Aquila Executive Search Pty Ltd v Chief Commissioner of State Revenue [2004] NSWADT 24

CITATION: Aquila Executive Search Pty Ltd v Chief Commissioner of State Revenue [2004] NSWADT 24 DIVISION: Revenue Division APPLICANT PARTIES: Aquila Executive Search Pty Ltd RESPONDENT Chief Commissioner of State Revenue FILE NUMBER: 036013 HEARING DATES: 10/09/2003 SUBMISSIONS CLOSED: 10/14/2003 DATE OF DECISION: 02/06/2004

BEFORE: Verick A - Judicial Member APPLICATION: Pay-roll tax - common law employment relationship MATTER FOR DECISION: Principal matter Administrative Decisions Tribunal Act 1997 LEGISLATION CITED : Pay-roll Tax Act 1971 Taxation Administration Act 1996 Brodribb Sawmilling Co Pty Ltd (1985-1986) 160 CLR 16 CASES CITED: Hollis v Vabu Pty Ltd [2001] 207 CLR 21 Tupicoff v FCT (1948) 4 FCR 50 Value Engineering (Australasia) Pty Ltd v Commissioner of State Taxation (W.A.) 85 ATC 4152 APPLICANT REPRESENTATION: I Latham, barrister RESPONDENT M L Robertson, barrister ORDERS: The objection decision under review is affirmed

Introduction 1 The applicant seeks a review of an objection decision made by the Chief Commissioner of State Revenue (the respondent) in relation to pay-roll tax assessments for the financial years ended 30 June 2000, 2001 and 2002. 2 The principal issue in this matter relates to the liability of the applicant to pay- roll tax under the provisions of the Pay-roll Tax Act 1971 (the PT Act). A subsidiary issue concerns the imposition of interest and penalty tax under the provisions of the Taxation Administration Act 1996 (the TA Act). 3 The central question raised by this application is whether the payments referred to in the assessments are wages paid by the applicant as a common law employer or is an employer by virtue of the deeming provisions found in s 3C of the PT Act. If the applicant is a deemed employer under s 3C, a further question arises as to whether a declaration in terms of s 3(4) has been made to exempt the applicant of any pay-roll tax liability. Factual Background 4 This matter was heard on the basis of the documents lodged by the Chief Commissioner under s 58 of the Administrative Decisions Act 1997 and an affidavit made by Mr Harry Hamman, the managing director of the applicant. Mr Hamman was examined and cross-examined at the hearing. Both parties have also lodged written submissions. 5 The facts according to the applicant are as set out in the following paragraphs of Mr Hamman's affidavit: "4. The Applicant's business is to source executive personnel as contractors, or as permanent staff, for specific projects. Its clients are generally public companies, such as the Commonwealth Bank of Australia, QBE Insurance and MLC Limited. 5. Where the Applicant is engaged to search for suitable permanent executives, a retainer arrangement is negotiated between the client and the Applicant. 6. Where, as with the contracts presently under consideration, clients desire executives for particular projects, the Applicant's fees are negotiated on an ongoing basis. The Applicant makes its profits, in these circumstances, from receiving fees from the client that are higher than the fees it pays the executives' companies. 7. I understand that the contracts of present concern have been lodged with the Tribunal by way of a supplementary sec 58 statement. 8. The majority of these contracts relate to a specific project undertaken by CBA, being the implementation of the integration of Colonial with CBA. CBA engaged the Applicant to search for and provide it with specialized individuals to meet their project requirements. 9. The Applicant, as part of its business, has built up over time a database of executives with senior project management skills. If the Applicant considers a particular executive be suitable for a project he or she would be contacted and, if applicable, interviewed. 10. If the Applicant considers the executive suitable, an interview would be arranged with the client. The Applicant would not take part in that interview. 11. If the client considers the executive suitable for the project, then the Applicant would be engaged to procure that executive for the client for the duration of the project. On occasion an executive would be asked to stay on by the client as a permanent employee. 12. The Applicant's practice, which was followed in all cases under the contracts presently under consideration, was to contract with an executive's company, and not with the executive. This was, on most occasions, also required by the executive. On rare occasions an executive would not have his own company, and he would then form that company to contract directly with the Applicant. Where the Applicant contracted with an executive's company, there was never any intention to contract directly with the executive, and the Applicant did not make any offers to, or accept any offers from, the executive. 13. The Applicant caused its lawyers to draw standard contracts of engagement between it and an executive's company. Occasionally, an executive's company would present its own contract to be signed. There are some examples in the contracts before the Tribunal. 14. In each contract it is made clear that the liabilities in relation to PAYE, PAYG withholding, pay-roll tax, superannuation guarantee charge liability, workers' compensation and GST would be met by the executive's company. The Applicant in fact did not pay any liabilities in relation to those matters. 15. The contracts also made clear the intention of the parties that the executive's company was not an employee of the Applicant, and that there would be no remuneration for leave, holidays or sickness. 16. In order to protect the interest of its clients the Applicant required the executive's company not to divulge any information gained while working for a client. 17. I am not aware of the specific arrangements that each executive made with his company. I believe that most of the executive companies are one man companies, but other persons are involved in some cases. For the purpose of dealings with the Respondent, however, the Applicant has been prepared to allow the Respondent to assume all are one man companies, because it has not wanted to go to the considerable expense of searching each company register. 18. I have no knowledge as to the level of remuneration (if any) that an executive receives from his or her company. I am not aware what other activities an executive's company might engage in. I do not know how the Respondent can assert that these companies do nothing else. I disagree strongly with the Respondent's assertion that the Applicant's dealings with the executives' companies, rather than the executives, is a "thinly veiled" contrivance to evade pay-roll tax. 19. Once contract had been entered into between the Applicant and the client, and the Applicant and the executive's company, the executive commenced work on the particular project for the client. In the Respondent's submissions, there appears to be a misunderstanding that the executive worked under the direction of the Applicant's employees. Specifically, at para 2.1 the Respondent considers that Ms Shoshan Fiberg [sic] is an employee of the Applicant that directs Bradley Kerridge. This is incorrect. Ms Finberg works for CBA, and has never had any relationship with the Applicant. 20. The Applicant has no day-to-day control, or any legal or practical authority, over an executive at any time. The Applicant could not dictate any of the conditions of work with a client. That was a matter between the client and the executive. Once the executive was sourced for a client, the Applicant has no involvement other than ensure that both the client and the executive were suitable for each other. The Applicant's fees were dependent on the executive's continued work with and for the client. 21. Contrary to the Respondent's assertions (at para 3.5), the Applicant could not dismiss the executive at all. Rather, if the client determined that the executive was no longer suitable, then the client could terminate its arrangement with the applicant. In that circumstance, the Applicant could terminate its contract with the executive's company. The Applicant could not pull an executive off any project. 6 The Chief Commissioner has also provided to the Tribunal copies of contracts that the applicant entered into with companies on behalf of the executives for the period 1 July 1999 to 30 June 2000. Relevant Legislative Provisions 7 Under s 8 of the PT Act pay-roll tax is charged on all "taxable wages" paid or payable by an employer. S 3(1) defines "taxable wages" as "wages that, under section 6, are liable to pay-roll tax". Section 6 sets out the "wages" that are liable to pay-roll tax. It relevantly provides: "(1) The wages liable to pay-roll tax under this Act are wages that are paid or payable by an employer for services performed or rendered during a month or part of a month and …" 8 A wide definition of "wages" is found in s 3AA. Subsection 3AA(1) defines wages as "any wages, salary, commission, bonuses or allowances paid or payable (whether at piece work rates or otherwise and whether paid or payable in cash or in kind) to an employee as such". Subsection 3AA(2) further expands the definition of "wages" to include various other amounts, which might not ordinarily be regarded as wages. So far is relevant for this application, the extended definition includes "any amount deemed by or under a provision of this Act to be wages". (s 3(2)(e)) 9 Section 7 is the charging provision, which imposes pay-roll tax depending on the relevant threshold for the payment of the tax. For the period from July 2001 the threshold is as follows: "An employer is not liable to pay-roll tax for the financial year if the total taxable wages and interstate wages paid or payable by the employer during that year is less than $600,000." 10 Generally speaking all common law employers are liable to pay pay-roll tax provided they meet the thresh hold. In addition the PT Act also contains several provisions that deem a person to be an employer for purposes of the PT Act and are liable to pay pay-roll tax as such. For purposes of this application the relevant deeming provision that is in issue is s 3C, which provides: "(1) For the purposes of this Act, an employment agency contract is a contract under which a person (in this section referred to as an employment agent ) by arrangement procures the services of another (in this section referred to as a contract worker ) for a client of the employment agent (by a means other than a contract of employment between the contract worker and the client) and as a result receives directly or indirectly payment in respect of the services provided by the contract worker to the client, whether by way of a lump sum or ongoing fee, during or in respect of the period when the services are provided. (2) For the purposes of this Act: (a) the employment agent under an employment agency contract is taken to be an employer. and (b) the contract worker under an employment agency contract is taken to be an employee of the employment agent, and (c) an amount, the value of a benefit or a payment, being: (i) any amount paid or payable to the contract worker in respect of the provision of services in connection with an employment agency contract, and (ii) the value of any benefit provided for or in relation to the provision of services in connection with an employment agency contract that would be a fringe benefit if provided to a person in the capacity of an employee, and (iii) any payment made in relation to the contract worker that would be a superannuation benefit if made in relation to a person in the capacity of an employee, is taken to be wages paid or payable by the employment agent. (3) If it is not reasonably practicable to determine the extent to which an amount, benefit or payment constitutes wages under subsection (2)(c), the Chief Commissioner may accept a return, or make an assessment, in which the amount on which pay-roll tax is levied is determined on the basis of estimates. (4) An employment agent is not liable to pay-roll tax under this Act in relation to an employment agency contract: (a) if the contract worker is liable to pay pay-roll tax (as the employer of the person who actually provides the services to the client of the employment agent under the contract) in respect of wages paid for those services and a declaration to that effect has been given by the contract worker to the employment agent, or (b) if the wages that the amount, value of the benefit or payment under subsection (2) (c) is taken to be would have been exempt from pay-roll tax under section 10 had the contract worker been paid those wages by the client of the employment agent and a declaration to that effect has been given by the client to the employment agent, or (c) if the client of the employment agent: (i) is not registered or required to be registered as an employer under this Act, and (ii) would not be required to be registered as an employer under this Act if the client were the employer in respect of the wages paid or payable under all the employment agency contracts to which the client is a party, and a declaration to that effect has been given by the client to the employment agent. (5) If a contract worker gives a declaration to an employment agent under subsection (4) (a), and that paragraph does not apply or at any times ceases to apply to the contract worker, the employment agent is liable to pay pay-roll tax in respect of the wages paid or payable under the employment agency contract during any period in which the paragraph does not apply. (6) If a client of an employment agent gives a declaration to the employment agent under subsection (4) (b), and that paragraph does not apply or at any time ceases to apply in respect of the wages paid or payable under the employment agency contract, the client, and not the employment agent, is liable to pay pay-roll tax in respect of the wages paid or payable under the employment agency contract during any period in which the paragraph does not apply. (7) If a client of an employment agent gives a declaration to the employment agent under subsection (4) (c), and that paragraph does not apply or at any time ceases to apply to the client, the client, and not the employment agent, is liable to pay pay-roll tax in respect of the wages paid or payable under the employment agency contract at any time during the financial year in which the paragraph does not apply. (8) A declaration under subsection (4) is to be in a form approved by the Chief Commissioner." 11 Under s 3C, the employment agent is deemed to be the employer of the contract worker and the contract worker is deemed to be the employee of the employment agent. Amounts paid or payable to a contract worker are deemed to be wages paid or payable by the employment agent. The employment agent instead of the client is made liable for pay-roll tax under this provision. Applicant's case 12 The applicant 's case is put rather simply. It accepts that 'para 3C(2)(a) deemed the applicant to be an employer and para 3C(2)(b) deemed the executive/contract worker its employee.' But does not accept 'that there was a common law employment relationship between the Applicant and the executive'. 13 The applicant submits that 'the executives were common law employees of their companies, even though they might be called "one man" companies' and as "there is no contractual relationship between the Applicant and the executives, then the issue of common law employment does not arise.' It further submits that 'only the executive s' companies earn fees from the Applicant not the executives' and '(S)o there are no taxable wages.' 14 The applicant also submits 'that even if the executives did not use companies and had direct contracts with the applicant the principles settled by the High Court in Hollis v Vabu Pty Ltd will not apply to make them common law employees'. 15 The applicant 'finally submits that - even if there is a common law relationship, the definition of "wages" in sec 3AA is only satisfied if they are payable or paid to the executive. In fact and in law the Applicant is only liable to pay, and only pays, the executives' companies.' 16 In accepting that s 3C applies to the applicant and the executives, the applicant, however, takes the view that no liability arises because the third element required by para 3C(2)(c) for liability to pay-roll tax – that there be taxable wages paid by the employer to the employee – has not been satisfied. The applicant's submission is found in the following paragraphs of its written submissions: 51. The essential point of difference between the parties concerns how subpara 3C(2)(c)(i) operates. As can be seen, only payments to the contract worker fall within sub-paragraph 3C(2)(c)(i). 52. The Applicant submits that there was no amount paid or payable to the executive in respect of the provision of services in connection with the employment agency contract, for the reason that the Applicant paid, and was obliged to pay, amounts to the executive's company, not the executive. As a matter of law the Applicant dealt only with the executive's company, and the corporate veil cannot be lifted for the present purposes – Salomon v Salomon; Tupicoff v FCT (1984) 4 FCR 505. 53. That being the case, it follows that the Applicant only paid, and was only obliged to pay, fees to the executives' companies, not to the executives as required by para3C (2)(c). For example, in Tupicoff v FCT (1984) 4 FCR 505: "… here, what ever practical importance the parties attached to the continued participation of the taxpayer in the affairs of the company, the legal source of the company's income, in the form of remuneration or commission earned by it, was the contract of agency made between N.M.L. and the company. If, in accordance with the contract, commission becomes payable to the company by N.M.L., then, at law, the operation of s.260 apart, it is income derived by the company: it is not technically income derived by the taxpayer, however instrumental he may have been in the performance of the company's contract with N.M.L." 17 The applicant also rejects a suggestion by the respondent that the executives' companies are "contract workers" for purposes of s 3C. The applicant goes further to say that if the companies are the "contract workers" within s 3C, "they have made a sufficient declaration under the Act to exempt the Applicant from liability" and relies on the following submissions: 60. Second, if the executives' companies are contract workers within sec 3C, then they have made a sufficient declaration under the Act to exempt the Applicant from liability. The Respondent is right at par 6.2 that there is no declaration by the executive . However, on this hypothesis it is the executives' companies that must make the declarations, and they have done so. 61. In particular, a typical agreement between the Applicant and the executive's company would include the following declaration: "J.B. Kerridge Pty Ltd will be responsible for meeting statutory obligations in respect of … Payroll tax." 62. The Respondent has misread para 3C(4)(a) as requiring a declaration from each of the contractors indicating that in terms of section 3C(4)(a) they are actually liable to payroll tax. 63. Obviously an executive's company as the common law employer will be liable to pay-roll tax in respect of the taxable wages it pays the executive. 64. In this regard it is unnecessary that the Commissioner issue any assessment for an employer to be liable to pay-roll tax – the payment of taxable wages is sufficient – Loyala Enterprises Pty Ltd v FCT 39 ATR 502. 65. It is submitted the reference to "liability to pay-roll tax" is to the general liability of an employer in respect of the relevant wages. That the employer might actually not have to pay tax once its circumstances over the entire tax year are reckoned (e.g. because the taxable wages fall below its threshold) is irrelevant. If Parliament wished the provision to say so, it would have included the word 'actually" – it included that word elsewhere in the provision for another purpose. 66. To interpret the provision otherwise would lead to absurdity. Such a company would have no way of knowing at the time of the declaration whether it, or possibly other companies in its group, would be actually liable to payroll tax – it depends on many factors, including the relevant threshold. The relieving provision was not intended to make the employment agent a de facto enforcement authority, required to delve into the affairs of the company to assess the likelihood that payroll tax would be actually paid. Nor did Parliament intend that the employment agent would be effective guarantor of the other party's payroll tax liability – clear words would be required for such a harsh outcome. Parliament's intention was to let the matter rest at a sufficient declaration being provided to the employment agent. 67. Accordingly, the executives' companies have provided, in each case. A sufficient declaration for the purposes of subsec 3C(4) to the Applicant. There is no need to use the Commissioner's published form and, in any event it is invalid for requirement a declaration it is not authorized to require. 68. In Woods v Sullivan (1993) 30 NSWLR 586 the question arose whether a declaration were made in the "approved form". The Court said: I am more doubtful that there is such a question as to whether they were made in the approved form under s 184(1). I think there is force in Mr Ferguson's submission that the expression "in the approved form" suggests strongly that what is intended is a document of a certain layout and content, rather than a physical piece of paper originating from the electoral authorities. 69. In this regard, the Commissioner's "form" for a declaration is erroneous and unsupported by the legislation. The form requires a declaration that another is liable to pay-roll tax and actually will pay pay-roll tax. There is no warrant in the legislation for requiring that second declaration. 18 In relation to the interest and penalties included in the assessments the applicant submits that they be excluded on the basis of the above arguments that support the submission that the applicant is not liable to pay any payroll tax. In the alternative, the applicant seeks a remission of the relevant amounts included, "remission of all the penalties pursuant to section 33 of the Taxation Administration Act or otherwise on the grounds that its position is reasonably arguable, it has cooperated fully with the Respondent and it has acted bona fide at all times" and for the same reasons "a remission in whole, or in part, of the interest charges pursuant to sec 25 of the Taxation Administration Act or otherwise". The Commissioner's submissions 19 The respondent's basis for the assessments is that there is the existence of a common law employer and employee relationship between the applicant and each executive. The respondent relies on the decision of the High Court in Hollis v Vabu (2001) 207 CLR 21for this view which the respondent in his written submission states is supported by the following factors: '(i) The test of control 3.5 It is clear that the applicant was explicit that the work was to be done personally. The work could not be delegated. An unlimited power to delegate has been seen as an almost conclusive indication that the worker is an independent contractor (see decision of Privy Council in AMP Society v Chaplin 18 ALR 385 at 391:line 35). The work was required to be done on a full time basis. It was clear that the Applicant had the right to dismiss them. The power to dismiss is an indicator of employment (see Zuijs v Wirth Bros 93 CLR 561 at 572) The right to dictate the place and hours of work tends to indicate an employment relationship (see decision of Wilson and Dawson JJ in Stevens v Brodribb 160 CLR 16 at 36). The executive is bound by confidentiality provisions. The executive is prevented from entering any further contract without the approval of the Applicant. In the words of the Privy Council, the executive is bound hand and foot by the contract with regard to the manner in which the work is performed (see Narich v Cmr for Payroll Tax 50 ALR 417 at 427 line 11) (ii) the supervision of finances 3.7 The method of payment was totally in the hands of the Applicant. It was determined by reference to time worked rather than tasks performed (as in Vabu v Hollis). It requires the use of a signed time sheet detailing time worked. There is no evidence that the executive was required to pay for any expenses such as tools or equipment or equipment (as was the case in Vabu v Hollos) (iii) The Integration test 3.8 Similarly, the issue as to whether work was being carried on in a business of the employee or was integral to the organization of the putative employer is seen as an indicator of employment (ATWU v Monaro Sawmills 29 ALR 322 at 329). There is no doubt here that the work performed by the executive was part and parcel of the business of the Applicant. It was integral to that business. 3.9 It is submitted that the Tribunal must review each of the above indicia. In looking at the degree of control exercised by the Applicant, it is submitted that the level of control is similar to that of an employer over an employee. Other factors support such a conclusion. They are the mode of remuneration, the nature of the obligation to work, the overall practical exclusivity in the performance of such service and the arrangements as to hours of work. The arrangements as to leave and taxation are either relatively neutral or inclusive. The most significant considerations weighing against the characterisation of the contract as a contract of services is its description although for the reasons set out in Vabu v Hollis this is not determinative. (see Sammartino v Mayne Nickless decision of the Full Bench of AIRC Print S6212 for a similar balancing exercise in a pre Vabu v Hollis context) 20 In the alternative, the respondent takes the view that if the executives are not common law employees of the applicant, they are deemed to be employees for the purposes of the PT Act under s 3C. The respondent submits that on the basis of the applicant's own submission, the applicant is deemed to be an employment agent and the executive is deemed to be a contract worker under s 3C. 21 The respondent further rejects the applicant's submission that there is no liability to payroll tax under s 3C because only payment to the executive are taxable and that in this matter all payments are made to the executive's company The respondent also does not accept that any proper declaration has been lodged in this matter to exempt the applicant from pay-roll tax liability. 22 The respondent states that the insertion of s 3C in the PT Act "is an express attempt by the parliament to pierce the corporate veil to prevent tax avoidance through corporate artifice" and submits: "There is no question that the payment by the Applicant to the company of the executive and then in turn to the executive is an unbroken series of steps, with each step logically connected to the next. The payment to the Executive is clearly in connection with an employment agency contract ." and that: "In any event, the legislation provides that the executive's company is a contract worker given that it is clearly a person other than the Applicant whose services are procured for a client of the Applicant. The payments made by the Applicant to the Executive's company are clearly subject to payroll tax." 23 In relation to the declaration the respondent makes this short submission: "There is no declaration by the executive that he is liable to payroll tax. There is no declaration on a form approved by the Chief Commissioner. There is no exemption under this provision." Reasons and Decision 24 I will first examine the facts. As I understand them, there are essentially two stages in each case. The first relates to the arrangement for the applicant to present the executive to a client for his or her appointment with the client. In paragraphs 9,10, 11 and 12 of his affidavit the applicant's director, Mr Hamman deals with this stage. If the client considers that a particular executive is suitable for appointment, agreement is reached to engage the applicant to procure the executive. So far as the client is concerned, the arrangement is between the client and the applicant to produce the executive for the necessary appointment. 25 This arrangement is more fully explained by the applicant in its objection lodged on the 18 October 2002 in relation to these assessments as follows: '8. Any arrangement Aquila has with an executive's company is, it seems, unknown to the relevant client. Rather, the client is interested only that Aquila procures the services of an executive, rather than the services of an executive's company. A typical letter from Aquila to a client, for example, Mr. David Whitfield of CBA might provide: "Please accept this letter as confirmation of the contractual agreement between Aquila and the Commonwealth Bank with regards the employment of Bradley Kerridge on a contractual basis. Purpose of Engagement Bradley will be required to undertake the role of Lead Business Analyst under the direction of Ms Shoshana Finberg, Project Manager, Finance and Operations. Billing The amount charged will be an hourly rate of $85, payable fortnightly and within 7 days. This fee is inclusive of workers compensation, payroll tax and superannuation obligations." ' 26 Once that agreement is reached, the applicant enters into another arrangement to deal essentially with the applicant's relationship with the relevant executive and deal with the remuneration received from the client. This arrangement involves an agreement with a company of the executive. As part of these arrangements, the executive personally signs a document addressed to the client in the following terms: "I, … Declare that all times during my service I will: i) Conduct myself with honesty and due diligence; and ii) That I will at all times, maintain secrecy in relation to the affairs of the Bank, the Bank's and associated bodies corporate and or the customers of any of them and I will not directly or indirectly communicate or divulge any information which comes to my knowledge in the performance of my duties as a consultant to the Commonwealth Bank or its subsidiaries except by authority of the Bank, the Bank's associated bodies corporate or under compulsion or obligation of law." 27 I will now deal with the various arguments that have been advanced by the parties. The respondent takes the view that there is a common law employer and employee relationship between the applicant and each executive. The applicant rejects this argument on the basis that the executives are not employees of the applicant because there "are no contracts whatsoever between the Applicant and the executives" to create this relationship. 28 What are the relevant legal principles that need to be considered in any inquiry relating to whether there is an employer and employee relationship in any factual situation? I think the observations made by Mason J, as he was then, in Stevens v Brodribb Sawmilling Co Pty Ltd (1985-1986) 160 CLR 16 provide a great deal of guidance in that regard. 29 In relation to the "control test", His Honour made the following statement at p.24: '… A prominent factor in determining the nature of the relationship between a person who engages another to perform work and the person so engaged is the degree of control which the former can exercise over the latter. It has been held, however, that the importance of control lies not so much in its actual exercise, although clearly that is relevant, as in the right of the employer to exercise it… But the existence of control, whilst significant, is not the sole criterion by which to gauge whether a relationship is one of employment. The approach of this Court has been to regard it merely as one of a number of indicia which must be considered in the determination of that question … Other relevant matters include, but are not limited to, the mode of remuneration, the provision and maintenance of equipment, the obligation to work, the hours of work and provision for holidays, the deduction of income tax and the delegation of work by the putative employee. ' 30 On the basis of the suggested tests, Mason J than proceeded to apply them to the facts of the case as follows: '… neither Stevens nor Gray was an employee of Brodribb. The facts, as I have related them, do not support an inference that Brodribb retained lawful authority to command either Stevens or Gray in the performance of the work which they undertook to do. As I have said, they provided and maintained their own equipment. Set their own hours of work and received payments, not in the form of fixed salary or wages, but in amounts determined by reference to the volume of timber which they had been involved in delivering, through the use of their equipment, to the sawmill.' 31 His Honour also referred in his observations to the "so called organization test, a test of whether a putative employee is carrying on a business for himself on his own behalf and working for another person, and said at p27: "… For my part I am unable to accept that the organization test could result in an affirmative finding that the contract is one of service when the control test either on its own or with other indicia yields the conclusion that it is a contract for services. Of the two concepts, legal authority to control is the more relevant and more cogent in determining the nature of the relationship." 32 His Honour, concluded at p.28 to make the following observations: ' It is said that a test which places emphasis on control is more suited to the social conditions of earlier times in which a person engaging another to perform work could and did exercise closer and more direct supervision than is possible today. And it is said that in modern post-industrial society, technological developments have meant that a person so engaged often exercises a degree of skill and expertise inconsistent with the retention of effective control by the person who engages him. All this may be readily acknowledged, but the common law has been sufficiently flexible to adapt to changing social conditions by shifting the emphasis in the control test from the actual exercise of control to the right to exercise it, 'so far as there is scope for it', even if it be 'only in incidental or collateral matters': Zuijs v Wirth Bros Pty Ltd (1955) 93 CLR 561 at 571 Furthermore, control is not now regarded as the only relevant factor. Rather it is the totality of the relationship between the parties which must be considered.' 33 The "totality of the relationship" test suggested by Mason J was more recently adopted with approval by the majority (Gleeson CJ, Gaudron, Gummow, Kirby and Hayne JJ) in their joint judgment in the High Court in Hollis v Vabu Pty Ltd (2001) 207 CLR 21. Their Honours after referring to the relevant contract between the parties in that case, made the following statement: "… It should be added that the relationship between the parties, for the purposes of this litigation, is to be found not merely from these contractual terms. The system which was operated there under and the work practices imposed by Vabu go to establishing 'the totality of the relationship' between the parties; it is this which is to be considered." 34 In Vabu, the majority applied the 'totality of the relationship' test to the facts of the case and concluded that the couriers were employees. A useful comparison was made by the respondent in his submissions to the indicia used by the majority to the facts of this case in his submissions. I have reproduced a summary of the respondent's relevant analysis at paragraph 19 of this decision. I would adopt the analysis as part of my reasons for the conclusion I have reached in relation to this issue. 35 For my part, I think on the basis of the suggested 'totality of the relationship' test there are several considerations, which on balance would indicate that the executives are employees. 36 In the first place they had to work normal hours on a full time basis like other employees of the client at the place of business of the client. These are features which tend to indicate the existence of an employment relationship as was observed by Wilson and Dawson JJ in Stevens v Brodribb Sawmilling Co Pty Ltd (1985-1986) 160 CLR 16 at p.36 - "The other indicia of the nature of the relationship have been variously stated and have been added to from time to time. Those suggesting a contract of service rather than a contract for services include the right to have a particular person do the work, the right to suspend or dismiss the person engaged, the right to the exclusive services of the person engaged and the right to dictate the place of work, hours of work and the like." 37 The work was done by the executive at the place of business of the client and the work could not be delegated to anyone else. As pointed out by the respondent, an "unlimited power to delegate has been seen as an almost conclusive indication that the worker is an independent contractor (see decision of Privy Council in AMP Society v Chaplin 18 ALR 385 at 391: line 35)." 38 Secondly, the executives were subject to supervision at the place of employment. The executives had a defined employment role, for example in the case of Mr Kerridge, he was required to "work under the direction of Ms Shoshana Finberg, Project Manager, Finance and Operations and to undertake the role of Lead Business Analyst". Clearly, the relevant executive was at the place of business of the client to perform a defined role like the other employees of the client. That would be a strong indicator that the executive was an employee and could not be regarded as an independent contractor. 39 Thirdly, the executives as contract workers kept time sheets to be paid on the basis of a fixed rate. It was based on the amount of time spent at work rather than on tasks done. 40 Fourthly, the executives did not provide or maintain any equipment of their own to undertake their duties at the place of work. In fact the executives did not require any special equipment to perform the ordinary employment roles at the client place of business. They used the equipment available at the client's place of business. 41 Fifthly, and quite importantly, the control test is satisfied in the present matter. The applicant could effectively sack any executives by terminating the agreement with the executive's company and accordingly had lawful control over the executives. 42 In my opinion the only relevant arrangement that I need to consider is, as described above, is the first arrangement. The second arrangement is an n arrangement between the applicant and the executive, essentially to deal with the remuneration received from the client. In its objection, the applicant makes it quite clear that the client was never aware of the second arrangement. The client had no relationship whatsoever with the executive's company. The executive's company performed no activities in relation to the first arrangement. 43 I should also observe that, under s 100(3) of the T A Act, the applicant has the onus of proving the applicant's case in an application for review to this Tribunal. No evidence was produced by the applicant to show that the relationship with the client and the executive with the applicant acting as the "surrogate" employer was not one of employment. The affidavit of Mr Hamman dealt mainly with the dealings with the executive's company. The executive's company was not contracted to the client. The client dealt only with the executive on the basis that the applicant was in charge of the executive. In making payments of the remuneration due to an executive to the applicant, the client made it clear that the amount included worker's compensation, pay-roll tax and superannuation. The latter payments are never made to independent contractors. In addition, independent contractors also need to charge an amount for any GST liability. None was mentioned in the arrangement with the client. 44 The applicant relied mainly on legal arguments that because the executive's company earned the fees from the applicant there were no taxable wages paid by the applicant to the executive. A great deal of reliance was placed by the applicant on two income tax cases, Tupicoff v FCT (1948) 4 FCR 505 and Mochkin v FCT (2003) 52 ATR 198. These dealt with services rendered by companies to various clients and the relationship was direct with the clients. They can be therefore quite easily distinguished from the current matter. In the present matter the executive's company enters did not enter into such direct agreement with the clients to provide services. The executive's company merely made available a named person to perform the service with the executive through the applicant. The client had no knowledge of the existence of the executive's company and played no role in the first arrangement. 45 There is no evidence that the executive's company did anything else than deal with money it received from the applicant. There was potential for the executive's company to split the income between the shareholders or if it was a trustee of a discretionary trust, to various beneficiaries. The applicant had the onus and task of showing that the executives were contractors and not employees. 46 I accordingly find that the applicant has not discharged the onus placed on it to demonstrate that his executives were merely contractors. The applicant has simply not produced any factual background to suggest that the executive's relationship was that of an independent contractor and not that of an employee. 47 I now turn to the question whether s 3C applies to the facts of this matter. This provision has not been the subject of any review in this Tribunal nor has it been tested in court. Being free from authority, it is necessary to examine the terms carefully to consider the issue in this matter. There is however, some guidance from at least one case decided in another jurisdiction in relation to provisions, which achieve the same results as the provisions in s 3C are intended to achieve. 48 It is common ground that there is an arrangement for purposes of s 3C under which the applicant is the employment agent and the executive is the contract worker. Accordingly, for purposes of s 3C(2), the applicant is taken to be an employer and the executive as a contract worker is taken to be an employee of the applicant. The principal difference between the applicant and the respondent in the application of s 3C is in respect of the actual liability to pay-roll tax. The applicant disputes liability to pay-roll tax on the ground that the applicant did not pay any amount to the executive as all amounts were paid by the applicant to the executive's company. 49 The respondent has also suggested that in the alternative, the executive's company should be treated as the "contract worker" for purposes of s3C. 50 Subsection 3C(1) defines an "employment agency contract" as "a contract under which a person (in this section referred to as an employment agent) by arrangement procures the services of another (in this section referred to as a contract worker) for a client of the employment agent (by means other than a contract of employment between the contract worker and the client) and as a result receives directly or indirectly payment in respect of the services provided by the contract worker to the client, whether by way of a lump sum or ongoing fee, during or in respect of the period when the services are provided". 51 Subsection 3C(2) sets out the outcomes of any such relationship. Paragraph (a) deems the employment agent under the employment agency contract to be an employer, and paragraph (b) deems the contract worker to be an employee of the employment agent. Paragraph (c) sets out what amounts or benefits are to be taken to be wages paid or payable to the employment agent. The only relevant provision that needs to be considered in this matter is paragraph (c)(ii). Under that paragraph "any amount paid or payable to the contract worker in respect of the provision of services in connection with an employment agency contract" "is taken to be wages paid or payable by the employment agent". 52 Where it is not reasonably practicable to determine an amount or benefit under subsection (2)(c), the Commissioner is allowed under subsection (3) to accept a return or make an assessment, in which the amount on which pay-roll tax is levied is determined on the basis of estimates. 53 The only other provision found in s 3C that needs to be considered in this review is subsection (4)(a). Under that provision an employment agent is not liable to pay-roll tax in relation to an employment agency contract "if the contract worker is liable to pay pay-roll tax (as the employer of the person who actually provides the services to the client of the employment agent under the contract) in respect of wages paid for those services and a declaration to that effect has been given by the contract worker to the employment agent". It is important to note that under subsection (8) any declaration made "under subsection 4 is to be in a form approved by the Chief Commissioner". 54 The first observation that I make in relation to the application of s 3C is that its application does not require any direct contractual relationship between the employment agent and the contract worker. Under subsection 3C(2) an employment agency contract is one where the employment agent "by arrangement procures the services of" the contract worker. These words, in my opinion, have to be construed with the emphasis on the particular use of the term "procures". Some useful guidance is available in construing the term from the decision of the Full Court of the Supreme Court in Value Engineering (Australasia) Pty Ltd. v Commissioner of State Taxation (W.A.) 85 ATC 4152. 55 In Value Engineering the taxpayer entered into contracts with clients to supply the services or work of engineers, draftsmen and similar personnel. The taxpayer entered into contracts with subcontractors (partnerships, companies, or trustees for discretionary or unit trusts) to perform the work. Personnel of the subcontractors physically performed the required services. The taxpayer was assessed to pay-roll tax on the basis that it was an "employment agent" within the s 3(2a) of the W.A. pay-roll act and that the payments to the subcontractors were "wages" within para. (f) of the definition of "wages" found in s 3(1). The taxpayer in the Full Court argued that it was not an employment agent within the definition because it did not engage or procure the workers who actually performed the services because the provisions require a direct arrangement between the employment agent and the actual person or individual performing the services. In the alternative, it was argued that if the taxpayer was an employment agent the payments to the subcontractors were not "wages" within the definition in para. (f). 56 Paragraph (f) provided that the definition of "wages" included: "any amount paid or payable by way of remuneration by an employment agent directly or indirectly to a person who was engaged to perform services for a client of the employment agent, or to some other person in respect of those services, as a result of which engagement the employment agent receives directly or indirectly payment, whether by way of a lump sum or an ongoing fee, during or in respect of the period when the services are provided by that person to the client." And relevant part of subsection (2a) was as follows: "(2a) For the purposes of 'wages' in subsection (1) of this section, 'employment agent' means a person (in this definition referred to as the agent) who by an arrangement procures the services of a person (in this definition referred to as the worker) for another person (in this definition referred to as the client) …" 57 The majority of the Full Court (Burt C.J. and Kennedy J) rejected both arguments. The majority held that the contracts entered into between the taxpayer and the subcontractors constituted arrangements whereby the taxpayer procured the services of workers for the client and that the taxpayer failed to discharge the onus placed on it to show that the workers did not carry out duties of a similar nature to those of employees. Kennedy J expressed his opinion as follows: ' … the contracts tendered by consent constituted arrangements whereby the appellant procured the services of workers for the client. Under those contracts, …, the subcontractors undertook, for the present purposes, to supply the professional services of another person or persons for the client and, in my opinion, the appellant relevantly procured those services which were eventually rendered. The use of the term "procure" does not, in my view, require there to be a direct contractual relationship between the appellant and the person providing the services.' 58 The majority also held that the remuneration paid by the taxpayer to the subcontractors constituted "wages" within para. (f). In dealing with the submission that the remuneration had to be paid directly to the person engaged, Kennedy J expressed the following observations: 'On the admitted facts, the amount paid by way of remuneration was paid in each case to "some other person" in respect of the services, that is, to the subcontractor. In my view, the workers were, within the terms of the paragraphs, engaged to perform t services for the clients and that is not directly challenged in the objection. The appellant's submission would require that the words "by the employment agent" be read into the paragraph after "engaged". I do not consider this to be justified. Moreover, as a result of the engagement, the appellant must be taken to have received payment directly from the client in respect of the period when the services were provided by the worker to the client.' 59 In the present matter, there was an "arrangement" with the contract worker's company under which the applicant procured the contract worker. The real issue is whether any amount was paid or payable to the contract worker in respect of the provision of services in connection with the employment agency contract. Although the language of s 3C(2)(i) differs from the equivalent provision examined in Value Engineering, the observations made by Kennedy J are quite helpful in interpreting the words found in s 3C(2(i). 60 Whilst no amount was actually paid to the contract worker, the executive, by the client or the applicant, the amount payable to the contract worker was in each case clearly the amount that was agreed to with the client. Paragraph 3C(2)(c)(i) operates to take into account any amount "payable to the contract worker in respect of the provision of services in connection with an employment agency". 61 The client was not aware of any arrangement between the employment agent and the contract worker's company. The client merely agreed to pay the remuneration on the basis of the work performed by the to the contract worker and on an hourly rate inclusive of workers compensation, pay-roll tax and superannuation obligations. For example, in the case brought to the attention of the respondent by the applicant, in its objection, the fee payable to Mr Kerridge was agreed at an hourly rate of $85. That, in my opinion, is the amount that should be taken as the amount payable in connection with each agency contract. As otherwise, as Kennedy J had to suggest with the provision he was looking at, some form of words have to be added to s 3C to make it subject to how the remuneration received from the client is finally dealt with. The way the executive's company dealt with amounts received from the applicant has no relevance to the way s 3C applies. 62 I do not think the operation of s 3C(2)(i) is in any affected by the arrangements made with the executive's company. The fact that a different amount is paid to the executive's company, being the amount paid by the client less the applicant's fee, is a matter between the executive's company and the applicant. I also take the view that there is nothing in the terms of s 3C(2)(i) that make its operation subject to what is done in dealing with the remuneration received by the employment agent from the client. 63 I am also of the view that the provisions are satisfied even if the amount is not paid directly to the contract worker but paid to the executive's company. Under the agreement with the executive's company, it is clear that the person named is the person who will work at the client's place of business. Any payment made to the executive's company by the applicant would, in my opinion, constitute an "amount paid to the contract worker in respect of the provision of services in connection with an employment agency contract". The executive's company is not involved in the employment agency contract. Support for this view is also found in the part of decision cited above of Kennedy J in Value Engineering. 64 It is also important to note that s 3C is an anti-avoidance provision and recognises that the structure that it has to deal with is a "means other than a contract of employment between the contract worker and the client". It allows in my opinion to look at the real substance of the arrangement rather than the mere form used. 65 I now deal with the provisions found in s 3C(4) which effectively, in certain circumstances, exempts the employment agent from liability to pay-roll tax if the provisions in s 3C(1) and (2) apply. The relevant provision, which the applicant submits applies in this matter, is paragraph 3C(4)(a). Under that paragraph, an employment agent is not liable to pay-roll tax in relation to an employment agency contract, "if the contract worker is liable to pay pay-roll tax (as the employer of the person who actually provides the services to the client of the employment agent under the contract) in respect of wages paid for those services and a declaration to that effect has been given by the contract worker to the employment agent". Under subsection 3C(8) a "declaration under subsection (4) is to be in a form approved by the Chief Commissioner". 66 I agree with the applicant that for purposes of this application only the executives are contract workers and deemed employees under s 3C and accordingly reject the alternative submission made by the respondent that the executive's company is the contract worker in each case. On the evidence in this matter it is clear that in each case the only person involved as a contract worker with the client is the executive. In these circumstances it is not necessary for me to consider if any declaration has been properly given by the executive's company in each case. In any case, no executive's company was in a position to make a declaration that it was liable to pay-roll tax as an employer of the person who actually provided the services to the client "in respect of the wages paid for those services". The executive's company would have only been liable to pay-roll tax on whatever wages it paid to the executive and other employees. 67 Both parties accept that no declaration by an executive has been made under these provisions. I do not think the executive, like their companies, were in any position to satisfy the requirements of paragraph 3C(4)(a). Accordingly, I do not think the provisions of paragraph 3C(4)(a) have any relevance to the matter before the Tribunal. 68 I finally deal with the question of remission of the interest and penalties imposed in this matter. In the absence of a common law employer /employee relationship and the provisions of s 3C, in most cases where similar arrangements as those used in this matter, the provisions of the PT Act would be circumvented. Both the client and employment agent would not have any pay-roll tax liability. 69 We are, accordingly, dealing with essential anti-avoidance provisions that ensure that all employers pay their fair share of pay-roll tax. The client did recognise the liability when agreeing to the fee payable for the services rendered by the contract worker. The applicant was aware of pay-roll tax but chose to enter into the arrangement with the contract worker's (executive's) company rather than directly deal with the executive. 70 When this matter is reviewed in the context of all the facts and in particular, that the applicant's liability to pay-roll tax was identified by the respondent as part of a pay-roll tax audit, there are, in my opinion, no grounds that warrant any remission of either the interest or penalty imposed by respondent. 71 Accordingly, I will affirm the objection decision made by the respondent.