Levy Amount Formula Modification Determination 2015

EXPLANATORY STATEMENT

Telecommunications (Consumer Protection and Service Standards) Act 1999

Levy Amount Formula Modification Determination 2015

Issued by the Authority of the Minister for Communications

Authority

The Levy Amount Formula Modification Determination 2015 (Determination) is made by the Minister for Communications (the Minister) under subsection 50(2) of the Telecommunications (Consumer Protection and Service Standards) Act 1999 (Act).  This provision enables the Minister to modify the formula for calculating the levy amount of a ‘participating person’ for an eligible levy period.

Purpose

The Determination modifies the general formula by which a levy amount is calculated for a participating person in an eligible levy period to provide for the calculation to be adjusted in the event that:

(a)   a participating person goes into receivership, liquidation, administration or ceases to exist before the date the levy is assessed by the ACMA for that eligible levy period; and/or

(b)   a shortfall exists in the amount of levy collected in a previous period.

Background

On 1 July 2012, the Telecommunications Universal Service Management Agency (TUSMA) was established and the previous Universal Service Obligation (USO) and the National Relay Service levies, administered under the Telecommunications (Consumer Protection and Service Standards) Act 1999, were replaced with a single levy, the Telecommunications Industry Levy (TIL).  The TIL together with government funding, covered TUSMA’s costs for the implementation and administration of service contracts or grants to deliver universal service and other public policy telecommunications outcomes.

On 1 July 2015, TUSMA was abolished and its functions transferred to the Department of Communications (Department).  The abolition of TUSMA is in line with the Australian Government’s agenda of cutting red tape to reduce the regulatory burden on industry and increases industry certainty by having a single agency responsible for policy and implementation (contract management) of telecommunications universal service matters.  The process for assessing and collecting the TIL is no longer contained in the Telecommunications Universal Service Management Agency Act 2012 (TUSMA Act), but instead is dealt with under the Act.  A combination of funds raised under the TIL and dedicated government funding will continue to be used to meet the costs of service contracts or grants to deliver universal service and other public policy telecommunications outcomes (with the contracts and grants administered by the Department). The Determination replaces the Levy Amount Formula Modification Determination 2014 previously made under the TUSMA Act.

Policy rationale

In response to the collapse of One.Tel in 2001, the then Minister made the Levy Debit Formula Modifications Determination (No. 1) 2002 which modified the formula used to calculate the then existing USO levy under the Act to allow shortfalls in the collection of the USO levy arising from insolvency related events occurring to telecommunications carriers to be collected from other telecommunications carriers liable to pay that levy.  Similar arrangements were put in place in 2012 when the USO levy was replaced by the TIL.

The Levy Amount Formula Modification Determination 2015 will ensure equivalent arrangements remain on foot in respect of the assessment and collection of the TIL under the Act as applied under the TUSMA Act.

Part 2, Division 6 of the Act sets out the provisions for the assessment, collection and recovery of an industry levy imposed under the Telecommunications (Industry Levy) Act 2012.  Levy is payable by a ‘participating person’, as defined in section 44 of the Act and the Telecommunications (Participating Persons) Determination 2015.  Under the Act, the Secretary of the Department is responsible for entering into contracts, and making grants, to support the provision of public interest telecommunications services.  A combination of the TIL and Budget funding covers the costs of the contracts, grants and associated eligible administrative costs of the Commonwealth. 

Subsection 50(1) of the Act sets out the formula for calculating the levy amount payable by a participating person for an eligible levy period (i.e. commencing from financial year 2014‑15).  The formula in subsection 50(1) provides that the levy amount for each participating person for an eligible levy period starting immediately after the relevant eligible revenue period will be calculated by multiplying each person’s ‘levy contribution factor’ (as calculated under section 49 of the Act) by the ‘overall levy target amount’ (which is an amount worked out under section 41 of the Act). 

The formula in subsection 50(1) of the Act relies on all participating persons paying in full their respective levy amounts so that the ‘overall levy target amount’ is collected.  If a participating person does not pay the levy amount owed (because, for example, they enter a form of external administration under the Corporations Act 2001) or if a participating person ceases to exist before its levy is assessed, there will be a shortfall in collection of the TIL for that financial year. 

Subsection 50(2) of the Act sets out that the Minister may, by legislative instrument, modify the formula in subsection 50(1). The Determination modifies the formula in subsection 50(1) of the Act to recover anticipated and actual shortfall in the collection of levy in the event that a participating person either enters a form of external administration under the Corporations Act 2001, or ceases to exist, before its levy is assessed, or if the full levy amount for a previous period has not been paid. The Explanatory Memorandum to the Telecommunications Legislation Amendment (Deregulation) Bill 2014 states:

This ability to vary the formula of a levy amount would allow the Minister to modify the means by which the overall levy amount is calculated to account for any irregularities that might otherwise adversely affect the accurate assessment of a levy amount under this clause.  For example, this power could be used to adjust the calculations of a levy amount in the event of a participating person going into receivership, liquidation or general administration or otherwise ceasing to exist.

The Determination applies in an equitable manner, with the obligation to pay the levy (including any levy not collected from a previous period) being distributed amongst the remaining participating persons.  Participating persons who enter into external administration will have their levy amounts calculated according to the formula in subsection 5(1A) of the Determination, which is the same formula that is currently provided for in subsection 50(1) of the Act. This reflects the possibility that these participating persons may pay their levy amount (in whole or part) either because funds are available to them or because a distribution is received on the winding up of the relevant participating person.

As the Determination replaces the Levy Amount Formula Modification Determination 2014, the Determination does not impose new obligations on participating persons, or alter their existing obligations.

Consultation

The Australian Communications and Media Authority was consulted in relation to the making of this Determination.

An exposure draft of this Determination was provided in June 2015 to carriers who were participating persons in prior eligible revenue periods. Carriers were provided with a three week period to review the exposure draft and provide any comments. No issues were raised.

Regulatory impact

The Office of Best Practice Regulation has advised that the regulatory changes arising from the Determination are minor or machinery in nature and that no further regulatory impact analysis is required.

Statement of compatibility with human rights

This statement of compatibility is prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

The Determination modifies the formula by which a levy amount is calculated for a participating person.  This provides for the calculation of levy to be adjusted in the event that a participating person goes into receivership, liquidation, administration, ceases to exist or a shortfall exists in the amount of levy collected in a previous period. 

The Determination is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.  It does not engage any of the applicable rights or freedoms and does not raise any human rights issues.

The Determination is a legislative instrument for the purposes of the Legislative Instruments Act 2003. 

Notes on sections

Section 1 - Name of Determination

Section 1 provides that the name of the Determination is the Levy Amount Formula Modification Determination 2015.

Section 2 - Commencement

Section 2 provides that the Determination commences on the day after it is registered on the Federal Register of Legislative Instruments.

Section 3 - Application

Section 3 provides that the Determination applies to all eligible levy periods. 

Section 4 - Definitions

Section 4 defines the terms used in the Determination.

Section 5 - Modification of the formula in subsection 50(1) of the Act

The formula in subsection 50(1) of the Act has been replaced with three separate formulas to be used in determining:

• levy amount for a participating person that ceases to exist (refer to subsection 5(1));
• levy amount for a participating person that is an externally-administered body corporate (refer to subsection 5(1A)); and
• levy amount for a participating person to whom subsections 5(1) or (1A) do not apply (refer to subsection 5(1B)).

Levy amount – for participating persons that cease to exist

The formula in subsection 5(1) of the Determination replaces subsection 50(1) of the Act and sets out that the amount payable by a participating person for an eligible levy period is zero, where the participating person ceases to exist before the ‘date of assessment’ (i.e. a date decided by the Australian Communications and Media Authority (ACMA), being a date which is no earlier than the end of the relevant eligible revenue period and no later than the date the ACMA issues its written assessment under section 51 of the Act for the relevant eligible levy period). 

Setting the levy amount for these particular participating persons at zero avoids the administrative burden on the ACMA in pursuing these entities in circumstances where no levy amount will be recoverable.

Levy amount – for participating persons under external administration

The formula in subsection 5(1A) of the Determination replaces subsection 50(1) of the Act and sets out the amount payable by a participating person for an eligible levy period, in circumstances where the participating person is an ‘externally-administered body corporate’ before the ‘date of assessment’. This formula is the same as that which is currently provided for in subsection 50(1) of the Act.

The term ‘externally-administered body corporate’ is defined in the Corporations Act 2001.  It applies to a body corporate that is being wound up, in receivership, under administration or has executed a deed of company arrangement that has not yet terminated or has entered into a compromise or arrangement with another person the administration of which has not been concluded.

Levy amount – all other participating persons

The formula in subsection 5(1B) of the Determination replaces subsection 50(1) of the Act and sets out the amount payable by a participating person for an eligible levy period, in circumstances where the participating person is not under external administration and still exists. 

This formula includes concepts of a ‘levy contribution factor’ and an ‘overall levy target amount’, similar to subsection 5(1A) of the Determination.  However, this formula introduces the concepts of an ‘adjustment factor’ and ‘previous levy deficit’ into the formula.  The effect of this modified formula is that those participating persons to which it applies will be required to pay a higher levy amount in order to cover a portion of the levy amount owed by participating persons who are in external administration, to reflect that the levy has not been assessed on participating persons who have ceased to exist and/or to cover a shortfall from a previous period.

Examples

Levy amounts calculated under subsection 50(1) of the Act:

Example scenarios - levy amounts calculated under the Determination:

1. If the overall levy target amount for the 2014-15 eligible levy period is $100 million and Carrier C ceased to exist on 1 August 2014 (before the ACMA’s ‘date of assessment’) then the ACMA would use the modified formula to calculate the individual levy amount for other participating persons as set out below. 

Levy contribution factor x (Overall levy target amount + Previous levy deficit)

     Adjustment factor

Carrier A:  60 x ($100 million + 0) = $63.16 million

       95

Carrier B:  30 x ($100 million + 0) = $31.58 million

       95

Carrier D:  5 x ($100 million + 0) = $5.26 million

       95

Levy amount for carriers A + B+ D = $100 million.

2.      If Carrier D ceased to exist on 1 November 2014 or is otherwise unable to pay its levy for the 2014-15 eligible levy period after the ACMA’s ‘date of assessment’ and is not a participating person for the 2015-16 eligible levy period then the ACMA would modify the formula in the 2015‑16 eligible levy period to calculate the individual levy amount for participating persons, taking into account the previous levy shortfall of $5 million from the earlier 2014-15 eligible levy period.  In this example, the overall levy target amount for the 2015-16 eligible levy period is $110 million.

Carrier A:   63 x ($110 million + $5 million) = $72.45 million

         100

Carrier B:  32 x ($110 million + $5 million) = $36.8 million

       100

Carrier C:  5 x ($110 million + $5 million) = $5.75 million

      100

Levy amount for carriers A + B + C = $115 million ($110 million overall levy target amount for 2015-16 eligible levy period + $5 million shortfall from the 2014-15 eligible levy period).

3.      If Carrier D ceased to exist on 1 November 2014 (after the ACMA’s ‘date of assessment’ for the 2014-15 eligible levy period) and does not pay any of its levy amount for the 2014-15 eligible levy period before that occurs and Carrier C ceases to exist on 1 August 2015 (before the ACMA’s ‘date of assessment’ for the 2015-16 eligible levy period) then the ACMA would modify the formula to calculate the individual levy amount for the remaining participating persons for the 2015‑16 eligible levy period, taking into account the $5 million shortfall from the earlier 2014-15 eligible levy period (Carrier D). In this example, the overall levy target amount for the 2015-16 eligible levy period is $110 million.

Carrier A:  63 x ($110 million + $5 million) = $76.26 million

        95

Carrier B:  32 x ($110 million + $5 million) = $38.74 million

       95

Levy amount for carriers A + B = $115 million ($110 million overall levy target amount for 2015-16 eligible levy period + $5 million shortfall from the 2014-15 eligible levy period).

The Determination recognises that, in practice, only participating persons remaining fully operational at the time the levy is assessed are likely to pay their levy in full.  The modified levy formula for these participating persons includes an ‘adjustment factor’ and a ‘previous levy deficit’ mechanism to ensure the overall levy target amount and any levy shortfall for a previous period is spread equitably based on each operational participating person’s share of eligible revenue.  This is consistent with the approach first introduced in the Levy Debit Formula Modification Determination (No.1) 2002 and followed in the Levy Amount Formula Modification Determination 2014.

Section 40 of the Act may apply in circumstances where a participating person pays a levy amount calculated using the formula at subsection 50(1B) and an assessed levy is collected either from a participating person in external administration or a person that did not pay a levy assessed for a prior period.  Section 40 of the Act enables the Secretary of the Department, at his or her discretion, to redistribute an amount from the Public Interest Telecommunications Services Special Account (where the balance is in credit and the debits for an eligible levy period have been paid) to relevant participating persons.