ATO ID 2005/228: GST and ability to vary an initial offer for the purpose of arbitration of a long-term non-reviewable contract
Date of decision: 19 July 2005
Business line: Indirect Tax

Issue
Can the entity, a supplier under a long-term non-reviewable contract, vary the terms of an 'initial offer' to extend the initial offer period when it is faced with insufficient time to complete the arbitration process prescribed in section 15L of the A New Tax System (Goods and Services Tax Transition) Act 1999 (GST Transition Act)?

Decision
No, the entity cannot vary the terms of an initial offer once it has been made. However, the entity can make a further initial offer and restart the arbitration process if the further initial offer period lapses without acceptance, or the recipient rejects the further initial offer made.

Facts
The entity is a supplier under a long-term non-reviewable contract. The entity wishes to change the price for the supply it makes under the contract to account for the goods and services tax (GST) payable from 1 July 2005. The entity and the recipient of the supply are unable to agree on a price change. The entity decides to use the arbitration process provided by Subdivision C of Division 2 of the GST Transition Act. In accordance with section 15K of the GST Transition Act, the entity makes an initial offer to the recipient to change the price of the supply. The recipient fails to accept the offer. In accordance with section 15L of the GST Transition Act, the entity then applies to an arbitrator for appointment of an assessor to determine an appropriate price change. The entity becomes aware that the assessor will not be able to complete the price determination within the 28 day time period stipulated in paragraph 15L(1)(d) of the GST Transition Act. The entity proposes to get around this difficulty by varying the initial offer to extend the offer period as a way of deferring the start of the 28 day time period.

Reasons for decision
Summary: Under paragraph 15L(1)(d) of the GST Transition Act, an appointed assessor must make a determination of an appropriate change in the consideration for the supply under the contract within 28 days of the end of the offer period. Paragraph 15K(1)(c) of the GST Transition Act states that the initial offer must state the period (the initial offer period) for which the offer remains open. There is no provision in the legislation that provides that the supplier can amend the terms of an initial offer. Although as a matter of contract law, offers can be withdrawn, rejected, varied, or revitalised, the initial offer referred to in section 15K of the GST Transition Act is part of a prescribed arbitration process. Subsection 15L(2) of the GST Transition Act provides that a supplier must not apply to an arbitrator until after the earlier of the end of the initial offer period or the recipient giving the supplier a written rejection of the initial offer. If a supplier could change the originally specified 'initial offer period' after the offer has been given, it would create doubt as to when the supplier would be authorised to apply to an arbitrator. Accordingly, the entity cannot vary the terms of the initial offer after that offer has been given to the recipient. This includes extending the initial offer period when the entity is faced with insufficient time to complete the arbitration process prescribed in section 15L of the GST Transition Act.

Legislative references: A New Tax System (Goods and Services Tax Transition) Act 1999 section 15K paragraph 15K(1)(c) section 15L paragraph 15L(1)(d) subsection 15L(2)
Related ATO interpretative decisions: ATO ID 2005/227
Other references: GST and long-term non-reviewable contracts (NAT 12997)
Subject references: Goods and services tax GST long term lease GST property & construction GST transitional issues