Goods and Services Tax Advice
GSTA TPP 054
Goods and services tax: Is B's payment to A consideration for A's supply to B where, under an agreement between A and B:
- •
- A licenses intellectual property to B (who sublicenses it to C) and;
- •
- the amount B pays A is calculated by reference to the extent of B's supply to C?
This version is no longer current. Please follow this link to view the current version. |
-
Please note that the PDF version is the authorised consolidated version of this ruling and amending notices.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
Preamble
| This document was published prior to 1 July 2010 and was a public ruling for the purposes of former section 37 of the
Taxation Administration Act 1953
and former section 105-60 of Schedule 1 to the
Taxation Administration Act 1953.
From 1 July 2010, this document is taken to be a public ruling under Division 358 of Schedule 1 to the Taxation Administration Act 1953 . A public ruling is an expression of the Commissioner's opinion about the way in which a relevant provision applies, or would apply, to entities generally or to a class of entities in relation to a particular scheme or a class of schemes. If you rely on this ruling, the Commissioner must apply the law to you in the way set out in the ruling (unless the Commissioner is satisfied that the ruling is incorrect and disadvantages you, in which case the law may be applied to you in a way that is more favourable for you - provided the Commissioner is not prevented from doing so by a time limit imposed by the law). You will be protected from having to pay any underpaid tax, penalty or interest in respect of the matters covered by this ruling if it turns out that it does not correctly state how the relevant provision applies to you. [ Note: This is a consolidated version of this document. Refer to the Legal Database (http://law.ato.gov.au) to check its currency and to view the details of all changes.] |
Answer
Whether consideration is for a particular supply is a matter to be determined on the facts and the form and substance of the transaction. The test is one of sufficient relationship or nexus to the supply and whether an item of consideration is 'in response to' or 'for the inducement of' a supply. Although B's payment to A is calculated by reference to the on-supplies by B to C, the requisite connection is to the supply A makes to B.
Background
Under the terms of the agreement between A and B, the royalty could be based upon goods sold or produced, or services performed. This creates a connection between the payment by B to A, and the supply by B to C.
Explanation
The definitions of supply and consideration are broad and questions commonly arise as to which of the identifiable supplies an item of consideration is connected with. This depends on the facts of the case, having regard to the structure of the GST as a tax on transactions.
A's entitlement to payment arises under its contract with B and forms part of that transaction.
The fact that the royalty payment is calculated by reference to B's supply to C is not sufficient to lead to the conclusion that it is consideration for B's supply to C.
In the case of the supply of the sub-licence, any amounts paid by C to B would ordinarily be consideration for the supply of the sub-licence.
|
Application of this GST Advice
This Advice applies [to tax periods commencing] both before and after its date of issue. However, this Advice will not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of this Advice (see paragraphs 75 and 76 of Taxation Ruling TR 2006/10). |
Commissioner of Taxation
14 June 2005
Not previously issued as a draft
References
ATO references:
NO 05/3095
Related Rulings/Determinations:
TR 2006/10
GSTR 2001/4
GSTR 2001/6
Subject References:
supply
consideration
in connection with
royalties
Legislative References:
TAA 1953 Sch 1 Div 358
| Date: | Version: | Change: | |
| 14 June 2005 | Original ruling | ||
| You are here | 31 October 2012 | Consolidated ruling | Addendum |
| 2 July 2014 | Withdrawn |
Copyright notice
© Australian Taxation Office for the Commonwealth of Australia
You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).
