Jurisdiction - Australia
Australia – ATS Pacific Pty Ltd v Commissioner Of Taxation [2014] FCAFC 33.

9 April, 2014


Legal News & Analysis – Asia Pacific – Australia – Tax


The Full Court of the Federal Court in ATS Pacific Pty Ltd v Commissioner of Taxation [2014] FCAFC 33 has dismissed a taxpayer’s appeal against the Federal Court’s earlier finding that certain supplies made by an inbound tour operator were not GST-free.


The taxpayer carried on the enterprise of contracting and making supplies to non-resident travel agents in relation to products which included things such as accommodation, transfers, car hire, tours and meals. These products were then provided to non-resident tourists by Australian providers. The taxpayer charged the non-resident travel agents a fee that included the cost of the product as well as a margin. The taxpayer then paid the Australian provider for supplying the products to the non-resident tourists.

Federal Court Decision At First Instance

The Federal Court in ATS Pacific Pty Ltd v Commissioner of Taxation [2013] FCA 341 held that there was a supply of a promise in relation to accommodation facilities and therefore the supply did not fall within the GST-free provisions under item 2 of section 38-190 of the GST Act (Act). Similarly, the court held that the supply of non-accommodation components of the products characterised as the supply of goods and services were not GST-free under item 2 of section 38-190 of the Act.

However, the Court found that there was a separate supply encompassed by its contract with the nonresident travel agents of “booking and arranging services”, in addition to the promise to ensure Australian providers provide products. Accordingly, under item 2 of section 38-190, the supply of the booking service was GST-free.

The two issues before the Full Court was whether the primary judge erred in:

a) not characterising the supplies made to the non-resident travel agents as a single GST-free supply of booking and arranging services (taxpayer’s appeal); and
b) finding that the taxpayer made GST-free supplies of booking and arranging services to nonresident travel agents for the separate consideration of the margin (Commissioner’s crossappeal).


The Full Federal Court dismissed the taxpayer’s appeal and allowed the Commissioner’s cross-appeal.

The Court found that the primary judge correctly characterised the supply made by the taxpayer to the non-resident travel agents as a promise that it would ensure that when non-resident tourists came to Australia they would be provided with the products.

The court accepted that the primary judge’s finding accorded with the commercial reality of the transaction between the taxpayer and its non-resident travel agent clients. The Court did not consider it was necessary to imply a term into the contract between the taxpayer and non-resident travel agents that the taxpayer would ensure provision of the products to the non-resident tourists.

Although the Federal Court ultimately agreed with the primary judge’s conclusion that the taxpayer’s supply to the non-resident travel agents was not GST-free under the Act, the court elected to provide its own reasons for the findings it made on this point.

Accommodation bookings made with the taxpayer by non-resident travel agents on behalf of nonresident tourists constituted a supply of real property as the definition of real property extended to “any contractual right over or in relation to land”. As the taxpayer’s supply of a promise that hotel proprietors would provide hotel accommodation to tourists created a contractual right exercisable over land (ie the hotel room) by the tourists themselves, accommodation bookings were outside the GSTfree status provided in section 38-190(1).

In relation to supplies of the non-accommodation components (ie car hire or meals), the Full Court held that they were not GST-free as the supply was a supply that fell within the scope of section 38-190(2). Section 38-190(2) provides that a supply is not GST-free if the supply was a right to acquire something, the supply of which would be connected to Australia and would not be GST-free. In relation to the Commissioner’s cross-appeal, the Court agreed that the primary judge had erred in finding that the taxpayer made GST-free supplies of booking and arranging services to the non-resident travel agents for the separate consideration of the margin. The Full Court held that there was only one supply, the supply of the promise by the taxpayer to the non-resident tourists that there would be provision of the products. If the supply of this promise embodied supply of “arranging services”, the Court held that it was “part and parcel of the promised package for which there is a single indivisible consideration” and is to be regarded as ancillary and incidental to the supply of the promise. Accordingly, the full consideration for the booking and arranging services to non-resident travel agents was subject to GST.


In contrast, the UK Supreme Court in Revenue & Customs v Secret Hotels2 Ltd [2014] UKSC 16, handed down a decision which placed greater emphasis on contractual documents to characterise a supply made in similar circumstances.

The appeal concerned the liability for VAT of a company which marketed and arranged holiday accommodation though an on-line website.

Although the case concerned the application of certain provisions under the relevant EU Directive, the outcome of the case turned on the appropriate characterisation of the relationship between the company, the operators of the hotels, and the holiday-makers or their travel agents. Accordingly, the Supreme Court made reference to the English law of contract.

The Supreme Court confirmed that where parties have entered into a written agreement which appears on its face to be intended to govern the relationship between them, it is necessary to interpret the agreement in order to determine the legal and commercial nature of that relationship, unless the contract constitutes a sham.

This approach is contrary to the approach in ATS Pacific Pty Ltd v Commissioner of Taxation [2014] FCAFC 33 where the Court placed emphasis on the commercial and practical reality of the supply which the Court stated went beyond the conclusion that might otherwise be drawn from a confined analysis of the terms and conditions of one contract.


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For further information, please contact:


Geoffrey Mann, Partner, Ashurst
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Jadie Teoh, Ashurst
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Kristina Popova, Ashurst

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