Sales Tax Determination

STD 95/11

Title: The effects of minimum price service plans on the taxable value of mobile phones

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FOI status:

may be releasedFOI number: I 1014679

Background

Mobile phone handsets are sometimes sold by carriers, service providers or dealers to consumers below cost price on the condition that the purchaser agrees to be contracted to a particular carrier under a minimum price service plan.

In addition to the price obtained for the mobile phone, the seller receives further consideration from the network carrier for connecting the phone purchaser to a particular network. This additional consideration is usually in the form of payments for customer connections or a percentage of the telephone calls made by the customer for a period of time.

This determination sets out the ATO view on the appropriate notional wholesale selling price to be adopted where mobile phones are sold by retail or under indirect marketing arrangements under minimum price service plans.

Issue

What is the taxable value for mobile phones sold by retail under minimum price service plans?

Decision

The appropriate taxable value for mobile phones sold by retail or under indirect marketing arrangements in association with a minimum price service plan is the notional wholesale selling price. This is the price that the taxpayer could reasonably have been expected to sell the mobile phones by wholesale under an arm's length transaction which does not have the minimum price service plan attached.

The taxable value should reflect the into store cost, plus the expenses that would have been associated with selling the goods if they were sold by wholesale, plus a fair wholesale margin.

A taxpayer who has difficulty determining notional wholesale selling costs or a fair wholesale margin may as an alternative use an arm's length into store cost plus 10%. The tax exclusive retail selling price (RSP) is not appropriate as the taxable value for the purposes of calculating the sales tax liability in these circumstances.

Date of effect

This determination is effective immediately. It replaces any previous private taxation rulings to the extent that they are inconsistent with this determination.

Reasons

Various carriers, service providers and dealers are involved in selling mobile phones under minimum price service plans. Generally the minimum price service plan requires the purchaser to subscribe to a particular carrier for a specified period, pay up front connection fees, higher than otherwise available monthly access fees and or a minimum value of call charges. A service provider or reseller is a person who buys airtime or space on the network and on sells it to the purchaser of the mobile phone.

During mobile phone sale promotions, phones are sold by carriers and service providers either directly to the purchaser or under indirect marketing arrangements. In the later case, the dealers act as agents for the carriers and service providers (the marketers) and sell the phones at a retail selling price (RSP) below the marketers' purchase price. In either case, the phones are sold on the condition that the purchaser commits to a minimum price service plan.

Part 3 and Table 1 of the Sales Tax Assessment Act 1992 deal with taxable values. Where tax free goods are sold by retail or under indirect marketing arrangements, the appropriate taxable value (i.e. the amount upon which sales tax is calculated) is the notional wholesale selling price of the goods. This is the price (excluding sales tax) for which the taxpayer could reasonably have been expected to sell the goods by wholesale in an arm's length transaction.

SST Ruling No 2 explains the principles to be followed in determining the notional wholesale selling price under the sales tax legislation. Where mobile phones are sold by retail for an amount less than cost on the condition that the purchaser is contracted to a carrier's network for a period of time and the seller of those phones stands to derive a benefit from that commitment, then the notional wholesale selling price of those phones is the amount for which those phones could reasonably be expected to be sold by wholesale where these conditions are not attached.

Consequently, the notional wholesale selling price of mobile phones sold under minimum price service plans is more than the RSP and should reflect a value which includes the into store cost of the mobile phones, the expenses associated with selling the mobile phones by wholesale, plus a fair wholesale margin.

Communication of the Decision

This determination publicises private rulings that have been sent to carriers, service providers or dealers identified as using minimum price service plans. It has also been made available for publication by the sales tax publishing houses.

Commissioner of Taxation
22 November 1995

References

ATO references:
NO NAT 95/9365-9

Related Rulings/Determinations:

SST 002: Taxable values under the Streamlined Sales Tax law

Subject References:
The effects of minimum price service plans on the taxable value of mobile phones

Legislative References:
Part 3 and Table 1 of the Sales Tax Assessment Act 1992