Electrical Goods Importer and Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Administrative Appeals Tribunal (2008/4523)
Judgment date: 6 November 2009
Date published: 17 November 2011
Decision outcome: Favourable

Summary of decision:
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.

Overview 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.

Issues decided:
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.

ATO 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 updated GSTR 2000/19 by issuing an addendum on 21 September 2011 to take account of this legislative amendment.

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
Subject references: Third party rebates Adjustment events Consideration