Gull faces possible $20m tax claim

Customs has won the latest stage in its tax avoidance battle with Gull, potentially opening the way for a claim of more than $20 million against the cut-price fuel retailer.

Yesterday the Court of Appeal ruled that mixing butane into petrol - as Gull has been doing for a decade - qualifies as manufacturing, clearing the way for a claim against it for unpaid excise and penalties.

Australian-owned Gull, which supplies about 50 petrol stations across the upper North Island from its fuel terminals in Tauranga, claims it brings greater competition where it operates through lower prices.

However, Customs claims it has had an improper 1-2c a litre tax advantage, by avoiding paying the full rate of excise.

While the excise on petrol is 48.5c a litre on petrol, it is just over 10c a litre on butane.

Customs claimed that Gull should be paying the higher rate on the entire volume, claiming it owes $9m in unpaid excise and up to $13m in penalties.

Following contact from Customs, Gull sought a judicial review, claiming it was doing nothing illegal. The High Court found in Gull's favour in May.

In August, Customs took its case to the Court of Appeal, which backed its position in a decision released yesterday.

Peter Taylor, Customs' group manager of legal, said Gull could appeal the decision to the Supreme Court, but if it did not do so, officials would prepare an assessment of the tax it was owed.

Customs had no discretion over the amount of duty it was owed, but did have scope to waive some of the penalties.

Gull's rivals had warned that they were watching the case with interest, raising the prospect that much larger companies may try to use butane to lower the effective tax rate on fuel.

"If this went against Customs' interpretation, there was the prospect that it could go further," Taylor said. Rivals had indicated that what Gull "was doing was in itself anti-competitive because it gave them a competitive advantage over the others".

Gull managing director Dave Bodger said the company was "extremely disappointed" by the decision and was considering its options, which included a further appeal.

The company maintained that it had acted in good faith and within the law, predicting the decision would have "wide-ranging implications" for the industry.

The issue came to light after a complaint from BP in 2010 about Gull's activities. BP sought clarification as to whether it, too, could add butane to its fuel at the lower tax rate.

Customs declined BP's request, and audited the activities of a Gull subsidiary at its Tauranga terminal, only then discovering the butane mixing.

BP spokesman Jonty Mills welcomed the decision.

Gull pointed to letters it had from Customs, which appeared to sanction the addition of butane to petrol without incurring additional duty. However, it lost on this point in both the High Court and the Court of Appeal.