Description
An entity ( the promoter ) promotes, recommends or offers to taxpayers an arrangement in which the participant that carries on a business contracts to acquire offshore 'emission units' from an offshore entity and a licence to use a logo owned by the offshore entity. 2. It purports to allow the participant to deduct the entire purchase price of the offshore 'emission units' as a marketing expense in the income year in which the participant contracts to acquire the units. It also purports not to have any GST consequences. 3. The promoter arranges for the participant to enter into the following agreements with the offshore entity: (a) a purchase agreement for the offshore 'emission units' ( purchase agreement ) • The participant agrees to acquire from the seller a set quantity of the offshore 'emission units' that purportedly will be generated through offshore carbon reduction activities. • The participant must pay a percentage (for example 15%) of the purchase price of the offshore 'emission units' upon entering into the purchase agreement ( first instalment ). • The participant is required to pay the balance of the purchase price ( second instalment ) when, or if, the offshore entity notifies the participant when it can deliver the documents allowing for crediting of the participant's registry account with the agreed quantity of the offshore 'emission units'. • If the offshore entity does not notify the participant within the agreed timeframe (for example, 3 years) that it can deliver the documents, the participant is entitled to terminate the purchase agreement. • If the participant terminates the purchase agreement, the participant is not required to pay the second instalment of the purchase price and is not entitled to a refund of the first instalment. (b) an intellectual property licence agreement ( licence agreement ) • The licence agreement entitles the participant to use a logo owned by the offshore entity for a set period. • The participant is required to pay a minimal amount for the licence. • The participant may use the logo to promote its business as environmentally friendly. 4. The participant may also enter into a put option agreement with the offshore entity ( put option agreement ). • The put option agreement enables the participant to require the offshore entity to purportedly purchase the offshore 'emission units' from the participant for an agreed purchase price ( exercise price ). • The exercise price is approximately equal to the second instalment under the purchase agreement. • The participant is required to pay an option fee for the option ( option fee ). • The participant may exercise the option at any time before termination of the purchase agreement. 5. The participant pays the first instalment (and an option fee, if applicable) to the promoter upon entering into the purchase agreement. The promoter retains a portion of the first instalment (and the option fee) as a fee or commission for the services it provides, and transfers the remainder to the offshore entity. 6. The offshore entity purportedly invests the remainder of the first instalment into offshore carbon reduction activities. There is no indication that any carbon reduction activities have commenced, or will ever commence. 7. For the income year in which the purchase agreement is entered into: • the participant records the full purchase price as an advertising or marketing expense in the participant's accounts; • the second instalment is recorded as a loan payable to the offshore entity. 8. The participant claims a deduction for the full purchase price in the income year that the purchase agreement is entered into. 9. There is no indication that any carbon reduction activities have commenced or will ever commence nor that any carbon reduction activities would be carried out in accordance with the Kyoto rules or other conditions prescribed by the Australian Government that must be met for resulting units to be eligible for use under the Clean Energy Act 2011. Accordingly there is nothing in the arrangement which would indicate that the offshore 'emission units' contracted for, if generated, would meet the definition of: (a) an eligible international emissions unit in the Clean Energy Act 2011 or Australian National Registry of Emissions Units Act 2011 (and therefore the definition of an eligible emissions unit in section 195-1 of the GST Act); (b) a Kyoto unit in the Australian National Registry of Emissions Units Act 2011 ; or (c) a registered emissions unit in section 420-10 of the ITAA 1997. 10. The quantity of the offshore 'emission units' under the purchase agreement does not relate to the participant's emissions. 11. The offshore entity does not require any assurance that the units contracted for will be used to offset the participant's carbon emissions, nor that the number of units reflects the participant's carbon emissions, in order for the participant to be entitled to use the logo. 12. The participant does not necessarily have an account with an Australian registry. 13. The participant is not necessarily a liable entity under the Clean Energy Act 2011 , and may not have an obligation to offset its carbon emissions.