The Federal Court has denied a taxpayer its claims for input tax credits for the periods between 1 July 2004 and 31 December 2006 on the basis of finding it had no entitlement to ITCs in respect of its payment of invoices for the provision of legal services in an individual’s defence of his criminal proceedings and in respect of invoices rendered by a company to the taxpayer during the relevant periods.
This case involved, among other things, claims for ITCs by the taxpayer concerning the provision of litigation funding services to former First Assistant Commissioner of Taxation Nick Petroulias (now known as Michael Felson). The Court said that, in order to pay his legal costs, Mr Felson entered into litigation funding agreements with a number of entities, including the taxpayer. The Commissioner had disallowed the taxpayer’s objections to various GST assessments and penalties (including penalty for failure to withhold amounts from payments to Corporate Business Centres International Pty Ltd) and the taxpayer appealed.
The main issues for consideration by the Court were:
- whether the taxpayer was entitled to ITCs for payment of invoices for provision of legal services in Mr Michael Felson’s defence of his criminal proceedings;
- owhether the taxpayer acquired legal services by way of taxable supply;
- owhether the taxpayer acquired services in carrying on an enterprise; and
- owhether the acquisition related to making supplies that would be input taxed;
- whether the taxpayer was entitled to ITCs for “management services” as described in invoices;
- whether the taxpayer was liable to penalty for failure to withhold pursuant to s 12-190 of Sch 1 to Taxation Administration Act 1953.
The Court, after noting what it said was the lack of evidence led by the taxpayer, found that:
(i) there was no acquisition of services by the taxpayer by way of taxable supply and no enterprise of funding, either specific or general, litigation;
(ii) “the lawyers engaged by Mr Felson made no supply to the [taxpayer]”;
(iii) the activities of the taxpayer in funding Mr Felson’s defence of his criminal proceedings did not constitute an “enterprise” as defined in s 9-20(1)(a) and s 9-20(1)(b) of the GST Act;
(iv) the invoices for “management services” were a sham, and there was therefore no entitlement to ITCs; and
(v) the taxpayer had failed to withhold in accordance with its obligations.
(Professional Admin Service Centres Pty Ltd v FCT [2013] FCA 1123, Federal Court, Edmonds J, 1 November 2013.)
[LTN 213, 4/11/13]