Commissioner of Taxation v American Express International Inc; Commissioner of Taxation v American Express Wholesale Currency Services Pty Limited
Document type: Decision Impact Statement
Venue: Federal Court of Australia (S 238-239 of 2010(High Court);NSD 698-699 of 2009 (Full Federal Court))
Judgment date: 4 May 2011
Date published: 7 February 2012

Summary of decision:
Outlines the ATO response to this matter which concerns the GST treatment of fees incurred for late payment under charge card and credit card facilities. The issue is whether the fees are consideration for an input taxed financial supply.

Overview of facts:
In calculating the amount of input tax credits to which it was entitled, American Express International Inc and American Express Wholesale Currency Services Pty Limited (together, "Amex") adopted a revenue-based apportionment methodology to determine their Extent of Creditable Purpose (ECP) under subsection 11-30(3) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) as follows: [1-(revenue derived from input taxed supplies) / total revenue] x 100. In this formula, Amex excluded the following fees from the numerator while including them in the denominator: a) late payment fees received in respect of the credit card facility; and b) amounts described as "liquidated damages" received in respect of the charge card facility. The fees referred to in a) and b) above are collectively referred to as the "Fee Payments". Amex did not treat the Fee Payments as consideration for input taxed financial supplies. Accordingly, the calculation of the ECP resulted in a larger input tax credit entitlement than would otherwise be available and a corresponding reduction in net amount. | [1-(revenue derived from input taxed supplies) / total revenue] x 100. In this formula, Amex excluded the following fees from the numerator while including them in the denominator: a) late payment fees received in respect of the credit card facility; and b) amounts described as "liquidated damages" received in respect of the charge card facility. The fees referred to in a) and b) above are collectively referred to as the "Fee Payments". Amex did not treat the Fee Payments as consideration for input taxed financial supplies. Accordingly, the calculation of the ECP resulted in a larger input tax credit entitlement than would otherwise be available and a corresponding reduction in net amount. | In this formula, Amex excluded the following fees from the numerator while including them in the denominator: a) late payment fees received in respect of the credit card facility; and b) amounts described as "liquidated damages" received in respect of the charge card facility. | a) late payment fees received in respect of the credit card facility; and b) amounts described as "liquidated damages" received in respect of the charge card facility. | The fees referred to in a) and b) above are collectively referred to as the "Fee Payments". | Amex did not treat the Fee Payments as consideration for input taxed financial supplies. Accordingly, the calculation of the ECP resulted in a larger input tax credit entitlement than would otherwise be available and a corresponding reduction in net amount. | Issues decided by the court | Before the Full Federal Court, the Commissioner sought and was granted leave to amend his appeal statement to argue that the Fee Payments were revenue derived from the making of input taxed supplies for the purposes of the revenue formula as set out above. The Commissioner's argument at first instance was limited to whether the Fee Payments were consideration for input taxed supplies made by Amex. | The majority of the Full Federal Court found at [136] and [186] that: a) Amex provided an 'interest' for the purposes of regulation 40-5.02 of the GST Regulations being the right to present the charge card or credit card as payment without having immediately to part with money; b) that interest was an interest in or under a credit arrangement or right to credit under item 2 of the table in subregulation 40-5.09(3) of the GST Regulations; c) that interest was not a supply of an interest in or under a payment system for the purposes of item 4 of the table in regulation 40-5.12 of the GST Regulations; and d) the Fee Payments were revenue derived from the input taxed supplies of the interest in or under a credit arrangement or right to credit. | a) Amex provided an 'interest' for the purposes of regulation 40-5.02 of the GST Regulations being the right to present the charge card or credit card as payment without having immediately to part with money; b) that interest was an interest in or under a credit arrangement or right to credit under item 2 of the table in subregulation 40-5.09(3) of the GST Regulations; c) that interest was not a supply of an interest in or under a payment system for the purposes of item 4 of the table in regulation 40-5.12 of the GST Regulations; and d) the Fee Payments were revenue derived from the input taxed supplies of the interest in or under a credit arrangement or right to credit. | The issue before the High Court was whether to grant special leave to Amex to appeal the decision of the Full Federal Court. On 4 May 2011 a full bench of the High Court refused Amex's application.

Issues decided:
Before the Full Federal Court, the Commissioner sought and was granted leave to amend his appeal statement to argue that the Fee Payments were revenue derived from the making of input taxed supplies for the purposes of the revenue formula as set out above. The Commissioner's argument at first instance was limited to whether the Fee Payments were consideration for input taxed supplies made by Amex. The majority of the Full Federal Court found at [136] and [186] that: a) Amex provided an 'interest' for the purposes of regulation 40-5.02 of the GST Regulations being the right to present the charge card or credit card as payment without having immediately to part with money; b) that interest was an interest in or under a credit arrangement or right to credit under item 2 of the table in subregulation 40-5.09(3) of the GST Regulations; c) that interest was not a supply of an interest in or under a payment system for the purposes of item 4 of the table in regulation 40-5.12 of the GST Regulations; and d) the Fee Payments were revenue derived from the input taxed supplies of the interest in or under a credit arrangement or right to credit. a) Amex provided an 'interest' for the purposes of regulation 40-5.02 of the GST Regulations being the right to present the charge card or credit card as payment without having immediately to part with money; b) that interest was an interest in or under a credit arrangement or right to credit under item 2 of the table in subregulation 40-5.09(3) of the GST Regulations; c) that interest was not a supply of an interest in or under a payment system for the purposes of item 4 of the table in regulation 40-5.12 of the GST Regulations; and d) the Fee Payments were revenue derived from the input taxed supplies of the interest in or under a credit arrangement or right to credit. The issue before the High Court was whether to grant special leave to Amex to appeal the decision of the Full Federal Court. On 4 May 2011 a full bench of the High Court refused Amex's application.

ATO view of decision:
The Commissioner has expressed a view on the meaning of 'interest' under regulation 40-5.02 of the GST Regulations in paragraphs 78-81 of GSTR 2002/2. This view is consistent with the view of the majority of the Full Court that the right of the cardholder to present the charge card or credit card as payment without having immediately to part with money is an 'interest' for the purposes of sub regulation 40-5.02. | The decision that the 'interest' provided by Amex to a cardholder was an interest in or under a credit arrangement or right to credit under item 2 of the table in sub regulation 40-5.09(3) is consistent with the Commissioner's submissions to the Court. | The decision of the full bench of the High Court to refuse Amex's application for special leave means that the decision of the Full Federal Court remains undisturbed. The majority of the Full Court was not required to determine whether the Fee Payments were consideration for input taxed supplies made by Amex. The majority did decide, for the purposes of the formula used by Amex, that the Fee Payments were revenue derived from an input taxed supply. | The Commissioner's views expressed in GSTR 2002/2 and GSTR 2000/19 are consistent with Dowsett J's observations at [52] - [53] that a cardholder is effectively authorised to pledge Amex's "credit" and that, to the extent that any relevant interest was supplied by Amex, the promise to pay liquidated damages or late payment fees was consideration for such a supply. Dowsett J. also observed that there seems little justification for treating a promise to pay as consideration, but the actual payment as not being consideration. This may be contrasted to the decision of Emmett J. at first instance in which he found that the Fee Payments were not consideration in connection with a financial supply: ([2009] FCA 683 at [55] to [59]). Taking into account that the judgement at first instance was reversed on appeal, and the only member of the Full Court who addressed the issue considered that the Fee Payments were consideration for a financial supply, the Commissioner respectfully maintains the view expressed in GSTR 2002/2 and GSTR 2000/19 that such payments are consideration for financial supplies. | The Commissioner's view that, in the context of regulation 40-5.12 of the GST Regulations, a cardholder is not a participant in a payment system (see Line No A100 of Schedule to GSTR 2002/2 and paragraphs 249 and 255 of GSTR 2004/1) is consistent with the majority decision that Amex does not supply an interest in or under the payment system to a cardholder (at [136] and [180] - [181]). However, the majority observed at [181] that a merchant can be described as a participant in the payment system operated by Amex. The Commissioner's view had been that merchants were third parties in a payment system rather than participants in the system.

Administrative treatment:
Implications for ATO precedential documents (Public Rulings & Determinations etc) | The Commissioner has reviewed the view expressed in GSTR 2004/1 concerning the meaning of a participant in a payment system for the purposes of regulation 40-5.12 of the GST Regulations. The Commissioner's view has been updated to reflect the reasoning of the majority of the Court through Addendum GSTR 2004/1A3 which issued on 18 January 2012.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 (Cth) A New Tax System (Goods and Services Tax) Regulations 1999 (Cth) Payment Systems (Regulation) Act 1998 (Cth) Taxation Administration Act 1953 (Cth)
Case references: Jack v Smail (1905) 2 CLR 684 [1905] HCA 25 Commissioner of Stamp Duties (NSW) v Yeend (1929) 43 CLR 235 [1929] HCA 39 Yanner v Eaton (1999) 201 CLR 351 [1999] HCA 69 National Provincial Bank Ltd v Ainsworth [1965] AC 1175 The Queen v Toohey; ex parte Meneling Station Pty Ltd (1982) 158 CLR 327 [1982] HCA 69 Federal Commissioner of Taxation v Orica Ltd (1998) 194 CLR 500 39 ATR 66 98 ATC 4494 [1998] HCA 33 National Trustees Executors and Agency co of Australasia Ltd v Federal Commissioner of Taxation (1954) 91 CLR 540 [1954] HCA 71 Palgo Holdings Pty Ltd v Gowans (2005) 221 CLR 249 [2005] HCA 28 Xu v Council of the Law Society of New South Wales (2009) 236 FLR 480 [2009] NSWCA 430 Visa International Service Association & Anor v Reserve Bank of Australia (2003) 131 FCR 300 [2003] FCA 977 Saga Holidays Ltd v Commissioner of Taxation (2006) 156 FCR 256 2006 ATC 4001 61 ATR 384 American Express International Inc v Commissioner of State Revenue [2004] VSCA 193 10 VR 145 57 ATR 483 Fitz-Gibbon v Inspector General in Bankruptcy (2000) 180 ALR 475 [2000] FCA 1677 Prime Wheat Association Limited v Chief Commissioner of Stamp Duties (1997) 42 NSWLR 505 37 ATR 479 97 ATC 5015 UG Insurances Pty Ltd v Commissioner of Stamp Duties for the State of New South Wales [1973] HCA 31 128 CLR 353 4 ATR 60
Subject references: Goods and Services Tax Late payments and liquidated damages under charge card Credit card facilities Supply of an interest Interest in or under a debt Credit arrangement or right to credit Charges formed revenue Input taxed supplies Consideration for a financial supply
Other references: GSTR 2000/19 GSTR 2002/2 GSTR 2006/3