ID Tours New Zealand Limited v The Commissioner of Inland Revenue [2015] NZHC 483

ID Tours New Zealand Limited v The Commissioner of Inland Revenue [2015] NZHC 483 [16 March 2015]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2014-404-2507[2015] NZHC 483UNDER the Goods and Services Tax Act 1985IN THE MATTER of an appeal against the decision of theTaxation Review AuthorityBETWEEN ID TOURS NEW ZEALAND LIMITEDAppellantAND THE COMMISSIONER OF INLANDREVENUERespondentHearing: 17 and 18 February 2015Counsel: AAH Low and S Eathorne for appellantPH Courtney and EJ Norris for respondentJudgment: 16 March 2015JUDGMENT OF FAIRE JThis judgment was delivered by me on 16 March 2015 at 4:45 pmpursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDateSolicitors: Alexandra Low & Associates, AucklandCrown Law Office, WellingtonTable of ContentsIntroduction ............................................................................................................ [1]Background .......................................................................................................... [10]Cruise Lines [11]Destination Management for Incentive Houses [19]Bespoke Experiences – Free and Independent Traveller (FIT) services [26]GST returns and appellant's invoices [28]Taxation Review Authority decision .................................................................... [30]Appellant's submissions ....................................................................................... [35]Respondent's submissions .................................................................................... [42]Approach on appeal.............................................................................................. [46]Issues .................................................................................................................... [50]Issue one: Whether Authority was wrong in its finding under s 8(2B) [51]Whether the appellant is an agent of the overseas operators [56]Whether the appellant's services consist of a facilitation ofdomestic tourism products and services [77]Conclusion on issue one [99]Issue two: Whether Authority was wrong in its finding under s 11A(2)...... [100]Issue three: Corroboration and credibility of evidence................................. [101]Issue four: Errors on record ........................................................................ [105]Issue five: Errors of fact .............................................................................. [109]Result.................................................................................................................. [111]Costs ................................................................................................................... [112]Introduction[1] The appellant appeals the finding of the Taxation Review Authority that the appellant facilitated inbound tour operations under s 8(2B) of the Goods and Services Tax Act 1985 (the Act).1 The appellant also appeals the Authority's findingunder s 11A(2) that it supplied services under contractual arrangements to overseas operators and that those services were received in New Zealand by another person.1 ID Tours New Zealand Ltd v The Commissioner of Inland Revenue [2014] NZTRA 13.The practical effect of these findings is that the appellant's services are chargeablefor goods and services tax (GST).[2] The appellant seeks to reduce its GST liability on the basis that its advisory services should be zero-rated.[3] The appeal is based on two broad questions agreed upon by the parties:(a) Whether the Authority was wrong in finding under s 8(2B) of the Act that the appellant was making a supply of services which consisted of the facilitation of inbound tour operations, being services chargeable to goods and services tax at the prevailing rate;(b) Whether the Authority was wrong in finding under s 11A(2) of the Act that at the time an agreement was entered into by the appellant with its non-resident customers it was reasonably foreseeable that the performance of the services would be received in New Zealand by another person.[4] If the Authority was correct in its finding under either s 8(2B) or s 11A(2), a zero rating under s 11A(1)(k) does not apply to the advisory services supplied by the appellant.[5] The dispute relates to the supply of advisory services by the appellant in GST periods ended 31 August 2009 to 31 August 2010 (inclusive). The parties have agreed to treat the other periods in accordance with the outcome of this dispute. These are GST periods ended 31 October 2008, 31 December 2008, 28 February 2009, 30 April 2009 and 30 June 2009, and all GST periods after 31 August 2010 to the present time.[6] GST is imposed by s 8(1) of the Act. Section 8(2) provides that services are deemed to be supplied in New Zealand if the supplier is resident in New Zealand. Section 8(2B) deals with the facilitation of inbound tour operations and provides:8 Imposition of goods and services tax on supply...(2B) To the extent to which a supply of services consists of the facilitation of inbound tour operations, the supply is chargeable with tax under subsection (1), and section 11A does not apply to that part of the supply.[7] Section 8(2F) defines facilitation of inbound tour operations:(2F) For the purposes of subsections (2B) and (2C), services that consist of the facilitation of inbound tour operations means the services that a registered person provides in packaging 1 or more domestic tourism products and services in New Zealand and selling them outside New Zealand to a non-resident person. The tourism products and services may include accommodation, meals, transport, and other activities.[8] Section 11A concerns those supplies of services which are zero rated for GST. Section11A(1)(k) provides:11A Zero-rating of services(1) A supply of services that is chargeable with tax under section 8 must be charged at the rate of 0% in the following situations:...(k) subject to subsection (2), the services are supplied to a person who is a non-resident and who is outside New Zealand at the time the services are performed, not being services which are—(i) supplied directly in connection with—(A) land situated in New Zealand or any improvement to the land; or(B) moveable personal property, other than choses in action or goods to which paragraph (h) or (i) applies, situated in New Zealand at the time the services are performed; or(ii) the acceptance of an obligation to refrain from carrying on a taxable activity, to the extent that the activity would have occurred within New Zealand;[9] That section is subject to subs (2), which provides:11A Zero-rating of services...(2) Subsection (1)(k) and (1)(l) do not apply to a supply of services under an agreement that is entered into, whether directly or indirectly, with a person (person A) who is a non-resident if—(a) the performance of the services is, or it is reasonably foreseeable at the time the agreement is entered into that the performance of the services will be, received in New Zealand by another person (person B), including—(i) an employee of person A; or(ii) if person A is a company, a director of the company; and(b) it is reasonably foreseeable, at the time the agreement is entered into, that person B will not receive the performance of the services in the course of making taxable or exempt supplies.Background[10] The appellant is variously described as a "Ground Handler" and a destinationmanagement company that provides advisory tourism services to cruise lines, incentive houses and to a UK travel agent. These overseas operators utilise the advice and preparation work provided by the appellant to create tourist programmes they then offer to their own clients, namely tourists who wish to explore New Zealand. It is useful to describe the different kinds of services the appellant provides to the three kinds of overseas operators.Cruise Lines[11] The appellant's principal business activity involves providing logistics andactivity planning advice to cruise ships that visit New Zealand. Typically the appellant researches various tourist destinations and activities in New Zealand, liases with New Zealand Customs and Ministry of Agriculture and Fisheries (MAF), port companies and their agents. It then provides this information to cruise lines and they in turn sell the particular tourist destinations and activities to their passengers.[12] The managing director of the appellant, Mr X, explained in evidence the process by which the appellant acquires business from cruise lines. First the cruiseline provides the appellant and its competitors with a Request for Proposal (RFP), a form that details when a particular ship will be in New Zealand and the likely number of passengers. The appellant assesses this information and provides the cruise line with a proposal which details available tourist activities for passengers and recommendations about the suitability of local port infrastructure andregulations for the particular ship. Part of the appellant's role at this stage is toconvince the cruise lines to come to New Zealand, and to use the appellant'srecommended tourist activities.[13] The RFP details the cost of each recommended activity, thereby giving certainty to the cruise line about how much a particular activity will cost per person. Mr X explained that the RFP also sets down the agreed fee cruise lines will pay the appellant and that the RFP forms the basis of future dealings between the particular ship and the appellant for the time the ship is in New Zealand.[14] Cruise lines then select their preferred tourist programmes recommended bythe appellant and request the appellant to provide a "grid outline". Mr X gaveevidence that this is a request to assemble a plan of how the excursions might work and how they may be deployed within given timeframes. At this stage the appellant is also likely to advise the cruise line about available ports and berths, their suitability for the particular demographic of passengers and about compliance with local laws and regulations.[15] After receiving this information, cruise lines then sell certain tourist programmes to their passengers. Mr X explained that cruise lines offer a"smorgasbord" of tourist programmes recommended by various tourism advisors, and that the appellant's recommendations may only account for a portion of that.The passengers then individually select the programmes they prefer.[16] At this stage cruise lines may also ask the appellant to make booking arrangements with local tourism suppliers on its behalf. Mr X explained that these bookings are only tentative, and as the ship approaches New Zealand, it provides updates on how many of and which programmes have been sold. The appellant then updates the local suppliers, confirming or cancelling the tentative bookings. Mr Xexplained that due to the very large volume of information, this process is automated and computerised.[17] The appellant charges a fee calculated as a percentage on top of the ground product the Cruise line sells to its passengers. Usually this is a fee of nine to 12.5 per cent on top of all products sold by a ship. Mr X explained that cruise lines refuse to pay upfront fees because they do not know how many of which programmes the passengers will purchase. Mr X emphasised that the appellant does not receive payment for any particular programme, whether that programme is purchased or not.[18] After the visit the ship sends what is described as a self-invoice to the appellant, which details the particular programmes purchased by passengers and the associated costs for checking. The invoice refers to the appellant as vendor. Theappellant's fee is included in the invoice as a margin on the various costs. Afterchecking it is sent off to the home base for the cruise line for payment. Upon receipt of payment, the appellant pays the New Zealand suppliers. Mr X says this is done on behalf of the cruise line.Destination Management for Incentive Houses[19] Mr X explained that these programmes are offered by corporations (usually based in the United States) to their staff as a reward for meeting business targets. The programme consists of a paid trip for the corporation's employees to an exoticdestination, such as New Zealand.. These corporations are clients of incentive houses, who assist corporations in planning such trips. Such incentive houses are customers of the appellant.[20] The appellant's arrangements with incentive houses are similar to those forthe cruise lines. Incentive houses will send a general request to the appellant inquiring about potential activities for a certain-sized group visiting at a particular time. If the incentive house likes the appellant's general recommendations, theappellant will receive an RFP. The appellant will then carry out research and provide advice tailored to the particular client of the incentive house. The incentive house will then put together its own programme of events for the particular client using theappellant's recommendations, but not necessarily all of the appellant'srecommendations.[21] At that stage the incentive house may ask the appellant to make bookings with New Zealand suppliers. Mr X stated that in an increasing number of programmes the incentive house will choose to work directly with the New Zealand supplier, such as a hotel. He also stated that New Zealand suppliers may contract directly with the incentive house, or through the appellant.[22] Mr X explained that when the appellant makes bookings or other arrangements for incentive houses, the process is different to that for cruise lines. Unlike cruise lines, incentive houses determine in advance the number of travellers and which activities will be undertaken. Mr X explained that for this reason, incentive houses rely on the appellant to find out the requirements of local suppliers (such as financial commitments that need to be made to deliver a product more tailored to the needs of the incentive house's client) and to make the appropriatebookings, payments and contracts with local suppliers. Mr X stated the appellant does so, on behalf of the incentive house.[23] In particular, the appellant facilitates payment of deposits to local suppliers. The arrangements are pre-paid by the incentive house. However, sometimes the arrangements are only pre-paid up to 85 per cent of the total cost, the remaining 15 per cent to be paid if the incentive house is satisfied with the product or service. Mr X stated that in those cases, the supplier knows that the remainder will be paid by the incentive house and sends the invoice to the appellant.[24] Each programme for an incentive house is unique, and a separate agreement is negotiated by the appellant and the incentive house for each programme. The contracts are drafted by the incentive house. The appellant then rewrites, inserts or deletes certain clauses. Mr X explained that this is because the incentives houses are usually in the US, and the contracts include clauses that refer to US legislation that cannot be complied with in New Zealand. Mr X stated that these documents are not prepared by lawyers.[25] The fee the appellant charges is related to the value of the particular programme. That fee is not specified in the invoices to incentive houses because incentive houses often do not want to reveal this to their clients, but this fee is known in advance by the incentive houses.Bespoke Experiences – Free and Independent Traveller (FIT) services[26] Mr X explained that the appellant has a "handshake" agreement with a travelagent based in the United Kingdom. The appellant undertakes research and providesadvice tailored to the wants and needs of the UK travel agent's client, who istypically an independent, individual traveller, to provide an "overall" experience forthe client.[27] Similar to other customers, the appellant makes bookings with New Zealand suppliers. Mr X said this is done on behalf of the UK travel agent. He gave details of the process in his evidence. The UK travel agent issues vouchers for payment to the appellant. The appellant makes the booking with the relevant supplier and provides the voucher. An invoice from an accommodation provider is produced in evidence. It shows that the number of the voucher with which the booking was made. The invoice also provides that the account should be sent to the appellant. Mr X stated that this way the local supplier knows that the booking has been made by the UK travel agent, but that the account should be sent to the appellant because it facilitates the payment of the account.GST returns and appellant's invoices[28] The evidence for the Commissioner is that the appellant's returns in thedisputed periods indicate that it returns GST inputs charged by the local suppliers.[29] The appellant's invoices issued to overseas operators do not distinguishbetween advisory and facilitation services, and hence do not charge separate fees for these services.Taxation Review Authority decision[30] The Authority approached the case by framing three issues as follows:(a) Whether the appellant acquired domestic tourism products and services as agent on behalf of its overseas clients;(b) Whether the provision of the advisory services consisted of the facilitation of inbound tour operations for the purposes of s 8(2B) of the Goods and Services Tax Act;(c) Whether the supply of advisory services is separate from the supply of domestic tourism products and services so that s 11A(2) of the Goods and Services Tax Act does not apply.[31] In respect of the first issue, the Authority first determined the nature of a supply by looking at the contractual relationships actually entered into and carried out.2 It then reviewed the evidence in relation to each kind of overseas operator. In each case, the Authority observed that no evidence was provided from the overseas operators or the local suppliers that would suggest that the suppliers considered the overseas operators were responsible for payment. The Authority came to the following conclusions on the first issue:(a) Cruise lines: the Authority found no evidence of any agency agreement between the appellant and the cruise lines and rejected the submission that because the cruise lines pay the appellant, agency can be inferred.3(b) Incentive houses: The Authority reviewed a contract between the appellant and one of its clients; a proposal submitted to another client,and the appellant's website. The Authority found that the appellantdid not act as a buying and paying agent when it procures local tourism products and services.42 ID Tours New Zealand Ltd v The Commissioner of Inland Revenue, above n 1, at [33].3 At [46].4 At [55].(c) FIT travellers: The Authority considered the vouchers issued by the UK travel agent but was not satisfied there was an agency relationship between the appellant and the UK travel agent.5[32] In each case the Authority considered there were two sets of contracts for the provision of particular products and services: one between the appellant and the local supplier, and one between the appellant and the overseas operator.[33] The Authority considered the second issue only in relation to cruise lines because the appellant made a concession that if it is not an agent for incentive houses and the UK travel agent, then s 8(2B) applied to those aspects of the business.6 The Authority first considered the definitions of "in" and "packaging" as they are used in s 8(2B). It considered that "in" supports a broader interpretation of "services" asbeing services provided by the registered person that are included in or form part of the packaging and selling process.7 The Authority took the view that advisory services are marketing activities and are an integral part of the process of packaging domestic tourism products and services and selling them to cruise lines.8 In respect of advisory services relating to ports and berth availability, the Authority considered these to be incidental to and of assistance in packaging and selling the products and services.9 Lastly, the Authority found that although the advisory services form thelarger part of the appellant's business, the manner in which it operates is in fact similar to the work performed by inbound tour operators.10[34] The Authority only considered the third issue in case it was wrong in its findings under s 8(2B). It found that s 11A(2) does apply on the basis of insufficient economic distinction between advisory services and the supply of local tourism products and services to the overseas operators.11 The Authority concluded that provision of specialist advice is a necessary part of the marketing exercise5 At [58].6 The appellant now says that this concession was incorrectly recorded, to which theCommissioner responds that the appellant's recollection is incorrect.7 At [67].8 At [69].9 At [70].10 At [71].11 At [86] and [87].undertaking by the appellant.12 It also found that the performance of the appellant'sservices is received in New Zealand by the non-resident tourists.13Appellant's submissions[35] The appellant contends the Authority was wrong in fact and in law to conclude that the appellant facilitated inbound tour operations for the purposes of s 8(2B) of the Act. The primary position taken by the appellant is that it does not package products or services for sale, whether as an agent or otherwise. It submits that this is the test under ss 8(2B) and 8(2F).[36] The appellant argues the Authority was wrong in law to focus on whether the appellant acquired products from local suppliers as an agent of the overseasoperators, and that this legal error influenced the Authority's assessment of the factsand law. The appellant's submission is that whether it is an agent is relevant only tothe extent that it actually acquires a product or service from a local supplier. It contends that the nature of the arrangements between it and its customers indicates that it does not package, sell or acquire any products or services either for itself. Forthis reason it disputes the Authority's finding that it enters into contracts with localsuppliers. Counsel emphasises that the appellant is not a buying agent, as found by the Authority, because it never procures for itself any product or service from a local supplier.14 Counsel for the appellant is of the opinion that this is a mistake on therecord, as the Commissioner's actual submission was that the appellant acts as abooking agent.[37] The appellant submits that the Authority failed to examine the evidence in relation to the question of taxable supplies and identities of the recipients of such supplies. The appellant submits that it acts on behalf of its customers as their agent when it facilitates bookings, logistics and payment to suppliers. For incentive houses and the UK travel agent it enters into binding contracts on their behalf and facilitates payment to the suppliers.12 At [87].13 At [88].14 At [55].[38] In relation to s 11A(2), the appellant distinguishes between the services it provides to its customers, and the services its customers provide to their respective clients, the tourists who visit New Zealand. It says its advisory services in the area of compliance and port and berth availability, for example, are clearly distinguishable from the products sold by the cruise ship to its passengers. Similarly, it argues that its own services are largely advisory, based on its expertise andknowledge of New Zealand's tourism industry, and that a smaller portion of its business involves facilitation of bookings and payment to local suppliers. The appellant says the Authority was wrong not to legally analyse the different kinds of services it and its customers provide, instead focusing on provision of a product aspect of supplies.[39] The appellant further submits that the inaccuracies on the record that mayhave influenced the decision of the Authority, or at least indicate the Authority'sheavy emphasis on agency. It says the Authority incorrectly records that the appellant conceded that if it was not an agent, s 8(2B) applied. It says the actual concession was that the provision applied if the Authority found the appellant supplied (by packaging) domestic tourism products to incentive houses and The UK travel agent. Counsel argues that as an agent the appellant had no power to sell such products.[40] The appellant also raises issues with the way in which the Authority assessed and made findings on the evidence and credibility. It argues that the Authority made no express findings of credibility or weight accorded to the evidence when rejectingthe appellant's evidence and as such failed to provide reasons for these aspects of thedecision.[41] Lastly, the appellant argues the Authority made a large number of errors offact when recording Mr X's evidence.15 Counsel submits that although individually these errors are not material, but by their number they suggest they had an adverse affect on the Authority.15 At [14], [19], [20], [21], [22], [23], [26], [44], and [47].Respondent's submissions[42] The Commissioner distinguishes the services provided by the appellant. Shesays they can be split into two groups: advisory service and "on the ground"services, which are the facilitation of bookings and payment. The Commissioner submits that the appellant facilitates inbound tour operations, as both the advisoryand "on the ground" services are an integral part of packaging domestic tourismproducts and services and then selling them to overseas operators. On this basis the Commissioner says the ultimate question for the Court should be whether advisory services supplied by the appellant to overseas operators are zero-rated under s 11A(1)(k) of the Act.[43] The Commissioner supports the Authority's finding that the appellant acted inits own right and not on behalf of overseas operators. She says this finding was based on documentary evidence, which does not indicate a relationship of agencywith the overseas operators. In addition, she contends that the appellant's referenceto itself as a booking and paying agent is nothing more than a label without any legal significance. Similarly, the Commissioner says it is irrelevant that the Authorityrecorded the appellant as a "buying agent" because the evidence is consistent withthe appellant purchasing products and services in its own right.[44] The Commissioner submits also that if the Court accepts that the appellant was not an agent and acquired domestic tourism products and services in its own right, it must follow that the domestic products are both consumed and made in New Zealand, irrespective of where the overseas operator is when the invoice is issued.[45] In respect of the Authority's treatment of the evidence, the Commissionercontends that credibility and corroboration of evidence are only relevant to matters of fact, and are not matters in respect of which the Authority has a duty to give reasons. Furthermore, she contends that the Authority did not have to accept orreject Mr X's evidence in respect of the nature of legal relationships, as their truenature is a matter of law. In respect of the weight accorded to each piece of evidence, the Commissioner contends that the Authority explicitly referred to theevidence when making conclusions on the parties' submissions. The Commissionercontends further that the absence of evidence from the overseas operators and local suppliers is relevant in the context of the appellant bearing the onus under the Act.Approach on appeal[46] Appeals against decisions of the Taxation Review Authority are governed by the Taxation Review Authorities Act 1994. Section 26A provides:26A Challenges appealed to High Court(1) Unless subsection (2) applies, the determination by an Authority of a challenge may be appealed to the High Court if—(a) the amount of tax involved in the appeal is $2,000 or more; or(b) the amount of net loss involved in the appeal is $4,000 or more.(2) The determination by an Authority of a challenge may not be appealed to the High Court if the determination was made by the Authority under a tax law that provides for the Authority's determination to be final.(3) This section applies only to challenges commenced under Part 8A of the Tax Administration Act 1994.[47] Part 8A of the Tax Administration Act applies to a decision issued by the Commissioner on or after 1 October 1996.16[48] In Russell v Commissioner of Inland Revenue, Wylie J held that the appeals brought pursuant to s 26A of the Taxation Review Authorities Act proceeds by way of rehearing under r 20.18 of the High Court Rules and an Austin, Nichols & Co Inc v Stichting Lodestar approach to appeal applies.17 The nature of a general appeal was summed up in the judgment of Elias CJ as follows:18Those exercising general rights of appeal are entitled to judgment in accordance with the opinion of the appellate court, even where that opinion is an assessment of fact and degree and entails a value judgment. If theappellate court's opinion is different from the conclusion of the tribunal appealed from, then the decision under appeal is wrong in the only sense that matters, even if it was a conclusion on which minds might reasonably differ.16 Tax Administration Act 1994, s 138A.17 Russell v Commissioner of Inland Revenue (2010) 24 NZTC 24,463 (HC) at [69].18 Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141 at [16].In such circumstances it is an error for the High Court to defer to the lowerCourt's assessment of the acceptability and weight to be accorded to the evidence, rather than forming its own opinion.[49] Where the appellant disputes the factual findings of the Authority, it bears the onus of satisfying the Court that the factual findings of the Authority are wrong.19This can be done in circumstances where:20(a) the conclusion reached was not supported by the evidence;(b) the appellate Court is satisfied the trial Judge was plainly wrong in the conclusion reached;Issues[50] I deal with the two broad issues which I recorded in [3].Issue one: whether Authority was wrong in its finding under s 8(2B)[51] It is first necessary to determine whether the appellant is a principal or anagent. If the overseas operator is the appellant's principal, then all agreementsentered into and all products and services paid for by the appellant are in fact entered into and paid for for the benefit of the principal. If so, the appellant, as agent for a non-resident principal located overseas, and like its principal, is not subject to GST.[52] If however the appellant is not an agent of the overseas operator, it follows that it does not enter into agreements and pays for local tourism products and services on behalf of the overseas operators. Instead, the appellant is a principal who acquires such products and services in its own right and then supplies them to the overseas operators. In this case the appellant is subject to GST as it is a resident who purchases goods and services from other residents.[53] If the appellant is not an agent, it becomes necessary to consider whether its services consist of facilitation of inbound tour operations under s 8(2B). Thisrequires an assessment of whether the appellant's business of providing advisory and19 Rangatira Ltd v Commissioner of Inland Revenue [1997] 1 NZLR 129 (PC).20 Rae v International Insurance Brokers (Nelson Marlborough) Ltd [1998] 3 NZLR 190 (CA) at 197."on the ground" services amounts to packaging one or more domestic tourismproducts and services for the purposes of s 8(2F).[54] If the appellant's services fall within s 8(2F), the services provided by theappellant are chargeable for GST under s 8(1).[55] As this approach demonstrates, the Authority was not wrong (contrary to theappellant's submission on appeal) to consider the issue of agency at the outset. If the appellant is indeed an agent of an overseas operator, it is unnecessary to consider ss 8(2B) and (2F).Whether the appellant is an agent of the overseas operators[56] GST is a tax on transactions.21 The parties to the transaction are the supplier of goods or services and the recipient of that supply. When construing the true nature of a transaction for GST purposes it is necessary to consider the legal arrangement actually entered into by the supplier and the recipient. The Court is concerned only with the rights and duties that are created by these arrangements.22[57] It is appropriate for the Court to have regard to the surrounding circumstances where there is no written documentation or where it is ambiguous.23Where the parties have not specified the nature of their relationship, the courts will consider what a reasonable person would conclude based on the relevant facts.24[58] In a recent decision in the United Kingdom the Supreme Court cited Reed LJ in Revenue and Customs Commissioners v Aimia Coalition Loyalty UK Ltd25 at [30]:26Where the question at issue involves more than one contractual arrangement between different parties, this Court has emphasised that, when assessing the21 Commissioner of Inland Revenue v Databank Systems Ltd [1990] 3 NZLR 385 (PC).22 Commissioner of Inland Revenue v New Zealand Refining Co Ltd (1997) 18 NZTC 13,187 (CA) at 13,192.23 Masport Ltd v Morrison Industries Ltd CA392/92, 31 August 1993 at 18.24 XXX v Commissioner of Inland Revenue [2014] NZTRA 13.25 The Commissioners for Her Majesty's Revenue and Customs Commissioners v Aimia Coalition(formerly Loyalty Management UK Ltd) [2013] UKSC 42; [2013] 4 All ER 94.26 The Commissioners for Her Majesty's Revenue and Customs v Secret Hotels2 Ltd (formerly Med Hotels Ltd) [2014] UKSC 16.issue of who supplies what services to whom for VAT purposes, "regardmust be had to all the circumstances in which the transaction or combination of transactions takes place".[59] It follows that first the Court must identify the supplier and recipient of the relevant transactions and determine the legal arrangement actually entered into by them. This ought to be done with regard to all the surrounding circumstances.[60] The parties involved in a transaction in this case are the overseas operator, the appellant and the local tourism supplier. It is not in issue that non-resident tourist only has a contractual relationship with the relevant overseas operator. The appellant submits that in all transactions with local suppliers it acted on behalf of the overseas operator as its agent, entering it into binding contracts (particularly in relation to dealings with incentive houses and the UK travel agent).[61] A relationship of agency is one where one person is appointed to act as the representative of another.27 Burrows, Finn and Todd provide the following definition of the concept:28The essential characteristic of an agent is that he is invested with a legalpower to alter the principal's legal relations with third parties; the principalis under a correlative liability to have his legal relations altered. Whether a relationship of this kind can be shown ultimately turns on the particular facts of the case.[62] For the appellant to be an agent of an overseas operator, it must show that the contractual arrangement it has with a particular operator creates the following rights and duties:29The relationship of principal and agent produces effects of two quite different kinds. First, it creates an obligation between the principal and the agent, under which each acquires in regard to the other certain rights and liabilities ... Secondly, when acted upon by the agent, it leads to the creation of privity of contract between the principal and the third party. A contract made with a third party by the agent in the exercise of his or her authority is enforceable both by and against the principal.27 Burrows, Finn and Todd Law of Contract in New Zealand (4th ed, Lexis Nexis, Wellington, 2012) at 16.1.28 At 16.1.29 At 16.1.[63] Because GST is a tax on transactions, the focus of the inquiry is on the contractual relationship between the supplier and the recipient of the supply. The position was summarised by Richardson J in Wilson & Horton Ltd v Commissioner of Inland Revenue:30Taxable activity, as defined in s 6(1)(a), is directed to the "supply of goods and services to any other person for a consideration"; supplier "in relation toany supply of goods and services, means the person making the supply"(s 2); and the recipient "the person receiving the supply (s 2)."[64] The nature of the legal arrangements can only be ascertained from the facts available in the evidence. The Authority made factual findings that the appellant was not an agent and that there were two sets of contractual arrangements. The onus is now on the appellant to show that the conclusions reached by the Authority were not supported by the evidence before it or, alternatively, that these conclusions are plainly wrong.[65] The appellant contends that whether it is an agent is only relevant to the extent that it actually acquires a product on its own behalf, which it denies doing. In relation to cruise lines, the appellant says that it cannot acquire programmes because it does not know which programmes will ultimately be chosen by passengers. The appellant argues that the evidence of Mr X to this effect is sufficient for the Court to agree with this position.[66] To determine whether there was a relationship of agency, or whether the appellant acquired domestic tourism services on its own behalf, it is useful to ascertain who provided consideration and for what.[67] The evidence for the appellant is that it offers to provide certain advisory and on the ground services to the overseas operator in exchange for a fee. That is the consideration between the overseas operator and the appellant. The appellant then contacts the local tourism providers and offers them payment in exchange for provision of tourism products or services to the non-resident tourists. That is the consideration between the appellant and the domestic tourism providers.30 Wilson & Horton Ltd v Commissioner of Inland Revenue [1996] 1 NZLR 26 (CA) at 30[68] The question is whether the latter is in fact consideration between the overseas operator and the local supplier. For this it is useful to look at the payment process. The evidence is that the overseas operator pays the appellant the costs oflocal tourism products and services together with the appellant's fee. Upon receipt ofthe payment (and only then) the appellant pays the local suppliers. This payment process satisfies the consideration the appellant owes to each party, but it does not suggest that the consideration between the appellant and the local supplier is in fact the consideration between the overseas agent and the local supplier. The only reasonable conclusion on the evidence is that the appellant forms two separate contractual relationships: one with the overseas operator, and one with the local supplier. That means that the appellant is the recipient of the products and services of the local supplier, and the supplier of its advisory and on the ground services to the overseas operator.[69] It is also irrelevant that the appellant must wait for confirmations from the overseas operators before making any certain bookings. The fact that these are often amended is the nature of the trade. It is also irrelevant that the appellant does not consume the products and services of the local suppliers – the only question is whether it acquires them. This point will be discussed in more depth below.[70] It is also significant, as the Commissioner points out, that when calculating its fee, the appellant does not distinguish between advisory and other services. This further supports the finding that it acquires domestic tourism products and services in its own right and then sells them to the overseas operator, which in turn on-sells them to the non-resident tourists.[71] Another way to approach this issue is to consider a scenario where, for some reason, a local supplier who provided a product or service is not paid. The question will be against whom will the supplier have a claim for breach of contract – the appellant or the overseas operator?[72] In evidence Mr X stated, in relation to cruise lines, that if a cruise line did not pay the appellant, the appellant would probably pay the supplier out of its ownpocket. Alternatively, Mr X said that the nature of the industry is that if the cruise line cannot pay for some reason, nobody, including the appellant, gets paid.[73] Whatever the custom of the industry may be, it does not alter the nature of contractual arrangements between the parties, nor does it preclude a party from asserting its rights in Court. An agent is not legally obliged to pay the debts of itsprincipal. The appellant's willingness to do so seems to stem from its desire to protect its own reputation in the domestic market, as solid relationships with local suppliers is a vital strength of its service. This suggests that the appellant wishes to avoid a legal claim brought by a disgruntled supplier. From a local supplier'sperspective, it deals only with the appellant. It issues invoices to the appellant, and receives payment from the appellant.[74] The appellant's contractual arrangements with the travel agent requirecomment. The appellant claims that by providing the voucher issued by the UKtravel agent when making a booking it makes a binding contract on the travel agent'sbehalf and that this lets the supplier know that the booking will be paid by the UK travel agent. However, Mr X gave evidence that the appellant first receives payment for its services from the UK travel agent and then pays the local supplier. This suggests that if the UK travel agent failed to pay the appellant, the supplier would not be paid either. This suggests that to the local supplier the voucher only represents a method of payment, particularly because all invoice correspondence and payment actually comes from the appellant. If the UK travel agent were to fail to pay the appellant, the supplier could arguably bring a successful claim against the appellant.[75] Mr X's own evidence is insufficient to satisfy the onus on the appellant inabsence of any documentary evidence in support. While Mr X may believe the appellant acts on behalf of the operators, that is not necessarily the true legal position.31 Invoices from local suppliers or other evidence from the overseas operators could have potentially assisted in showing on whose behalf the appellant contracts with local suppliers and against whom the supplier is likely to enforce its contractual rights if it is not paid for whatever reason.31 Marac Life Assurance Ltd v Commissioner of Inland Revenue [1986] 1 NZLR 694 (CA).[76] It was therefore open to the Authority to conclude on the available evidence that the appellant is not an agent of the overseas operators. Accordingly, it was open to the Authority to conclude that the appellant forms a contractual arrangement with the overseas operators, and a separate contractual arrangement with local suppliers.Whether the appellant's services consist of a facilitation of domestic tourismproducts and services[77] Given the finding that the appellant is not an agent of overseas operators, it is now necessary to consider whether it supplies services that consist of facilitation of inbound tour operations. Such services include, but are not limited to, accommodation, meals, transport, and other activities. The elements of s 8(2F) are as follows:(a) The services must be provided by a registered person; and(b) The services are provided in packaging one or more domestic tourism products and services in New Zealand; and(c) The registered person must sell them outside New Zealand to a non- resident person.[78] Only the second point is contested. The appellant is correct in its submission that this is the test under s 8(2B) in the present case. Again, this is a question of fact and the onus is on the appellant to show the Authority reached a conclusion not supported by evidence or was plainly wrong.[79] The meaning of an enactment must be ascertained from its text and in the light of its purpose.32 Sections 8(2B) and (2F) were inserted by s 146 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 to clarify thatinbound tour operators' facilitation services were subject to GST at the standard rate.The appellant produced a media statement from the Prime Minister and Minister of32 Interpretation Act 1999, s 5(1).Tourism John Key and Minister of Revenue Peter Dunne.33 The media statement quotes the following:"Lack of certainty about whether GST should be applied to facilitation feeshas led to confusion and frustration over the past nine years," says Mr Key."We intend to make law changes as soon as possible that will make it clearthat GST should be applied at the standard rate to all facilitation fees.""That is, and always has been, the intention of law that was enacted in 2001."[80] As evident from the policy statement and the general context of s 8(2F), thesection clearly only applies to tourism operators. The appellant's assertion that itcould somehow apply to legal or accounting services is without merit.[81] The Authority referred to the definition of "packaging". It is pertinent to do the same here, albeit a different dictionary is used:34package: ... A set of interdependent or related abstract entities; a group of related objects viewed or organised as a unit...packaging: The action, process or manner of making something up into a package.[82] The appellant submitted also that the word "in" as used in s 8(2F) must be read as "in packaging and selling". The Oxford English Dictionary defines the preposition "in" as follows:In the process of, in the act of; in case of: often equivalent in sense to a temporal clause introduced by when, while, if, in the event of.[83] The prima facie meaning of facilitation of inbound tour operations is the provision of services by a registered person in the process of or in the act of organising one or more domestic tourism products or services in New Zealand into a set of interdependent or related objects that are viewed as a unit.33 Hon John Key Prime Minister, Minister of Tourism and Hon Peter Dunne, Minister of Revenue"Law change to clarify inbound tourism GST" (press release, 12 August 2009).34 The New Shorter Oxford English Dictionary, 4th ed[84] The question for determination is whether the services supplied by the appellant consisted of facilitation of inbound tour operations.[85] Counsel for the appellant argued that in order to make a positive determination on that point, it is necessary to conclude that the appellant provided services in packaging and that it then sold the package to the overseas operator. Counsel argued that in order to sell products or services, it must first acquire them on its own behalf. Counsel asserted that an analysis of each supply is required.[86] Mr Kumar, in evidence for the Commissioner, listed factors common to inbound tour operators. These service providers:(a) Prepare and organise holiday packages containing various services;(b) Purchase domestic tourism products from domestic providers in order sell them to overseas operators;(c) Have formal contracts with domestic service providers and with overseas operators. There are no formal contracts between the domestic service providers and overseas operators;(d) Charge overseas operators an amount in excess of the cost of domestic products purchased for supply to overseas operators. The excess is referred to as an advisory or facilitation fee.[87] As found above, the appellant enters into separate contracts with local suppliers and with overseas operators in its own right. It has agreements with overseas operators and has separate agreements with local suppliers for each particular activity. It charges the overseas operators for the costs of the products and services provided by the local suppliers and it adds a fee for its own services. The appellant provides two distinct services: advisory services and "on the ground"services which include making appropriate bookings.[88] Mr X discussed in his evidence that the appellant's point of distinction frombusinesses that offer traditional travel package deals is its extensive advisory serviceand the wide range of options it presents to the overseas operators, who then chooses which of these options it will offer to its clients, be they cruise line passengers, a corporate group or a free and independent traveller.[89] Mr X is correct that the appellant's business is distinct from traditional travel agents in that it offers extensive tailored advice and presents a wide range of options which the overseas operator or the non-resident tourist ultimately selects. However, that in itself does not mean the appellant does not package and sell domestic tourism products. For the reasons below, I come to the same conclusion as the Authority. The package offered by the appellant consists of the following:(a) Provision of advice: a comprehensive range of advice related to why New Zealand should be selected as a destination and what activities are available to the particular persons who are coming; and(b) "On the ground services:(i) Purchasing domestic tourism products and services: upon acceptance of advisory services, the appellant will use its relationships with local suppliers to negotiate deals and make bookings and cancellations and transport arrangements as required; and(ii) Payment for domestic tourism products and services: upon acceptance of advisory services, the appellant is in a position to facilitate payment for all products and services it purchased.[90] The Authority was correct to find that the advisory services, no matter how extensive, are simply a marketing activity that is an integral part of the process of packaging domestic tourism products and selling them to overseas operators. By Mr X's own admission, if the appellant provides extensive advice to a cruise line,and the cruise line does not accept all or part of the proposal, the appellant does not get paid for providing advice. Essentially, payment is necessarily tied to the successof the appellant's advice, at first with the cruise line, but ultimately with thepassengers. It is only after the appellant's advice is accepted that it may begin to utilise its "on the ground" services.[91] A similar success-based model applies to the dealings with incentive housesand with the UK travel agent. In order to provide "on the ground" services it isnecessary for the appellant to provide advisory services that will be accepted by the overseas operator. The Commissioner is correct in pointing out that there is no evidence of how, or if, the appellant is paid a fee if an incentive house books directlywith a local supplier. The appellant's evidence was that it discourages incentivehouses from doing so, citing the fact that it is able to negotiate much lower rates due to its relationships with local suppliers.[92] From the above it is evident that advisory services are provided purely for the purpose of obtaining the ability to purchase domestic tourism products and services. They are a point of distinction, but their function is to entice an overseas operator to contract with the appellant to make the necessary arrangements for purchasing and paying local tourism products and services.[93] Advisory services are thus an integral part of the appellant's marketing –without them, the appellant cannot provide its "on the ground" services. The "package" can only be sold when the overseas operator buys the advice of theappellant. The two kinds of services are a "group of related objects viewed as a unit".[94] Second, the Authority's observation that advice regarding ports and legalregulations is incidental is also correct. This advice could also be said to be an extension of the advisory service, and a necessary part of the general advisory service as it establishes a case for the overseas operator to choose New Zealand as its destination.[95] Furthermore, although the appellant's advice is constantly being changed to better comply with the customer's needs, the final advice provided for incentive houses and the UK travel agent is a proposed itinerary. This is so even if the overseas operator or the non-resident tourist have input into the final form of the itinerary. Theproposed itinerary is essentially a package in itself, as it also includes the appellant'soffer to purchase the proposed products and services and facilitate their payment so the overseas operator or the non-resident tourist does not have to. This is true even in the case of cruise lines, where there is a range of options for the passengers to select.Each presented option carries with it the appellant's offer to purchase the relevantproducts and services, facilitate their delivery, and to pay for them. When an option is selected, the appellant has sold domestic tourism products and services and can charge the determined fee.[96] It follows that the appellant, as a registered person, packages domestic tourism products and services in New Zealand and sells such packages outside New Zealand to a non-resident person. Thus, for the purposes of ss 8(2B) and (2F), theappellant's advisory services consist of facilitation of inbound tour operations and tothat extent are chargeable with GST.[97] Additionally, the appellant's exit out of the Inbound Tour Operators Council(membership in which is voluntary) has no bearing on the appellant's status for thepurposes of GST.Conclusion on issue one[98] The appellant has failed to show that the Authority was wrong to conclude that the appellant is not an agent of overseas operators. Instead, it enters into contractual arrangements with overseas operators and local tourism suppliers on its own behalf. It is also an inbound tour operator for the purposes of s 8(2B) and its advisory services are chargeable with GST.Issue two: whether Authority was wrong in its finding under s 11A(2)[99] It is unnecessary to consider the application of s 11A(2) given that theappellant's services have already been found to be subject to GST.[100] I now address the other issues the appellant brought on appeal.Issue three: corroboration and credibility of evidence[101] The High Court is deferent to the lower Court's assessment of the evidenceas the trial Judge had the opportunity to hear witnesses give evidence, ask questions, and on that basis form an opinion on their credibility. The Authority did not makeany findings of credibility in relation to the appellant's evidence. As far as Mr X represented the appellant's legal position the Court did not need to make anyfindings of credibility, as a witness' opinion of the law does not necessarily translateinto the true legal position. Secondly, there is no requirement for the Authority to make express findings of witness credibility.[102] In relation to the weight the Authority gave to Mr X's evidence, the Authoritystated expressly when it was basing its decision on particular evidence. Uponreviewing the appellant's evidence and submissions for each issue, the Authorityobserved whether it was satisfied on the evidence in relation to a particular question.[103] The appellant's last submission on this point is that the Authority madeincorrect findings of fact due to the absence of corroborative evidence provided by the appellant and that the appellant should have been warned that it will need to provide evidence from overseas operators and local suppliers. It was appropriate, in the interests of open justice, fairness, and the duty to give reasons to record in the decision that this evidence was not provided. There is nothing in the Authority'sdecision that indicates it would have reached a different conclusion had this evidence been provided. Ultimately, however, the onus was on the appellant to demonstrate the services should be zero-rated. This onus includes providing evidence the appellant deems helpful to its case.[104] For these reasons, the appellant's submission that the Authority failed to provide reasons for not accepting the appellant's evidence is incorrect.Issue four: errors on record[105] The appellant contends that the Authority incorrectly recorded its concession at [60] of the decision, which is quoted below:The disputant conceded that if I found that the disputant was not acting as agent for the Incentive Houses or the BE Agent [the UK travel agent] then the disputant accepts that these aspects of the disputant's business fall withins 8(2B) and are standard rated for GST purposes.[106] The appellant says that it conceded that if the Authority found the appellant packed and sold domestic tourism products and services to the incentive houses and The UK travel agent, s 8(2B) would apply. The appellant says the reason this point is brought up on appeal is because it goes to the question of whether the appellant is an agent of the overseas operators.[107] The Commissioner says its notes show the Appellant made the concession recorded by the Authority. In either case, the concession as recorded by the Authority did not impact on its consideration of whether s 8(2B) applied. Furthermore, although the point goes to the question of agency, by that stage of the decision the Authority had already found that no agency relationship existed between the appellant and any of the overseas operators.[108] The version of the concession the appellant puts forward now does not have any effect other than restating that if s 8(2F) is satisfied, s 8(2B) applies. It simply repeats the statutory test.Issue five: errors of fact[109] The appellant acknowledges that the errors of fact it alleges occurred are immaterial, but contests that their number may indicate the Authority reachedconclusions not supported by the evidence. The appellant's allegations largely relateto the Authority not recording its submissions, as it seems, verbatim, despite the fact that in many of these instances the Authority has clearly relied on Mr X's phrasingwhen he read his brief of evidence before the Authority. In any case, the facts that the appellant says are erroneous appear to have been summarised generally by the Authority for the convenience of the reader without distorting the essence of the evidence.[110] Because the appellant does not allege that the Authority has relied upon any of these facts to make findings on the law or facts, this submission has no force behind it.Result[111] I conclude that the appellant's advisory services are chargeable with GST under s 8(2B). Accordingly, the appeal is dismissed.Costs[112] Counsel were agreed that this is a Category 2 case and Band B covers allsteps taken. Accordingly, I order that the appellant pay the respondent's costs basedon Category 2 Band B and disbursements as fixed by the Registrar.____________________JA Faire J