]

3.2.2 Skills and experience

Skills and experience ^[52] are not defined in the Excise Act or Excise Regulation. There is no excise case law regarding skills and experience.

In forming an opinion as to whether you have the required skills and experience we will consider your ability to:

• carry out the activity requiring a licence
• conduct a business, and
• comply with excise obligations.

It is important to note that you, as the applicant, do not necessarily need to possess the skills and experience yourself provided that you can demonstrate that you will use another person's skills and experience, for example, by hiring them or using a consultant. Should that be the case, we will assess the other person's skills or experience.

Example 3B Mr X, as a Director of Z Duty Free Pty Ltd, applies for a storage licence with permission to sell duty free. Neither Mr X nor any of his staff have the skills and experience to comply with the company's excise obligations. This poses a risk that excisable goods may be sold without adequate record keeping, and may adversely affect revenue and compliance. Therefore, when assessing this element of subsection 39A(2) of the Excise Act in isolation, Z Duty Free Pty Ltd would fail the requirements of skills and experience. However, a decision on granting a licence is made based on an assessment of all elements of subsection 39A(2) of the Excise Act. Z Duty Free Pty Ltd may choose to address the deficiency in skills and experience by such measures as appointing a manager who has the relevant skills and experience.

3.2.3 Physical security of the premises

Physical security ^[53] relates to measures that prevent unauthorised access to excisable goods and thus protects against theft or loss of goods and excise revenue.

In forming an opinion about the physical security at the premises, we will consider:

• the nature of the site
• the kinds and quantities of goods to be kept, and
• the procedures and methods adopted to ensure the security of goods.

Consideration of the nature of the site can include:

• construction (for example, floor, walls, ceiling, windows and doors) and whether material is difficult to penetrate or remove
• barriers (for example, fences or wire) to a standard that would prevent unauthorised access
• locks and bars
• alarms, security lighting, security guard patrols or closed-circuit TV cameras
• physical security of all warehouse facilities within the site, and
• fire alarms, smoke detectors, sprinklers.

Consideration of the kind and quantity of goods to be kept at the site can include:

• the ease with which goods can be handled, for example, cartons of cigarettes are easier to move than fuel in a large refinery tank
• the rate of excise duty applicable to the goods (goods that attract a greater rate of excise duty represent a greater revenue risk), and
• the greater the quantity of excisable goods to be dealt with, the higher the level of physical security that would be required.

Consideration of the security procedures and methods can include:

• gate security system that would identify all people entering and leaving the site, and confirm their right to do so
• gate security system that would identify the type and quantity of all goods entering and leaving the site
• surveillance system
• procedures to handle and retain information from surveillance system (if there is one)
• access control, for example, by limited distribution of keys and access swipe cards or codes
• security responses when breaches are detected, for example, back to base system, and
• an independent security audit function to oversee all of the above.

3.2.4 Suitability of plant and equipment

Plant and equipment ^[54] are considered suitable if they are capable of performing the intended tasks and will allow you to properly account for excisable goods and calculate the correct amount of excise duty.

3.2.5 Market for the goods

In this criterion, we are primarily concerned with the presence of an available market ^[55] within Australia. That market must be legal. Licensing is concerned with minimising the risk of excisable goods entering an illicit market in Australia and the resultant loss of revenue.

You must provide sufficient information to identify your proposed market.

You may be able to demonstrate that you have a market by, for example, supplying:

• evidence of contracts (including 'in principle' contracts) you have negotiated (for example, a contract to lease an area, at an International Airport, to be used as a duty free shop), or
• a business plan which outlines the market you have identified.

3.2.6 Ability to keep proper books of account

This criterion is whether you can keep 'proper books of accounts and records' that enable us to audit those records. ^[56] It is your ability to keep the required records that must be determined.

You may be asked to demonstrate:

• the recording systems you intend to use, whether they are manual or electronic
• where an electronic record keeping system is used, systems documentation showing details such as screens, reports available and security controls, and
• the internal documentation supporting the recording systems, ensuring that the recording systems will record sufficient detail.

3.2.7 Delay liability for duty (storage licence only)

This criterion only relates to an application for a storage licence where the granting of the licence would delay liability for the duty. ^[57]

It is our view that we may refuse to grant a storage licence where the granting of the licence would delay payment of duty beyond the point of storage occurring in the normal wholesale distribution of the goods.

This criterion is not relevant for duty free shops.

3.2.8 Protect the revenue

The term 'necessary to protect the revenue' ^[58] is not defined in the Excise Act.

The meaning of 'protect the revenue' was considered by Deputy President Forgie in Martino and Australian Taxation Office. ^[59] She said:

The expression 'protect the revenue' is not defined in the Act and I am not aware of any authorities that have considered it. The word 'revenue' has been considered in Stephens v Abrahams (1902) 27 VLR 753 by Hodges J. ....Hodges J took:

"... the 'revenue' to be moneys which belong to the Crown, or moneys to which the Crown has a right, or moneys which are due to the Crown..."

The ordinary meanings of the word 'protect' include 'keep safe, take care of' . . . and they would seem to be the senses in which the word is used in the expression 'protect the revenue'. Mr Martino's licence may only be cancelled if it is necessary to take care of the money belonging to the Crown in right of the Commonwealth. That has the aspect of ensuring that the Commonwealth receives all that it should in the form of any excise that is ultimately payable in respect of tobacco originally grown on Mr Martino's farm and keeps all that it receives. It also has the aspect of not spending more of the Commonwealth's money than need be spent in carrying out its supervisory duties and responsibilities under the Act and in ensuring that the tobacco is not marketed illegally in Australia, and so avoid the payment of excise duty, if it cannot be marketed legally.

What is meant by the word 'necessary'? I have taken the view that the meaning adopted by Allen J in State Drug Crime Commission of NSW v Chapman (1987) 12 NSWLR 447:

"As to the word 'necessary' it does not have, in my judgment, the meaning of 'essential'. The word is to be subjected to the touchstone of reasonableness. The concept is one as to what reasonably is necessary in a commonsense way."

While this case was in relation to tobacco, the finding is equally applicable to duty free shops. 'Protect the revenue' therefore means ensuring that the Commonwealth receives the full amount of excise duty that is ultimately payable and we do not spend more Commonwealth funds than necessary to carry out our responsibilities.

3.3 What are licence conditions?

Licence conditions form part of your licence. They are restrictions, limitations or modifying circumstances. They may define permissible activities and require you to take certain actions if defined circumstances arise. If you fail to comply with a condition, we may suspend or cancel your licence. ^[60]

All excise licences are subject to certain conditions imposed by:

• the Excise Act, and
• us ('special conditions').

We are able to add, vary or modify special conditions even after the licence has been granted. ^[61] We will notify you in writing if we do so and provide you with an amended licence that includes the amended conditions.

Conditions imposed under the Excise Act

You must advise us in writing within 30 days if ^[62] :

• you or any person participating in the management or control of a licensed company or premises is charged with or convicted of
  • an offence against a provision of the Excise Act, or
  • an offence against a law of the Commonwealth, a State or a Territory that is punishable by imprisonment for a period of one year or longer or by a fine of 50 penalty units or more
• you become bankrupt
• a person not listed in the licence application starts to participate in the management or control of the licensed premises or company, as the case may be
• there is a change in the membership of a partnership that holds a licence
• a company that holds a licence comes under receivership, administration or begins to be wound up
• there is a change that substantially affects the physical security of the licensed premises or plant and equipment used in relation to excisable goods at the premises, or
• you hold a storage licence and you cease to keep and store goods at the licensed premises.

Special conditions

We can also impose special conditions on your licence if we find it necessary to protect the revenue or ensure compliance with the Excise Act. ^[63] Directions issued under section 50 of the Excise Act to keep specified records, furnish specified returns, retain records for a specified period and produce those records on demand are included as a special condition on each licence.

Examples of conditions that have been imposed under this provision are:

• the trustee for a trust to notify the Collector of the appointment of a new trustee in writing and prior to the appointment of the new trustee
• limits to the volume of excisable product you can access annually
• undertake regular stocktakes, and
• ensure that underbond stock is readily identifiable and quantifiable and report on LAGs goods (liquids, aerosols and gels).

The examples of special conditions given above are only for illustrative purposes. The decision to impose special conditions is considered on a case-by-case basis.

You can apply to have these special conditions varied, revoked or added. We will consider and advise you of our decision.

If you are not satisfied with any decision we make about a special condition, you can ask for a review by lodging an objection. ^[64]

For more information about your review rights refer to Chapter 10 - Reviews and objections.

3.4 What are securities?

We can use special conditions as a mechanism to increase the level of protection of the revenue or to ensure compliance with the Excise Act. However, prior to granting the licence we may also require you to provide a security to achieve the same result. Even if we don't require a security prior to the granting of the licence, we may ask for a security at a later time. We can also ask you to increase the value of any security you may already have given. ^[65]

A security can be a bond, guarantee, cash deposit or similar financial product for an amount of money which may be forfeited if there is a failure to comply with the Excise Act. It is not necessary for a liability to arise as a result of the failure to comply, for the security to be forfeit. There is no statutory limit to the amount of a security but the amount is generally set by reference to the level of revenue at risk.

We cannot apply these securities against other tax debts.

We review securities every three years, at which time they may be extended, revised or cancelled.

The decision to require a security is not reviewable under the objection process. However, there may be other avenues for review, for example, you may seek an informal review of our decision.

For information about your review rights refer to Chapter 10 - Reviews and objections.

3.5 Assessing your application to renew your licence

Licences are only valid for a specified period. Renewal of a licence is not automatic and you must apply to renew your licence before it expires. In assessing an application to renew a licence we consider the same criteria that exist for cancelling a licence. That is, if reasons exist for us to cancel your licence (assuming that it had not expired) then we cannot renew your licence.

	For more information about the criteria for cancelling a licence refer to Chapter 4 - Licensing: Suspension and cancellation.
	If you have applied before the date of expiration on your licence but we have not made a decision by this date, the licence remains in force until such time as we do make a decision.

If we refuse your licence renewal, you may object against the decision.

For information about your review rights refer to Chapter 10 - Reviews and objections.

As an alternative to non-renewal of a licence, we may:

• alter existing conditions on your licence
• impose new conditions, or
• require you to provide a financial security.

If you have not applied to renew your licence then the licence expires on 30 September and you can no longer carry out excise related activities.

3.6 Procedures

3.6.1 What happens if my licence is not granted?

If we do not grant a licence, we will notify you of the decision and provide you with an explanation for our decision.

If you are not satisfied with our decision, you can ask for a review by lodging an objection within 60 days of the day we notify you. ^[66]

For information about your review rights refer to Chapter 10 - Reviews and objections.

3.6.2 What will happen if my licence is granted?

If we grant you a licence, we will send it to you. All special conditions will form part of the licence. We will also provide you with an establishment number for the premises specified on your licence. This will be needed in some of your dealings with us.

You may receive a visit or phone call from us to see whether you understand your obligations or need further assistance to comply.

3.6.3 How do I renew my licence?

We will send you an invitation to renew your licence at least six weeks before the licence expires. We will also send an application form containing your details. You must verify the details on the application, provide any required information, sign and return it to us before your licence expires.

Your existing licence will remain valid until we make a decision about your application for renewal. [67]

Licences are renewed for a period of three years.

Example 3C Your licence is due to expire on 30 September 2021 (the expiry day). On 1 September 2021 you apply to renew the licence. We have not decided the application by the end of 30 September 2021. The licence continues in force automatically past 30 September 2021 until we decide the application. On 15 October 2021 we decide to renew the licence. The renewed licence expires on 30 September 2024.

If you wish to renew your licence but you have not received an invitation to renew within four weeks of the date of expiry you need to contact us.

3.6.4 What do I do if I need more information?

If you need more information on excise, as it relates to duty free shops, contact us via the Online Services for Business or the other options as listed on the excise and EEG's contact webpage.

We will ordinarily respond to written information requests within 28 days. If we cannot respond within 28 days, we will contact you within 14 days to obtain more information or negotiate an extended response date.

3.7 What penalties can apply for offences in relation to making an application?

The following are the penalties that may apply after conviction for an offence.

3.7.1 False or misleading statements

If you make a false or misleading statement to us, the penalty is a maximum of 50 penalty units. ^[68]

Latest update

January 2022

Section

Changes and updates

Throughout

This chapter was updated to take into account the law changes that impacted the tobacco industry, as a result of which, there is no longer excisable tobacco goods manufactured in Australia that would be subject to excise control in the duty free shop or warehouse. The update also reflects the current duty rate and updates the references from the old Business Portal to the new Online Services for Business. Updated to new format and style including footnotes.

Details of previous updates are available through the versions linked to in the table below.

© AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA

You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).