Thinking | 2 June 2016
Talking Tax Issue 37
Full Federal Court finds payments for broadcasting the Olympic Games are not royalties
The Full Federal Court has dismissed the Commissioner’s appeal in Commissioner of Taxation v Seven Network Limited  FCA 1411 and held that $94m in broadcasting rights payments made by Seven Network Limited (Seven Network) to the International Olympic Committee (IOC) were not royalties under the Australia-Switzerland double tax agreement (Swiss Treaty). The Federal Court case was discussed in detail in our earlier update Copyright and the international feed for the Olympic Games.
Article 12(3) of the Swiss Treaty provides that an amount will be a royalty if it is a payment for ‘the use of, or the right to use, any copyright…or other like property or right’ or for the ‘total or partial forbearance in respect of the use or supply of any property or right...’. If the payments are royalties, they are subject to withholding tax under section 128B of Income Tax Assessment Act 1936.
The Taxpayer argued that the payment was for the physical access to the international television and radio signals and the venues where the Olympic Games were held rather than for any copyright.
The Commissioner argued that the payments were royalties pursuant to the definition of ‘royalties’ in the Swiss Treaty as:
- the payments were made in consideration for the use of or the right to use copyright in a cinematograph film or a similar property or right
- the effective monopoly rights and freedoms that Seven Network was granted over the broadcast of the Olympics constitutes an ‘other like property or right’ under Article 12 of the Swiss Treaty, as the rights were functionally equivalent to the rights of a copyright holder.
The Court unanimously dismissed both of the Commissioner’s contentions.
As to whether the payments made by Seven Network were payments for the use of or the right to use copyright in a cinematograph film, the Court held that no picture, image or sound subsisted in the copper coaxial cables that transmitted the relevant signals, and that images and sounds could only be produced from the signals once decoded by Seven Network’s receiving device.
As to the Commissioner’s second contention, the Court held that the amounts were ‘not for any forbearance in respect of the use of any relevant property or right belonging to the IOC or any other relevant entity’ and were therefore not royalties.1
The Court also disagreed with the Commissioner’s interpretation of the language of the Swiss Treaty. It was held that the phrase ‘other like property or right’ was intended to cover rights that are recognised in both Australia and Switzerland as intellectual property rights which allows the countries to alter the categories of intellectual property rights without impacting the operation of the Swiss Treaty. For these reasons, the payment was not a royalty and was not subject to withholding tax.
This case is important in providing clarity on the definition and taxation of intellectual property rights. If you have any questions about the classification of any of your rights as intellectual property, please contact us.
Employee termination payments: High Court grants taxpayer special leave
The High Court has granted special leave to the taxpayer to appeal this decision in Blank v FCT  FCAFC 154. As previously discussed in Talking Tax - Issue 19, the Full Federal Court dismissed the taxpayer’s appeal and confirmed that payments the taxpayer received following the termination of his employment were assessable as ordinary income, rather than capital gains, in the income year in which the right to those payments arose. The payments were held to constitute ‘deferred compensation’ for the loss of rights to participate in the company’s profit participation plan.
The Full Federal Court also held that these amounts were not derived through ‘foreign service’ and were therefore not exempt. This requires the taxpayer to be working in a foreign country as an officeholder or employee of a foreign country. The Court held that the Taxpayer’s earnings were derived from Australian and foreign service and they could not apportion the relevant earnings as the taxpayer sought.
Leave to appeal rejected in stamp duty exemption case
The Supreme Court of Victoria rejected the taxpayers’ application for leave to appeal the decision of the Victorian Civil and Administrative Tribunal (VCAT) in Michaelides & Anor v Commissioner of State Revenue  VCAT 624. In that case, VCAT upheld the assessment by the Commissioner that the taxpayers were liable to pay duty on the transfer of land to them from a company.
The taxpayers were involved in the development of properties through a partnership and their family trusts. Upon completion of the development, the titles of the properties were transferred to the taxpayers. The taxpayers challenged the Commissioners duty assessment arguing that the exemption in section 33(3) of the Duties Act 2000 (Vic) (Victorian Act) applied as the transfer was made solely:
- due to the retirement of a trustee or the appointment of a new trustee, or other change in trustees; and
- in order to vest the property in the trustees for the time being entitled to hold it.
VCAT rejected this argument, finding that section 33(3) of the Victorian Act did not apply as the transfer involved the split of one undivided piece of land into two estates with each held by the taxpayers as tenants in common in equal shares. VCAT also noted the importance of making sure that any change in trustee is properly documented.
Real property transfers reporting to the ATO
The ATO has announced that from 1 July 2016 all state and territory revenue collection authorities will need to collect and report information regarding all transfers of real property. This information is required to be lodged in a Real Property Transfers Report (RPTR) within 31 days of the end of each quarter. The RPTR is required to include the following details:
- property details (eg land title information and address)
- information about the transaction (eg price, contract date and settlement date)
- identity of the parties to the transactions (eg name, address, date of birth, ABN etc).
The ATO has stated that the purpose of the RPTR is to enable it to, among other things:
- expand its data matching capabilities
- improve overall compliance
- support data sharing between government entities
Australia-UAE double tax agreement negotiations
Following a meeting between the United Arab Emirates (UAE) Minister of State for Financial Affairs, His Excellency Obaid Humaid Al Tayer, and the Australian Ambassador to the UAE, His Excellency Arthur Spyrou, it is likely that Australia and the UAE will enter into negotiations for the development of a Double Tax Agreement (DTA). In particular, His Excellency Al Tayer stated that the UAE is determined to consolidate its relationship with Australia, recognising Australia as one of the UAE’s largest trading partners, and that the avoidance of double taxation was an important starting point in this process. The meeting focused on the economic, trade and investment relations between Australia and the UAE and how the countries may strengthen these through the implementation of a DTA.
This article was written with the assistance of Tim Hutton, Paralegal.
1 Commissioner of Taxation v Seven Network Limited  FCA 1411 at 98.
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