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Ruling

Subject: GST for reimbursement of government fees

Question

Does GST apply for the recoupment of fees paid to IP Australia on behalf of Australian clients for Australian Patents, Trademarks and Registered designs?

Answer

See Reasons for Decision

Relevant facts and circumstances

You are an enterprise registered in Australia.

You make payments to IP Australia for Australian patents, trademarks and registered designs.

The applications made to IP Australia are made in the name of your clients.

Your clients receive the patent or trademark approval.

Reasons for decision

Business costs or expenses incurred by you on behalf of your clients are subject to GST if the underlying supply to which they relate is a taxable supply.

Division 81 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) operates to make taxes, fees and charges not subject to GST where they are listed in a Determination made under that section. The latest determination made under that section is A New Tax System (Goods and Services Tax) (Exempt Taxes, Fees and Charges) Determination 2010 (No. 2). The full determination can be accessed from the treasury website at www.treasury.gov.au.

Part 1 of Schedule 1 to the determination lists the following exempt fees and charges that are relevant to this issue:

11.9 Patents Act 1990 and Patent Regulations 1991

11.10 Trade Marks Act 1995 and Trade Mark Regulations 1995

11.11 Designs Act 1906 and Designs regulations 1982

These charges will be relevant where the client is an Australian resident and seeks advice on patents trademarks and designs. The general principle is that the on-charging of a tax, fee or charge will not be covered by Div 81 of the GST Act and will be subject to GST.

Taxes, fees and charges incurred by an enterprise are a 'business cost' similar to other acquisitions for that entity. In subsequent supplies made by the registered entity such as the performance of conveyancing or search fee, the cost of the tax, fee or charge is included in the calculation to arrive at the total value of the supplies. The fact that the 'cost' may be identified on the agreement/invoice does not alter the fact that it is a cost component to the supplier.

An exclusion to this general principle is the agency principle. If the entity (lawyer in this case) acts as an agent for the client then the reimbursement by the client to the solicitor is not included in the GST net. For this to apply it must be a true principal/agent relationship between the solicitor and the client. That is, the supply must be made by the third party to the client and not the solicitor. The solicitor must be transparent in the chain of transactions. The mere allocation of client's funds into a trust account is not sufficient evidence of a principal/agent relationship. Who the fee is levied on is relevant to this principle, that is, who is liable to pay the fee in the first instance?

The ultimate determination of an agency relationship will depend on the facts and circumstances of each arrangement.

Paragraphs 48-50 of GSTR 2000/37 discuss agency relationships and disbursements.

Paragraph 48 explains that when the solicitor acts as an agent for the client, the general law of agency applies so that the solicitor is 'standing in the shoes' of the client.

48. Agents may incur expenses on a client matter both as an agent of the client and as a principal in the ordinary course of providing their services to the client. For example, in most cases, even though agreements between solicitors and clients may not use the term agent or agency, it is clear that the clients have authorised the solicitors to act on their behalf in the particular matter. When the solicitor acts as an agent for the client, the general law of agency applies so that the solicitor is 'standing in the shoes' of the client.

Paragraph 49 explains that if a disbursement is made by a solicitor and incurred in the solicitor's capacity as a paying agent for a particular client, then no GST is payable by the solicitor on the subsequent reimbursement by the client. This is because the goods or services to which the disbursement relates are supplied to the client, not to the solicitor. However, if goods or services are supplied to the solicitor to enable the solicitor to perform services supplied to the client, GST is payable by the solicitor on any reimbursement by the client of expenses incurred on those goods or services.

49. If a disbursement is made by a solicitor and incurred in the solicitor's capacity as a paying agent for a particular client, then no GST is payable by the solicitor on the subsequent reimbursement by the client. This is because the goods or services to which the disbursement relates are supplied to the client, not to the solicitor, by a third party. Also, the reimbursement forms no part of the consideration payable by the client for the supply of services by the solicitor. However, if goods or services are supplied to the solicitor to enable the solicitor to perform services supplied to the client, GST is payable by the solicitor on any reimbursement by the client of expenses incurred on those goods or services, whether the reimbursement is separately itemised or included as part of the solicitor's overall fee. This is because the reimbursement is part of the consideration payable by the client for services supplied by the solicitor.

Paragraph 50 lists some examples of common fees and charges, for which a client is liable, that may be paid for by a solicitor as a paying agent of the client. If the solicitor makes the payment, GST is not payable on the subsequent reimbursement by the client to the solicitor for:

· application fees;

· registration fees;

· court fees;

· barrister's fees when the barrister is engaged by the client;

· incorporation fees;

· most fees in connection with registering and maintaining the status of particular
legal relationships such as companies, partnerships, societies or associations;

· fines, penalties, stamp duty and taxes; and

· probate fees.

Paragraph 51 lists some examples of common disbursements that, depending upon the contractual arrangements between the client and the solicitor, can be incurred by a solicitor and then reimbursed by a client as part of the consideration payable for legal services provided to the client by the solicitor

· search fees;

· municipal search fee (eg rates; zoning; permits);

· birth/death/marriage certificate fees;

· barrister's fees when the barrister is engaged by the solicitor;

· witness fees;

· fees for recording court proceedings;

· service of document fees;

· fees for expert report or attendance in court; and

· fees to obtain court transcript.

Paragraph 53 lists some examples of costs that a solicitor may incur in carrying on the business of providing a legal service to the client. GST is payable on any subsequent payment by the client to the solicitor for the supply of the legal service for:

· telephone expenses;

· postage expenses;

· photocopying expenses;

· courier expenses;

· word processing expenses; and

· travel expenses of the solicitor and staff.

Whether GST applies to your recoupment of fees paid to IP Australia on behalf of Australian clients will depend on the circumstances. Who the fee is levied on is the relevant principle, that is, who is liable to pay the fee in the first instance?

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