Australian High Court decision

The High Court has held that earnings derived by an Australian resident who worked as a project manager for the UN were not exempt. In doing so, the High Court allowed the Commissioner's appeal against a Full Federal Court decision: FCTv Jayasinghe [2017] HCA 26 (High Court, Kiefel CJ, Gageler, Keane, Gordon and Edelman JJ, 9 August 2017).
 
The High Court decision as per below stated that the exemption did not apply to ‘contractors’. This may be problematic as a large number of these individuals may be employed under such ‘contractor arrangements’.

Background

The taxpayer was a resident of Australia and a qualified civil engineer who had been engaged during the relevant years by the United Nations Office of Project Services (UNOPS) to perform work in Sudan as a project manager. The taxpayer worked in Sudan for 2 periods:

  • from 13 October 2009 until 31 December 2010 and
  • from 28 June 2011 until 31 December 2011.

He was engaged, at least for the first period, under an "Individual Contractor Agreement".
 
The Commissioner assessed the taxpayer upon his earnings from that engagement, but the AAT decided that the earnings were exempt pursuant to s 6(1)(d) of the International Organisations (Privileges and Immunities) Act 1963 (IOPI Act). This was because the taxpayer "[held] an office in an international organisation" to which the Act applied.
 
The AAT also decided that the taxpayer worked as an employee of the UNOPS and was therefore entitled to the benefit of Determination TD 92/153. That TD states that people who work as employees for a prescribed international organisation "hold an office" in relation to the organisation, but persons who are locally engaged by the organisation and paid at an hourly rate and persons engaged by the organisation as experts or consultants do not "hold an office".
 
On appeal by the Commissioner, a majority of the Full Federal Court (in FCT v Jayasinghe [2016] FCAFC 79) upheld the AAT's decision. The High Court then granted the Commissioner special leave to appeal.

Decision

The High Court said that the phrase "a person who holds an office in an international organisation" directs attention to the structure of the organisation and the place of the person within it. The holder of an "office" in such an organisation "may be expected to have a position to which certain duties attach, duties relating to the performance of the organisation's functions and a level of authority with respect to the organisation".
 
By comparison, "a person whose terms of engagement place them outside the organisational structure, and do not provide that person with any defined duties or authority with respect to the organisation and its functions could hardly be said to hold an office within the organisation".
 
The Court then said that the taxpayer did not hold an office in the UN within the meaning of s 6(1)(d) of the IOPI Act. The reasons for this were as follows:

  • he was engaged in his individual capacity to undertake a non-core function;
  • he had the legal status of an independent contractor of UNOPS, serving in his individual capacity and with no authority or other right to enter into any legal or financial commitments or incur any obligations on behalf of UNOPS;
  • he did not have the status of an official of the UN for the purposes of the 1946 UN Convention;
  • he was responsible for paying any tax levied by the Australian Government on his UNOPS earnings (contrary to s 6(1) (d) of the IOPI Act); and
  • he was solely liable for claims by third parties arising from his own negligent acts or omissions in the course of his service under the Individual Contractor Agreement.

As regards TD 92/153, the High Court said that an examination of the taxpayer's Individual Contractor Agreement revealed that he was engaged as an expert to perform "specialist services" in recognition of his "skills and expertise" and to perform the functional role of project manager. Accordingly, the Commissioner was not bound by TD 92/153 to exempt the taxpayer from taxation on the income he received from UNOPS.

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AMANDA TINNER

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Berry Treffers

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Michael van Schaik

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