Private ruling: GST and Inbound Tour Operator's agency service to non-resident travel agents
Published: March 2014

Ruling: Q1: Does ITO make a GST-free supply of agency/facilitation services to non-resident travel agents (NRTAs)? | A1: Yes, ITO's supply of agency/facilitation services to NRTAs is a GST-free supply.

Relevant facts and circumstances: ITO is an Australian entity and is registered for GST in Australia. ITO is a wholesale and on-line travel distribution business. ITO facilitates inbound tourism by acting as an intermediary between non-resident travel agencies (NRTAs) and Australian service providers (ASPs). ASPs are generally providers of holiday products and services such as hotels, sightseeing tours, car hire and transfers (Land Products). ITO displays ASPs' Land Products on its website. Any internet user can see the Land Products displayed on ITO website but you need an agency code and agency password to log in and select the package deals. Travel agents apply to ITO for access to this website. Access is not given to individual tourists. ITO's website facility allows NRTAs to access ITO reservations system directly and enquire on availability, make a booking and receive instant confirmation. When NRTAs select the Land products, the packages are displayed in the ASP's names. ITO does not sell complete holiday packages (such as flights, hotels and tours) to NRTAs. Rather, NRTAs access ITO's online booking system to make their selection of flights, hotels and tours from the ASPs which ITO has agreements with. According to the Booking Terms and Conditions for ITO's website, all bookings with ITO are subject to the terms and conditions of the relevant ASPs. ITO does not accept any liability of ASPs' acts, omissions or defaults. ITO's role as facilitator works in the following way: ITO contracts with various NRTAs to facilitate and arrange holiday packages (including booking specific Land Products on their behalf) for NRTA's and their customers. For example, a tourist in the USA can approach a NRTA based in the USA to book a holiday to Australia. The US NRTA would use the facilities made available by ITO to make reservations with various ASPs for example, a hotel stay, a transfer from the airport to the hotel and a sightseeing tour. ITO's role may include assistance such as the following: (a) making the necessary reservations with the ASPs on behalf of the NRTA; (b) arranging a transfer to collect the overseas tourist from the airport at the right time; and (c) liaising with the operator of the sightseeing tour to ensure it had the details of the overseas tourist's hotel for pick-up. ITO might receive a milestone payment from an ASP if ITO facilitates the supply of a specified target amount of Land Product from that ASP to its various NRTAs. Where ITO receives such payments from an APS, ITO treats the payment as consideration for its agency services to the ASP, and remits GST to the ATO on these amounts, hence this supply is not a subject of this ruling. ITO 's Contract with NRTAs (contract): ITO has a contractual relationship with various NRTAs, and all the contracts are on substantial similar terms. ITO provides a sample contract. For the purposes of this ruling application, ITO has requested the ATO to assume that contracts between ITO and other NRTAs are on substantially the same terms. The contract between ITO and the NRTA (contract) includes the following terms: The contract provides that NRTA acts as principal and ITO is appointed as agent for NRTA in relation to the contracting, reservation, customer and ground handling services for NRTA's inbound international tourists. ITO acts as NRTA's agent in arranging bookings for NRTA's customers from third party service providers (for example, the ASPs). The contract states that ITO is appointed as NRTA's preferred inbound tour operator. The contract provides that NRTA agrees to promote Australia and other countries in their local markets and ITO agrees to assist NRTA in said promotion by obtaining the best available rates on the Land Products throughout said countries. The contract provides that each reservation made by ITO on behalf of NRTA carries the NRTA's identity name as the Agent. This procedure identifies the nationality of the passengers and also informs the product of the reservations being made by NRTA. Each reservation made by ITO on behalf of NRTA is subject to terms and conditions set by ASPs. ITO acknowledges that NRTA (as principal) has the right to enforce any breach of terms and conditions against ASPs. The contract provides that NRTA's passengers can visit any one of ITO Service Centres for assistance if required. These service centres are set up to provide customer service via local handling agents. The contract provides that ITO is entitled to a reimbursement for the net cost (inclusive of GST) for all services supplied by ASPs, which are booked by NRTA through ITO, and an ATO Service fee. When ITO issues invoices to NRTAs, it separately identifies: (a) the Land Product for the relevant ASP for reimbursement purposes; and (b) ITO's Facilitation Fee for providing the Facilitation Services to NRTAs. ITO's pricing and invoicing arrangements with NRTA includes: (a) reimbursement for the nett cost of Land Products provided to NRTA by the ASPs through ITO and (b) a service fee (the Facilitation Fee) payable to ITO for the Facilitation Services provided in arranging that Land Product to be supplied to NRTA by ASP. The facilitation fee which ITO charges NRTA is not disclosed to ASPs. We understand that upon ITO's confirmation of the booking for NRTAs, ITO issues an Inbound Booking Reference Number in all passengers' documentation. A sample reservation email from ITO to an ASP states "Booked on behalf of (NRTA's name)". The booking reference number and the name of the ASP are also stated. NRTA's rights against ITO are limited to the performance of the facilitation services. NRTA has the right to enforce the terms of the contract for the Land Products directly with the ASP, and may seek compensation directly (or through ITO as a matter of convenience). Similarly, if NRTA (or its customers) fails to show up, the ASPs have rights directly against the NRTA for cancellation fees, etc. The contract provides that ITO agrees to provide NRTA with a bulk monthly tax inclusive invoice which includes the cost of the Land Products provided to NRTA by the various ASPs (through ITO) for the relevant month, and the associated Facilitation Fee as stipulated by the contract. ITO's contracts with the ASPs (Terms and Conditions) ITO also has a contractual relationship with a variety of ASPs under which it is appointed as the agent of the ASPs to sell, distribute, market, promote and advertise the ASP's Land Products to third party customers (such as NRTAs). The key document is the 'ITO Group Terms and Conditions' (the Terms and Conditions). The following terms apply under the Terms and Conditions: The Terms and Conditions appoints ITO as ASPs' agent to sell, distribute, market, promote and advertise the Land Product to third party customers. The Terms and Conditions provides that ASPs acknowledges and agrees that ITO may appoint other agents to sell, distribute, market, promote and advertise the Land Products on ASP's behalf. ASP's obligations towards ITO: The Terms and Conditions specify ASPs' obligations: among other things, ASPs must obtain a public liability insurance policy to cover accidents and property insurance. ASPs must use reasonable endeavour to resolve all complaints of customers who have been introduced by ITO or any of ITO's agents, within 7 days of receipt of the complaint from the customer, and fully cooperate with ITO in settlement negotiation. In addition, ASPs must make offers of refunds where appropriate. Clause X of the Terms and Conditions states that ASPs must ensure that they make a sufficient allotment of the Land Products available for ITO and its agent to meet the demand of the customers. ITO does not have the legal authority to settle the dispute by forcing the ASP to arrive at a solution acceptable to the inbound tourists. However, in terms of commercial reality, ITO has the buying power and ASP is most likely to try to do their best to arrive at a solution acceptable to the customers/tourists. If the settlement negotiation involves extra charge, for example, a room upgrade from a superior room to a deluxe room, then ASP is the party agreeing to bear the cost of the upgrade. This means the ASP will send an invoice to ITO for the original price of the superior room despite the inbound tourists have been upgraded to a deluxe room. The Terms and Conditions provides that ASPs must sell the Land Products to customers at a rate no lower than the rates specified in this contract. The Terms and Conditions provides that ASPs must reserve and honour all bookings of third party customers. The Terms and Conditions provides that ITO and its agents may make a booking with ASPs for a third party customer with the ASP for Land Product. Upon confirming the booking, the ASP enters a contractual arrangement with the third party customer (such as the NRTA or its customers) whereby the ASP agrees (the Warranties): (i) to provide the Land Product to the third party customer on the terms and conditions and at the rates booked by the third party customer through ITO or its agents; (ii) to ensure the third party customer is allocated the same room at the property for the entire period of their stay at the property (relevant only to accommodation bookings); and (iii) if the ASP is unable to provide the Land Product to a third party customer after the booking with the third party customer has been confirmed, the ASP must provide an alternative product of a similar or better standard at the ASP's expense The Terms and Conditions provides that these Warranties are enforceable by the third party customer as a term of the contract for the supply of the Land Product between the ASP and the third party customers. The Terms and Conditions provides that the Warranties in relation to the Land Products are also enforceable by ITO as a term of this contract. The Terms and Conditions provide that ASPs must provide to ITO and ITO's agents information about themselves, and the Land Products and the rates. ITO and its agents may use their discretion as to what part of the information they will reproduce, pass on and distribute to others to advertise the Land Products. The Terms and Conditions provide that ASPs must provide to ITO a rate for ASP's Land Products which is set at a specified percentage lower than ASPs' retail rates for both ITO's domestic program and inbound program. The Terms and Conditions provide that ASPs can only vary the rates with ITO's prior written agreement. If ASPs wish to offer a special rate to ASPs' customers, ASPs must provide immediate written notice to ITO prior to offering such rates. ITO is able to use such rates without notice to ASPs. The Terms and Conditions provide that ITO will remit the rates to ASPs at the end of the calendar month immediately following the calendar month in which the Customer has used the Land Product, provided that ITO has received payment of the Land Products from its agents or the Customer. ITO may apply any amounts received by ITO from Customers in respect of the Land Products towards or against any payment of any other amounts payable by ASPs to ITO under the contract or for any other reason. ITO's obligations towards ASPs: ITO will act as ASP's agents and will endeavour to sell, distribute, market promote and advertise the Land Product in programs/brochures offered by ITO, such inclusion in ITO's programs/brochures and the extent of such inclusion, to be determined by ITO in ITO's absolute discretion. ITO may display ITO's names and logo in relation to the Land Products. ITO will ensure that the information provided by a Customer to ITO and ASPs in relation to the booking is accurate, complete and up to date, however, ASPs must acknowledge that ITO and ITO's agents are not liable for any information provided by Customers or the conduct of Customers in booking or using the Land Products. The Terms and Conditions limit the liability of ITO, its related entities and their agents to their conduct as agent for the ASPs while putting the indemnity obligations on ASPs in relation to the supply of the Land Products. Invoicing and attribution: ITO assumes liability to pay ASPs for the Land Products. The Terms and Conditions provide that ITO does not have to pay ASPs until the Land Products have been consumed by the inbound tourists and after ITO receives payment of the Land Products from NRTAs. Payments from NRTAs are made into ITO's bank account, not ASPs' accounts. The contract provides that ITO agrees to provide NRTA with a bulk monthly tax inclusive invoice which includes the cost of the Land Products provided to NRTA by the various ASPs (through ITO) for the relevant month, and the associated Facilitation Fee as stipulated by the contract. ITO invoices NRTAs by the last week of each month for passengers who have commenced travel during that month. Invoices will detail for each passenger or group file the charges for hotel, touring, transfer, guiding and other such products purchased through ITO. The Terms and Conditions provide that ITO will remit the rates to ASPs at the end of the calendar month immediately following the calendar month in which the Customer has used the Land Product, provided that ITO has received payment of the Land Products from its agents or the Customer. ITO may apply any amounts received by ITO from Customers in respect of the Land Products towards or against any payment of any other amounts payable by ASPs to ITO under the contract or for any other reason. ITO advises that GST payable on the Land Product by ASP (as principal) would ordinarily be attributable under the attribution rules set out in sections 29-5 and 29-10 of the GST Act. However, ITO has entered into agreements under Subdivision 153-B with each ASP which simplifies the way that ITO and ASP account for GST. Pursuant to these agreements: (a) ASP is treated as making a supply of the Land Product to ITO, and issues an invoice to ITO accordingly for the agreed price of the Land Product; (b) ITO is treated as making a corresponding supply of Land Product to NRTA, and issues an invoice accordingly for the agreed price of the Land Product; (c) ASP does not issue invoices to NRTA in respect of Land Product.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 9-5. | A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-190(1). | A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-190(3). | Income Tax Assessment Act 1936 subsection 6(1)

Reasons for decision: Summary: ITO acts as agent of ASP in the facilitation of ASP' supply of the Land Products to NRTA. The scope of ITO's agency with ASP extends to the selling of the ASP' products and services at a price (set by ASP) to NRTA, a customer introduced by ITO. ITO advises ASP the identity of the NRTAs and NRTA's requested Land Products. When ASP confirms the booking ITO makes on NRTA's behalf, this means ASP agrees to contract with NRTA. Hence the supply of the Land Products would be between ASP (as supplier) and NRTA (as disclosed principal and recipient). ITO makes a supply of agency /facilitation services to NRTA in NRTA' acquisition of the Land Products supplied by ASPs. The scope of ITO's agency with NRTA extends to the arranging of bookings at the best available rates with the ASPs that NRTA selects from ITO's website; and the customer support services to inbound tourists (during business hours) in Australia. The facilitation fee which ITO receives from NRTA is consideration for a separate supply of services ITO makes to NRTA. This supply is a GST-free supply to NRTA under section 38-190 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). | Detailed Reasoning - Detailed reasoning:: In International Harvester Co of Australia Pty Ltd v Carrigan's Hazeldene Pastoral Co (1958) 100 CLR 644, at 652, the High Court (Dixon CJ, McTiernan, Williams, Fullagar and Taylor JJ) said of the term 'agency': Agency is a word used in the law to connote an authority or capacity in one person to create legal relations between a person occupying the position of principal and third parties. 1 You contend that ITO is an agent of both its NRTA clients and the ASPs. If this contention is correct, it follows that for any given Product that is booked by ITO on behalf of an NRTA: • the supply of that Product is between the ASP (as the supplier) and the NRTA (as the recipient); and • the 'facilitation services fee' ITO charges the NRTA is consideration for a separate supply of services ITO makes to the NRTA We note that these outcomes may also arise if ITO is an agent of one, but not both, of the NRTA and the ASP. Further, these outcomes may arise if ITO is an intermediary that is engaged to facilitate the entry by both parties into a contract with one another, without itself possessing the authority to create legal relations between the parties. | Detailed Reasoning - The contractual description and its significance: The mere labelling of a relationship as an agency relationship is not determinative of its legal character 2 . As Finn J said in South Sydney District Rugby League Football Club Ltd v News Ltd [2000] FCA 1541 at [134]: The parties cannot by the mere device of labelling, no matter how genuinely intentioned, either confer a particular legal character on a relationship that it does not possess or deny it a character that it does possess… This does not, however, mean that the use of an agency label in a contract should be considered irrelevant and given no weight at all. Unless the agency label is a 'sham 3 ', it must be taken into account and 'given its proper weight in relation to the rest of [the relevant agreement or agreements] and such other relevant circumstances as evidence the true character of [the] relationship' 4 . In Mercantile International Group plc v Chuan Soon Huat Industrial Group Ltd [2002] EWCA Civ 288, the appellant (CSH) sought to argue that, despite references to agency in the written agreement it had with the respondent (MIG), the substance of their relationship had "few, if any, features of agency, but was consistent only with purchase and resale by MIG" 5 . Amongst other things, the original written agreement between the parties stated: …[MIG] will negotiate on the behalf of [CSH] with companies in the United Kingdom and that having agreed terms with the said buyers, will put such terms into the form of a written contract between the buyer and [CSH] through the agency of [MIG] … CSH placed particular reliance on the fact that MIG did not receive a pre-arranged commission but instead sold at a mark-up which it did not disclose to CSH. This, CSH contended, had been a key factor in various cases in which the Court had found that a particular relationship was not one of agency 6 . In distinguishing the cases on which CSH relied, Rix LJ (with whom Waller LJ and Wilson J agreed) noted that, in those cases, there was no documentation indicating that the alleged agent had the requisite authority, and said: [i]n the present case, unlike [the cases on which CSH relied], there is documentation which at any rate purports to describe the relationships between CSH, MIG and the purchasers and to do so in terms whereby direct contracts are brought into existence between CSH and the purchasers through the agency of MIG and with the authority and knowledge of CSH. In such circumstances, it seems to me that [CSH's] submission ultimately depended on [their] saying that such documentation was a sham … In my judgment, however, if the parties were not agreed that the documentation was a sham, then I do not see how it is possible to ignore its effect .… In my judgment, that conclusion holds good whatever view might be taken of the factors relied on by [CSH] as being inconsistent with MIG being CSH's agent (our emphasis). Turning to the present case, you have provided a copy of the contract between ITO and a particular NRTA which you state is representative of the agreements ITO has with various other NRTAs. Amongst other things, this contract provides that NRTA appoints ITO to act as NRTA's agent in arranging bookings for Australian passengers from ASPs. Each reservation made by ITO on behalf of NRTA is to be subject to terms and conditions set by ASPs. NRTA agrees that the booking is made subject to these terms and conditions and ITO acknowledges that NRTA (as principal) has the right to enforce any breach of these terms and conditions against ASPs You have also provided a copy of the terms and conditions between ITO and any given ASP. Amongst other things, these terms and conditions provide that ASP appoints ITO as its agent, on a non-exclusive basis to sell, distribute, market, promote and advertise the Product throughout the world. At any time during the Term, ITO and its agents may make a booking for NRTA with ASP for the Product by placing the booking in writing and/or contacting ASP by telephone or email. Upon confirming the booking, ASP enters into a contractual arrangement with NRTA whereby ASP agrees to provide the Product to NRTA on the terms and conditions and at the rates booked by NRTA through ITO (the Warranties). The Warranties are enforceable by NRTA as a term of the contract for supply of the Product between ASP and NRTA. As was the case in Mercantile International Group , the contract with NRTA describes the nature of the relationship between ITO, NRTA and ASP. It does so in terms which provide for the bringing into existence of contracts between NRTA and ASP through the agency of ITO and with the authority and knowledge of NRTA. Similar statements can be made in relation to the terms and conditions which govern the relationship ITO has with the service providers. There is no suggestion that either of these two documents is a sham and, as such, the reasoning and conclusion of the UK Court of Appeal in Mercantile International Group would appear relevant. This does not conclude the matter, however. For one thing, the facts of this case differ from those in Mercantile International Group . Critically, ITO purports to act as agent for both parties to the transactions it facilitates despite the fact that, on matters such as price, the interests of both of these parties would seem to be diametrically opposed. Below, we analyse this and other factors which may suggest that the relationship, in substance, is not one of agency. First, though, we consider the relevance of two UK decisions in which it was found that an inbound tour operator was not an agent, despite the existence of agency-type clauses in written agreements. | Detailed Reasoning - UK VAT inbound tour operator cases: In recent times, UK Tribunals and Courts have been called upon to determine whether a particular inbound tour operator is an agent of service providers for the purposes of the tour operator margin scheme (TOMS) provisions 7 . Some care needs to be taken in considering whether the findings in those cases are applicable to the present case, given the different context in which they were decided. Nevertheless, to the extent that the Tribunal or Court's role was confined to addressing the factual question of whether or not the inbound tour operator was an agent, their analysis would appear relevant. In International Life Leisure 8 , the appellant, International Life Leisure (ILL) arranged supplies of accommodation, generally in France, for its customers ('the holidaymakers'). It contended that it did so as agent for the various accommodation providers and that, as such, it did not supply the accommodation to the holidaymakers. The Commissioner's for Her Majesty's Revenue and Customs (HMRC) instead contended that ILL acquired and then resupplied the accommodation by dealing with the holidaymakers in its own name (either as principal or as agent for an undisclosed principal 9 ). The documentation considered by the Tribunal included booking conditions, which applied to the booking of accommodation by a holidaymaker through ILL; invoices issued by ILL; and three contracts ILL had with various accommodation providers. The booking conditions stated (amongst other things): • your contract is with [ILL] • [ILL] are agents for the travel and accommodation providers who have agreed to be bound by these booking conditions The booking conditions provided for set cancellation fees that were determined irrespective of any fee that may have been charged by the accommodation provider. The booking conditions also enabled ILL to substitute alternate accommodation at its discretion. ILL was liable for 'ensuring that accommodation was provided, and to the requisite standard' 10 . The invoice issued by ILL to the holidaymaker typically contained the name of the owner of the accommodation, but did not identify them as the owner or otherwise indicate that they were a party to the contract 11 . The three contracts ILL had with the accommodation providers differed in form, but critically the Tribunal found, for each, that: • there was nothing in the contract which suggested that the accommodation provider agreed to be bound by the booking conditions • the accommodation provider would not be informed of the price for which the accommodation was sold to the holidaymaker The Tribunal proceeded to conclude that ILL "is acting as principal …or is at the very least acting in its own name 12 ", citing the following reasons: • It is 'plain' that there is a contract between ILL and the holidaymaker, under which ILL undertakes obligations to the customer, but 'critically' the holidaymaker 'does not undertake any obligations vis a vis any hotel or accommodation provider: the latter cannot go to the [holidaymaker] and demand the package price'' 13 • The accommodation provider did not know its supposed selling price to the customer (which also led to the conclusion that the accommodation provider would not be able to account for that VAT for which it was supposedly liable) 14 • ILL's 'contractual ability to set the price for accommodation and retain the difference between it and the price it has agreed for the accommodation with its provider without reference or accounting to the provider' of itself negated agency 15 • ILL's liability to ensure accommodation was provided, and to the requisite standard 'was not consistent with ILL having simply put the customer into contractual relations with the hotel / accommodation provider' 16 • The documentation failed to identify ILL's supposed principal by name (such that 'even if there were a direct contract at all, it could not be a contract with a named principal) 17 • The percentage rates used to set the cancellation fees are 'arbitrary and are not those, if any, charged by the accommodation provider 18 The facts in the present case differ significantly from those in International Life Leisure . Importantly, though, a number of factors that the Tribunal had regard to in the case which pointed away from agency seem, in the present case, to point towards agency. Indeed, in the present case: • The NRTA is bound by the terms and conditions of the service provider, and it would seem that ASP could demand payment from the NRTA (albeit that the booking conditions specify that ITO will collect payment from the NRTA on the service provider's behalf). • ASP does know the price for which it is selling the service to the NRTA (although it does not know the ITO service fee charged to the NRTA by ITO). Additionally, ITO provides the NRTA with a breakdown of the costs of each service it acquires and ITO's service fee for that service. • ITO does not undertake contractual liability to ensure the accommodation is provided or to ensure that it is provided to the requisite standard. (Rather, the contract expressly provides that the NRTA may enforce any breach against ASP, being the other party to the contract). • The NRTA and the service provider are aware of the identity of one another. The NRTA books a particular ASP (selected, we understand, by it), through the agency of ITO. ASP is made aware of the identity of the NRTA (indeed, the reservation made by ITO will 'carry the NRTA's name'). • ITO does not set and charge any cancellation fees. Rather, the NRTA's booking is subject to the terms and conditions of ASP which may encompass cancellation fees set by ASP. In our view, to the extent that the reasoning in ILL provides a guide to the matters a court or tribunal may take into account in determining whether a particular ITO is an agent, ILL tends to support the conclusion that ITO is acting as agent and is not itself supplying a holiday package. In the second of the two UK VAT cases, Secret Hotels2 19 , the Court of Appeal concluded that the First Tier Tribunal did not err in finding that Secret Hotels2 supplied holiday accommodation as principal, and not as agent of various accommodation providers. Medhotels, as the Respondent was known throughout the period in question, operated a website through which it marketed accommodation in hotels and the like. The accommodation was purchased by holidaymakers either directly through Medhotel's website (in a small number of cases) or indirectly through an agent of Medhotel's (in the majority of cases). In either case, the holidaymaker was subject to booking conditions which, amongst other things, provided: • Medhotels.com act as booking agents on behalf of all the hotels, apartments and villas featured on this website and your contract will be made with these accommodation providers… 20 • Once the contract is made, the accommodation provider is responsible to you to provide you with what you have booked and you are responsible to pay for it, in each case subject to these booking conditions… 21 Medhotels also had agreements with the hotel operators. The agreements, which referred to Medhotels as 'the Agent' and the hotel operator as 'the Principal', amongst other things provided: • In accordance with this Agreement, the Principal hereby appoints the Agent as its selling agent and the Agent agrees to act as such. The Agent undertakes to deal accurately with the requests for accommodation bookings and relay all monies, which it receives from the Principal's clients ("Client(s)"), which are due to the Principal, but shall have no further commitment to the Principal under this Agreement 22 • The Agent is entitled to receive a commission from the Principal. Such commission may be calculated as any sum charged to a Client by the Agent which is over and above the prices set out in the rate sheet attached to this Agreement 23 . The First Tier Tribunal (FTT), citing Laws J in Reed Personnel Services Ltd 24 , concluded that, for the purposes of determining the nature of Medhotels's supply for VAT purposes, it was necessary to focus not only on the contractual documents, but also on the behaviour of Medhotels (that is, what actually occurred in practice). In this regard, the FTT made the following findings (amongst others): • The 25% deposit charged to a holidaymaker by Medhotels (in accordance with the booking conditions) was retained by Medhotels in the event the holidaymaker did not go on holiday (i.e. the deposit was forfeited to Medhotels and not the actual hotel) 25 • Where Medhotels issued vouchers to holidaymakers in lieu of compensation payments, these vouchers would be in respect of a future holiday with Medhotels and not with the hotel in question 26 The FTT noted that some of the terms of the agreement between Med Hotels and the hotel operators were unusual to find in an agency contract. It stated: The majority of this contract imposes obligations upon the hotel in question… and indeed all the documents are drafted by [Medhotels] and we have seen no documents drafted by any of the hotels which impose any conditions upon [Medhotels] 27 . The FTT found that a number of factors were more indicative of Medhotels acting as a principal than an as agent; particularly the fact that Medhotels set its own commission. The Tribunal said that, when the contracts between Medhotels and the hotel operator were considered in conjunction with the way they were implemented, they were inconsistent with an agency relationship (despite the clear statement in the contracts to the contrary). The FTT concluded that Medhotels was not making a supply of agency services, but was itself supplying the holiday. The decision of the FTT was overturned by the Upper Tier Tribunal 28 , but was later restored by the UK Court of Appeal which (taking into account the context of the VAT law 29 ) found that the FTT was 'plainly entitled to reach the conclusion that it did' 30 . In our view, the contract Medhotels had with its service providers bears some resemblance to the contract ITO has with the Australian service providers. In particular, we note that both documents were drafted by the inbound tour operator, and both impose conditions on the accommodation providers and not, as one may expect, the inbound tour operator (as the alleged agent acting in the interests of those providers). Indeed, the FTT's statement that "it is [Medhotels] who dictates to the accommodation providers the terms of the relationship" could equally be said of ITO's arrangements with the Australian service providers. It is true that a section of ITO's contract with the service providers, entitled 'ITO obligations' purports to impose obligations on ITO. However, fulfilment of each one of these obligations is at the 'absolute discretion' of ITO. With respect, given this qualification, we do not see how this part of the contract imposes any real obligation on ITO. There are, however, two critical differences between ITO's arrangements and Medhotel's. Firstly, ITO contends that it acts as agent for both parties to the transaction. Medhotels made no such contention. Medhotel's booking conditions (to which a holidaymaker was subject) stated that the holidaymaker's contract would be with the relevant accommodation provider, but that could only be so if Medhotels possessed the requisite authority to act as legal agent for that accommodation provider. If the authority did not exist, the purported contract could not exist. In contrast, if the equivalent authority did not exist in ITO's case, it would not be fatal to its contention that the supply of the accommodation or other service is made by an ASP to an NRTA. Indeed, if ITO does have authority to act on behalf of an NRTA, and it exercises that authority when booking (in the name of the NRTA) with an ASP, the contract for the provision of the service would be between the ASP and the NRTA. The second critical difference is that the contract ITO has with ASP expressly provides that, upon confirmation of a booking by an ASP, a contract for the supply of the service is created between ASP and NRTA. Unlike Medhotel's contract with its service providers, which merely used the label agency, ITO's contract with ASPs expressly contains terms which provide for the bringing into existence of contracts between ASP and NRTA. Granted, these terms may not of themselves mean that ITO is an agent of ASP. But, in the absence of sham, they must seemingly mean that, if ITO 'introduces' an NRTA (that it has authority to act for) to ASP, the contract for the provision of the service must be between ASP and NRTA (irrespective of whether ITO is a legal agent of ASP). There are other differences between ITO and Secret Hotels2. And, indeed, the contextual differences between the UK and Australian laws should not be discounted. However, without the need to consider these other differences, we are satisfied (for the reasons in the paragraphs above) that, whilst Secret Hotels2 may cast some doubt on whether ITO is a legal agent of ASP, it is of no relevance to deciding the critical question of who the supply of service is between in ITO's case. | Detailed Reasoning - Apparent conflict of interest and breach of fiduciary duties: The relationship between agent and principal is generally, if not always, fiduciary in nature 31 . The fiduciary duties owed by an agent to its principal include a duty to avoid representing two or more principals with conflicting interests (the "double employment rule"). There are two relevant scenarios where an agent may act for two principals despite the double employment rule. The first occurs where the agent makes a full disclosure to each principal (and each principal provides its consent) 32 . In Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1 33 , the Court approved the following passage from Bristol & West Building Society v Mothew [1998] Ch 1, in which Millett LJ stated: A fiduciary who acts for two principals with potentially conflicting interests without the informed consent of both is in breach of the obligation of undivided loyalty; he puts himself in a position where his duty to one principal may conflict with his duty to the other… 34 However, even where informed consent is obtained from both principals, where an actual conflict arises, it does not entitle the agent to act in 'such a way to prefer the interests of one [principal] to those of the other, unless in some particular aspect where this has been specifically understood and agreed 35 .' The second scenario occurs where the scope of each agency is limited so that no conflict arises 36 . For example, in Wombat Nominees Pty Ltd v De Tullio (1990) 98 ALR 307, a land broker who had helped to arrange a mortgage between a borrower and lender was held to be an agent for the lender in respect only of preparing the memorandum of mortgage, despite also acting as the agent of the borrower. ITO purports to act for both an NRTA and the Australian service providers. The interests of these parties clearly conflict on matters such as price. If neither of the exceptions referred to in the paragraph above applies, ITO could not competently act as legal agent for both. ITO has not, at least to our knowledge, secured the informed consent of the Australian service providers or the NRTA in relation to its role as agent of the other party. The scope of ITO's agency with the NRTA extends to the arranging of bookings with service providers that the NRTA has selected. Additionally, ITO is required to use its best endeavours to assist the NRTA in securing the best rates for hotel accommodation and other services. Further, ITO is required to provide a range of services to the NRTA, including customer support services to tourists in Australia. The scope of ITO's agency with the Australian service providers extends to the selling of the service provider's services (and, at ITO's discretion, the marketing, advertising and promoting of these services). The contract between ITO and the service providers imposes a raft of obligations on the service providers including a requirement to sell at rates no greater than those specified (which, in the case of a taxable supply, is at a rate lower than the provider's retail rate); a requirement to use its best endeavours to resolve all customer complaints and to fully cooperate with ITO in settlement negotiations; and a requirement to make available a 'sufficient allotment' of their product. In our view, the imposition of these obligations ensures that ITO has not, by agreeing to act as selling agent of the service providers, placed itself in a position which would conflict with the interests of the NRTA. On the contrary, the arrangements ITO has with the service providers are the very means by which ITO fulfils its obligations to its NRTA principal to arrange bookings at the best available rates and to provide support to customers of the NRTA in the resolution of complaints and the like. On one view, it could be argued that, by 'favouring' the NRTA through the imposition of these obligations, ITO has placed itself in a position which conflicts with the interests of the service providers. But, in our view, this is not so. These obligations and restrictions do not come about because of actions that ITO takes, or decisions that ITO makes, after becoming agent of the service provider. Rather, they are the conditions upon which ITO agrees to act as agent of the service provider and, as such, they form part of the scope of the agency. The agency is not an open-ended authority to sell the service provider's services at a price determined by ITO (in which case the sale of those products for significantly less than the retail rate to satisfy another party's interest would amount to a breach of fiduciary duty). Rather, the agency is limited to the sale of the service provider's products at a price set by the service provider; marketing and promoting the service provider's services at ITO's discretion; and collecting payments from the NRTA. ITO could, in our view, act as agent of the service providers within this very limited scope without a conflict of interest arising. We note, too, that the limited scope of the agency agreements seemingly enables ITO to act for multiple NRTAs and multiple service providers that are in competition with one another. On this issue, Dal Pont 37 , citing the Court of Appeal of New York in Sonnenschein v Douglas Elliman-Gibbons & Ives 38 , states that it followed from this decision that: Fiduciary rules against dual agency cannot be extended to bar simultaneous representation of several sellers who are rivals for the same customer 39 | Detailed Reasoning - Other factors which may point for or against agency: Paragraph 28 of Goods and Services Tax Ruling GSTR 2000/37 states that the following factors may indicate that a particular relationship is one of agency (although no single factor would be determinative on its own): • any description of you as an agent, having authority to act for another party, in an agreement (expressed or implied) between you and the other party; • any exercise of the authority that you are given to enter into legal relations with a third party; • whether you bear any significant commercial risk; • whether you act in your own name; • whether you are remunerated for your services by way of commissions and whether you are entitled to keep any part of your remuneration secret from another party; and • whether you decide the price of things that you might sell to third parties We consider that these factors point towards ITO's relationship with the NRTA being one of agency. Amongst other things, the contract describes ITO's authority; ITO exercises that authority when it books services in the name of the NRTA; ITO is remunerated by a separately itemised commission or fee (and is required to account for this); and all reservations 'carry' the NRTA brand. We consider that these factors also tend to point towards ITO's relationship with the service providers being one of agency, although perhaps not as conclusively. There are, however, some factors that are not expressly referred to in the points above which could be argued to point against agency. These include: • the sheer number of obligations imposed on the service providers by ITO and the nature of those obligations; • the fact that ITO does not hold the money it receives from the NRTA for the service supplied by the service provider on trust for the benefit of the service provider (as you have advised); • the fact that ITO cannot seemingly create or affect legal relations without the service provider confirming a booking. As noted previously, we consider that a possible explanation for both the number and the nature of the obligations imposed on the service providers is the need for ITO to avoid the conflicts of interest that would otherwise arise. Accordingly, we do not view the first of these factors as being fatal to an agency contention. The contract ITO has with the service providers contains detailed clauses relating to the collection of moneys from an NRTA, but does not require that these amounts be held on trust. On this issue, Dal Pont notes: Not all moneys received on a principal's behalf or entrusted by a principal to an agent are necessarily trust moneys. The terms of the agency agreement may dictate otherwise. Also, it may be that the agent is, instead of a trustee, merely a debtor, in which case the… prohibition on mixing [trust money with the agent's own money] does not apply unless statute makes provision to the contrary [footnotes omitted] 40 . Accordingly, we do not consider the second of the above factors to be fatal to an agency contention. There are a number of practical reasons why it may make sense for a booking to be confirmed first by a service provider before the contract with the NRTA comes into effect. The confirmation provides a level of comfort to ITO that the service provider is aware of the need to provide the contracted service to the NRTA at the requested time and has the capacity to do so. The alternative, being a mere notification by ITO without the requirement for any return correspondence or confirmation from the service provider, may not achieve this. We do not consider the fact that confirmation is required to be fatal to the contention that ITO is an agent of the service provider. Rather, it is consistent with the scope of the agency being the sale of a product at a price set by the service provider to a customer introduced by ITO with whom the service provider, after being advised of the identity of the customer and its requested service, agrees to contract. | Detailed Reasoning - Conclusion in relation to Agency issue:: For the reasons outlined above, we consider that ITO acts as legal agent for both the NRTA and ASPs. If we are wrong about this, we consider that, at the very least, ITO acts as agent of the NRTA and, in that capacity, enters into contracts with ASPs which bind the NRTA. Under both of these alternatives, the supply of the Land Products would be between ASP (as supplier) and the NRTA (as disclosed principal and recipient). The fee ITO receives from the NRTA would be consideration for a separate supply of services ITO makes to the NRTA. ITO would, in relation to its role in facilitating the supply by the service provider and its role in facilitating the acquisition by the NRTA, qualify as an agent or other intermediary to which Division 153 of the GST Act may apply. The conclusion above does not mean that ITO will be an agent for each and every NRTA or Australian service provider with which it contracts. If the arrangement between ITO and any given NRTA or ASP differs materially from the representative arrangements we have considered, the conclusions in this ruling would not apply. | Detailed Reasoning - Is the supply of agency services ITO makes to NRTA a GST-free supply?: The scope of ITO's agency with NRTA extends to the arranging of bookings with the ASPs that NRTA selects on ITO website. Additionally, ITO is required to use its best endeavours to assist NRTA in securing the best rates for hotel accommodation and other services such as an up to date online tariff and production reports for products booked in Australia and New Zealand. Further, ITO is required to provide a range of services to NRTA, including customer support services to tourists in Australia. A supply is a taxable supply where the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) are satisfied. Section 9-5 of the GST Act states: You make a taxable supply if: (a) you make the supply for *consideration; and (b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and (c) the supply *is connected with Australia; and (d) you are *registered or *required to be registered. However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed (* denotes a defined term under section 195-1 of the GST Act) However, under section 9-5 of the GST Act, a supply is not a taxable supply to the extent that it is input taxed or GST-free. ITO's supply of agency services to NRTA is for consideration and ITO makes the supply through an enterprise that ITO carries on in Australia, hence the supply is connected with Australia. ITO is registered for GST in Australia. Therefore ITO satisfies all the requirements in paragraphs (a) to (d) of section 9-5 of the GST Act. Hence, ITO's supply of agency services to NRTAs is taxable to the extent that it is not GST-free or input taxed. ITO's supply of agency services to NRTAs does not satisfy the input taxed provisions under the GST Act. The GST-free provisions should also be taken into consideration. | Detailed Reasoning - GST-free: Of most relevance to this situation are items 2 and 3 in the table in subsection 38-190 (1) of the GST Act (Items 2 and 3) which allow certain supplies to be made GST-free. Under Item 2 in the table in subsection 38-190(1) of the GST Act (Item 2), a supply is GST-free where it is: a supply that is made to a *non-resident who is not in Australia when the thing supplied is done; and (a) the supply is neither a supply of work physically performed on goods situated in Australia when the work is done nor a supply directly connected with *real property situated in Australia; or (b) the *non-resident acquires the thing in *carrying on the non-residents *enterprise, but is not *registered or *required to be registered. Under Item 3 in the table in subsection 38-190(1) of the GST Act (Item 3), a supply is GST-free where it is: a supply: (a) that is made to a *recipient who is not in Australia when the thing supplied is done; and (b) the effective use or enjoyment of which takes place outside Australia; other than a supply of work physically performed on goods situated in Australia when the thing supplied is done, or a supply directly connected with *real property situated in Australia. Item 2 is applicable to supplies made to non-resident recipients. Item 3 is applicable irrespective of the residency of the recipient. In order for a supply to be GST-free under items 2 and 3 of subsection 38-190(1) of the GST Act, NRTA must not be in Australia when ITO's supply of services is performed. In accordance with the Goods and Services Tax Ruling GSTR 2004/7, the pre-condition that the non-resident is not in Australia when the thing supplied is done requires that neither the non-resident, nor a representative acting on behalf of the non-resident if the non-resident is a company, is in Australia in relation to the supply . | Detailed Reasoning - Are NRTAs in Australia in relation to ITO's supply?: Paragraph 38 of GSTR 2004/7 provides that a non-resident company is in Australia if the company is registered with ASIC, or if the company has a permanent establishment in Australia for income tax purposes. 'Permanent establishment' is defined in subsection 6(1) of the Income Tax Assessment Act 1936 . NRTAs are non-resident companies. ITO is NRTAs' agent in Australia. NRTAs may have a permanent establishment in Australia because they carry on their business through an agent, ITO, at a fixed and definite place for a substantial period of time. However, this does not mean that NRTAs are in Australia in relation to IOT's supply of agency services. Paragraphs 374 to 379 of GSTR 2004/7 state as follows: Supply of agency services by an agent to a non-resident 374. If an agent carries on the business of a non-resident company in Australia at a fixed and definite place for a sufficiently substantial period of time, that company is in Australia. However, the supply of services by the agent to the non-resident company in the course of its own business ('agency services') may still be GST-free. 375. For supplies of agency services made by the agent to the non-resident company, the company is not in Australia in relation to the supply of those agency services. This is because the agent does not make the company in Australia in relation to supplies that it makes itself to the company. If the other requirements of item 2 are met, the supply of services and other things made by the agent in the course of its own business (agency services) to the non-resident company is a GST-free supply. 376. For example, a non-resident company that is in Australia because the real estate agent attends to the day to day management and operation of a commercial rental property in Australia on behalf of the company is not in Australia in relation to a supply of services that the real estate agent itself makes to that company. The company is not in Australia in relation to the supply unless those services are for the purposes of some other presence of the company in Australia, such as a branch, or there is some other connection (that is not minor in nature) between the agency services and that other Australian presence of the company. If this is the case, the company is in Australia in relation to the supply of the agency services through its other presence in Australia and the supply of the agency services is not GST-free. 377. This treatment of agency services also applies if the entity receiving the services is an entity other than a company, for example a partnership. Example 21 - supply of agency services 378. Ausage acts as agent in Australia for NZ Co and is carrying on the business of NZ Co in Australia. NZ Co is therefore in Australia. In carrying on the business of NZ Co in Australia, Ausage enters into a contract with Aus Store, an Australian storage company, to secure storage services for stock held in Australia by Ausage on behalf of NZ Co. The supply of storage services to NZ Co is not GST-free as NZ Co is in Australia in relation to the supply. 379. Ausage also charges NZ Co a monthly fee for the agency services it provides to NZ Co in carrying on the business of NZ Co in Australia. Even though NZ Co is in Australia in relation to the supply from Aus Store, it is not in Australia in relation to the supply of the agency services supplied by Ausage. Therefore, the supply of agency services from Ausage to NZ Co is GST-free, provided the other requirements of item 2 are met. Therefore, NRTA is not in Australia for the purposes of Item 2 and Item 3(a) in relation to ITO's supply of agency services to NRTA. Item 2 : Is ITO's supply of facilitation services to NRTA directly connected with real property situated in Australia? You submit that to a large degree, ITO's supply to NRTA consist of ITO facilitating and arranging the acquisition of the Land Products by NRTA from ASP. Based on the facts provided, NRTA is a non-resident and the supply of agency services ITO provides to NRTA is not a supply of work physically performed on goods situated in Australia. The next step is to consider whether ITO's supply is directly connected with real property situated in Australia. Goods and Services Tax Ruling GSTR 2003/7 provides guidance on the meaning of "directly connected with real property" for the purposes of subsection 38-190(1). Paragraph 95 of GSTR 2003/7 provides that the supply of hotel accommodation is a supply of real property. However, paragraphs 22 and 33 of GSTR 2003/7 state: 22. We consider, therefore, that the expression 'directly connected with' contemplates a very close link or association between the supply and goods or real property. (This is discussed further at paragraphs 113 to 134 of the Explanations section of the Ruling.) 33. We consider that such a close link or association between the supply and particular goods or real property exists where, for example, the direct object of the supply is the goods or real property in the sense that: • the supply changes or affects the goods or real property in a physical way; or • there is a physical interaction with the goods or real property but without changing the goods or real property; or • the supply establishes the quantity, size, other physical attributes or the value of the goods or real property; or • the supply affects (or its purpose is to affect) or protects the nature or value (including indemnity against loss) of the goods or real property; or • the supply affects, or is proposed to affect, the ownership of the goods or real property including any interest in, or right in or over goods or real property. ITO's supply of agency/facilitation services to NRTA relate to the Land Products supplied by ASPs. The Land Products include hotel accommodation situated in Australia. ITO's supply of agency/facilitation services does not change the hotel in a physical way, does not establish the quantity, size, other physical attributes or the value of the real property, does not affect or protect the nature or value of the real property and does not affect the ownership of, or interest, in the hotel. Hence, ITO's supply of agency/facilitation services to NRTAs is not directly connected with real property situated in Australia. | Detailed Reasoning - Limitation of Item 2: The scope of item 2 is limited by subsection 38-190(3) of the GST Act which provides that a supply covered by item 2 is not GST-free if: n it is a supply under an agreement entered into, whether directly or indirectly with a non-resident; and n the supply is provided or the agreement requires it to be provided, to another entity in Australia. Pursuant to the information you have provided, paragraph 38-190(3) (a) of the GST Act is satisfied because ITO's supply of agency services is a supply under an agreement entered into with NRTAs, who are non-resident entities. The next step is to consider paragraph 38-190(3) (b) of the GST Act. Is your supply provided to another entity, and if yes, is your supply provided to that other entity in Australia? Paragraphs 59 and 61 of Goods and Services Tax GSTR 2005/6 provide guidance in relation to the expression provided to another entity. Generally a supply is made to whoever you are contractually liable to perform the services for, in this instance, ITO's supply is made to NRTAs. However, a supply is provided to whoever obtains the actual effective use or enjoyment of the supply, that is, the actual beneficiary. Paragraph 509 of GSTR 2005/6 provides that for the purposes of applying subsection 38-190(3), the focus is on the nature of the supply and the actual flow of that supply. ITO supplies agency services to NRTAs to enable their acquisitions of Land Products from ASPs by arranging the bookings with ASPs. You submit that the booking arrangement does not involve any service being provided to the ASP. We agree that the booking arrangement is part of the agency services ITO provides to the NRTAs. NRTAs are the entities acquiring the Land Products from ASPs. ITO's supply of agency services is not provided to the inbound tourists of NRTAs. These customers are acquiring the Land Products, not ITO's agency services. However, part of the services from ITO to NRTAs is ITO's agreement with NRTAs to supply the itinerary planning services and the end customer service to inbound tourists. The itinerary planning services are provided before the tourists arrive in Australia, hence this service is not provided to an entity in Australia. The End Customer service : ITO has an agreement with NRTAs to provide the End Customer Service to NRTAs' inbound tourists. You explain that only certain NRTAs choose to acquire the "After Hour Customer Service" with ITO. In those cases, an additional fee is charged on top of the facilitation service fee. Other NRTAs may choose to acquire the business hours customer service on weekdays from ITO to assist with emergencies such as change of flight details, or conflicts between the tourists and the ASPs in relation to the Land Products. You submitted that not all tourists require this business hour assistance, it is not known whether the tourists will use this service, and no separate charge is made for this service. Goods and Services Tax Ruling GSTR 2001/8 explains that a 'composite supply' is a supply that contains a dominant part and includes something that is integral, ancillary or incidental to that part. You treat a composite supply as a supply of a single thing. Paragraphs 56, 59, 59A and 60 of GSTR 2001/8 state as follows: 56. In Customs and Excise Commissioners v. Madgett and Anor (t/a Howden Court Hotel), the European Court of Justice described the term 'ancillary' in terms of scale and connection: '... a service is ancillary if, first, it contributes to the proper performance of the principal service and second, it takes up a marginal proportion of the package price compared to the principal service. It does not constitute an object for customers or a service sought for its own sake, but a means of better enjoying the principal service. 59. No single factor (by itself) will provide the sole test you use to determine whether a part of a supply is integral, ancillary or incidental to the dominant part of the supply. Having regard to all the circumstances, and taking a common sense and practical approach, indicators that a part may be integral, ancillary or incidental include where: · you would reasonably conclude that it is a means of better enjoying the dominant thing supplied, rather than constituting for customers an aim in itself; or · it represents a marginal proportion of the total value of the package compared to the dominant part; or · it is necessary or contributes to the supply as a whole, but cannot be identified as the dominant part of the supply; or · it contributes to the proper performance of the contract to supply the dominant part. 59A. The factors listed in paragraph 59 of this Ruling are not necessarily the only ones that may be taken into account in properly characterising a supply. In any given case there may be other particular circumstances that are relevant. It may also be necessary to weigh up those factors which may point to part of a supply being integral, ancillary or incidental against the relative significance of the parts in the supply and therefore consider whether the parts should be recognised as separate parts. It is a question of fact and degree whether a supply is mixed or composite. 60. As a means of minimising compliance costs, you may treat something (or things taken together) as being integral, ancillary or incidental if the consideration that would be apportioned to it (if it were part of a mixed supply) does not exceed the lesser of : · $3.00; or · 20% of the consideration of the total supply You submit that although the End Customer Service is provided to the tourists while they are in Australia, this component is not a separate supply from the Facilitation Services which ITO provides to NRTA. We agree with you that customer service is part of the client's experience and is a means of clients better enjoying the Land Products. You have estimated that less than 1% of ITO consultants' time was spent assisting customers with the End Customer Service. Hence this can be regarded as an ancillary part of the composite supply which ITO provides to NRTA. Therefore, where NRTA does not enter into a separate "After Hours Customer Service" agreement with ITO for a separate fee/consideration, subsection 38-190(3) does not apply and the whole of ITO's supply of agency services to NRTA is GST-free under Item 2. | Detailed Reasoning - Item 3: Paragraph (a) of Item 3 has already been addressed above. Paragraph (b) of Item 3 requires the place of effective use or enjoyment of a supply to be determined (that is, whether the place is outside Australia). We take a two- step approach to work out whether effective use or enjoyment of a supply takes place outside Australia. Firstly, we determine the entity to which the supply is provided (the providee entity). We then determine whether provision of the supply to the providee entity is outside Australia. As paragraph (b) of Item 3 refers to the effective use or enjoyment of the supply, it is necessary to inquire as to the entity that has the actual use or enjoyment of the supply. According to paragraph 41 in GSTR 2007/2, a supply is made to a recipient and provided to another entity if in the performance of the service (or in the doing of some thing) the actual flow of that supply is to an entity that is not the recipient entity with which the supplier made the agreement for the supply. That is while the contractual flow of the supply is to the recipient entity, the actual flow of the supply is to another entity. In this case, where you have made and provided your services to NRTA, NRTA is the providee entities. We consider that in all circumstances NRTA has the actual use or enjoyment of your supply. Our conclusion is that the actual flow of your supply is to NRTA, not the customers of NRTA. The next step is to determine whether the effective use or enjoyment of the supply takes place outside Australia. Effective use or enjoyment of a supply only takes place outside Australia if there is provision of the supply to the providee entity outside Australia. In relation to when the supply of your services are made to and provided to NRTA, they are not in Australia in relation to your supply when you provide your supply of agency services. In this circumstance the use and enjoyment of ITO's supply is outside Australia. It is noted, as discussed above, that the supply of your agency services is neither a supply of work physically performed on goods situated in Australia nor a supply directly connected with real property situated in Australia. Therefore, ITO's supply of agency services to NRTA is GST-free under Items 2 and 3 in the table in subsection 38-190(1) of the GST Act. 1 Referred to in paragraphs 11 and 31 of Goods and Services Tax Ruling GSTR 2000/37 2 See Goods and Services Tax Ruling GSTR 2006/9 at paragraph 223 3 A label given to a particular relationship will only be considered a sham where the relationship is intended to be mistaken for something else or is something that is not what it purports to be ( Sharrment Pty Ltd and Others v Official Trustee in Bankruptcy (1988) 18 FCR 449 at 453). In his discussion of 'sham' in Raftland Pty Ltd v FCT (2008) 238 CLR 516, Kirby J said (at 553) that in Australia, it is necessary to the notion of sham that there is 'a disparity between the ostensible and the real intentions of the parties' such that the courts must test the intentions of the parties as expressed in the documentation against other available evidence of their intentions. 4 South Sydney District Rugby League Football Club Ltd v News Ltd [2000] FCA 1541 at [135] 5 At [7] 6 AMB Imballaggi Plastici Sri v Pacflex Ltd . [1999] 2 All E.R. (Comm) 249 and Re Nevill, ex p White (1871) LR 6 Ch App 397 7 Section 53 of the Value Added Tax Act 1994 (VATA), which gives effect to article 26 of the Sixth VAT Directive (77/388/EEC); and Value Added Tax (Tour Operators) Order 1987 8 International Life Leisure Limited v The Commissioner for Her Majesty's Revenue and Customs (V & O Tribunal; Manchester Tribunal Centre, March 2006) 9 The VAT law expressly treats a supply made through an agent of an undisclosed principal as being made by the agent (article 6(4) of the Sixth VAT Directive). The TOMS applies to supplies of this type (article 26 of the Sixth Directive, s 53 of the VATA) 10 The Tribunal stated this at paragraph 72, although it does not appear to be expressly documented in the extract of the booking conditions reproduced in the judgment 11 At [73] 12 At [84], noting that the reference to acting in its own name is a reference to acting as agent for an undisclosed principal 13 At [82] 14 At [82] with reference to [75] 15 At [95] with reference to HMRC submission outlined at [93] 16 At [82] with reference to [72] 17 At [82] with reference to [73] 18 At [44] 19 Secret Hotels2 Ltd (formerly Med Hotels Ltd) v Commissioners for Her Majesty's Revenue and Customs [2012] EWCA Civ 1571 20 Secret Hotels2 v Revenue and Customs Commissioners [2011] UKUT 308 (TCC), at paragraph 19 21 Secret Hotels2 v Revenue and Customs Commissioners [2011] UKUT 308 (TCC), at paragraph 20 22 Secret Hotels2 v Revenue and Customs Commissioners [2011] UKUT 308 (TCC), at paragraph 39 23 Secret Hotels2 v Revenue and Customs Commissioners [2011] UKUT 308 (TCC), at paragraph 40 24 Customs & Excise Commissioners v Reed Personnel Services Ltd [1995] STC 588 25 Secret Hotels2 Ltd (formerly Med Hotels Ltd) v Revenue and Customs Commissioners [2010] UKFTT 120 (TC), at paragraph 39 26 Secret Hotels2 Ltd (formerly Med Hotels Ltd) v Revenue and Customs Commissioners [2010] UKFTT 120 (TC), at paragraph 40 27 Secret Hotels2 Ltd (formerly Med Hotels Ltd) v Revenue and Customs Commissioners [2010] UKFTT 120 (TC), at paragraph 61 28 Secret Hotels2 v Revenue and Customs Commissioners [2011] UKUT 308 (TCC) 29 In particular, the Court noted the importance of the article 3(2) of the Value Added Tax (Tour Operators) Order 1987 which provides that the supply of one or more designated travel services, as part of a single transaction, is to be treated as a single supply of services (and thus regard must be had to the whole holiday package, and not one element to the exclusion of others: at [47]). The Court also noted that it was correct, for VAT purposes, to have regard to the whole facts of the case, and not just the contractual documents in order to determine whether Medhotels was supplying a 'designated travel service' so as to fall within the TOMS provisions (at [46]). The Court also noted that section 53 of the VATA must be read in conjunction with article 26 of the Sixth Directive which provides that the TOMS shall not apply 'to travel agents who are acting only as intermediaries and accounting for tax in accordance with art 11A(3)(c)'; and the Respondent did not account in that manner (at [40] and the last point in [48]. 30 At [48] 31 For a discussion on possible exceptions, see GE Dal Pont, Law of Agency , (2008), [10.17] page 236 (Dal Pont) 32 Beach Petroleum Nl v Kennedy (1999) 48 NSWLR 1, 97; Bristol & West Building Society v Mothew [1998] Ch 1 at paragraphs [18]-[19]. 33 (1999) 48 NSWLR 1 at 97. 34 [1998] Ch 1 at paragraphs [18]-[19]. 35 McDonnell v Barton Realty Ltd [1992] 3 NZLR 418. 36 Wombat Nominees Pty Ltd v De Tullio (1990) 98 ALR 307. 37 GE Dal Pont, Law of Agency , (2008) 38 753 NE 2d 857 (NY 2001) 39 Dal Pont, [12.52] 40 Dal Pont, [13.6]