The following memorandum, signed by Colonel Seaforth Mackenzie and Mr Walter H. Lucas, has, by direction of the Minister for Defence, been submitted to me for advice:

By direction of the Hon. the Minister of State for Defence it has been agreed that the question whether Burns Philp & Co. Ltd is liable to pay business tax on oversea freights and fares under the provisions of the laws existing in German New Guinea be referred for the opinion of the Solicitor-General for the Commonwealth. The Company on its part agrees to be bound by the opinion of the Solicitor-General, but the Minister reserves the right to review the subject-matter subsequently as being one that may involve considerations of policy.

The facts of the case are as follows:

The law relating to business tax existing in German New Guinea prior to the British military occupation imposed taxes on the gross annual business turnover throughout the late German possessions. The tax was levied in accordance with a prescribed scale. The maximum annual amount payable under this scale was 4,000 marks (approximately £200) which was paid by all the large firms and companies, including the Norddeutscher Lloyd Company, which maintained the only overseas shipping services, but also had intra-territorial shipping services and other business activities which, in themselves, rendered the Norddeutscher Lloyd Co. liable to pay the maximum tax.

The British Military Administration varied the scale from time to time but left unchanged the basic principle that the tax was payable in respect of the gross annual business turnover.

The British Administration claims that Burns Philp & Co. Ltd an Australian shipping company with a branch at Rabaul is liable to pay business tax on the freights and fares earned by its line of steamers owned, registered, and managed in Australia but running regular services between the Commonwealth and German New Guinea.

The Administration bases its claim on the ground that the words 'gross annual turnover'1 include all business passing through any branch in the possessions of a firm carrying on business in German New Guinea. The Administration contends that if the Company did not have their branch in existence in German New Guinea, the freights and fares in respect of business carried on between German New Guinea and the Commonwealth could not be earned by the Company, and that therefore such freights and fares must be deemed to be earned by that branch of the Company which is situated in and carries on business within German New Guinea. The fact that the Company may have to pay income tax in the Commonwealth in respect of the same freights and fares is, it is submitted, not relevant to the question whether such freights and fares are taxable in German New Guinea, because in German New Guinea a foreign system of law-namely the German law-prevails, and it is in accordance with the provisions of this law that the Administration claims to tax the Company.

The Company admits liability for the business turnover of its branch at Rabaul and for all intra-territorial freight and passage earnings of its Australian line of steamers, but maintains that the overseas traffic between Australia and the late German possessions is entirely outside the jurisdiction of the Military Administration, which is purely local in its powers and can only levy business tax on the commissions earned by the Company's local branch for engaging and/or collecting such overseas freights and fares.

The Company relies upon the precedent of the Federal Income Tax Commissioners who, it asserts, when assessing the income tax of overseas shipping companies having their own offices in Australia, levy upon 5% of their total freights and passage earnings, as representing the equivalent of the commissions which would be earned by Australian agents for engaging and/or collecting such freights and fares; but the overseas fares and freights themselves are not liable to taxation. The Company maintains that, although in one case the tax is on business turnover and in the other on income, the principle is the same and the Federal precedent governs the case of the German New Guinea claim.

The Company asserts that if it had employed agents at Rabaul instead of opening its own office, such agents could not be called upon to include more than their commissions in their business turnover.

The Company disputes that the Norddeutscher Lloyd paid business tax on its overseas traffic and asserts that the maximum of £200 was upon its internal business. The Company is not able to produce proof of this.

The Business Tax (Amount) Ordinance 1916 provides that: 'The business tax to be paid by persons firms and companies carrying on business in the said Colony shall be calculated upon gross annual turnover from all trading except trading in copra'.

The question is whether Burns Philp & Co. Ltd, an Australian company with a branch at Rabaul, is liable to pay business tax on the freights and fares earned by its line of steamers owned, registered, and managed in Australia, but running regular services between the Commonwealth and New Guinea.

In my opinion the freights and fares outwards from New Guinea are included in the turnover of the Company within the meaning of the Ordinance. The obtaining of such freights and fares clearly belongs to the New Guinea end of the business; and the fact that the carriage is outside the Territory does not affect the jurisdiction of the Administration.

The practice of the Federal Income Tax Commissioner to levy only upon 5% of the earnings of oversea shipping companies is not in point; as that is in compliance with the explicit provisions of section 22 of the Income Tax Assessment Act, which has no counterpart in the New Guinea Ordinance.

On the other hand, I do not think that the inward freights and fares, to New Guinea, are assessable for tax under the Ordinance. These appear to me to belong to the Australian end of the business.

[Vol. 17, p. 388]