1418162 (Migration)

[2015] AATA 3055

1418162 (Migration) [2015] AATA 3055 (7 July 2015)

DECISION RECORD

DIVISION: Migration & Refugee Division

APPLICANTS:  Ms Thi Xuan Nhu Bui
Mr Duc Minh Quang Nguyen
Mr Duc Tue Trung Nguyen

MRT CASE NUMBER:  1418162

DIBP REFERENCE(S):  CLF2014/2393 CLF2014/93648 CLF2015/2562

TRIBUNAL MEMBER:  Glen Cranwell

DATE:7 July 2015

PLACE OF DECISION:  Brisbane

DECISION:The Tribunal affirms the decision not to grant the visa applicants Class DF - Business Skills (Residence), Subclass 892 - State/Territory Sponsored Business Owner visas.

Statement made on 07 July 2015 at 11:28am

STATEMENT OF DECISION AND REASONS

APPLICATION FOR REVIEW

1. This is an application for review of a decision made by a delegate of the Minister for Immigration on 22 October 2014 to refuse to grant the visa applicant a Business Skills (Residence) (Class DF) Subclass 892 visa under s.65 of the Migration Act 1958 (the Act).

2. The visa applicant applied for the visa on 12 December 2013. The delegate refused to grant the visa on the basis that the first named applicant (the applicant) did not meet the requirements of cl.892.213.

3. The applicants appeared before the Tribunal on 30 June 2015 to give evidence and present arguments.

4. The applicants were represented in relation to the review by their registered migration agent. The representative attended the Tribunal hearing.

5. For the following reasons, the Tribunal has concluded that the decision under review should be affirmed.

   RELEVANT LAW

6. Class DF - Business Skills (Residence) is a permanent visa class and consists of four visa subclasses: Subclass 890 Business Owner, Subclass 891 Investor, Subclass 892 State/Territory Sponsored Business Owner, and Subclass 893 State/Territory Sponsored Investor. 

7. The visa class was introduced on 1 March 2003 as part of a two-stage visa processing scheme for the business skills visa scheme whereby the majority of applicants initially apply for a 4-year provisional business skills visa (Class UR) and, after providing satisfactory evidence of a specified level of business activity in Australia, may apply for an onshore permanent business skills visa (Class DF). 

8. The Business Skills (Residence)(Class DF) visa is the second stage of this two-staged processing structure, and provides Australian permanent residence for successful and eligible business persons.

9. The primary time of application criteria for Subclass 892 require:

   ·the applicant has had, and continues to have, an ownership interest in one or more actively operating main businesses in Australia for at least two years immediately before the application is made (cl.892.211(1)); 

   ·unless the appropriate regional authority has determined that there are exceptional circumstances, the applicant meets at least two of the following requirements (cl.892.212(a), (b) and (c)): 

   -In the 12 months immediately before the application is made, the main business provided an employee, or employees, other than the applicant or a family member, who were Australian citizens or permanent residents or New Zealand passport holder, with a total number of hours of employment at least equivalent to those that would have been worked by 1 full-time employee;

   -The net value of the business and personal assets in Australia of the applicant and/or the applicant’s spouse, is, and has been throughout the 12 months immediately before the application is made, at least AUD250 000;

   -The total value of the net assets owned by the applicant and/or the applicant’s spouse, in the main business is, and has been throughout the 12 months immediately before the application is made, at least AUD75 000;

   ·Ending in the 12 months immediately before the application is made, the applicant’s main business, had an annual turnover of at least AUD200 000 (cl.892.213).

10. At the time of the decision, the applicant must continue to satisfy the primary criteria in cl.892.211 and if the applicant met the requirements of cl.892.212(b), continue to meet those requirements. 

11. “Main Business” is defined in r.1.11 of the Migration Regulations 1994 (the Regulations). The current definition of “main business” applies to visa applications lodged on or after 12 December 1994. Regulation 1.11 provides that a business is a main business in relation to a visa applicant if:

    ·the applicant has, or has had, an ownership interest in the business; and

    ·the applicant maintains, or has maintained, direct and continuous involvement in management of the business from day to day and in making decisions affecting the overall direction and performance of the business; and

    ·the value of the applicant’s ownership interest, or the total value of the ownership interests of the applicant and the applicant’s spouse, in the business is or was at least 10% of the total value of the business; and

    ·the business is a qualifying business.

12. “Qualifying business” is defined in r.1.03 of the Regulations to mean “an enterprise that is operated for the purpose of making profit through the provision of goods and/or services (other than the provision of rental property) to the public and is not operated primarily or substantially for the purpose of speculative or passive investment.” 

13. Regulation 1.03 of the Regulations provides that “ownership interest” has the meaning given to it in s.134(10) of the Migration Act 1958 (the Act). Section 134(10) provides that “ownership interest” in relation to a business, means an interest in the business as a shareholder in a company that carries on the business, a partner in a partnership that carries on the business, or the sole proprietor of the business, including such an interest held indirectly through one or more interposed companies, partnerships or trusts.

14. To meet the definition of “main business”, the applicant must maintain, or have maintained, direct and continuous involvement in management of the business from day to day and in making decisions affecting the overall direction and performance of the business.  According to Departmental guidelines (PAM3), an applicant should demonstrate that he/she has exercised responsibility within the main business or businesses for decisions that affect the overall direction and performance of that business or those businesses, which may include but are not limited to responsibility for employees and/or responsibility for expenditure.

    CONSIDERATION OF CLAIMS AND EVIDENCE

15. Class DF - Business Skills (Residence) is a permanent visa class and consists of four visa subclasses: Subclass 890 Business Owner, Subclass 891 Investor, Subclass 892 State/Territory Sponsored Business Owner, and Subclass 893 State/Territory Sponsored Investor. The only subclass for which the claims and evidence are made is Subclass 892.

16. To be successful for the grant of a Subclass 892, a visa applicant must meet the requirements set out in Part 892 of Schedule 2 to the Regulations.

17. It is not in question that the appropriate regional authority has not determined that there are exceptional circumstances for the purposes of cl.892.213(3)(c).  The applicant is therefore required to satisfy cl.892.213(2), which requires that the applicant’s main business have had an annual turnover of at least $200,000 in the 12 months immediately before the application was made. 

18. The Subclass 892 visa application was lodged on 12 December 2013.  NQ Healthcare Australia Pty Ltd (NQ Healthcare) was nominated as the main business as set out on the Form 1217 - Business Skills profile: Business Owner (Residence).

19. The Departmental guidelines (PAM3) on turnover relevantly state:

    Agents provide goods and services on behalf of an independent entity. The goods/services remain the property of the principal entity and the agent normally receives a commission or fee for any sales.

    Merchants are experienced international traders who buy from a supplier/manufacturer and sell overseas. They take full possession of the commodity and are responsible for onward trading of the stock.

    Agents seek out potential customers and may be used to facilitate and promote a product in their respective markets but do not take legal title of the goods. Agents may be paid a salary, retainer, commission or a combination of all three. See also the definition of a commission agent in Business skills legislated & policy terms.

    The key difference between a merchant and an agent is whether at some stage the business takes legal title to the goods. See section 29.2 Legal title.

    If a business operates as a commission agent, service agent or export agent who is engaged in the provision of services instead of sale of goods to the public, only the amount of the service revenue (ie. as opposed to the sale value or invoice value) is to be counted towards the turnover of the business.

20. The Departmental guidelines make the following comments on legal title:

    An agent may arrange the transfer of goods or services from one entity to another without taking legal title. For example, a business in Australia may arrange for the transfer of goods from an Australian business to a single overseas business without taking possession or having legal title of the goods.

    To have legal title to goods or services the business must:

    •      acquire them for payment;

    •      take possession or intend to take possession of the goods or services; and

    •      have the right to consume, sell, rent, mortgage, transfer or exchange those goods or services.

    Documentation to assess whether a business acquired legal title of goods or services might include contracts, invoices, sales receipts, consignment notices and insurance records.

    Some indicators that a business may be operating as an agent include:

    •      no insurance held by the applicant's business for loss or damage to the goods

    •      no evidence that the applicant's business has taken delivery of the goods or services (ie they are transferred directly between two independent entities)

    •      no clear evidence that the applicant's business ever intended take delivery of the goods

    •      invoices for payment that do not name the applicant's business as the buyer and seller of the goods

    •      no evidence that the applicant's business paid for the goods (for example, payment was made by an independent entity)

    •      no contract between the applicant's business and the business providing the goods

    •      they are bound by agreement/contract to provide the goods or services to a specified third party

    •      contracts or agreements that restrict rights of the applicant's business to otherwise consume, sell, transfer or exchange the goods

    •      they only administer transactions between one Australian business and one overseas business and there is no indication that they have made efforts to source other import/export markets.

21. While the Departmental guidelines are only guidelines, the Tribunal considers it desirable for the purposes of consistency in decision making to apply the Departmental guidelines in the present case. The guidelines accord with the Tribunal’s own understanding in relation to service revenue and turnover, and the difference between merchants and agents.

22. As evidence of satisfying cl.892.213, consistent with Departmental policy, the applicant provided financial statements for the period 15 October 2012 to 15 October 2013, which is within 3 months of the date of the visa application.  The Tribunal has made the below findings on the basis of that same 12 month period.

23. The applicant has claimed a turnover of $249,856 for the relevant period (folio 80 of the Tribunal file).

24. The delegate raised concerns with 2 transactions between NQ Healthcare and Medical Innovation Devices Ltd (MID) during the relevant period:

    ·On 3 May 2013, NQ Healthcare invoiced MID for $63,081.60 for the sale of Cardioton tablets.  This amount was revised in an amended invoice dated 17 June 2013 to $63,107.20 (folios 135-136).

    ·On 9 October 2013, NQ Healthcare invoiced MID for $102,100.20 for the sale of Cardioton and Geotonik tablets.  This amount was revised in an amended invoice dated 27 November 2013 to $102,244.20 (folio 132).

25. These tablets the subject of these transactions were produced by Lipa Pharmaceuticals and assembled into blister packs by Vitex Pharmaceuticals.  The cost of the tablets for each transaction were $46,804.20 and $77,039.47, respectively (see folios 133-134 and 130-131).  These figures total $123,843.67.

26. The applicant provided a number of documents in relation to these transactions, including:

    ·Bills of Lading, showing the tablets were shipped from Vitex Pharmaceuticals in Australia directly to Central Pharmaceutical Company No 2 in Vietnam;

    ·Certificate of Australian Origin, listing Vitex Pharmaceuticals as the exporter and Central Pharmaceutical Company No 2 as the consignee;

    ·Certificates of a Pharmaceutical Product (COPPs), listing Asia Pacific Venture Capital as the sponsor for Cardioton and Geotonik tablets (folios 403 and 397).

27. The applicant confirmed at the hearing that the second named applicant was the 100% shareholder of MID.

28. The applicant commission an “independent” report by BDO describing the nature of these transactions as follows:

    Overview of transaction flow

    An overview of the transaction flow between NQHCA and MID is summarised below and illustrated in the diagram attached at Appendix A of this memo.

    ·NQHCA is an Australian company who sources pharmaceutical/medical products (predominantly CARDIOTON and GEOTONIK) from third party manufacturers (LIPA and VITEX) in Australia and sells these products to MID for sale to customers located in Vietnam.

    ·MID enters into sale contracts and maintains relationships with local Vietnam sub-distributors (ie Codupha and Jasmine). These sub-distributors are responsible for the local sale and distribution of the above Australian sourced products to ultimate end customers in Vietnam.

    ·MID is responsible for taking product orders from the Vietnam sub-distributors and relaying these orders to NQHCA in Australia. Once received, NQHCA then coordinates and places orders with the Australian manufacturers who deliver the ordered goods direct to the sub-distributors in Vietnam.

    ·Product title and hence invoicing of goods (sourced from the Australian third party manufacturers) moves from NQHCA to MID to the Vietnam sub-distributors.

    ·NQHCA prices the products sold to MID using a cost plus mark-up approach. In general cost plus 50% mark-up is used in pricing product sales to MID. MID then in turn marks up the products purchased from Australia by another 15% for on-sale to the sub-distributors in Vietnam.

    Key functions in relation to transaction flow

    ·NQHCA employs 2-3 people and is responsible for placing orders on the Australian third party manufacturers once received from MID. Product is sold and invoiced to MID. Physical delivery of the product goes direct from the Australian manufacturers to the sub-distributors in Vietnam.

    ·NQHCA is also responsible for coordinating with the manufacturers in respect of local quality testing of product, managing product registrations and for ensuring that overseas packaging requirements are met. It is also responsible for the ongoing management of the relationship with the Australian manufacturers.

    ·MID is responsible for managing the relationship with the local Vietnam sub-distributors and for taking and processing orders from the sub-distributors to NQHCA in Australia. MID enters into the contract of sale with the sub-distributors.

    ·MID also assists in financing the working capital requirements of NQHCA insofar as it pays for invoices received from NQHCA immediately upon demand, while not receiving payment from the Vietnam sub-distributors for up to 120 days (or later).

    ·Finally, MID also provides marketing assistance to the local sub-distributors in respect of preparing and incurring the costs of marketing brochures, and assisting in the funding of local Vietnam marketing activities such as securing and incurring certain costs related to the manning and resourcing of product stands at local conferences, seminars etc.

    Key assets in relation to transaction flow

    ·NQHCA owns the principal distribution rights to the products sourced from the Australian third party manufacturers sold ultimately into the Vietnam market

    ·MID holds and maintains the local customer (ie sub-distributor) relationships which allows NQHCA to sell product into the Vietnam market.

    Key risks in relation to transaction flow

    ·MID assumes the key risks of inventory loss in transit and incurs the costs of freight and insurance of product shipped into Hanoi.

    ·MID also assumes the ultimate risk of late or non-payment for product shipped to Vietnam as it processes NQHCA's invoices upon demand before receiving payment from the sub-distributors.

29. The Tribunal has omitted BDO’s conclusion, because it is a matter for the Tribunal to reach its own characterisation of the transactions.

30. The applicant confirmed the above description at the hearing.  In particular, the applicant confirmed that MID assumed the risks of financial loss during transport and ultimate sale of the products in Vietnam.

31. The applicant herself provided the following the following description of the transactions in her letter to the Tribunal dated 16 June 2015:

    NQ Healthcare Australia Pty Ltd (NQHA) is an Australian company who sources pharmaceutical/medical products from third parties manufacturers Lipa and Vitex based in Australia and sells these products to MID for sale to customers located in Vietnam. NQHA owns the principal distribution rights to the products sourced from the Australian third party manufacturers sold ultimately into the Vietnam market. All our products have been registered with TGA (Therapeutic Goods Administration) under NQHA name. Therefore NQHA is not an agent.

    Medical Innovations Ltd (MID) — HK based company — belongs to us and we use MID to improve our cash flow as our fund is available there.  Australian manufacturers require immediate and upfront payment for products thus the selling price in the invoice from NQHA to MID is marrked up to help transfer funds to NQHA to ensure the timely payment to manufacturers. If NQHA issue invoices directly to our customers Vietnam (Coclupha), the payment term is approx. 90-120 days or even longer.

    Another reason for us to use MID instead of direct invoicing to Vietnam is that the tax in Australia is high so MID HK (with the tax rate of 16,5%) is used to minimize the tax payment for our whole business group and this is just a normal practice. In addition, expenses on marketing activities such as sponsorship, conference, brochures, etc. are not accepted by Vietnam tax authorities therefore these expenses are covered by MID HK.

32. At the hearing, the applicant claimed that NQ Healthcare owned the products prior to them leaving the country.  As proof of ownership, the applicant relied on the COPPs issued by the Therapeutic Goods Administration, referred to above.

33. The Tribunal noted that the COPPs were in the name of Asia Pacific Venture Capital, and not NQ Healthcare.  The applicant stated that they were the 60% owners of Asia Pacific Venture Capital.  She stated that it took several years to register a product, and that they used other entities for registration prior the establishment of NQ Healthcare.  The Tribunal noted that even though the applicants might be 60% owners of Asia Pacific Venture Capital, it (and they) were different legal entities to NQ Healthcare.

34. In post-hearing submissions, the applicant provided the Tribunal with documentation showing that NQ Healthcare has been listed as the sponsor on the COPPs from 3 December 2012. This is before the time of the relevant transactions. However, the Tribunal notes that sponsor is defined in s.3 of Therapeutic Goods Act 1989 as follows:

    sponsor, in relation to therapeutic goods, means:

    (a)a person who exports, or arranges the exportation of, the goods from Australia; or

    (b)a person who imports, or arranges the importation of, the goods into Australia; or

    (c)a person who, in Australia, manufactures the goods, or arranges for another person to manufacture the goods, for supply (whether in Australia or elsewhere);

    but does not include a person who:

    (d)exports, imports or manufactures the goods; or

    (e)arranges the exportation, importation or manufacture of the goods;

    on behalf of another person who, at the time of the exportation, importation, manufacture or arrangements, is a resident of, or is carrying on business in, Australia.

1. Accepting that NQ Healthcare was the sponsor of Cardioton and Geotonik at the time of the relevant transactions, it is not a necessary consequence of the definition of sponsor that ownership of the physical tablets vested in NQ Healthcare. The definition does not address ownership, and expressly includes a person who “arranges” for the manufacture and export of therapeutic goods. In this regard, the Tribunal notes that MID is a Hong Kong company, and there is no evidence before it that the company is either registered under Part 5B.2 of the Corporations Act 2001 or carrying on business in Australia.

2. The Tribunal finds that NQ Healthcare has acted in the role of agent for the MID in its dealings with Lipa Pharmaceuticals and Vitex Pharmaceuticals.  The evidence before the Tribunal is that MID enters into sales contracts with Vietnamese customers.  MID then relays these orders to NQ Healthcare, which then in turn places orders with Lipa Pharmaceuticals and Vitex Pharmaceuticals.  The tablets are delivered from Lipa Pharmaceuticals to Vitex Pharmaceuticals to be assembled into blister packs, and then shipped by Vitex Pharmaceuticals directly to the customer in Vietnam.  MID assumes all risk for loss during transportation and on the ultimate sale of the goods in Vietnam.  MID disburses funds to NQ Healthcare for payment to Lipa Pharmaceuticals and Vitex Pharmaceuticals, with NQ Healthcare retaining a mark up after the funds are transferred to Lipa Pharmaceuticals and Vitex Pharmaceuticals. 

3. The Tribunal in these circumstances is unable to be satisfied that legal title to the Cardioton and Geotonik tablets was ever transferred to NQ Healthcare Group.  The acts of NQ Healthcare in arranging the manufacture and export of the goods on behalf of MID, but without ever taking physical possession of them, epitomise the very essence of agency.  Accordingly, the Tribunal considers that the mark up funds retained by NQ Healthcare in relation to these transactions is properly characterised as a commission.  The Tribunal notes that this approach was approved of by the Full Federal Court in Cheng v MIAC [2013] FCA 405 in similar circumstances.

4. The Tribunal has also taken into account the fact that the second named applicant is the 100% shareholder of MID.  The Tribunal does not consider that the transactions were entered into at “arms-length”, which supports the conclusion that the applicant and NQ Healthcare was acting as agent on behalf of the MID.  As the applicant and the second named applicant owned 100% of NQ Healthcare and MID between them, they were able to apportion the mark up between the 2 companies prior to ultimate sale to the Vietnamese customers in any way they wished.  The applicant stated in her letter that the factors involved in arranging their affairs in this way included using MID to improve their cash flow and minimisation of taxation – factors which the Tribunal regards as matters of convenience for the applicants.

5. The Tribunal notes that the post-hearing submissions provided by the applicant included a legal opinion from TressCox Lawyers on the issue of agency.  The opinion contains only superficial analysis and is unsupported by reference to authority.  As noted above, it is a matter for the Tribunal to reach its own characterisation of the transactions.  The contention put forward in the opinion is that “ownership would appear to pass to NQHC from the time of purchase up until the point at which the products are secured on the vessels bound for Vietnam”.  Given that the tablets are delivered from Lipa Pharmaceuticals to Vitex Pharmaceuticals to be assembled into blister packs, and then shipped by Vitex Pharmaceuticals directly to the customer in Vietnam, the Tribunal is unable to identify any basis for the conclusion that the mere act of securing of the tablets on board the vessels has any legal significance in terms of the transfer of title.  No contractual documentation was cited to support this contention.

6. The Tribunal does not regard the ship-to address on the Lipa Pharmaceuticals invoices of “NQ Healthcare Australia Pty Ltd c/o Vitex Pharmaceuticals” as supporting the claims of ownership by NQ Healthcare.  The Tribunal considers the post-hearing submissions, in which it is said that “NQHC do intend to take delivery of the products” but “it is not practical to take delivery of the products as it will incur double handling, storage charges etc”, to be disingenuous. The Tribunal does not accept that NQ Healthcare ever intend to take physical possession of the tablets.  The transaction with Lipa Pharmaceuticals is premised on NQ Healthcare having received an order from MID, with the goods ultimately being sent directly to MID’s customers in Vietnam.  The delivery from Lipa Pharmaceuticals to Vitex Pharmaceuticals is merely an interim step in the manufacturing process for the purposes of the tablets being packaged into a saleable form prior to shipment to Vietnam.  It is trite to say that the invoice is prepared by Lipa Pharmaceuticals, and the precise wording of an invoice prepared by a third party is of limited value in discerning NQ Healthcare’s intention.

7. Finally, it is not to the point that NQ Healthcare acts on its own behalf in other transactions which do not involve MID.  The Tribunal has addressed itself to the issue of whether NQ Healthcare was acting as agent in 2 relevant transactions involving MID.  There is no barrier to acting as an agent in some transactions and on its own behalf in others.

8. In the period from 15 October 2012 to 15 October 2013, NQ Healthcare had a total “turnover” recorded in its business activities statements of $249,856.  Regarding NQ Healthcare as an agent for MID, and regarding only service revenue as turnover, means that $123,843.67 must be deducted from this total.  Accordingly, the turnover of the applicant’s main business, being NQ Healthcare, was less than $200,000 in the 12 months immediately before 12 December 2013.  The Tribunal finds that the applicant fails to meet cl.892.213.  Failure to meet this clause means this application must fail and the Tribunal has no alternative but to affirm the decision under review.

9. There has been no material submitted by the applicants, nor is there any material otherwise known to the Tribunal, which would support a conclusion that any applicant meets requirements prescribed at Parts 890, 891 or 893 of Schedule 2 to the Regulations. The Tribunal is not satisfied that any applicant meets essential prescribed criteria for any alternate Class DF visa.

   DECISION

10. The Tribunal affirms the decision not to grant the visa applicant a Class DF - Business Skills (Residence), Subclass 892 - State/Territory Sponsored Business Owner visa.

    Glen Cranwell
    Member