Edited version of private ruling

Authorisation Number: 1011662697400

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Ruling

Subject: Goods and service tax (GST)

Questions:

Question A:

Should the discount provided by Supplier X to their customer be included in the value of the taxable supply of the product by Supplier X?

Question B:

Should the facilitation fee received by Supplier X be included in the value of the taxable supply of the facilitation services made by Supplier X to Company Y?

Answers:

Question A:

Yes. The discount provided by Supplier X to their customer should be included in the value of the taxable supply of the product by Supplier X.

Question B:

Yes. The facilitation fee received by Supplier X should be included in the value of the taxable supply of the facilitation services made by Supplier X to Company Y

Relevant facts:

· Supplier X operates a business and supplies its products to its customers.

· Supplier X is registered for GST.

· Supplier X's customers are entitled to claim Rights for the installation of supplies of the product.

· A Right is an electronic, tradeable commodity.

· Company Y is a registered in the trading of Rights.

· Company Y is registered for GST.

· Supplier X has entered into an agreement (the agreement) with Company Y regarding the facilitation of the Rights from Supplier X 's customers to Company Y.

· Consideration is payable by Company Y to Supplier X's customers for the acquisition of the customer's Rights.

· The consideration payable to Supplier X's customers by Company Y is forwarded to Supplier X.

· Supplier X in turn provides a discount to its customer for the consideration payable by Company Y for the acquisition of the customer's Rights.

· Supplier X receives a facilitation fee from Company Y for the service of arranging the assignment of the customers' Rights to Company Y.

· Company Y forwards payment of the facilitation fee and the consideration for the customer's assignment of Rights to Supplier X at the same time.

Reasons for decision

Question A:

When Supplier X supplies its product to its customers it is making taxable supplies under section 9-5 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act) as all of the requirements of a taxable supply are met, and there are no provisions in the GST Act which would make these supply either GST-free or input taxed. Thus there is a GST liability on Supplier X's supplies to its customers in Australia.

Section 9-70 of the GST Act provides that the amount of GST on a taxable supply is ten per cent (10%) of the value of the taxable supply. Under section 9-75 of the GST Act the value of the taxable supply is 10/11 of the price of the supply. Section 9-40 of the GST Act requires that you pay the GST on any taxable supply that you make.

The question at issue at this juncture is the identification of what constitutes the value of the supply made by Supplier X when it supplies its product to its customers. This will determine the consequent GST liability. In this context it is also necessary to identify which entity is supplying what to whom, and to also identify what (if any) amount of consideration is being provided to which entity and for which supply.

Under subsection 9-15(1) of the GST Act, for GST purposes the term 'consideration' includes:

· any payment, or any act of forbearance, in connection with a supply of anything, and

· any payment, or any act of forbearance, in response to or for the inducement of a supply of anything.

Based on the facts provided there is a tripartite arrangement in this situation where there are three separate categories of supply being made between three different entities. These supplies are:

· the supply made by Supplier X when it supplies its product to its customers

· the supply of Rights by Supplier X's customers to Company Y, and

· the supply of a service by Supplier X to Company Y by way of facilitating the transfer of Rights from Supplier X customers to Company Y.

In the case of the second category of supply, Supplier X is acting as an intermediary between their customers and Company Y. As such, Supplier X is acting as an agent only, and not in its own right. Supplier X provides a facilitation service to Company Y, and there is a separate supply of Rights by the customers to Company Y

Paragraph 14 of GSTR 2003/12 Goods and services tax: when consideration is provided and received for various payment instruments and other methods of payment explains:

Section 9-15 expands on the meaning of 'consideration for a supply'. Consideration includes any payment, act or forbearance in connection with, in response to, or for the inducement of anything. Consideration may be provided voluntarily, or by someone other than the recipient of the supply.

As explained in paragraphs 41 and 43 of GSTR 2000/19 Goods and services tax: making adjustments under Division 19 for adjustment events, where an end user agrees to do something with a third party under a tripartite arrangement, the end user is making a supply for consideration. However, rather than the recipient of the supply (the third party) making the provision of consideration directly to the end user, the consideration is provided through an intermediary.

In this instance Supplier X customers agree to supply their Rights to Company Y for consideration. Rather than Company Y providing the consideration for the supply directly to Supplier X customers, Company Y provides the consideration to these customers through Supplier X. In turn, Supplier X forwards Company Y's consideration for the supplies of the Rights to the customers as it is acting as Company Y's agent in Company Y acquisition of the Rights. Supplier X passes Company Y's consideration to the customers by way of a discount on their separate supply of the product to customers. However, this consideration remains the consideration for the supply of the customer's Rights to Company Y.

The separate supply by Supplier X of the product to its customers is for a specified amount of consideration. This is the price of the supply by Supplier X to its customers. The consideration payable by Company Y to the customer is forwarded instead to Supplier X, and is applied as part of the consideration for by Supplier X of the product to its customers. The total consideration for Supplier X's supplies remains the same. However, part of the consideration is received from the customer and a further part for the supply is received someone other than the third party (Company Y).

On this basis the discount provided by Supplier X to their customer should be included in the value of the taxable supply of the product to its customer. Supplier X must calculate the GST liability on the full price of the supply rather than the discounted price.

Question B:

As discussed above, there is a separate and distinct supply made by Supplier X to Company Y. This supply of facilitating the transfer of Rights from Supplier X customers to Company Y is a taxable supply under section 9-5 of the GST Act as all of the requirements of a taxable supply are met, and there are no provisions in the GST Act which would make these supply either GST-free or input taxed.

The identified facilitation fee is the consideration payable for the supply of this service of facilitation from Supplier X to Company Y. The amount of this facilitation fee payable by Company Y is distinct from the consideration payable by Company Y to Supplier X's customers for their Rights. This is even though both amounts of consideration are forwarded by Company Y to Supplier X at the same time with the intention that:

· the facilitation fee is remitted in respect of paying for Supplier X's services in arranging the assignment of Rights, and

· the consideration payable to Supplier X's customers by Company Y is forwarded to the customers by way of a discount on the provision of Supplier X's supplies of the product.

Therefore the facilitation fee received by Supplier X should be included in the value of the taxable supply of the facilitation services made by Supplier X to Company Y. The value of this supply does not include the consideration payable to Supplier X's customers by Company Y, which is provided to the customers by way of a discount on the provision of Supplier X's supplies of the product.