ATO unmoved by brewers’ protests over independence definition

The Australian Taxation Office has confirmed it will apply a very strict definition of independence when deciding whether drinks manufacturers are eligible for the excise refund scheme.

The ATO in May 2023 finalised its ruling on the meaning of ‘legally and economically independent’, which Mighty Craft last year revealed had blocked its majority-owned subsidiaries from claiming the vital rebate.

“Where two or more alcohol manufacturers are not legally and economically independent, only one of the alcohol manufacturers is entitled to remissions or refunds per year,” the ruling says.


“In collectively interpreting the phrase ‘legally and economically independent’, it is necessary to consider whether, through the legal and economic connections between two manufacturers, they each have capacity to take business decisions independently.

“This requires a balanced analysis of relevant factors against the particular facts and circumstances.”

A compendium released along with the ruling reveals that the ATO listened to – but ultimately dismissed – objections tabled by several producers, which were presented anonymously in the document.

“The legal and economic independence qualification criteria should only be applied to the manufacturing processes of an alcohol manufacturer,” one producer argued.

“The downstream functions such as sales, marketing, distribution, hospitality and the like are not relevant considerations.

“This delineation is critical for brewing businesses as it will allow them to establish cooperative structures to gain efficiencies from these ancillary functions.

“Brewers should be able to adopt operating models which allow a degree of cooperation with other brewers with confidence that they can do so without the implicit risks of disqualification from the remission, fines and substantial penalties.”

Another submission criticises the ATO’s stipulation that two manufacturers will not be economically independent if one entity is “financially reliant” upon the other.

“It can be argued that most distribution agreements in the beer industry would meet this very broad definition,” the submission says.

“For example, most beer manufacturers would be financially reliant to some extent on maintaining a relationship with large retailers such as Coles Liquor Group and Endeavour Drinks Group who together control over 50 per cent of the beer retailing in Australia.

“Therefore, taking a strict definition of ‘financially reliant’ would mean that every beer manufacturer who did business with these parties would not qualify for the remission.”

But the ATO responded that its intention was to preclude businesses from double dipping the excise rebate by dividing their manufacturing operations across multiple entities.

“We recognise that two or more alcohol manufacturers may sell a significant proportion of their product to the same retailers and/or through the same arm’s length distributor,” the agency said.

“Where each manufacturer operates independently, the mere fact that each manufacturer has entered into commercial sales contracts with the same distributor, or retailer, will not cause the independence test to be failed.”

None of the 15 issues raised resulted in any changes to the final ruling, which may have implications for breweries that have embraced unconventional operating models in the pursuit of efficiencies.

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