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Ruling

Subject: GST and tripartite arrangements

Question 1

If, rather than paying a reimbursement to a supplier (Provider), you make a direct payment to a third party (Panel member) on behalf of that Provider

o Is the payment part of the consideration for the taxable supply by the Provider to you, and a creditable acquisition by you?

o If yes, does the Provider have to issue a tax invoice to you for the relevant costs?

o In the alternative, can the Panel member issue a tax invoice directly to you for the relevant costs, and if so are you able to claim input tax credits?

o Is there a taxable supply by the Panel member to the Provider (and a creditable acquisition by the Provider) in relation to the supplies to the Provider by the Panel member?

o If yes, does the Panel member have to issue a tax invoice to the Provider?

Answer

Yes. Your payment to the Panel member is included in the consideration for the taxable supply by the Provider to you. Yes, you are entitled to input tax credits on the total amounts invoiced by the Provider.

Yes, the Provider must provide you with a tax invoice for that payment.

No. The panel member does not make a supply to you. They must provide a tax invoice to the Provider, who is the recipient of their supply.

Yes. The Panel member makes a taxable supply to the Provider. The Provider will be entitled to input tax credits, as they make this acquisition in the course of their enterprise.

Yes, the Panel member must therefore provide a tax invoice to the Provider.

Relevant facts and circumstances

· You contract service providers (Providers) under a contract deed to provide various employment services.

· You also contract a pool of specialist service providers (Panel members) to maintain a standing offer to Providers to deliver scheme services to job seekers for the Providers. A Provider may also be a Panel member.

· Under the contract deed, Providers that are also Panel members are required to provide services under the scheme directly to job seekers.

· Where they are not a Panel Member, the Provider purchases services from a Panel Member for the job seekers.

· Where they are a Panel Member but do not wish to provide the services themselves, the Provider can contract another Panel Member to provide the relevant services on its behalf under a subcontract.

· Therefore there are three levels of contracts relevant to the scheme:

o Between you and the Provider - for employment services including this scheme

o Between you and Panel Members - for a standing offer to the Providers to provide services under the scheme

o Between the Provider and the Panel Member (either a services contract or under a subcontract) to provide services to the job seekers.

· Currently where a Provider contracts a Panel Member to provide services under the scheme the Providers pay the Panel Member for their services on submission of an invoice from the Panel Member to the Provider. The Provider is then reimbursed by you.

· We have previously ruled that these reimbursements are consideration for taxable supplies made by the Provider to you.

· You wish to alter your arrangements so that you will no longer pay reimbursements to the Provider, but will make payments to Panel Members directly on behalf of the Providers. The Providers' contracts will be amended to reflect this change.

· Your contract with Panel Members will also be amended to reflect that Panel Members must make their claims for payment directly with you.

· Once certain conditions are met, you will then pay Panel Members directly on behalf of the Providers and notify the Providers when this has been done.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999

Division 11

Reasons for decision

Summary

Your payment to the Panel Member forms part of the consideration for the taxable supply by the Provider to you. The Provider must provide you with a tax invoice for these payments. You are entitled to input tax credits on the total amounts invoiced by the Provider.

The Panel Member does not make a supply to you. The Panel member makes a taxable supply to the Provider. They must provide a tax invoice to the Provider, who is the recipient of their supply. The Provider will be entitled to input tax credits, as they make this acquisition in the course of their enterprise.

Detailed reasoning

You contract with Providers to provide employment services. They then contract further suppliers (Panel Members) to assist them in providing the services that they are obliged to provide to you. Your obligations are to the Providers rather than to the Panel Members. Your current agreement with Providers involves reimbursing them for the costs that they incur in engaging Panel members. You now propose to pay these amounts directly to the Panel Members instead.

Paragraph 49 of Goods and Services Tax Rulings GSTR 2000/37 (agency relationships and the application of the law) provides the Australian Taxation Office's (ATO) views on reimbursement as follows:

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 for 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.

In your circumstances the Provider is not acting as a paying agent for you. The supply by the Panel member is not made to you, but is made to the Providers in their own right to enable them to fulfil their obligations to you. As the Providers are registered for GST they will be able to claim input tax credits for the GST paid to Panel members, as the Panel member's services are acquired in carrying on the Provider's business. 

The reimbursement that the Providers were entitled to receive from you was in connection with the services that they provide you. Therefore the reimbursement amount forms part of the consideration that they receive for their taxable supply to you.

Under your amended contract with Providers you now agree to pay Panel members directly on behalf of the Provider. Where a Provider engages a Panel member, and all requirements are met, you will forward money directly to the Panel member rather than reimburse the Provider. Your contract with Panel members will also be amended to reflect that Panel members must make their claims for payment directly with you rather than through invoicing the Providers.

This amendment does not alter the fact that it is the Providers that are making a supply to you. Your provision of funds is in connection with this supply, even though the funds are now provided directly to the Panel member. Subsection 9-15(2) of the GST Act provides that payment does not have to come from the recipient of the supply.

The Panel members are making a supply to the Provider. It is the Provider that engages them, rather than you. While you facilitate this supply by arranging a pool of panel members you do not guarantee that they will be required or selected to provide services. You merely establish that they may be interested to do so.

Consideration of the factors in paragraph 221B of GSTR 2006/9DA show that there is no additional supply to you.

There is no additional supply to you as there is no liability to the Panel member that arises in your own capacity. Your obligation to pay the Panel Member for their supplies to the Provider is merely an administrative arrangement to pay on behalf of the Provider.

While there is a pre-existing framework which requires the Panel member and you to act in a particular way when a payment is made directly to the Panel member, particularly a requirement to accept the amount as full payment, the Panel member is not making a supply to you for which the payment is consideration. Under your arrangement with the Provider the Provider is entitled to payment for the supplies they receive from the Panel members, but you have now agreed to assign or pay this directly to the Panel member. Your payment to the Panel member is made on behalf of the Provider, for a liability owed by the Provider to the supplier.

As you provide or are liable to provide consideration for a supply, but you are not the recipient of that supply, you are considered to be a 'third party payer'. As a third party payer you do not make a creditable acquisition in relation to your payment because the supply is not made to you as required by section 11-5. Making a payment for a supply that is made to another entity is not sufficient to make you the recipient of that supply (paragraph 183 GSTR 2006/9).

To claim an input tax credit for the amounts paid to Providers (including the amounts directly paid to the Panel Members) you should be provided with a tax invoice reflecting these amounts by the Provider.