Set aside by Appeal : 1. Appeal No. 059029. Dismissed 2. Appeal No. 059027. Allowed CITATION: RET Enterprises Pty Ltd & ors v Chief Commissioner of State Revenue [2005] NSWADT 67 DIVISION: Revenue Division PARTIES: APPLICANTS RET Enterprises Pty Ltd A/T Robert Thomson Family Trust; Tommac Enterprises Pty Limited; Place Administration Services Pty Limited; Gemfen (Aust) Limited; Tomald Investments Partnership FILE NUMBER: 046012, 046013, 046014, 046015, 046016 HEARING DATES: 21/09/2004-22/09/2004 SUBMISSIONS CLOSED: 09/22/2004 DATE OF DECISION: 03/31/2005 BEFORE: Hole M - Judicial Member APPLICATION: Pay-roll tax - grouping of corporations - Taxation Administration Act - liability to pay interest MATTER FOR DECISION: Principal matter LEGISLATION CITED : Pay-roll Tax Act 1971 Taxation Administration Act 1996 Baxter & Anor v Chief Commissioner of Pay-Roll Tax (NSW) 86 ATC 4816 Chief Commissioner of Pay-Roll Tax (Qld) v John French Pty Ltd & Ors 83 ATC 4283 CASES CITED: Commissioner of Stamps v Garrett F Hunter Pty Ltd & Ors ATC 4787 Mead Packaging (Aust) Pty Ltd v Chief Commissioner of Pay-Roll Tax (NSW) 78 ATC 4164 Muir Electrical Co Pty Ltd v Commissioner of State Revenue (No 2) ATC 4590 Muir Electrical Co Pty Ltd v Commissioner of State Revenue [2001] 4VR70 APPLICANTS REPRESENTATION: R J Richardson, agent RESPONDENT R Hamilton, barrister ORDERS: The assessment by the Chief Commissioner of State Revenue is confirmed; Interest should be assessed at market rate component only; The provisions of Section 27(3)(a) of Taxation Administration Act 1996 are to be applied so that no penalty tax is to be payable REASONS FOR DECISION The Application 1 These applications are in relation to the assessments nos. 2814308, 2814336, 2814367 and 2814409 issued on 30 September 2003 in respect of the tax years ending on 30 June 2000, 30 June 2001, 30 June 2002 and 30 June 2003 respectively. The assessments were issued in respect of various entities being:- RET Enterprises Pty Ltd ("RET"); Gemfen (Aust) Pty Ltd ("Gemfen"); Tommac Enterprises Pty Ltd ("Tommac"); Place Administration Services Pty Ltd ("Place"); 2 The assessments were issued in respect of Payroll Tax and have been issued by the Chief Commissioner of State Revenue on the basis that the entities comprising the Disputed Group as grouped into 6 groups under Part 4A of the Pay-Roll Tax Act 1971 (the "PT Act") and then treated the 6 groups as subsumed into one group (that is the 'Disputed Group') by application of the provisions of Section 16E (PT Act). 3 An application was made to the Chief Commissioner of State Revenue to make an Exclusion Order pursuant to Section 16H (PT Act) and this was refused on 16 October 2003. 4 A direction was made on 4 May 2004 that all evidence filed would be considered to be evidence in each of the applications for the purposes of hearing the applications. Audit 5 On 4 July 2003 the Chief Commissioner of State Revenue commenced an audit of the entities to ensure that the correct amount of payroll tax had been paid between 1 July 1999 to 30 June 2003. Prior to that audit the entities were ungrouped and all payroll tax was paid on that basis. 6 In 1999, Meriton Apartments Pty Ltd was involved in an investigation regarding Pay-Roll Grouping and an opinion was provided to the entities as to Pay-Roll tax compliance. At that time the two trust entities which RET and Gemfen were operating were registered and paying Pay-Roll tax. Structure of the Entities 7 The structure of the entities has evolved over a considerable period of time and relates to the history of employment of John Thomson (John) and Ken McDonald (Ken). Their future anticipated work arrangements and the inclusion of John's brother Robert and Ken's son Keith in the structures that evolved were driving factors, according to the applicant's submissions. 8 For the purposes of these applications it is sufficient to set out the form of the structures as at the time of the assessments. The definition of the structures is as included in the affidavit evidence of James Ball dated 22 June 2004. Mr Ball is the accountant for John and Ken and the entities being the applicants. 9 RET has two shareholders – Caroline Ann Thomson and Robert Edward Thomson (Robert) (who is 45 years old) – each holds 1 ordinary share – each is a director of the company. Caroline is the wife of Robert. Robert is the younger brother of John. The trading transactions of the company are as trustee for the 'Robert Thomson Family Trust'. 10 The Robert Thomson Family Trust was created by Deed on 19 August 1996 and the beneficiaries include Robert and Caroline, their children, certain companies and the remoter issue of Robert. RET is the trustee and Robert, as Appointer, has the power to change the trustee. 11 Financial reports of the trust disclose that distribution of trust net income (gross income being $8,984,764.00) was made for the year ended 30 June 2002 to Robert and Caroline in equal shares (Estimated $853,403.00). 12 Gemfen is a company having a sole shareholder and director – Keith McDonald (Keith). Keith holds 1 ordinary share. The trading transactions of the company are as trustee for the 'Keith McDonald Family Trust'. 13 The Keith McDonald Family Trust was created by Deed on 19 August 1996 and the beneficiaries are Keith, close relatives and companies and the remoter issue of Keith. Gemfen is the trustee and Keith, as Appointer, has the power to change the trustee. 14 Financial reports of the trust disclose that distribution of trust net income (gross income being $7,608,727.00) was made for the year ended 30 June 2002 to Keith and J Casamento in undisclosed shares (Estimated $915,839.00). 15 Tommac has two shareholders – Ken McDonald and John Thomson – each hold 1 ordinary share. 16 Financial reports for the year ended 30 June 2002 of the entity disclose: - that there was a gross trading income of $29,939,595.00; -that among other payments the following were made: (i) purchase of materials -$8,291,508.00; (ii) purchase of 'other' - $708,447.00; (iii) to RET - $8,984,763.00; (iv) to Gemfen - $7,608,728.00; and (v) hire fees to Tomald - $1,340,909.00 17 The distribution of the net income (Estimated $2,089,792.90) has not been disclosed. 18 Place has two shareholders – Laureen Place (Laureen) and David Place. 19 Financial reports for the year ended 30 June 2002 of the entity disclose that "derived fees" were received from: RET Gemfen Tommac totalling $123,722.00. 20 Tomald is a partnership arrangement between K & J McDonald Investments P/L (50%) and J & M Thomson Investments P/L (50%). 21 Financial reports for the year ended 30 June 2002 disclose that the entity derived 'hire' fees from: RET - $59,200.00; Gemfen - $52,800.00; Tommac - $1,340,909.00; and Hotspur Services P/L - $26,250.00. 22 The applicants submitted that the structures remained the same for each of the relevant years. History of employment Evidence of John Thomson 23 John Thomson provided an affidavit dated 22 June 2004 and gave evidence which included the following material: (i) About 30 years (in the 1970's) prior to 2004 John and Ken worked with a team of bricklayers on a site when receivers took control of the "head" contractor. Harry Triguboff (Harry) of Meriton Apartments Pty Ltd ("Meriton") requested John and Ken to keep their bricklayers on site to finish the work. John and Ken were persuaded to do so and Harry promised them a steady flow of work from him in the future. Since then John and Ken have attended to a substantial amount of bricklaying work for Harry's company Meriton. (ii) John and Ken decided to ease themselves from the responsibilities of their own enterprises and to encourage members of their families to commence their own businesses. The entities for Robert Thomson and Keith McDonald were then established. (iii) The relationship which developed between John, Ken and Harry continued after 1996. Harry discouraged John and Ken from 'seeking' work from any other developers. John and Ken were anxious to pass the responsibility for operation of the businesses that they had established for Keith and Robert to them. Harry refused to deal with Keith and Robert and insisted on dealing with John and Ken as the "human face" of Tommac. All 'contracts' negotiated with entities under Harry's control have been negotiated between John and Harry and have been oral contracts. John attested that he was not aware of any legal consequence of there being no written contract. John described the process whereby a 'contract' was negotiated as including: He would pick up the plans for Harry's development. He would obtain various assessments concerning material requirements from an outside Quantity Surveyor. He would work out a pricing. He would provide a lump sum price to Harry to do all the brickwork and Hebel work. Harry has quantity surveying employees within his company. He and Harry would then haggle over the price and come to some arrangement to do a development as e.g. 'World Tower'. He negotiated on behalf of Tommac. He would then decide which entity would carry out the work for Tommac – either Gemfen or RET on a subcontract basis. He would negotiate a fee payable by Tommac to the entity chosen to do the work. He would not engage Gemfen or RET to work on the same site. No record was kept of quotes given to Harry. A quote was not required from "the boys" (RET and Gemfen) companies. The process was then to give the boys the pricing and quantity details and the selected entity would come back to him with a price. He would agree the verbal 'contract' with Harry by handshake only. 24 J Ball (an accountant) suggested to John and Ken that they should set themselves up with an arrangement with Robert and Keith, that John and Ken "stay in good" with Harry and that Family Trusts should be established and those trusts would then employ the people required. Then Tommac would remain as head contractor and that ultimately the group tax would be paid correctly. There had been some concern that the 'Union' would blackmail the contractor. 25 The arrangements with Harry were on the basis of performance, that is get the job done quickly and get the development on the market. Tommac remained responsible, through John and Ken, to Harry and Tommac would sign off on the fire and sound ratings certificate. The standard of the completion of the job reflected on John and Ken and thus Tommac. 26 John attested to the work undertaken by Place for Tommac as being not "a great deal of work" and Place provided a monthly invoice which he checked from time to time before it was paid. The amount paid to Place was "an agreed amount" for administrative services and if further work was performed then there would be an extra charge. 27 John attested that he checked the work on site being performed by either of the 'boys' and would let them know if it was not up to standard. He commented that rectification work was being undertaken at the development known as "Regis Towers". He visits sites, according to his affidavit, "to be satisfied of the safety policies applied" on behalf of Tommac and works 70 to 80 hours per week. He allocates the majority of that time to work undertaken for Tommac. He states that "I do not inspect sites and have no day to day involvement in the activities of either Gemfen or RET.". 28 John further gave evidence that Tommac's major contractor was Meriton and that when a contract was agreed then either RET or Gemfen had a contract. Although no evidence was called from Meriton, the evidence from John and Ken discloses that any arrangement with Meriton was with John and Ken. There was no evidence given that Meriton or Harry would consider that the contracts were with any entity other than John and Ken personally even though he knew of Tommac. 29 John referred to the diplomacy required to deal with Harry in order to maintain the 'contracts' with Harry's firm. Robert and Keith were aware that if there was a disagreement with Harry then "you're out the door". He attested that there were rarely any problems because of the standard of Robert and Keith's expertise. 30 In relation to RET and Gemfen, John attested that: RET and Gemfen did not share employees. When RET is awarded a job by Tommac it employs foremen to manage the site and hires and fires workers. When Gemfen is awarded a job by Tommac it employs foremen to manage the site and hires and fires workers. He is not aware of any intertrust transactions between the RET and Gemfen 'trusts' and they do not trade except as trustees for the 'trusts'. 31 In relation to Place, John attested that it is required to: - check time sheets; - check computer pay against manual time sheets; - check and organise long service leave applications with long service leave corporation for new employees; - complete all paperwork for new employees including the appropriate tax declarations; - organise and prepare ETP summary sheets and long service leave certificates for all terminated employees; - calculate, check and arrange payment of monthly superannuation contributions; - other associated duties and when required under the direction of Laureen Place; and -Place employ its own employees independently of RET, Gemfen, Tommac or Tomald. - Place was engaged as a pay-roll service. 32 In relation to RET and Gemfen, John attested that Tommac has a registered quality assurance policy with Meriton as the major contractor and then RET and Gemfen have one. RET and Gemfen provide documentation to Tommac to ensure all work is carried out in accordance with the Building Codes Australia. Any unacceptable workmanship is rectified at the cost of RET or Gemfen as the case may be. 33 John and Ken perform duties for Tommac as employees and for Tomald. They wear the responsibilities of these at the same time. At times they provide management advice to Tommac as employees of Tomald. This dual employment is managed financially each year by calculating the fee payable to Tomald, as a percentage of the gross revenue of Tommac. The fee is then reduced by the income received by Tomald from Tommac in respect of hire of goods. Precise calculation is considered not to be of importance because the ultimate owners of both entities are the same and it is therefore not of great commercial importance. 34 John attested that Tommac operates from a factory office where there are 5 employees including: (i) a secretary; (ii) an employee who looks after safety for operations; (iii) an employee who attends to purchasing (e.g. bricks); (iv) an inhouse accountant; and (v) Laureen Place – wage bureau (who keeps timesheets). 35 The following also have their offices in the same premises: John Thomson; Ken McDonald; Robert Thomson; and Keith McDonald. 36 John attested that the question as to whether RET or Gemfen had a policy to keep them separated was a matter for them not him. John was not aware of any cross pollination between the work of RET and Gemfen or use of the employees of one of those entities by the other. 37 John attested that Tommac has taken on other contracts, as has RET and Gemfen lately, as Harry has moved to Queensland. 38 John iterated that the whole business was run on a handshake. Evidence of Ken McDonald 39 Ken's affidavit supported that given by John. He attested to his view of the reason to set up the entities in 1996 was so that the younger ones could work for themselves and to allow John and Ken to continue to work and that they could keep Harry happy. He believed that Keith and Robert run their own companies. When the new entities were set up, some of the employees of Ken and John were then re-employed in the new structure. He was of the view that John dealt mostly with Harry and gave a similar description of the process of 'contracting' with Harry and then with RET or Gemfen. 40 Ken believed that there was a handshake deal with Harry. That Ken and John then negotiated a price with either RET or Gemfen, the price had to be 'sensible' and if the job was underpriced then the relevant company (Gemfen or RET) bore the loss. However, they have not made a loss, as they are "very good operators". 41 Ken was not aware of a policy of RET or Gemfen that an employee could not be shared. He was aware that they do not work on the same site and that there was no cross pollination between RET and Gemfen so far as those entities are concerned. Evidence of Robert Thomson 42 Prior to RET being set up, Robert attested that he talked with James Hall who organised it for him. Robert had his own ideas as to how the entity should be structured and once set up he then ran RET. He employed new employees and organised the entity's affairs and started from scratch. 43 Robert provided an affidavit dated 22 June 2004. He had been, prior to 1997, a site foreman and had completed his apprenticeship with John and Ken. Robert expressed his opinion that there was an intention that work, other than provided through Tommac, would be sought. There was one contract for another party completed in 2000 for the sum of $597,200.00. 44 Robert's employees, through RET, were on wages and were paid in accordance with the EBA (Union employees enterprise bargaining agreement). Robert follows procedures required when dismissing an employee especially when a builder has to downsize and there are redundancies. He attends to the hiring and firing for RET. He did not know if any employees went on to be employed by Gemfen. 45 Robert considered Gemfen as a rival, and he does not help Gemfen out or vice versa. At the time of the hearing RET was employing 25 persons and this number varied according to work requirements. RET has a core of employees. 46 When Robert is asked, to supply a quote to John or Ken, he works out the pricing from the plans provided by John. Robert provides a price to John which is then negotiated. Robert calculates the supplies required e.g. sand and bricks. The builder supplies the bricks. 47 Robert referred, in his affidavit, to the wish of Harry that Tommac and its subcontractors work exclusively for Meriton. As a consequence until October 2003 most work was undertaken from Tommac. This timing appears coincidental to the move of Harry to Queensland and the interest of the Respondent in the entities structures. 48 Robert employs Place to calculate the wages, superannuation, deductions etc. Laureen has authority to work bank accounts to attend to payments which are all electronically transferred. Robert signs some cheques and then Laureen handles the payments. 49 Robert considered that there was a pricing advantage buying through a subsidiary entity such as Tommac. Evidence of Keith McDonald 50 Keith McDonald by affidavit dated 22 June 2004 attested that in 1996 he agreed with John and Ken to set up his own business rather than continuing as an employee of them. His business is conducted through the Keith McDonald Family Trust by Gemfen. He has full control of the sites allocated to Gemfen by Tommac. He fires and hires his own men and runs the business his way. 51 Part of the agreement arranged in 1996 includes the use of Place to be responsible for wages, taxes, pay-roll etc and that Tommac would not have any responsibility for ongoing entitlement of the employees of Gemfen. 52 Keith attends to his job sites daily and is responsible for the quality and for the safety and productivity issues of his employees. Most of his work has been subcontracted from Tommac. 53 In late 2003, Gemfen has entered into contracts with other construction companies. This appears to be coincidental to the move of Harry to Queensland and the interest of the Respondent in the entities structures. 54 Keith did not have a recollection of John and Ken's stated reasons for setting up the entities in 1996. 55 Keith attested that there was no carry over of employees in 1996. He is on site all the time for his jobs and he carries the Occupational Health & Safety responsibilities for his jobs. He employs a small crew at his cost to fix up any problems. 56 Keith quoted on jobs for John and he stated that he was aware that Robert may be quoting on the same jobs and that Robert may come in at a better price. 57 John and Ken recommended to Keith that Place do the wages for Gemfen as Laureen "is good". Keith gives Laureen the information regarding employees and she works out the various payments and deductions. Keith's employees would not work for Robert as Robert has his own crew and he has his own crew. Keith believed there was a tension between himself and Robert and that they would not help each other out. 58 Keith did not know if his father (Ken) was paid anything from the Ken McDonald Family Trust. Evidence of Laureen Place 59 Laureen provided an affidavit dated 22 June 2004 and gave evidence: Laureen is a director and shareholder of Place Administration Services Pty Ltd with her husband. Her description of the company is of one that provides pay-roll administration specialising in the construction industry and bricklaying in particular. 60 Prior to 13 October 1995, when the company was incorporated, Laureen provided her services to the entities and she had an unrelated major client (this relationship ceased in 1998). 61 The company operates from her home, which is in accordance with Council planning use requirements. The company owns its own computers and has a computer in the offices of Tommac. 62 Laureen attested that there is no agreement between Place, or any of the entities subject of this application, regarding who Place requires to carry out the work. The fees are subject of negotiation by her with the other parties and it is charged in a varying amount depending upon the work performed. At the time of the hearing the weekly fee is fixed in total "but the amount to be borne by each entity varies from week to week". 63 Laureen considers that her relationship with John and Ken was important for the success of Place from 1998 on. She had previously been employed by another firm of bricklayers, when John and Ken asked her to work for them. She and her husband had formed the company for tax purposes in 1995 and the work remained the same. At the time of hearing the negotiated total fee of $2,600.00 per week set with RET, Gemfen and Tommac was split three ways. Her husband had been employed at State Rail and was now employed by Place. 64 Laureen received the timesheets from the foreman on a site, she then calculated the wages, sick days etc, confirmed the calculations with the foreman and then sent the calculations to Keith or Robert. Laureen prepared the wages and pay packets. 65 Where monies are to be paid from Meriton, Place receives the invoice from the inhouse accountant. Laureen answers any questions raised if there is a sub-contract to RET or Gemfen, attends to any work returns and then the inhouse accountant deals with the document thereafter. 66 Laureen does not become involved in who works for whom, she is aware where each employee is working as it is shown on the timesheet. Legislation Section 16C 67 Section 16C provided prior to 30 June 2003: "16C For the purposes of this Act, where: (a) an employee of an employer, or two or more employees of an employer, performs or perform duties solely or mainly for or in connection with a business carried on by that employer and another person or other persons or by another person or other persons, or (b) an employer has, in respect of the employment of, or the performance of duties by, one or more of his or her employees an agreement, arrangement or undertaking (whether formal or informal, whether expressed or implied, and whether or not the agreement, arrangement or undertaking includes provisions in respect of the supply of goods or services or goods and services) with another person or other persons relating to a business carried on by that other person or those other persons, whether alone or together with another person or other persons; (c) that employer and; (b) each such other person, or (c) both or all of those other persons, constitute a group." Section 16H 68 Section 16H of the Payroll Tax Act 1971 provides that the Chief Commissioner of State Revenue may, by order in writing, exclude persons from a group. The Chief Commissioner of State Revenue must be satisfied that, having regard to the nature and degree of ownership or control of the businesses and any other matters considered relevant, that a business carried on by a member of a group:- (a) is carried on substantially independently of a business carried on by any other member of that group; and (b) is not substantially connected with the carrying on of a business carried on by any other member of a group. Ruling PT02 69 Ruling PT02 dated 19 February 1986 sets out the matters that the Chief Commissioner of State Revenue will consider in determining whether or not there is "substantial independence" and "no substantial connection". The parties' representatives referred to various cases where these terms appear to have been considered and these references will be referred to below. 70 Paragraph 5 of PT 02 requires an applicant for an Exclusion Order to prove, to the satisfaction of the Chief Commissioner of State Revenue, that: - there does not exist a continuous course of active and substantial relationship, in a business or commercial sense, with any other member of the group; and - the connections which exist are no more than casual, irregular or occasional occurrences. 71 Paragraph 6 of PT02 suggests that the Chief Commissioner of State Revenue will consider the nature and extent of all relevant contracts and dealings taken as a whole, between the member and all other members of the group including: (a) the nature and extent of any commercial transactions or dealings, including the value and percentage of the member's total business which is conducted with other members of the group; (b) the extent to which members share resources, facilities or services, including premises, staff, management and accounting services; (c) the extent to which the member controls or is involved in managerial decisions and day to day administration of the other members, and the extent to which other members control or are involved in managerial decisions and day to day administration of the member; (d) the extent to which there are financial interdependencies, including intra-group loans or guarantees and common banking facilities; (e) the extent to which there is a relationship between customers of the member and customers of other members of the group, including such matters as sharing of customers' total business, and receiving or providing complementary goods or services in respect of particular customers; (f) the degree to which there is a connection between a member and other members of the group in the purchase or sales of goods and services; (g) the extent to which there is a connection between the natures of the businesses of the member and other members of the group; (h) the extent to which there is a connection between the ultimate owners of the member and other members of the group; 72 The Chief Commissioner of State Revenue has, pursuant to Section 16C(a) or (b), treated the following entities as groups:- (i) Tommac and RET; (ii) Tommac and Gemfen; (iii) Tommac and Place; (iv) Place and RET; (v) Place and Gemfen; (vi) Place and Tomald. 73 Section 16E has then been applied to aggregate the six groups into 1 group and the Chief Commissioner of State Revenue has refused to exercise the discretion under Section 16H to "degroup" any of the entities. 74 By the operation of Section 16I, the members of a group may designate the group employer which is then entitled to the payroll tax threshold exemption (or it may be shared). 75 The Applicant and Respondents' representatives made comprehensive submissions as to the conclusions that could be drawn from the facts presented and the cases which had provided guidance following consideration of the facts as presented. Applicant's submissions 76 The Applicant submitted that prior to 24 August 2000 the entities received advice that Meriton had written to all its sub-contractors seeking an urgent response as to whether they undertake more than 80% of their work on Meriton's development sites and whether their internal company structures are such that they do not create more than one payroll tax threshold. By way of letter dated 24 August 2000 from a consultant accountant to the inhouse accountant the entities were advised as to the various payroll issues concluding that there was doubt as to whether the Office of State Revenue could reasonably claim that Tommac, Gemfen and RET constitute a group for payroll tax purposes. 77 The advice provided by the consultant accountant on 24 August 2000 has supplied the entities the basis of the Applicant's claim that an Exclusion Order "should have been given by the Respondent following the application therefore". It is helpful to note part of that advice here: "Section 16C(b) provides that, where an employer (for example, Gemfen) has, in respect of the employment of, or the performance of duties by, one or more of its employees, an agreement or arrangement with another person, (for example Tommac) relating to the business carried on by Tommac, Gemfen and Tommac constitute a group. Section 16C(b) would not apply if Tommac and Gemfen enter into a contract for the supply of bricklaying services and the agreement entered into does not deal with the performance of duties of particular employees." and "As you are aware, s16D applies to group commonly controlled businesses. Because the shareholders and directors of each company are different, there is no scope for the operation of s16D unless the directors of the companies are accustomed, or under an obligation, to act in accordance with the instructions or wishes of a person or group of persons. You have advised that, to your knowledge, there is no basis for any suggestion that, for example, the directors of Gemfen and Ret (sic) comply with the directions of Ken MacDonald (sic) and John Thompson (sic). It is likely that the Office of State Revenue will seek to establish that the directors of each of Gemfen and Ret (sic) act in accordance with the wishes and directions of John Thompson (sic) and Ken MacDonald (sic), the directors of Tommac. The legislation, however, does not contain any provision for treating a person and related persons as a single entity or for assuming that there would be an obligation to act in accordance with the wishes or directions of a related party. This question would be decided as a matter of fact." 78 The differences were described as including:- (1) John's evidence John was a director of Tommac and Tomald – not of Gemfen, RET or Place; Harry insisted in dealing only with John and Ken and knew of Tommac, Gemfen and RET; Robert and Keith's businesses were well established prior to the relevant period; Robert and Keith did not employ people under ABN's; Robert and Keith were not involved with the process between John, Ken and Harry; Robert and Keith compete against each other on pricing; John and Ken had faith in Robert and Keith's work; RET and Gemfen were responsible for their own hiring/firing, Occupational Health & Safety requirements and for their quality of work including rectification; there was often rivalry between RET and Gemfen; Tommac has a small number of employees; the relationship with Place had built up over the years and he was unsure of how Place's fee was calculated although he recalled he had challenged the fee once; John visited sites, as did Harry; if work needed rectification, when John or Ken were notified they passed this to RET or Gemfen (whichever was the appropriate entity) to rectify. (2) Ken's evidence He agreed with that of John and referred to: the arrangements with RET and Gemfen were set up to enable Robert and Keith to establish a business; Robert and Keith competed on pricing, no losses had been made; Ken visited sites – perhaps once a week. (3) Robert's evidence Robert was a good manager and knew how the businesses were set up; Robert engaged his employees under an enterprise bargaining agreement; the price struck between Tommac and Meriton was not revealed to him; Robert visited RET sites every day. (4) Keith's evidence Keith knew how the businesses were set up, was unaware that his father was a beneficiary of the trust, believed no distributions made to his father; Keith employed some employees who had previously been employed by Tommac, those employees were clear of any previous arrangement with Tommac; Keith knew Robert could come in at a lower price and knew there was tension between himself and Robert; Gemfen repaired any work that is was responsible for; Keith visited Gemfen's sites every day. (5) Laureen Place's evidence disclosed that she had devised a system and put it into place and that she ran a wages bureau service. 79 Submissions made to the Compliance Division, Office of State Revenue pre application have been stressed by the Applicant, including those set out in letters dated 14 July 2003, 10 September 2003, 19 September 2003 and 25 September 2003. 80 Reference to the entities' structures and the personalties involved has been consistently represented as it was provided in evidence at the hearing. 81 The evidence and submissions included that, from time to time, efforts had been made to procure work from sources other than Meriton group entities. Further, that Harry Triguboff, however, had been very jealous of attempts to do this and has effectively sabotaged attempts by Tommac to obtain work from other sources. 82 Section 16C was instanced to support the submissions of the Applicant on the basis that where: (a) an employee of Gemfen performs duties solely or mainly (+50%) for or in connection with a business carried on by Gemfen and Tommac, then Gemfen and Tommac constitute a group, or (b) Gemfen has, in respect of the employment of, or the performance of duties by, one of Gemfen's employees an agreement with Tommac relating to the business carried on by Tommac, then Gemfen and Tommac constitute a group 83 Further submissions included that Tommac has derived substantial revenue from its contracts with Meriton. In order to achieve that result it has been necessary for John and Ken to deal with Harry in a diplomatic way. It has been difficult for Gemfen and RET to develop other relationships because of the volume of Meriton Entities' work and the shortage of good tradespeople who want to be employees: "The circumstance that there has been close co-operation between Ken McDonald, John Thomson, the entities and their successors is a key factor in the success of each of the businesses. The businesses are conducted separately and the circumstance that there is co-operation between them to their mutual advantage does not mean that they are grouped for the purposes of the pay-roll tax legislation. For these reasons it is submitted that Gemfen, RET and Tommac do not constitute a group for pay-roll tax purposes." 84 In the letter dated 10 September 2003 to the Compliance Division the Applicant's consultant accountant submitted that: For Section 16C(a) "… to be satisfied, an employee must "perform duties solely or mainly for or in connection with a business carried on by that employer and another person … or by another person …" The business in which the employee is engaged must be, wholly or partly, that of someone other than the employer. On the facts as our clients have described them, in our opinion paragraph (a) has no operation. The employees of each of Gemfen and RET perform duties in connection only with one business, that being the business of either Gemfen or RET. The proper description of those businesses is the undertaking and performance of bricklaying subcontracts. These entities make a profit where they are able to perform their obligations under the contract for a cost that is less than the fee that has been negotiated with the head contractor. Which employees of the subcontractors are used on a particular job, and what those employees do to achieve performance of the subcontract obligations, is a matter for the subcontractors, not for Tommac. In this respect, the relationship between Tommac and the subcontractor on a job is fundamentally different from that between a temporary employment agency and its clients, where the employee provided on a temporary (or semi-permanent) basis is chosen or approved by the client and works in the client's business under its direction, not that of the agency." 85 Submissions were made relating to Place on the basis that it enters into contracts for the supply of payroll and other services, not with regard to Section 16C(b) for the provision of particular employees. 86 The submissions in respect of Section 16H canvassed the history and evolution of the entities. Attention was then drawn to the details which disclosed that the requirements of PT02 paragraph 6(a) to (h) inclusive as supplied showed that the entities were carried on substantially independently of a business carried on by any other member of the group and that each member of the group was not substantially connected with the carrying on of a business carried on by any other member of the group. 87 Insofar as Revenue Ruling PT02 paragraph 6 is concerned the Applicant submitted:- 6(a) Tommac acts as head contractor and subcontracts bricklaying services to Gemfen and RET. Tommac, because of its limited activities, merely acts as an intermediary and the real business relationship is with the ultimate construction company customer ( which in the majority of contracts in this instance is Meriton). RET and Gemfen do not trade with each other and both are simply customers of Place, with no other connection. 6(b) RET, Gemfen and Tommac share business premises, they do not share staff, management or accounting services. 6(c) Each of the entities in the claimed group carries out its own management and day to day administrative duties. Each trust (RET and Gemfen) is responsible for the hiring and firing of employees and manages its own job sites. 6(d) There are no financial interdependencies, intra-group loans or guarantees or common banking facilities. The future profitability of RET and Gemfen is not dependent upon the existence of Tommac. It is not the case that RET or Gemfen would not survive without involvement of Tommac. Each is independent of each other and has the capacity to perform work for any construction company that seeks to contract with them. 6(e) Tommac plays a role in allocating work for the ultimate construction company client (Meriton). Whether Gemfen or RET perform a particular contract (allocated by Tommac) depends upon the available capacity of each entity. This would occur regardless of whether or not Tommac was in existence. "If each of Tommac, RET and Gemfen were to deal directly with the ultimate construction company client, there would be a sharing of work simply because of the limited capacity of each entity having regard to the ability of management to supervise and the availability of qualified employees. This factor does not indicate a substantial connection between either Gemfen and Tommac or RET and Tommac, or between Gemfen and RET." 6(f) There is no connection between Gemfen and RET in the purchase or sale of goods and services. Gemfen and RET each provide bricklaying services to the ultimate construction company client (Meriton) in the course of which Tommac acts as an intermediary. The involvement of Tommac does not represent a substantial connection between the members. 6(g) The nature of the business carried out by RET and the nature of the business carried out by Gemfen is the same. It reflects the historical origin of the two entities, it is not a matter of substance because the separation of the ownership and control of the two businesses is real and not some kind of sham arrangement under which a single business is carried on. 6(h) There is no connection between the ultimate owners of each entity. 88 The Applicant drew attention to the perceived similarities and differences between the arrangements considered in: Commissioner of Stamps v Garrett F Hunter Pty Ltd & Ors 97 ATC 4787 ("Garrett"), Muir Electrical Co Pty Ltd v Commissioner of State Revenue [2001] 4VR70 ("Muir No1"), Muir Electrical Co Pty Ltd v Commissioner of State Revenue (No 2) ATC 4590 ("Muir No 2"), Baxter & Anor v Chief Commissioner of Pay-Roll Tax (NSW) 86 ATC 4816 ("Baxter"), Mead Packaging (Aust) Pty Ltd v Chief Commissioner of Pay-Roll Tax (NSW) 78 ATC 4164 ("Mead"), Chief Commissioner of Pay-Roll Tax (Qld) v John Fletcher Pty Ltd & Ors 83 ATC 4283 ("Fletcher") 89 Further submissions were made that: Tommac only enters into contracts with Meriton, that this was historical. Both RET and Gemfen have sought other work. Tommac is not required to supervise the bricklaying work. There is no agreement that Tommac only engage RET and Gemfen. They are only the preferred suppliers. Gemfen and RET contract with Tommac to perform bricklaying services. They do not contract to provide labour to Tommac. There is no contractual restriction on Place providing services to other parties in the future as it did in the past. 90 Further submissions were made as to the effect of the New South Wales legislation in that there is no similar provision to Section 9A(1A)(d) of the equivalent Victorian legislation which was considered in Muir No 1 and Muir No 2. 91 The Applicant also submitted that the entities had exercised reasonable care in respect of the payroll situation in that advice had been sought, obtained and acted upon. Therefore any interest component should not include a penalty rate, that only a commercial rate should be applied if further payroll tax is payable. Respondent's submissions 92 The Respondent submitted that there were agreements between Tommac and RET and between Tommac and Gemfen, that those agreements related to the business of Tommac and that RET and Gemfen are required to provide workers to enable Tommac to perform its contracts (other than 1 small exception in 2001 where RET did undertake a contract for a company not referred to in this application). Thus the requirements of Section 16C(b) are satisfied. 93 Similarly the Respondent submitted that Place used its two employees for the exclusive purpose of providing services to Tommac, RET and Gemfen. 94 The Respondent's submissions analysed the operation of Section 16C(a) and (b) of the Act in relation to the five entities. The summary by the Respondent disclosed a view that:- Ken and John were bricklaying contractors with a significant relationship with Harry and Meriton. Ken and John re-arranged their affairs in 1996 which resulted in Tommac being the entity through which the contracts negotiated with Harry would be performed. RET and Gemfen are the entities operated by Robert and Keith for the Family Trusts of Robert and Keith respectively. Place is an entity of Laureen and her husband and this entity provides payroll and other administrative and human resource services to the four other entities subject of the grouping. Tomald is an entity of which John and Ken's investment entities are partners. 95 Following the development of the various relationships the entities then operated in the following manner:- John and Ken would negotiate a bricklaying contract (not a general building contract) with Harry (Meriton) to be performed by Tommac. There are no written agreements. John and Ken would negotiate the contracts, liaise with quantity surveyors, manage costs and administration of contracts. The agreements between Tommac and Meriton provide that Tommac will supply bricklaying services, all materials (bricks, sand, cement, door frames) as well as supervising bricklaying services. Tommac engages either RET or Gemfen exclusively to perform the bricklaying work by way of subcontract. Tommac acquires and supplies bricklaying materials and equipment which is delivered to the job sites. Some equipment is owned by Tommac and some by Tomald. There are no written contracts between Tommac and RET or Gemfen. The Respondent submitted that there is a standing arrangement between Tommac and RET/Gemfen to provide the labour to perform the bricklaying services to allow Tommac to undertake the contracts with Meriton. Payment arrangements between Tommac, RET and Gemfen are not clear. Tommac appears to negotiate a fee payable to it by RET or Gemfen (whichever entity is supplying the services). The fee being calculated by reference to size of job, difficulty of site, time required to complete the job and other functional matters. RET and Gemfen apparently perform bricklaying services independently of each other. There is no sharing of workers or job sites. Tommac satisfies itself that RET or Gemfen adhere to safety standards. RET and Gemfen engage bricklaying employees and subcontractors and pay wages and employee on-costs. There are no common employees. Place provides payroll and other administrative and human resource services to Tommac, RET, Gemfen and Tomald. Place does not supply services to any other entities. Payrolls are prepared from weekly wage sheets supplied by site foremen. The Respondent believes Place operates from premises owned by Tomald. Tomald has provided property as security for Tommac's overdraft facility. Tomald also owns and leases to Tommac, Gemfen, RET and Place various assets such as bricklaying equipment, motor vehicles, trucks, office equipment, computers etc. Tomald receives a management fee from Tommac. John and Ken are employees of Tomald. 96 As a result of the understanding of the entities' structures and activities the Office of State Revenue has, pursuant to Section 16C(a) or (b) of the Act, treated the entities as the 6 groups set out in paragraph 63. Following that using the provisions of Section 16E, the six smaller groups have been aggregated into one larger group and the Chief Commissioner has refused to exercise his discretion under Section 16H of the Act to "degroup" any of the entities. 97 During the years under review Section 16C(a) or (b) apply as Tommac, RET and Gemfen can be grouped because . "(a) employees of Gemfen or RET performed duties solely or mainly for or in connection with a business carried on by Tommac (ie arranging bricklaying contracts, subcontracting them to Gemfen and RET, arranging the supply of materials, equipment etc): or (b) each of Gemfen and RET have in respect of the employment of or performance of duties by their employees an agreement, arrangement or understanding with Tommac relating to Tommac's business." 98 Place's employees perform duties wholly or mainly in connection with business carried on by each of Gemfen, RET, Tomald and Tommac thus Section 16C(b) applies. 99 The reference in Section 16C(a) to "in connection with" and in Section 16C(b) to "in respect of" are words of broad import. If a relevant connection can be perceived this will be sufficient to enliven the operation of Section 16C. Then the issue of de-grouping under Section 16H needs to be considered. 100 The Respondent drew attention to the perceived similarities and differences between the arrangements considered in: Muir No 1 Muir No 2 Baxter Garrett Commissioner of Payroll Tax v John Fletcher Pty Ltd (1983) 14 ATR 288 Mead 101 Insofar as Revenue Ruling PT 02¶6 is concerned the Respondent submitted:- 6(a) Virtually all RET and Gemfen's work comes from contracts arranged by Tommac with Meriton (Except one of RET's contracts – less than 10% of its income in one year). Place performs services only for Gemfen, RET, Tommac and Tomald and other "group companies and entities". 6(b) Place provides services to Tommac, Tomald, Gemfen and RET. Gemfen and RET rely on contracts arranged by Tommac with Meriton and also upon arrangements implemented by Tommac for the provision of material and equipment to conduct their businesses. Tomald provides equipment used by Tommac, Gemfen, RET and Place Administration. Tommac, Gemfen and RET share premises in Gardener's Road, Alexandria. Place Administration and Tomald have their place of business at 23 Junction Street, Woollahra. 6(c) Tommac has some involvement in business decisions and day to day administration of Gemfen and RET in the sense that it procures contracts, materials and equipment for it, and its employee monitors safety issues for it. Place Administration provides administrative services to Tommac, Gemfen and RET. 6(d) Tomald has provided a guarantee secured by premises in which Place conducts its business for the overdraft of Tommac. Tommac, RET and Gemfen share the services of Place. 6(e) Meriton can be seen as a customer of both Tommac and Gemfen and RET. Meriton's total business in the bricklaying area is shared in an operational sense between RET and Gemfen but Tommac ensures that the logistical side of their businesses is attended to (by provision of materials and equipment) and Tommac, Gemfen and RET all share as a matter of contract in business derived from Meriton. 6(f) Tommac acquires and supplies materials and equipment to Gemfen and RET. Tommac arranges for contracts for the supply of bricklaying services, and subcontracts them exclusively to Gemfen and RET. Place Administration provides services exclusively to Tommac, Tomald, Gemfen and RET, so those four entities "purchase" those services in a sense collectively. 6(g) There is a strong connection between the businesses of Tommac and the businesses of RET and Gemfen (all are in the contract bricklaying business). Tommac is a critical element in the success of the others' businesses providing contracts, materials and equipment to be used by those two companies. Place Administration provides administrative, payroll and human resources services to Gemfen, RET, Tommac and Tomald, and acts exclusively for those entities. 6(h) There are family connections between the ultimate owners of Tommac and the ultimate owners of Gemfen and RET. Ken McDonald and his wife Jean are named as Beneficiaries of the Keith McDonald Family Trust (Gemfen trustee). John Thomson is a potential Beneficiary of the Robert Thomson Family Trust (RET trustee) as next of kin of Robert Thomson. Case Law 102 An analysis of the case law by both parties has been helpful. The analysis of Muir No 1 and Muir No 2 by the Respondent's representative, even though these two cases were in relation to the similar Victorian legislative provisions, highlighted the similarity of the situation in that:- "Gemfen and RET each used their employees wholly or mainly to perform duties for or in connection with the business carried on by Tommac. The minor outside contract of RET in 2001 can for present purposes be ignored. In the case of both Gemfen and RET all their employees were used in performing Tommac's bricklaying contracts. True it may be that they were also used in Gemfen's or RET's businesses as sub-contracting bricklayers, but Gemfen and RET were contracted to provide labour of their employees exclusively to Tommac, and materials and equipment were arranged and paid for by Tommac. Where all employees are wholly committed to performing duties on Tommac's contracts, even if there is no direction and control by Tommac itself (although there appears to be a power and contractual obligations to "supervise"), it can be readily said that the employees perform their duties mainly in connection with the business of Tommac. This is an example par excellence of a situation at which the grouping provisions were aimed, and it then becomes a matter for exercise of Commissioner's discretion under s.16H." and that:- "In the case of Place Administration, as an employer it has arrangements in place for performance of duties by its employees in relation to the business of each of Gemfen, RET, Tommac and Tomald (s.16C(b)). Indeed, the employees of Place Administration are wholly engaged in performance of work for these four clients." 103 The basis for grouping a solicitor's firm and its service trust considered in Baxter was that it was a dedicated service entity supplying services to the connected client. This is akin to Place being the dedicated service entity of its four connected clients. Place is exclusively committed to servicing the requirements of the four client members of the Group. 104 Insofar as the reference to the cases by the Applicant and Respondent the analysis of those cases as given by the Respondent is preferred to that given by the Applicant. Reasons and Decision 105 The facts as presented disclose that: 1. There are contracts between Tommac and Meriton negotiated by John and Ken. In each contract Tommac represented by John and Ken agrees to complete bricklaying work required on a site for a price. Meriton requires that the work be performed quickly and to a requisite standard. Meriton requires that Tommac be responsible for Occupational Health & Safety compliance. The verbal agreement requires Tommac to be responsible for the work in its entirety. 2. There are contracts between RET and Tommac negotiated between Robert and 'John and Ken' to complete the bricklaying work which John and Ken have contracted to do in accordance with one of the contracts as referred to in (1). RET has a free hand as to whom it employs, but the work must be performed to the standard required by Meriton. The fee negotiated is less than that payable to John and Ken under the contract referred to in (1). For the period subject of the assessments, RET undertook more than 90% of its work pursuant to the agreements struck with Tommac. 3. There are contracts between Gemfen and Tommac negotiated between Keith and 'John and Ken' to complete the bricklaying work which John and Ken have contracted to do in accordance with one of the contracts as referred to in (1). Gemfen has a free hand as to whom it employs, but the work must be performed to the standard required by Meriton. The fee negotiated is less than that payable to John and Ken under the contract referred to in (1). For the period subject of the assessments 100% of Gemfen's work was through Tommac. 4. The contracts between Tommac and RET and Tommac and Gemfen were to be exclusively performed by either RET or Gemfen according to the random selection made by Tommac. There was no use made of employees of RET by Gemfen and vice versa. 5. There is an agreement between Place and Tommac, Place and RET and Place and Gemfen that Place will undertake work for each of the entities for a "negotiated" fee. Place did not have any other 'client' during the relevant period. Place agreed to attend to particular work, which was identical in respect of RET and Gemfen for a fee which related to a total sum payment which was then divided equally/unequally (by Place) in a manner which took into account the work undertaken in a given week. The total sum remained static. 6. There is an agreement between Place and Tomald that Place undertake some work of a similar nature to that undertaken by Place for Tommac. 106 The evidence discloses that the objects of Harry have been satisfied and that Tommac, represented by John and Ken, have accepted the conditions of the 'verbal' contracts. That is he accepted the contracts between Meriton and Tommac required Tommac to accept the contracts on the basis that John and Ken remain the 'primary' contractor and although Harry knew that RET and Gemfen, through Robert and Keith (or vice versa), would employ the bricklayers the ultimate responsibility remained with Tommac. The facts disclose that: (i) A contract to undertake work was entered into between Meriton and Tommac; (ii) The contract required work to be done on a site for a price, required the supply of bricks and materials, a standard of workmanship and a timely completion date; (iv) Tommac accepted the contract at the price and then a decision was made to award the 'sub-contract' to either RET or Gemfen; (v) The sub-contract included requirements that the successful entity (RET or Gemfen) would undertake the hiring of employees to complete the work required under the head contract between Meriton and Tommac. The successful entity would be responsible for the quality of the bricklaying and the timing of the completion pursuant to the sub-contract and as required by Harry. (vi) Tommac did not offer the sub-contract, in any instance, to any other entity other then RET or Gemfen. (vii) The chain of responsibility for the quality, standard, timing progressed from Harry to Tommac then to either RET or Gemfen. 107 The comparison of the items 6(a) to 6(h) of Revenue Ruling PT02, as evidenced, discloses: 6(a) All Tommac's contracts are with Meriton. Apart from 1 small exception, all RET's and Gemfen's contracts (including the value and percentage of those contracts) are with Tommac. Tommac does not require any other sub-contractor to undertake work by way of services to it to permit Tommac to complete its contracts with Meriton other than RET or Gemfen. The total business of Tommac, supported by the services of Tomald, is conducted by it together with the services of RET, Gemfen and Place. Place only performs services for RET, Gemfen, Tommac and other group companies and entities. 6(b) RET and Gemfen share the facilitating resource of Tommac in that any contract won by Tommac is subcontracted only to RET or Gemfen. Tommac, Tomald, RET and Gemfen use the accounting services of Place for a single agreed fee which may be allocated in different proportions from time to time. Tommac supplies material and equipment to Gemfen, RET and Place directly or through Tomald to permit RET and Gemfen to complete the contracts with Tommac and for Place to supply services to Tommac, RET, Gemfen and Tomald. Tommac, RET and Gemfen share premises at Gardeners Road Alexandria. Place and Tomald have their place of business at 23 Junction Street Woollahra. Place keeps a computer at Gardeners Road Alexandria. 6(c) The managerial decisions and day to day administration of each of the entities is apparently separate. There is some involvement in the business decisions between Tommac and RET and Tommac and Gemfen as Tommac is acutely conscious through John and Ken that the way in which the contracts between Tommac and RET/Gemfen are discharged is part of Tommac's contract with Meriton. In the event that Harry becomes disenchanted then RET or Gemfen are "out the door". Tommac through John and Ken regularly visits the job sites of RET and Gemfen. Both Robert and Keith consider that RET and Gemfen's management and administration is theirs respectively to their company alone. 6(d) There is limited financial interdependency being a remote overdraft of Tomald being secured on premises from which Place conducts business. 6(e) Excluding 1 minor exception, the only customer of Tommac, RET and Gemfen is Meriton. Tommac, RET and Gemfen appear to have been the bricklaying facility of Meriton although no evidence was supplied as to whether Meriton contracted other bricklayers. The interposition of Tommac between Meriton and Ret/Gemfen was disclosed by evidence to be a requirement by Harry that he only negotiate with John and Ken even though he knew they would pass the requirement for the supply of the bricklaying services to RET (Robert) and Gemfen (Keith). The close co-operation between Ken, John, the entities and their successors is a key factor in the success of each of the businesses. 6(f) Tommac supplies some materials and equipment to RET and Gemfen. Tommac contracts with Meriton to supply bricklaying services and then selects only either RET or Gemfen to subcontract the supply of the bricklaying service. Place provides administrative, payroll and human resources services to Tommac, RET, Gemfen and Tomald at a single agreed fee covering all work which then is sometimes re-allocated in a proportional way to the entities. 6(g) The business of Tommac was, insofar as the main elements to be performed, undertaken by the supply of bricklaying services from RET and Gemfen. RET and Gemfen only undertook the supply of services through Tommac to Meriton apart from 1 minor exception. Tommac, RET and Gemfen relied on the connection between Tommac and RET and Tommac and Gemfen to enable the business of each entity to succeed. Place provides administrative, payroll and human resources services to Tommac, RET, Gemfen and Tomald and has (during the relevant years) done so exclusively for them. 6(h) There is a connection between the owners of Tommac and Tomald. There is a tenuous connection between Tommac and RET/Gemfen in that the owners of Tommac are remote potential beneficiaries of the two family trusts for which the work is undertaken by RET and Gemfen. 108 It is not necessary that the answers or evidence supplied in respect of 6(a) to (h) inclusive cover each of the issues affirmatively. The issues are those that will be considered by the Chief Commissioner of State Revenue in exercising the discretion given by Section 16H of the Act; or ultimately by the Court or Tribunal considering whether the Chief Commission of State Revenue had exercised the discretion appropriately. The evidence provided to the Respondent and the Tribunal supports the view that the Chief Commissioner exercised the discretion properly and that therefore the denial of the issue of the Exclusion Order was correct. 109 The evidence given herein discloses that the nature and extent of all relevant contracts and dealings taken as a whole, between Tommac, RET, Gemfen, Place and Tomald discloses that the business of each of them is not substantially independent of the business of the others and the business of each of them is substantially connected with the carrying on of the business of the others. 110 The evidence discloses that: - an employee of RET or Gemfen performs their duties mainly for and in connection with a business carried on by Tommac; and - an employee of Place performs their duties mainly for and in connection with a business carried on by Tommac, RET and/or Gemfen thus the criteria as set out in Section 16C(a) or (b) are satisfied. The decision by the Respondent having regard to the facts provided to the Respondent and then to the Tribunal supports this construction. 111 The statements of intention by the relevant witnesses that particularly RET, Gemfen and Place are seeking, and have obtained, other contracts from unrelated entities other than those through Tommac may change the situation, depending upon the facts, in the future. The anticipation of these external contracts is irrelevant to the consideration herein. 112 In view of the co-operation of the Applicants, the reasonable care taken by the Applicants in seeking and obtaining of advice which led them to consider that the provisions of Section 16C(a) and (b) would not apply, any interest payable should be restricted to market rate only. Pursuant to Section 25 of the Taxation Administration Act 1996 the payment of market rate and/or premium rate of interest may be remitted, either entirely or by any amount. The premium rate is not to be applied. The provisions of Section 27(3)(a) of the Taxation Administration Act 1996 should be applied so that no penalty tax is to be payable. 113 I find that: The assessment by the Chief Commissioner of State Revenue is confirmed. Interest should be assessed at market rate component only. The provisions of Section 27(3)(a) of Taxation Administration Act 1996 are to be applied so that no penalty tax is to be payable. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.