Representatives of Customs brokers and Forwarders Council of Australia Inc. (CBFCA), Australian Federation of International Forwarders Ltd (AFIF), Conference of Asia Pacific Express Carriers (CAPEC) and Shipping Australia Ltd met with the Australian Taxation Office in Sydney on 17 August to discuss the problems that have arisen with GST treatment of local charges, particularly in relation to import transactions that are made on FOB terms.

The ATO is aware that there is inconsistency in the way in which shipping companies are applying GST to their invoices for delivery orders, terminal handling charges, port service charges and other services that are invoiced at the time of container release.

The ATO made it clear at the meeting that these services are taxable in many circumstances and that GST should be charged by shipping companies in their invoices to Customs Brokers, importers and International Freight Forwarders. However, there are also circumstances under the new law where shipping companies may not be required to charge GST on these services.

In most instances shipping companies will not have sufficient information about an import transaction to determine whether or not GST should be charged on local services.

The ATO will hold further detailed discussions with Shipping Australia to identify the circumstances where GST should and should not be charged by shipping companies.

The ATO is in the process of preparing a fact sheet in relation to the charges levied by shipping companies to explain how local loading and handling services should be treated for GST purposes.

In the mean time the ATO has acknowledged that the prudent approach for Customs Brokers and International Freight Forwarders when they receive a GST free invoice from a shipping company in relation local charges is to:

1. ensure that an input tax credit is not claimed in relation to the invoice;
2. add GST to the charges when passing them on.

In those circumstances where local charges are legitimately entitled to GST free treatment (and GST has not been added when the charges are invoiced on by a Customs Broker or International Freight Forwarder) the value of the services has to be included in the value of taxable imports (VOTI) on the import declaration for the goods.

The ATO and the industry will have further detailed discussions on the best means of establishing a VOTI bearing in mind that the amount of local charges may not be known at the time of finalizing an import declaration. Until those discussions are completed an estimate of the costs that best reflects actual costs is suggested, which is similar in principle to the current practice adopted in many instances in relation to international transport amounts that are included in the VOTI. The Australian Customs and Border Protection Service was also represented at the meeting on 17 August and indicated that it would not be paying close attention to VOTI calculations in its audit activity while there were still questions about what amounts should or should not be included.

Implications for International Freight Forwarders

As a result of the shipping company notices specifying that all their local charges will be GST free, many International Freight Forwarders have now expressed doubt regarding how they should deal with their local charges for both import sea and import air consignments. Our advice, at least until further clarification is received from the ATO in the form of revised fact sheets, is to ignore the treatment being applied by shipping companies to their situation, as this sets no precedent for International Freight Forwarders.

In the case of a forwarder, the ATO has confirmed that as long as in a forwarder's quotes and rate agreements they can clearly identify where the "place of consignment" is for an international import shipment (e.g. arrival of the aircraft or vessel), and therefore have applied GST to local charges levied for service beyond this point (e.g. ITF, ADF, CTO Fees, or in the case of sea freight PSC, THC, LOLO etc.) then this is appropriate and consistent with the new regulations.

Specifically in the case where the import forwarder is not the customs broker for the transaction, it is arguably the safest method to apply GST in this manner (i.e. GST should be applied to all "local" elements of an import consignment invoice) as it will then be clear to the Customs Broker concerned that these cost elements have already had GST acquitted and therefore do not need to be included in VOTI calculations.

Conversely, in a case where an International Freight Forwarder has agreed to what could be termed an "integrated supply" meaning that they have agreed to a single figure or rate to bring a consignment from overseas to a named place in Australia, then it would be appropriate to have the entire invoice for this transaction be GST free (up to the named place of consignment), and it is then the responsibility of importer, via their Customs Broker, to insure that the total of the charges to get the goods to this point is then included in the VOTI.

Further information will be distributed to our Members when it becomes available from the ATO.