Nomad Tackle PTY LTD and Australian Trade and Investment Commission (AUSTRADE) - [2024] AATA 2072

Nomad Tackle PTY LTD and Australian Trade and Investment Commission (AUSTRADE) [2024] AATA 2072 (14 June 2024)
Division:GENERAL DIVISION
File Number(s): 2021/5820 and 2022/6807
Re:NOMAD TACKLE PTY LTD
APPLICANT

AndAUSTRALIAN TRADE AND INVESTMENT COMMISSION (AUSTRADE)
RESPONDENT

DECISION
Tribunal:Member McLean Williams
Date:14 June 2024
Place:Brisbane

The reviewable decision made on 9 August 2021 (matter 2021/5820) is set aside and substituted with a decision by the Tribunal that the Applicant is entitled to an EMDG grant of $22,948, comprised of $10,325 for ‘marketing visits’, and $12,623 for ‘promotional literature and advertising’.
AND
The reviewable decision made on 4 August 2022 (matter 2022/6807) is affirmed.
................[SGD]…..............
Member McLean Williams
CATCHWORDS
FOREIGN AFFAIRS AND TRADE – Export Market Development Grants Act 1997 (Cth) – export market development grants – trade and commerce – expenditure on marketing – application for payment of export market development grant – Australian owned company – fishing lures – claim for marketing expenses – wholly owned United States subsidiary – whether US based subsidiary is an ‘entity’ – whether expenses had either ‘been paid’ or ‘entitled to be paid’
LEGISLATION
Export Market Development Grants Act 1977 (Cth)
REASONS FOR DECISION
Member McLean Williams
14 June 2024
PRELIMINARY – HOW THESE MATTERS ARRIVED BEFORE THE TRIBUNAL

The Applicant, Nomad Tackle Pty Ltd (‘Nomad’), is an Australian-owned company that produces fishing lures for use by recreational sports fishermen.
In recent years Nomad has been making in-roads into the lucrative North American market. Nomad wishes to continue to grow sales in that market. In furtherance of that ambition, Nomad had applied to Austrade (‘the Respondent’) for Export Market Development Grants under the Export Market Development Grants Act 1977 (Cth) (‘the EMDG Act’) in each of 2018/2019 grant year (‘first grant application’), and in the 2019/2020 grant year (‘second grant application’).
On 14 July 2021 the first grant application was denied by Austrade on grounds that it was precluded, by reason of the effect of s 46 of the EMDG Act. This was subsequently confirmed, by means of an internal review decision made by Austrade on 9 August 2021. The 9 August 2021 internal review confirmation is now the subject of the application for review to this Tribunal in matter 2021/5820.
On 4 August 2022 Austrade made another internal review decision, this time in relation to the second grant application. The 4 August 2022 decision allowed a partial EMDG grant, referable to Nomad’s claimed expenses relating to overseas markets other than the United States, yet otherwise affirmed the original refusal to allow an EMDG grant in relation to Nomad’s US marketing expenses; again because of the claimed effect of s 46 of the EMDG Act. The 4 August 2022 internal review decision is now the subject of the application for review before this Tribunal in matter 2022/6807.
As matters 2021/5820 and 2022/6807 are substantially similar, with consanguine facts, the two reviews have been heard together. The Tribunal has review jurisdiction because of s 99 of the EMDG Act.
FACTUAL BACKGROUND
Although Australian designed, Nomad’s fishing lures are manufactured offshore, in China.
Under United States tariff arrangements, fishing tackle manufactured in China attracts a 27.5% import duty (as well as other taxes),[1] when landed by Nomad – as a non-US entity - onshore in the United States. Understandably, these extra import duties would make Nomad’s product more expensive, and thus less price competitive in the United States, and could thereby detract from Nomad’s overall ambition to grow its market share in the United States.
[1] T2021, p. 653.
In an effort to circumvent the United States import duties (and acting pursuant to professional accounting advice that Nomad had by then received), Nomad incorporated a wholly-owned United States subsidiary, Nomad Design Tackle Incorporated (‘Nomad USA’), and arranged for Nomad USA to be the importer from China, thus avoiding the extra import duties charged to non-US companies.
Once Nomad USA had been established, Nomad entered into an arrangement wherein it was agreed[2] that Nomad would charge Nomad USA a service fee, set at ‘cost plus 2%’.[3]
[2] T2021, p. 679.
[3] T2021, p. 656 - 659.
In a letter later sent by Nomad’s Australian accountants to Austrade on 30 June 2020, the rationale for choosing this cost plus 2% service fee arrangement was explained as follows:
‘The service fee is basically a management fee and a mechanism that returns Gross Profit margin back to the Australian company. Due to high customs duties and taxes on goods entering the US, and a special excise tax on fishing goods entering the US. It is uncommercial to increase the US company’s purchase price for goods to include margin on the cost of goods.
Australian companies that deal with overseas subsidiaries are required to comply with transfer pricing guidelines when it comes to inter-entity transactions. Where a management fee is being charged to an overseas entity, the Australian entity is required to demonstrate that it has incurred costs in Australia’.[4]
[4] T2021, p. 655.
Nomad Applies for EMDG Grants, and is Refused
On 2 March 2020, Nomad applied to Austrade for a grant under the EMDG Act referable to the 2018/2019 grant year (‘first grant application’).[5]
[5] T2021, p. 30.
In response to question 18 on the application form, Nomad specified that it was ‘part of a group of related companies at 30 June 2019’.[6]
[6] T2021, p. 31.
In answer to question 34 on the application, Nomad claimed total expenses of $291,397 comprised by the following:
(a)Schedule 2: Marketing visits $40,497
(b)Schedule 4: Free samples $16,989
(c)Schedule 5: Trade fairs and promotional events $97,590
(d)Schedule 6: Promotional literature and advertising $136,321.[7]
[7] T2021, p. 33.
During a further exchange of correspondence with Austrade (referable to Austrade’s consideration of the grant application), Nomad explained the approach adopted by it to the repatriation to Australia of income earned in by Nomad USA in the following terms:
‘We use a combination of service fees, licence fees and inter-branch loan repayments to bring US revenue and profits back to Australia, being constantly mindful of international transfer pricing rules. Service fees and licence fees sit as ‘other income’ in the financial statements prepared by our accountants as they are not in fact revenues generated by sales to other customers. Instead, they are a mechanism that facilitates the return of US funds back to Australia. The “other income” generated by the Australian parent company is equal to the “expense” incurred by the US branch. In practical reality, these are neither income nor expense as we are charging ourselves. We have recorded service fees, licence fees and an inter-branch loan in our financial statements in both countries since we first started trading in the US in February 2018. All service fees and licence fees are paid against the inter-company loan account that matches in both branches, and we make weekly or fortnightly transfers from our US bank account back to our Australian bank account in order to repatriate revenue back to Australia’.[8]
(Emphasis added)
[8] T2021, p. 439.
On 6 August 2020 Austrade advised Nomad of its decision that no grant would be payable, because of the effect of s 46 of the EMDG Act, also indicating that a formal Notice of Determination to that same effect would issue, shortly thereafter.[9]
[9] T2021, p. 674.
On 10 August 2020 Austrade provided Nomad with the foreshadowed Notice of Determination, which stated (inter alia):
‘…all expenses claimed by the Applicant were found to be recharged to the US related entity and therefore assessed as reimbursements under s 46 of the EMDG Act. As a result, no grant is payable to the Applicant’.[10]
(‘the original decision’)
[10] T2021, p. 21.
On 9 September 2020 Nomad sought an internal review of Austrade’s original decision in the first grant application.[11]
[11] T2021, p. 677.
On 14 July 2021 Austrade made an internal review decision affirming that no grant was payable because of the operation of s 46 of the EMDG Act, in circumstances in which Nomad ‘has been paid or is entitled to be paid’ those same expenses by its subsidiary, Nomad USA.[12]
[12] T2021, p. 791.
In part, the internal review Delegate stated:
‘In practice, the issue is whether or not section 46 of the EMDG Act is to be applied. Applicants that receive any reimbursement or contribution from another party that is tied or directly related to the claimed promotional activity are considered to have been repaid an amount in terms of section 46 of the EMDG Act’.[13]
[13] T2021, p. 791.
Based on the evidence that had been provided to Austrade by Nomad, the internal review delegate found:
1.The amounts that [Nomad] invoiced and received from its related company [Nomad USA] match exactly the EMDG claimed expenses. For example, the July 2018 invoice that the applicant charged [Nomad USA] of $31,262 (@ 0.72 = 43,417.93 AUD) was exactly the EMDG claimed amount for that month (refer to IRS spreadsheet). Therefore, the applicants had received reimbursement or contribution from its US company that is tied or directly related to the claimed promotional activity.
2.Later in the years the amounts were split between ‘sales & marketing management service fees’ and ‘licence fees’. Austrade was not convinced that they were really licence fees on the following grounds
a)    The amount should vary month to month based on the 9.5% standard rate calculation.
b)    The income tax lodgement with the IRS for both 2018 and 2019 show nil royalty paid by [Nomad USA] to the applicant.
c)    The applicant’s products (Fishing tackles and lures made in China) would be classified as goods. The royalty arrangement is also not in line with generally accepted commercial practice where royalties are imposed on manufacturers using the inventor’s patented design/IPR not on distributors or wholesalers of goods.
3.The applicant has freedom to charge [Nomad USA] whatever amount it thinks fit. Here, the amount equals EMDG claimed expenses. It is, therefore, difficult to argue that the applicant has borne any of the risk (refer to discussion on s 46 above).[14]
[14] T2021, p. 792.
Subsequently, Nomad applied to Austrade for a further grant under the EMDG Act referable to the 2019/2020 grant year (‘second grant application’).[15]
[15] T2022, p. 22.
Austrade refused the second grant application, which also became the subject of an internal review application by Nomad.[16]
[16] T2022, p. 57.
On 4 August 2022 Austrade made an internal review decision about the second grant application, confirming the disallowance of the EMDG grant application for 2019/2020 (at least insofar as the application was referable to USA expenses), again because of s 46 of the EMDG Act, in circumstances in which Nomad had adopted the same ‘cost plus 2%’ transfer pricing method. A further Application for Review (matter 2022/6807) was then filed in this Tribunal, on 4 August 2022.[17]
[17] T2022, p. 138.
Nomad’s Grounds for Review Before the Tribunal
Nomad expresses the reasons for it now seeking review of each of the reviewable decisions before the Tribunal in the following terms:
1.The expenses identified in its claim are in all respects eligible expenses within the meaning of the EMDG Act;
2.The circumstances of the dealings between Nomad and the “US related entity” referred to in the determination do not amount to reimbursements, and in any event are not dealings to which s 46 of the EMDG act applies
3.There are no facts which cause any other provision of the EMDG Act to operate in a manner that reduces the eligible expenses of the company, and in particular there are no facts which make it reasonable or appropriate for the CEO to form an opinion under s 96 that would reduce eligible expenditure of the company.[18]
[18] T2021, p. 677.
Respondent’s Preliminary Concession
Before proceeding to deal with the Applicant’s grounds for review, Austrade concedes in relation to the first reviewable decision (matter 2021/5820), that the decision made on 9 August 2021 referable to the EMDG application in the 2018/2019 grant year should have more correctly apportioned Nomad’s claimed marketing expenses between those incurred in the United States and those incurred in the ‘rest of the world’, in the same manner as was subsequently undertaken, in the case of the second reviewable decision, as made by Austrade on 4 August 2022 in relation to the 2019/2020 grant application.[19]
[19] Respondent’s Statement of Facts, Issues and Contentions (‘RSFIC'), p. 2.
To this end, Austrade now concedes that Nomad is entitled to grants for marketing expenses referable to the rest of the world (i.e., countries other than the United States) by reason that these expenses differ in that they have not been reimbursed by a third party. Austrade maintains however that marketing expenses referable to the United States have been reimbursed (or Nomad remains entitled to be reimbursed), by Nomad USA, and hence these USA expenses become ineligible for a EMDG grant, because of s 46.
On the basis of further financial information that had been provided to Austrade in the course of correspondence between Nomad and Austrade during the lead-up to these review proceedings, Austrade now accepts that Nomad was entitled in 2018/2019 to grant allowances of $10,325 for marketing visits, and $12,623 for promotional materials and advertising expenses (total $22,948), referable to export market development expenses in countries other than either Australia, New Zealand, or the United States.
Review Grounds: Consideration
It is uncontentious that the claimed expenses in each of first and second grant applications are potentially ‘eligible expenses’ as defined under the EMDG Act. As such, the first of the Applicant’s review grounds need not be considered further.
Questions do however remain as to whether these expenses are precluded from eligibility for a grant by reason of s 46 (‘review ground 2’); or whether these should now be reduced, under section 96 of the EMDG Act (‘review ground 3’).
Examination of each of these issues necessitates further analysis of the EMDG Act.
LEGISLATIVE SCHEME
The Export Market Development Act
Nomad had applied for export market development grants pursuant to the provisions of the Export Market Development Grants Act 1977 (‘the EMDG Act’), at least as that Act existed prior to 1 July 2021.
The object of the EMDG Act is expressed as:
‘…to bring benefits to Australia by encouraging the creation, development and expansion of foreign markets for Australian goods, services, intellectual property and know-how. It does so by providing for an assistance scheme under which small and medium Australian exporters committed to and capable of seeking out and developing export business are repaid part of the expenses incurred in promoting those products.’ [20]
[20] EMDG Act, s3.
EMDG grant applicants must meet eligibility requirements. Claimed expenses must be in respect of what the EMDG Act describes as ‘eligible promotional activity’.[21]
[21] EMDG Act, s3.
Section 33 of the EMDG Act sets out, in a table, ‘items’ (column 1); ‘activities’ (column 2); and ‘expenses’ (column 3); that are able to be considered as ‘claimable expenses’ in respect of ‘eligible promotional activities.’ These must all relate to an ‘approved promotional purpose’.
In relation to ‘approved promotional purposes’, section 37 of the EMDG Act provides, in part:
(1) For the purposes of section 33, an eligible promotional activity in relation to an applicant is for an approved promotional purpose if it is carried out for the purposes of creating, seeking or increasing demand or opportunity in a foreign country for any of the following:
…
c. eligible goods that:
i.are not made in Australia; and
ii.any person intends to sell outside Australia;[22]
…
(Original emphasis)
[22] EMDG Act, s 37.
In circumstances where Nomad USA is a wholly-owned entity of its Australian parent, ss 37(1A), 37(4), and 37(5) of the EMDG Act become at least potentially applicable. These provisions provide:
(1A)For the purposes of section 33, if an applicant is incorporated under the Corporations Act 2001, the CEO of Austrade may determine that an eligible promotional activity in relation to the applicant is for an approved promotional purpose if:
a)    a related entity of the applicant satisfies the requirements of paragraph ((1)(a), (c), (d), (da) or (e); and
b)    the activity in relation to the applicant would be for an approved promotional purpose if instead the applicant had satisfied the requirements of that paragraph.
Note: for related entity see subsection (4).
…
(4)For the purposes of subsection (1A), an entity (the first entity) is a related entity of another entity (the second entity) if:
a) the first entity controls, or is controlled by, the second entity (within the meaning of section 50AA of the Corporations Act 2001); or
b)    the same shareholder or shareholders own all the shares in both the first entity and the second entity; or
c)    the first entity is a director of the second entity.
(5)In this section:
entity means:
a)    an individual who is a resident in Australia; or
b) a body incorporated under the Corporations Act 2001.[23]
(Original emphasis)
[23] Ibid.
Nomad USA is a company that has been incorporated in the United States, under United States law. As such, Nomad USA does not meet either of the specific ‘entity’ requirements in s 37(5)(a), or s 37(5)(b), such that it cannot be treated as a ‘related entity’ for purposes of s 37(4) undertaking an ‘approved promotional purpose’ for purposes of s 33 of the EMDG Act on behalf of its Australian parent company, by way of s 37(1A).
EMDG Act s 46
The primary issue during the resolution of these combined applications for review is whether s 46 of the EMDG Act applies to preclude Austrade (and now, the Tribunal) approving the US-based EMDG expense claims made by Nomad in each of the 2018/2019 and 2019/2020 grant years.
Section 46 has more recently been removed from the EMDG Act, yet at the time of both the first grant application and the second grant application it had provided:
46 Expenses for which applicant is paid
(1)Expenses of an applicant in respect of an eligible promotional activity related to a particular approved promotional purpose are excluded to the extent (if any) to which an applicant has been paid, or is entitled to be paid, any consideration for any thing done by the applicant to further that purpose.
(1A)However, subsection (1) does not apply to any expenses of an applicant incurred as an events promoter.
(2)For the purposes of subsection (1), any action by the applicant to write off, waive or otherwise release a person from, an obligation to pay any consideration is to be disregarded.[24]
[24] EMDG Act, s 46.
EMDG Act s 96
In review ground 3, Nomad contends that there are ‘no relevant facts’ enlivening the operation of s 96 of the EMDG Act, which might be used to reduce the expenses that might otherwise be eligible for coverage by a grant under the EMDG Act.
Relevantly, at the time, section 96 provided:
96 Adjustments that may be made by the CEO of Austrade
(1) This section applies if it appears to the CEO of Austrade that:
(a)any expenses incurred by an applicant in respect of an eligible promotional activity:
(i) may not have been properly substantiated; or
(ii) not be reasonable, commercial or bona fide; or
(b)an applicant for a grant in respect of a grant year has done, or been party to, any act or thing (such as making an agreement or payment, forming a company or allocating income or expenses between different persons or different years) for the sole or dominant purpose of obtaining a grant, or an increase in the amount of a grant, in respect of that year.
(2) This section applies, the CEO of Austrade must:
(a)notify the applicant, in writing, that the CEO is of that opinion and of the CEO’s reasons for being of that opinion; and
(b)ask the applicant to explain, within the period specified in the notice, why the CEO should not adjust the applicant’s expenses under this section.
(3) If, after the end of the period, the CEO of Austrade is not satisfied with the applicant’s explanation, the CEO may:
(a)make any adjustments that he or she thinks necessary to the amount that (part from this section and section 30) would be the applicant’s eligible expenses; and
(b)work out the amount that is the applicant’s provisional grant amount for the grant year because of section 64.
(4) Making a decision under subsection (3), the CEO of Austrade must take into consideration any information given by the applicant in answer to the CEO’s request under paragraph (2)(b).
The EMDG Act Administrative Guidelines

The Export Market Development Grants Administrative Guidelines (‘Guidelines’) exist to explain Austrade’s interpretation of the EMDG Act, and how it is applied by Austrade when administering the EMDG scheme.[25]
[25] Guidelines (July 2018), p. 3.
The Guidelines elaborate upon s 46 of the Act by providing:
‘Expenses for which applicant is paid
5.18.1     Section 46 of the EMDG Act requires that applicants limit their claims to genuinely incurred expenses and that they are not repaid by another person for the claimed expenses. This prevents parties other than the applicant from, in effect, claiming “through” the applicant, and prevents applicants from claiming in respect of activities where the applicant in fact bore little or no risk.
5.18.2     Subsection 46(1) of the EMDG Act provides that any payment which is received or receivable for work carried out by an applicant in the course of undertaking promotional activity will be deducted from eligible expenses.
“Reimbursements” and other related payments received by applicants
5.18.3     The term “reimbursement” is not actually used in the EMDG Act but may be used as a convenient shorthand way of saying “a payment is inconsistent with section 46”. In practice the issue is whether or not section 46 of the EMDG Act is to be applied. Applicants that receive any reimbursement or contribution from another party that is tied or directly related to the claimed promotional activity are considered to have been repaid an amount in terms of section 46 of the EMDG Act.’
AGREED FACTS
Each of the following facts are uncontentious, and are agreed between Nomad and Austrade:
·Nomad and Nomad USA are related[26] entities, in circumstances in which Nomad incurs most of the group costs, yet Nomad USA is the US-seller of Nomad products in the United States market.
·An arms-length transfer pricing arrangement is required under the taxation laws of each of the United States and Australia in order that profits earned by Nomad USA can be repatriated to Nomad, in Australia.
·In each of the grant years now under examination, Nomad has elected to use a ‘costs plus 2%’ arrangement, as one of the five approved methods allowed by both the ATO and the United States Internal Revenue Service (‘IRS’) for companies to meet their transfer pricing requirements, as part of fulfilling their overarching company tax obligations.
·Nomad is required to demonstrate that it has incurred costs in Australia in order to justify the fees charged to Nomad USA by preparing transfer pricing compliance documents as part of its tax obligations.
[26] Note however paragraph [37] of these reasons.
This matter was initially heard before the Tribunal on 11 May 2023. At that time oral evidence was received by the Tribunal in relation to a loan account between Nomad USA and Nomad, as the means by which monies earned by Nomad USA are repatriated to Nomad, as the parent company, in Australia.
In light of that evidence, the parties agreed[27] that there was really a need for further financial evidence to be submitted to the Tribunal, to show these money flows, with more precision. Accordingly, the hearing was adjourned part-heard for resumption on 17 August 2023.
[27] Transcript, p. 81, lines 1 – 20.
In that intermission, the parties exchanged further financial data - comprised by bank statements, and loan ledgers - and further agreed regarding additional facts, which were submitted as such to the Tribunal on 15 August 2023.[28]
[28] Applicant’s Further Evidence.
In accordance with the supplementary statement of agreed facts, loan ledgers and bank statements were provided for both Nomad and Nomad USA for the first financial quarter in grant year 2018/2019. It was agreed that these are indicative of the entire movement of funds between Nomad and Nomad USA for the entirety of the two-year period now under examination by the Tribunal.
In the first quarter 2018/2019, various US dollar amounts were transferred from Nomad USA (a Bank of America (‘BOA’) account) to the Nomad National Australia Bank (‘NAB’) US dollar (USD) account in Australia on seven (7) occasions, described as ‘service fee payments’ and ‘loan payments’, and appearing in the NAB USD account in Australia shortly afterwards as the transferred USD amount, albeit less a $5 bank charge.[29]
[29] Applicant’s Further Evidence, pp. 17 – 20.
It is further agreed that in the first financial quarter in 2018/2019 Nomad had internally transferred funds in Australia between its NAB USD account to its NAB AUD account, thus converting the currency by now already in in Australia from USD to AUD, as follows:
·USD$25,000 to AUD$33,660.97, on 30 July 2018;
·USD$66,267 to AUD$90,000, on 29 August 2018;
·USD$24,000 to AUD$32,970 on 20 September 2018.
It is further agreed that Nomad’s NAB AUD account is then used by Nomad to pay for both Australian and US (ie: Nomad USA) expenses.[30]
NOMAD’S CONTENTIONS
[30] Agreed Statement of Facts, paragraph [11].
Section 46 is Inapplicable
In its Statement of Facts Issues and Contentions (‘ASFIC’), and as subsequently elaborated in oral argument, Nomad contends that section 46 of the EMDG Act is inapplicable,[31] as the EMDG Guidelines make clear that the exclusionary provision is aimed only at circumstances in which an applicant is ‘repaid by another person for the claimed expenses’, such that the applicant ‘bore little or no risk’.
[31] Applicant’s SFIC paragraphs [12] – [13]
Nomad submits that in the case of all of the expenses now claimed by it as an EMDG grant applicant, Nomad had borne all of the risk; had made all of the payments, and at all times was the ultimate beneficiary of the rewards from the expenditure via increased exposure and subsequent sales, in circumstances in which Nomad did not get reimbursed for any of the claimed expenses by Nomad USA.[32]
[32] ASFIC, paragraph [29].
Central to Nomad’s s 46 contention is an implicit acceptance that there is no distinction to be had between Nomad, and Nomad USA, such that any expense incurred or income derived by Nomad USA should be regarded as no different to either income, or expense, incurred by Nomad itself.
In furtherance of that argument Nomad submits that the only reason that marketing and other costs potentially claimable as part of an EMDG grant have been identified as a discrete component within the money flow from Nomad USA back to Nomad in Australia is solely because international transfer pricing rules mandate that these costs must be specifically identified, as part of the selected ‘cost plus 2%’ transfer pricing approach. Nomad next contends that things done by it - in order to comply with international transfer pricing requirements - should not now cloud the understanding that Nomad USA is truly no more than the ‘US branch’ of Nomad,[33] such that expenses incurred by Nomad USA are really ‘one and the same’ as if these had been incurred by Nomad, itself.
[33] ASFIC, paragraph [14].
The Tribunal is unable to accept this argument. Grants under the EMDG Act are governed by the specific statutory requirements of the EMDG Act, such that the relationship between Nomad and Nomad USA needs to be understood in the context of the definition of ‘related entity’ for the purposes of the EMDG Act. In order for Nomad USA to be regarded as indistinguishable from its Australian parent company Nomad - such as to qualify as a ‘related entity’ under s 37(1A) of the EMDG Act - Nomad USA would first need to qualify as an ‘entity’, per s 37(5). Yet, as a corporate entity that has been incorporated in the United States of America, Nomad USA does not qualify as an ‘entity’, and therefore cannot be a ‘related entity’ undertaking an approved promotional purpose for Nomad (ss 37(1A) & (4)), as the applicant for a grant under the EMDG Act.
Ultimately therefore, in the view of the Tribunal, Nomad USA does not qualify as a ‘related entity’, such that any transfer of money from Nomad USA to Nomad as the Australian parent company that are connected with expenses also claimed by Nomad as part of the EMDG grant applications does also raise the spectre of section 46.
On the basis of the evidence before the Tribunal, the quantum of the monies periodically transferred to Nomad in Australia from the United States by Nomad USA have been calculated on a ‘cost +2%’ basis, thus embodying an actual repayment component of the same marketing expenses now claimed by Nomad as part of the EMDG grant applications under examination. Section 46 is therefore applicable, and these become expenses for which Nomad has either ‘been paid’, or for which it is otherwise ‘entitled to be paid’ by Nomad USA, which despite obvious corporate consanguinity is nonetheless an ‘unrelated entity’ under the specific scheme here raised, by the EMDG Act.
Section 96 is Inapplicable
In relation to section 96 of the EMDG Act, Nomad’s managing director originally submitted the following to Austrade:
If Austrade has formed the opinion a reimbursement was made, which we deny, then Austrade is respectfully requested to consider using its discretion pursuant to section 96 of the Export Market Development Grants Act to consider Nomad Tackle’s necessary compliance with offshore tax regimes, which otherwise would impinge on our Australian company’s ability to compete in the US market. Using that discretion, we request that Austrade consider allowing our claim for the full amount of the expenses in our application, as we maintain that we are acting within the object of the Act (section 3), that the circumstances of the transaction currently resolved to be reimbursements are necessary to comply with US transfer pricing regulations and that this should be considered, and that previous cases presented to the tribunal that relate to section 96 allow Austrade to exercise discretion and make consideration for such circumstances, so long as it is construed within the object of the act (see Muirfield International Group Pty LTD and Australian Trade Commission [2002] AATA 506 (25 June 2002).
(Emphasis added)
Ultimately, and despite s 96 having been raised as part of Nomad’s original grounds for review, it was not pressed - either as part of the Applicant’s Statement of Facts Issues and Contentions - or in the Applicant’s oral argument before the Tribunal.
Section 96 has already now been set out, in full, previously in these reasons. As becomes apparent from even a cursory reading of section 96, the managing director of Nomad has evidently misapprehended the purpose of that provision, which serves to repose a residual discretion in the CEO of Austrade to disallow any expenses referrable to an eligible promotional activity that either (a)(i), has not been properly substantiated; or (ii), may not be reasonable, commercial or bone fide; or that (b), has been incurred for the sole or dominant purpose of obtaining a grant amount.
In this case there is absolutely no suggestion that Nomad has acted other than completely bona fide. Indeed, Nomad has, at all times, acted appropriately and in accordance with professional accounting advice that it has sought and received, aimed at fastidious compliance with international transfer pricing obligations; in the aftermath of it having established Nomad USA in order to (not unreasonably) avoid onerous additional import duties which would have pertained, had Nomad shipped its fishing lures to the United States, from China, in its own right. Yet, the approach selected for compliance with international transfer pricing obligations had the further consequence that expenses incurred by Nomad USA also became no longer eligible to be categorised as approved promotional activities by a related entity, and the transfer of any monies from Nomad USA to Nomad in Australia referable to those activities has the result of triggering s 46.
In these circumstances, s 96 of the EMDG Act has no work to do.
DECISION
In accordance with section 43(1)(c) of the Administrative Appeals Tribunal Act 1975 the reviewable decision dated 9 August 2021 (matter 2021/5820) is set aside and substituted with a decision that the Applicant is entitled to an EMDG grant of $22,948.
In accordance with section 43(1)(a) of the Administrative Appeals Tribunal Act 1975 the reviewable decision dated 4 August 2022 (matter 2022/6807) is affirmed.

1. I certify that the preceding 65 (sixty-five) paragraphs are a true copy of the reasons for the decision herein of Member McLean Williams

........[SGD].........
Associate
Dated: 14 June 2024

Dates of hearing:

11 May 2023 & 17 August 2023

Applicant

Mr Erik Anderson

Director, Grant Central Pty Ltd

Respondent

Mr Lenny Leerdam
Consulting Principal, Keypoint Law