Tax experts have raised questions about whether plans by big Australian retailers to set up sites offshore to take advantage of the GST exemption for overseas goods could breach tax avoidance rules.
Myer chief executive Bernie Brookes first flagged in December that Myer would consider setting up a website in Hong Kong so it could sell goods to Australian consumers without GST. Any purchase made from an overseas retailer does not attract GST, provided it is below the $1,000 threshold.
”If we can’t beat them, we’ll join them,” Brookes told a business lunch in Melbourne late last year.
Myer has now said it expects the site to be operational by the end of February, with Brookes saying earlier this week it will be shipping products “using China Post and Australia Post to our customers who will also get it GST free and duty free”.
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Other retailers, including Harvey Norman, have said they would consider the overseas website strategy.
However, Brookes comments have raised some questions with tax experts, who have pointed out that setting up an offshore eCommerce site with the express purpose of using the GST exemption could breach Australia’s anti-avoidance tax rules, which say a “scheme” cannot be entered into with the “dominant” purpose of avoiding tax.
Robert Jeremenko, senior tax counsel at the Taxation Institute of Australia, told SmartCompany that he would not comment directly on Myer’s situation, but said the overseas website plans did raise some questions the ATO would want answered.
“Basically if a taxpayer tries to establish a scheme with the dominant purpose of achieving a tax benefit, that is the key plank of anti-avoidance rules.”
However, Jeremenko says the “dominant purpose” area is extremely complex, and there are many situations where a company could successfully argue that a business decision was not driven by tax issues but was instead part of a broader commercial strategy.
“It’s a very difficult area. There would be at least two cases in the Federal Court at any one time where the court is trying to determine the question of dominant purpose.”
Issues the ATO and the courts would examine to consider the dominant purpose question including the manner in which the scheme was entered into (that is, the background of the scheme and its objective), the period of time the scheme covered (that is, why the scheme started at a particular time, and not earlier or later) and any change in financial position as a result of the scheme.
Jeremenko says the outcome of such a case is just too hard to predict.
“The courts have gone through all sorts of analysis of these factors and there is still no simple answer.”
Myer is yet to provide further details on its retail plans, but has said the company “would always act within the law”.
On the broader issue of whether the Government should back the retailers’ campaign and remove the GST exemption, Jeremenko is blunt.
“The reality is this $1,000 threshold has been there since 2005. There hasn’t been outcry in the last five years, so why all of sudden is this a huge issue? It’s not good policy to change tax laws to address currency movements.”
But that argument – and a vocal and ever growing backlash from consumers – does not appear to be weakening the resolve of the retailers.
While Gerry Harvey and Bernie Brookes have so far led the push against the GST exemption, billionaire retailer Solomon Lew – who has been described as the “driving force” behind the push – has also entered the debate, declaring the fight to be a “moral” issue.
“Even if they charge the GST and duty, goods may come in cheaper from overseas, but there’s a moral principle at stake here, and at the end of the day it will cost jobs,” he told The Australian.
The retailers are expected to continue with the campaign, with reports that further print advertisements are likely and television and radio ads a possibility.