Wine Equalisation Tax Determination WETD 2010/1
Date of effect: 24 February 2010

What this ruling is about: This document is a public ruling for the purposes of section 105-60 of Schedule 1 to the Taxation Administration Act 1953. You can rely on the information presented in this document which provides advice on the operation of the WET system. Wine Equalisation Tax Ruling WETR 2002/1 explains the WET rulings system and the Commissioner's view of when you can rely on this interpretation of the law in WET public and private rulings. If a statement in this determination is later found to be incorrect or misleading and you make a mistake as a result of relying on this determination, you will not have to pay any resulting underpaid tax nor will you have to pay any penalty. In addition, if you have relied on this determination reasonably and in good faith you will not have to pay interest charges. 1. The arrangement described in Taxpayer Alert TA 2009/6 (the Alert) may not result in the taxable value of the sales of wine under the arrangement being able to be determined using the half retail price method specified in section 9-35 of the A New Tax System (Wine Equalisation Tax) Act 1999 (WET Act) [1] because: Background and Explanation 2. The Alert was issued on 1 April 2009. It describes an arrangement that seeks to reduce the wine equalisation tax (WET) liability on the sale of wine through the use of an interposed entity and an agency relationship to shift the point where the WET liability is determined and to affect the methodology used in determining it. The Alert applies to arrangements with features substantially equivalent to the following: Legislative context 3. Indirect marketing sales [2] are a type of retail sale that are assessable dealings even though the purchaser of the wine may have borne WET. These arrangements are assessable dealings to ensure that WET is taxed on the full wholesale value. In accordance with section 5-20 there is an indirect marketing sale if the sale is a retail sale by an entity which is not the manufacturer of the wine and the sale occurs in either of the following circumstances: 4. The Assessable Dealings Table in section 5-5 specifies that the normal taxable value for an indirect marketing sale is the notional wholesale selling price. [3] In the case of indirect marketing sales the notional wholesale sale price is generally calculated using the half retail price method. [4] The taxable value for the retail sale of wine, worked out using the half retail price method is 50% of the price of the sale (including WET and GST). [5] 5. Pursuant to section 13-5 an entity that intends to sell wine by way of an indirect marketing sale is entitled to quote its Australian Business Number (ABN) when purchasing wine from suppliers. In accordance with section 7-10 a sale is not taxable if a purchaser quotes for the sale. Therefore a sale of wine to an entity that intends to sell that wine by indirect marketing sale ('marketer') will not be subject to WET if the indirect 'marketer' quotes their ABN at the time of purchase of the wine. Indirect marketing sales Where the retailer is an agent of the 'marketer' 6. The first category of indirect marketing sales referred to in section 5-20 are retail sales made under an arrangement where an entity is authorised to sell wine on behalf of another entity (the 'marketer'), in circumstances where the 'marketer' is not the manufacturer of the wine. For example, wine sold on consignment where a retailer sells the wine as an agent of the owner of the wine will be an indirect marketing sale for the purposes of section 5-20. 7. Under the arrangements described in the Alert the retailer purportedly sells wine through its retail outlets on behalf of the 'marketer'. If the retailer is acting as an agent [6] of the 'marketer' with respect to these sales of wine, then, subject to the application of Division 165 of the GST Act as discussed in paragraphs 10 to 21 of this Determination, the sale of the 'marketer's' wine will be an indirect marketing sale pursuant to section 5-20 of the WET Act and the taxable value of the wine may be determined using the half retail price method. Where the retailer is not an agent of the 'marketer' 8. In some circumstances, notwithstanding the description that the retailer and 'marketer' may have attributed to their business relationship, an examination of relevant facts and circumstances, and the actual conduct of the parties, may reveal that the retailer is not an agent of the 'marketer', and is not selling the wine on behalf of the 'marketer'. In these cases the relevant sales of wine will not be indirect marketing sales for the purposes of section 5-20, and the taxable value of the wine may not be able to be determined using the half retail price method. 9. For example, consignment sales undertaken on a 'sale or return' basis will not be indirect marketing sales. 'Sale or return' arrangements occur where wine is consigned by the 'marketer' to the retailer but no sale takes place until the retailer finds a buyer for the wine at which time two sales occur; the first from the 'marketer' to the retailer and the second from the 'retailer' to the end customer. In these circumstances the first sale by the 'marketer' to the retailer will be a wholesale sale and the taxable value of this wholesale sale will be the price for which the wine is sold (excluding WET and GST). [7] In these circumstances the sales of wine by the 'marketer' will not be indirect marketing sales and the taxable value of the wine may not be determined using the half retail price method. Division 165 of the GST Act - anti avoidance 10. Alternatively, the Commissioner will consider the application of the general anti-avoidance provisions in Division 165 of the GST Act to the arrangements as described in the Alert. 11. Division 165 of the GST Act applies to WET avoidance schemes. [8] This is because section 21-5 of the WET Act incorporates an entity's liability for WET (other than WET on customs dealings) [9] into the net amount that the entity is liable to pay under Division 33 of the GST Act, or into the amount of refund to which an entity is entitled under Division 35 of the GST Act. 12. The application of Division 165 of the GST Act was considered by the Administrative Appeals Tribunal in VCE v. Federal Commissioner of Taxation 2006 ATC 187; 63 ATR 1249, the first decision to examine the use of these provisions. Additionally, the Commissioner has set out his views on the application of Division 165 to specific arrangements and these are discussed in a number of public rulings and determinations. [10] 13. The application of Division 165 of the GST Act, which contains the general anti-avoidance provisions, requires a careful weighing of the individual circumstances of each case. Therefore, in the absence of all relevant information, it is not possible to state definitively whether a particular scheme will attract the application of Division 165. 14. For Division 165 of the GST Act to apply, the following four elements need to be satisfied: Element 1: scheme 15. It is considered that all or only some of the elements comprising the arrangements described in paragraph 2 of this Determination would constitute a 'scheme' under the broad definition of that term in subsection 165-10(2) of the GST Act: see the observations of the High Court in Federal Commissioner of Taxation v. Hart (2004) 217 CLR 216 at 234-238 and 260-261 in relation to the virtually identical definition of 'scheme' for the purposes of Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) and the decision of Deputy President Forgie of the Administrative Appeals Tribunal in VCE v. Federal Commissioner of Taxation 2006 ATC 187; 63 ATR 1249 that specifically dealt with a scheme in the context of the application of Division 165 of the GST Act. 16. The scheme in the arrangements may be concisely described as one involving the interposition of the 'marketer' between the suppliers of the wine and the retailer, and the sale of wine by the retailer through its retail outlets, on behalf of the 'marketer'. Element 2: GST benefit 17. Further, it is considered that the arrangement constitutes a scheme which would give rise to a GST benefit under paragraph 165-10(1)(a) of the GST Act. That is, had the 'marketer' not been interposed between the suppliers and the retailer, the suppliers would have continued, as before, to make wholesale sales of wine to the retailer and the suppliers would have been liable for WET on those sales of wine based upon the price for which the wine was sold (excluding WET and GST). 18. Under the arrangements described in the Alert the suppliers sell wine to the 'marketer'. The indirect 'marketer' quotes their ABN with respect to their purchase of the wine and pursuant to section 7-10 of the WET Act the sale of wine by the suppliers to the 'marketer' is not subject to WET. Therefore, because under the scheme the suppliers no longer incur a WET liability with respect to the sale of wine for sale in the retailer's outlets, it could reasonably be expected that a larger amount would be payable under the provisions of the GST Act [11] (apart from Division 165) than would have been payable but for the scheme: see the comments of the High Court in Federal Commissioner of Taxation v. Peabody (1994) 181 CLR 359 at 385 on the reasonable expectation test in the context of the definition of 'tax benefit' for the purposes of Part IVA of the ITAA 1936. Element 3: entity gets GST benefit 19. The supplier gets the GST benefit of a lesser net amount payable as described in paragraphs 17 and 18 of this Determination. Element 4: dominant purpose or principal effect 20. It would also be reasonable to conclude, having regard to the matters set out in subsection 165-15(1) of the GST Act, that the sole or dominant purpose of the scheme or part of the scheme, or the principal effect of the scheme or part of the scheme, was for the supplier to obtain the GST benefit so that the amount of WET borne on the ultimate sale of the wine to consumers could be reduced. In this context the following general observations can be made: Furthermore, the retailer sets the sale price for the wine and continues to negotiate the purchase price of the wine with the suppliers. Despite being the seller of the wine, the 'marketer' only receives a minimal portion of the sale proceeds from the wine, and the retailer retains almost the entire sale proceeds of the wine. The advantage of the scheme for the retailer is that the WET that is embedded in the price paid by the end consumer is less than it otherwise would be. Therefore they are able to either sell wine at a lower price compared to competitors or enjoy a higher profit margin. 21. It is therefore open to the Commissioner to exercise his powers under section 165-40 of the GST Act to negate the GST benefit by determining that the supplier's net amount for the relevant periods includes the WET that was not paid because the 'marketer' had quoted. Date of effect 22. This Determination explains the Commissioner's view of the law as it applies both before and after its date of issue. You can rely upon this Determination on and from its date of issue for the purposes of section 105-60 of Schedule 1 to the Taxation Administration Act 1953 . Commissioner of Taxation 24 February 2010

Class of entities or scheme: 15. It is considered that all or only some of the elements comprising the arrangements described in paragraph 2 of this Determination would constitute a 'scheme' under the broad definition of that term in subsection 165-10(2) of the GST Act: see the observations of the High Court in Federal Commissioner of Taxation v. Hart (2004) 217 CLR 216 at 234-238 and 260-261 in relation to the virtually identical definition of 'scheme' for the purposes of Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) and the decision of Deputy President Forgie of the Administrative Appeals Tribunal in VCE v. Federal Commissioner of Taxation 2006 ATC 187; 63 ATR 1249 that specifically dealt with a scheme in the context of the application of Division 165 of the GST Act. 16. The scheme in the arrangements may be concisely described as one involving the interposition of the 'marketer' between the suppliers of the wine and the retailer, and the sale of wine by the retailer through its retail outlets, on behalf of the 'marketer'. | Element 2: GST benefit: 17. Further, it is considered that the arrangement constitutes a scheme which would give rise to a GST benefit under paragraph 165-10(1)(a) of the GST Act. That is, had the 'marketer' not been interposed between the suppliers and the retailer, the suppliers would have continued, as before, to make wholesale sales of wine to the retailer and the suppliers would have been liable for WET on those sales of wine based upon the price for which the wine was sold (excluding WET and GST). 18. Under the arrangements described in the Alert the suppliers sell wine to the 'marketer'. The indirect 'marketer' quotes their ABN with respect to their purchase of the wine and pursuant to section 7-10 of the WET Act the sale of wine by the suppliers to the 'marketer' is not subject to WET. Therefore, because under the scheme the suppliers no longer incur a WET liability with respect to the sale of wine for sale in the retailer's outlets, it could reasonably be expected that a larger amount would be payable under the provisions of the GST Act [11] (apart from Division 165) than would have been payable but for the scheme: see the comments of the High Court in Federal Commissioner of Taxation v. Peabody (1994) 181 CLR 359 at 385 on the reasonable expectation test in the context of the definition of 'tax benefit' for the purposes of Part IVA of the ITAA 1936. | Element 3: entity gets GST benefit: 19. The supplier gets the GST benefit of a lesser net amount payable as described in paragraphs 17 and 18 of this Determination. | Element 4: dominant purpose or principal effect: 20. It would also be reasonable to conclude, having regard to the matters set out in subsection 165-15(1) of the GST Act, that the sole or dominant purpose of the scheme or part of the scheme, or the principal effect of the scheme or part of the scheme, was for the supplier to obtain the GST benefit so that the amount of WET borne on the ultimate sale of the wine to consumers could be reduced. In this context the following general observations can be made: Furthermore, the retailer sets the sale price for the wine and continues to negotiate the purchase price of the wine with the suppliers. Despite being the seller of the wine, the 'marketer' only receives a minimal portion of the sale proceeds from the wine, and the retailer retains almost the entire sale proceeds of the wine. The advantage of the scheme for the retailer is that the WET that is embedded in the price paid by the end consumer is less than it otherwise would be. Therefore they are able to either sell wine at a lower price compared to competitors or enjoy a higher profit margin. 21. It is therefore open to the Commissioner to exercise his powers under section 165-40 of the GST Act to negate the GST benefit by determining that the supplier's net amount for the relevant periods includes the WET that was not paid because the 'marketer' had quoted.



Appendix: 2. The Alert was issued on 1 April 2009. It describes an arrangement that seeks to reduce the wine equalisation tax (WET) liability on the sale of wine through the use of an interposed entity and an agency relationship to shift the point where the WET liability is determined and to affect the methodology used in determining it. The Alert applies to arrangements with features substantially equivalent to the following: | Legislative context: 3. Indirect marketing sales [2] are a type of retail sale that are assessable dealings even though the purchaser of the wine may have borne WET. These arrangements are assessable dealings to ensure that WET is taxed on the full wholesale value. In accordance with section 5-20 there is an indirect marketing sale if the sale is a retail sale by an entity which is not the manufacturer of the wine and the sale occurs in either of the following circumstances: 4. The Assessable Dealings Table in section 5-5 specifies that the normal taxable value for an indirect marketing sale is the notional wholesale selling price. [3] In the case of indirect marketing sales the notional wholesale sale price is generally calculated using the half retail price method. [4] The taxable value for the retail sale of wine, worked out using the half retail price method is 50% of the price of the sale (including WET and GST). [5] 5. Pursuant to section 13-5 an entity that intends to sell wine by way of an indirect marketing sale is entitled to quote its Australian Business Number (ABN) when purchasing wine from suppliers. In accordance with section 7-10 a sale is not taxable if a purchaser quotes for the sale. Therefore a sale of wine to an entity that intends to sell that wine by indirect marketing sale ('marketer') will not be subject to WET if the indirect 'marketer' quotes their ABN at the time of purchase of the wine. | Where the retailer is an agent of the 'marketer': 6. The first category of indirect marketing sales referred to in section 5-20 are retail sales made under an arrangement where an entity is authorised to sell wine on behalf of another entity (the 'marketer'), in circumstances where the 'marketer' is not the manufacturer of the wine. For example, wine sold on consignment where a retailer sells the wine as an agent of the owner of the wine will be an indirect marketing sale for the purposes of section 5-20. 7. Under the arrangements described in the Alert the retailer purportedly sells wine through its retail outlets on behalf of the 'marketer'. If the retailer is acting as an agent [6] of the 'marketer' with respect to these sales of wine, then, subject to the application of Division 165 of the GST Act as discussed in paragraphs 10 to 21 of this Determination, the sale of the 'marketer's' wine will be an indirect marketing sale pursuant to section 5-20 of the WET Act and the taxable value of the wine may be determined using the half retail price method. | Where the retailer is not an agent of the 'marketer': 8. In some circumstances, notwithstanding the description that the retailer and 'marketer' may have attributed to their business relationship, an examination of relevant facts and circumstances, and the actual conduct of the parties, may reveal that the retailer is not an agent of the 'marketer', and is not selling the wine on behalf of the 'marketer'. In these cases the relevant sales of wine will not be indirect marketing sales for the purposes of section 5-20, and the taxable value of the wine may not be able to be determined using the half retail price method. 9. For example, consignment sales undertaken on a 'sale or return' basis will not be indirect marketing sales. 'Sale or return' arrangements occur where wine is consigned by the 'marketer' to the retailer but no sale takes place until the retailer finds a buyer for the wine at which time two sales occur; the first from the 'marketer' to the retailer and the second from the 'retailer' to the end customer. In these circumstances the first sale by the 'marketer' to the retailer will be a wholesale sale and the taxable value of this wholesale sale will be the price for which the wine is sold (excluding WET and GST). [7] In these circumstances the sales of wine by the 'marketer' will not be indirect marketing sales and the taxable value of the wine may not be determined using the half retail price method. | Division 165 of the GST Act - anti avoidance: 10. Alternatively, the Commissioner will consider the application of the general anti-avoidance provisions in Division 165 of the GST Act to the arrangements as described in the Alert. 11. Division 165 of the GST Act applies to WET avoidance schemes. [8] This is because section 21-5 of the WET Act incorporates an entity's liability for WET (other than WET on customs dealings) [9] into the net amount that the entity is liable to pay under Division 33 of the GST Act, or into the amount of refund to which an entity is entitled under Division 35 of the GST Act. 12. The application of Division 165 of the GST Act was considered by the Administrative Appeals Tribunal in VCE v. Federal Commissioner of Taxation 2006 ATC 187; 63 ATR 1249, the first decision to examine the use of these provisions. Additionally, the Commissioner has set out his views on the application of Division 165 to specific arrangements and these are discussed in a number of public rulings and determinations. [10] 13. The application of Division 165 of the GST Act, which contains the general anti-avoidance provisions, requires a careful weighing of the individual circumstances of each case. Therefore, in the absence of all relevant information, it is not possible to state definitively whether a particular scheme will attract the application of Division 165. 14. For Division 165 of the GST Act to apply, the following four elements need to be satisfied: | Element 1: scheme: 15. It is considered that all or only some of the elements comprising the arrangements described in paragraph 2 of this Determination would constitute a 'scheme' under the broad definition of that term in subsection 165-10(2) of the GST Act: see the observations of the High Court in Federal Commissioner of Taxation v. Hart (2004) 217 CLR 216 at 234-238 and 260-261 in relation to the virtually identical definition of 'scheme' for the purposes of Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) and the decision of Deputy President Forgie of the Administrative Appeals Tribunal in VCE v. Federal Commissioner of Taxation 2006 ATC 187; 63 ATR 1249 that specifically dealt with a scheme in the context of the application of Division 165 of the GST Act. 16. The scheme in the arrangements may be concisely described as one involving the interposition of the 'marketer' between the suppliers of the wine and the retailer, and the sale of wine by the retailer through its retail outlets, on behalf of the 'marketer'. | Element 2: GST benefit: 17. Further, it is considered that the arrangement constitutes a scheme which would give rise to a GST benefit under paragraph 165-10(1)(a) of the GST Act. That is, had the 'marketer' not been interposed between the suppliers and the retailer, the suppliers would have continued, as before, to make wholesale sales of wine to the retailer and the suppliers would have been liable for WET on those sales of wine based upon the price for which the wine was sold (excluding WET and GST). 18. Under the arrangements described in the Alert the suppliers sell wine to the 'marketer'. The indirect 'marketer' quotes their ABN with respect to their purchase of the wine and pursuant to section 7-10 of the WET Act the sale of wine by the suppliers to the 'marketer' is not subject to WET. Therefore, because under the scheme the suppliers no longer incur a WET liability with respect to the sale of wine for sale in the retailer's outlets, it could reasonably be expected that a larger amount would be payable under the provisions of the GST Act [11] (apart from Division 165) than would have been payable but for the scheme: see the comments of the High Court in Federal Commissioner of Taxation v. Peabody (1994) 181 CLR 359 at 385 on the reasonable expectation test in the context of the definition of 'tax benefit' for the purposes of Part IVA of the ITAA 1936. | Element 3: entity gets GST benefit: 19. The supplier gets the GST benefit of a lesser net amount payable as described in paragraphs 17 and 18 of this Determination. | Element 4: dominant purpose or principal effect: 20. It would also be reasonable to conclude, having regard to the matters set out in subsection 165-15(1) of the GST Act, that the sole or dominant purpose of the scheme or part of the scheme, or the principal effect of the scheme or part of the scheme, was for the supplier to obtain the GST benefit so that the amount of WET borne on the ultimate sale of the wine to consumers could be reduced. In this context the following general observations can be made: Furthermore, the retailer sets the sale price for the wine and continues to negotiate the purchase price of the wine with the suppliers. Despite being the seller of the wine, the 'marketer' only receives a minimal portion of the sale proceeds from the wine, and the retailer retains almost the entire sale proceeds of the wine. The advantage of the scheme for the retailer is that the WET that is embedded in the price paid by the end consumer is less than it otherwise would be. Therefore they are able to either sell wine at a lower price compared to competitors or enjoy a higher profit margin. 21. It is therefore open to the Commissioner to exercise his powers under section 165-40 of the GST Act to negate the GST benefit by determining that the supplier's net amount for the relevant periods includes the WET that was not paid because the 'marketer' had quoted. | Date of effect: 22. This Determination explains the Commissioner's view of the law as it applies both before and after its date of issue. You can rely upon this Determination on and from its date of issue for the purposes of section 105-60 of Schedule 1 to the Taxation Administration Act 1953 . Commissioner of Taxation 24 February 2010 WETD 2009/D1


Wine equalisation tax: what are the results for Wine Equalisation Tax purposes for entities engaging in an arrangement described in Taxpayer Alert TA 2009/6?: Please note that the PDF version There is a Compendium for this document: WETD 2010/1EC .


Related rulings: WETR 2002/1 GSTR 2000/37 GSTR 2004/3 GSTR 2005/3 GSTR 2005/4 GSTR 2005/5 GSTD 2006/5 GSTD 2007/2
Legislative references: ANTS (GST) Act 1999 ANTS (GST) Act 1999 Div 33 ANTS (GST) Act 1999 Div 35 ANTS (GST) Act 1999 Div 165 ANTS (GST) Act 1999 165-10(1) ANTS (GST) Act 1999 165-10(1)(a) ANTS (GST) Act 1999 165-10(2) ANTS (GST) Act 1999 165-15 ANTS (GST) Act 1999 165-15(1) ANTS (GST) Act 1999 165-40 ANTS (WET) Act 1999 ANTS (WET) Act 1999 5-5 ANTS (WET) Act 1999 5-20 ANTS (WET) Act 1999 7-10 ANTS (WET) Act 1999 9-25 ANTS (WET) Act 1999 9-35 ANTS (WET) Act 1999 9-35(1) ANTS (WET) Act 1999 13-5 ANTS (WET) Act 1999 21-1 ANTS (WET) Act 1999 21-5 ANTS (WET) Act 1999 23-10 ITAA 1936 Pt IVA TAA 1953 Sch 1 105-60
Case references: Federal Commissioner of Taxation v. Hart (2004) 217 CLR 216 55 ATR 712 2004 ATC 4599
Subject references: anti avoidance schemes & shams tax benefits under tax avoidance schemes WET taxable value wine
Other references: Explanatory Memorandum to the A New Tax System (Wine Equalisation Tax) Bill 1999 Taxpayer Alert TA 2004/2 Taxpayer Alert TA 2004/6 Taxpayer Alert TA 2004/7 Taxpayer Alert TA 2004/8 Taxpayer Alert TA 2004/9 Taxpayer Alert TA 2005/4 Taxpayer Alert TA 2007/1 Taxpayer Alert TA 2009/6