Thursday, August 20, 2015

Virtual producers, bulk wine masquerading as boutique..

Wine producers face the prospect of losing their generous tax rebates in the wake of a Treasury finding of widespread and systematic rorting of the scheme.

Assistant Treasurer Josh Frydenberg has given the industry three weeks to respond to Friday's discussion paper, which puts forward four options: abolishing the rebate scheme altogether, replacing it with a grant scheme that would be phased out over time, banning bulk and unbranded wine producers from the scheme, and tightening the definition of "producer of wine".

Whereas beer and spirits are taxed per unit of alcohol, wine is taxed on the basis of its wholesale price. The Wine Equalisation Tax is set at 29 per cent, but the first $500,000 of each producer's tax is rebated, effectively exempting $1.7 million of each producer's wine.

The rebate was designed to support small winemakers. But the Treasury paper makes clear it is being used by much bigger winemakers multiple times.

Refund claims have increased each year since the scheme was introduced in 2005, climbing from $119 million to more than $300 million.

The Treasury says some so-called "virtual winemakers" are buying grapes and contracting out the manufacturing process solely in order to claim the rebate.

Other bulk wine producers who have claimed the maximum rebate allow their growers to retain grapes and claim another rebate as if they were the producer, getting a kickback from the growers in the form of inflated processing fees.

Producers are able to claim more than one rebate for the same parcel of wine by blending and remanufacturing in the name of different entities. The Treasury says the arrangements have survived despite legislation in 2012 designed to stamp them out.

Winegrowers are also able to claim multiples of the rebate limit by entering into partnerships. The paper gives an example of  "Jack, John and Jill" who each have a one-third interest in four companies. Each company acquires grapes from the same source and processes them in the same factory but, because none of the trio  neither Jack nor John nor Jill control any of the companies in their own right and because none of the companies control each other, they are each able to claim up to $500,000 in rebates, a total of $2 million.

In The Age and Sydney Morning Herald