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Ruling

Subject: GST and resident agent acting for non-resident entities

Question 1

Have the Entities made acquisitions through the resident agent?

Answer

Yes.

Question 2

If yes, is it the relevant Entity or the resident agent that is entitled to claim the relevant input tax credit?

Answer

The resident agent is entitled to claim the relevant input tax credit.

Question 3

If it is the resident agent entitled to claim the relevant input tax credits, will the Commissioner require the parties to amend prior BAS'?

Answer

Yes.

Relevant facts and circumstances

Each of the Entities is non-resident for Australian tax purposes and each is registered for Australian GST purposes. The Entities are not members of a GST group as all of the entities in the Corporate Group are non-resident entities.

The Entities' services provider (Provider) is an Australian resident entity engaged in the provision of related services. Based on your review of the Australian Business Register, the Provider is, and has been, registered for GST since 1 July 2000.

B has been contracted to provide specific services in Australia in connection. B has subcontracted part of the services to its related entities, being the other Entities discussed in your ruling request.

B entered into a contract with the Provider for the provision of services to B and the other Entities in connection with the various activities of the Entities in Australia.

At the time of entry into the contract, the Provider requested that each of the Entities complete a 'Declaration for Australian GST Purposes', confirming that:

· The relevant Entity is not a resident of Australia; and

· The relevant Entity is registered for GST purposes; and

· The relevant Entity is required to be registered; and

· The relevant Entity is not a member of a GST group; and

· The Entity has appointed the Provider as its agent in relation to the acquisition of services in Australia.

Under the terms of Services contract (Agreement), the Provider has made a variety of acquisitions on behalf of the Entities and has sought reimbursement from the Entities. The Provider has also included on relevant 'Disbursement Account' tax invoices a GST inclusive fee for its 'Agency Charges'.

When the Provider initially commenced invoicing the Entities under the terms of the Agreement, the Provider only sought reimbursement from the Entities of the GST exclusive cost of the acquisitions it had made on behalf of the Entities. The relevant acquisitions are referred to as 'Expenses' on the Provider's 'Disbursement Account' tax invoices. In this respect, you understand that the Provider believed at the time that it was entitled to claim relevant input tax credits pursuant to section 57-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) on the basis that it was resident agent making creditable acquisitions on behalf of a non-resident.

At that time the Entities were not familiar with Division 57 of the GST Act and queried with the Provider why GST had not been recovered from the Entities as the Entities believed that GST should have been applied in connection with the 'Expenses'. Following the Entities' query, the Provider advised the Entities that the Provider had incorrectly treated the 'Expenses' and issued adjustment invoices to the Entities to recover the GST applicable on the Expenses. Since that time, the Provider has sought to recover the GST inclusive cost to the Provider of all acquisitions it has made on behalf of the Entities.

With the exception of B, the other Entities engage F to prepare monthly BAS'. As part of this process, the Entities provide F with copies of all tax invoices to support input tax credits to be claimed. Based on the presentation of the Provider's invoices it appeared to F that the Provider was effectively acting as a principal making relevant acquisitions and then making a supply in the capacity as principal to the Entities. In this respect it appeared that the Provider was claiming input tax credits for the acquisitions that it had made on behalf of the Entities and was then accounting for GST on its 'supply' of the relevant things to the Entities.

Based on the presentation of the invoices, the Entities have been including input tax credits for GST included on the Provider's tax invoices in their respective BAS'. Notwithstanding the presentation of the invoices, you were concerned, based on prior dealings with agents that the Provider may have been making relevant acquisitions on behalf of the Entities as agent rather than in its own capacity. As the issue would impact on whether the Entities would be entitled to claim input tax credits for the GST included on the Provider's invoices, F contacted the Provider to determine the nature of the services being provided and to clarify whether the Provider was acting in the capacity as an agent or a principal in connection with the 'Expenses' described on the Provider invoices.

The Provider advised that:

· It considers that it is making relevant acquisitions as agent for the Entities; and

· It has not claimed input tax credits for the acquisitions that it has made on behalf of the Entities (described on the Provider's 'Disbursement Account' tax invoices as 'Other Expenses');

· It does not consider that it is entitled to claim the input tax credits in relation to acquisitions made on behalf of the Entities notwithstanding section 57-10 of the GST Act as the Entities are registered for GST purposes and can therefore claim the credits themselves; and

· The Provider considers it is contractually bound to include GST on its invoices to the Entities because of clause 14.4 in section 2 of the Agreement (inserted by virtue of special condition 17 in section 3); and

· The Provider also considers that it is not entitled to claim relevant input tax credits given that the Entities are part of the same corporate group; and

· It will not alter its invoicing practices or claim relevant input tax credits itself unless it receives confirmation from the ATO that it is the entity entitled to claim the relevant input tax credits.

Upon being informed that the Provider was making the acquisitions included on the Provider's tax invoices on the Entities' behalf rather than in its own capacity, and that the Provider was not on-supplying the goods to the Entities, F advised the Entities to cease claiming input tax credits in relation to GST included on the tax invoices issued by the Provider in respect of these acquisitions pending a decision from the ATO on this matter. From recent times, the Entities' BAS' have not included these acquisitions.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 57-10

Taxation Administration Act 1953 section 356-5 of Schedule 1

Reasons for decision

Issue 1

Question 1

Summary

The Entities have made acquisitions through the resident agent.

Detailed reasoning

For the Entities to have made acquisitions through a resident agent, a principal to agent relationship needs to exist. The Commissioner has stated in the Goods and Services Tax Ruling GSTR 2000/37 'Goods and services tax: agency relationships and the application of the law' at paragraph 28 the factors that indicate an agency relationship:

28. In most cases, any relevant documentation about the business relationship, the description used by the parties and the conduct of the parties establish the existence of an agency relationship. Therefore, the following factors may show that you are an agent under an agency relationship, although no single factor (by itself) is determinative:

· any description of you as an agent, having authority to act for another party, in an agreement (expressed or implied) between you and the other party;

· any exercise of the authority that you are given to enter into legal relations with a third party;

· whether you bear any significant commercial risk;

· whether you act in your own name;

· whether you are remunerated for your services by way of commissions and whether you are entitled to keep any part of your remuneration secret from another party; and

· whether you decide the price of things that you might sell to third parties.

Note that no single factor by itself is determinative. Factors of particular relevance in this case are:

The Provider is described as the 'AGENT' in the Agreement. The Agreement states that it is for the provision of specific services, however, the specific services are then described within the Agreement as 'Services'. The Scope of Services discussed in Section 2, article 5 (as modified by special condition 7 in Section 3) provides that the services to be performed by the Agent are to be performed on behalf of the Entities. The full scope of services is described in Section 4.

You state that the Provider advised the Entities that they considered the arrangement to be one of agency. The Provider describes its 'margin' in its invoices as 'Agency Charges'. Invoices issued by the Provider are signed by the Provider 'As Agent'. Amounts recovered on the Provider's invoices are described as disbursements. The Tax Invoices are sometimes issued to the Provider, sometimes issued to an Entity c/- the Provider, and sometimes issued to the boss at one of the Entities sites c/o the Provider.

The Agreement provides at Section 2, article 9.2 (as modified by special condition 10) that the Entities will indemnify the Provider for expenses arising out of any third party services properly and professionally arranged by the Provider on behalf of the Entities. The Agreement provides at Section 2 Article 12 (as modified by Special Conditions 15 and 16 in Section 3) that:

· The Provider shall act as an independent company in the performance of and for its other obligations under the Agreement; and

· in no event shall the relationship be construed as that of master and servant or employer and employee; and

· personnel of the Provider shall not purport to be employees, representatives or servants of the Entities.

Article 12.1 of Section 2 of the Agreement states that the Provider is an independent contractor, suggesting the relationship is one of business to business rather than principal to agent. Similarly article 11 of Section 2 gives the Entities the right of refusal of subcontractors chosen by the Principal, again indicating a business to business relationship. Conversely, as outlined earlier, the behaviour of the parties to date has not entirely reflected the proposed relationship in the Agreement and often gives the indications of a principal to agent relationship.

On balance it is considered that the Entities and the Provider are in a principal to agent relationship. It is noted the agent believes that it is bound to include GST on its invoices due to clause 14.4 in section 2 of the Agreement. GST should not be charged where there is a lawful reason for not doing so, despite a contracted term indicating GST should be charged.

GSTR 2000/37, at paragraph 33 shows that the Commissioner considers an agency relationship can exist despite where a contract governing a relationship specifically precludes it from being an agency. In this case, the parties should allow Division 57 of the GST Act to prevail.

It follows that the Entities have made acquisitions through the resident agent.

Question 2

Summary

Only a resident agent is entitled to claim the relevant input tax credits on acquisitions made through it by a non-resident.

Detailed reasoning

For the acquisitions that non-residents make through a resident agent, only the non-resident agent has an entitlement to claim the relevant input tax credit. Section 57-10 of the GST Act states:

(1) If a *non-resident makes a *creditable acquisition or *creditable importation through a *resident agent:

(a) the agent is entitled to the input tax credit on the acquisition or importation; and

(b) the non-resident is not entitled to the input tax credit on the acquisition or importation.

(2) This section has effect despite sections 11-20 and 15-15 (which are about who is entitled to input tax credits).

Question 3

Summary

The Commissioner will require the parties to amend prior BAS'.

Detailed reasoning

In requiring the parties to amend prior BAS', the Commissioner would be enforcing the law as intended. However, the Commissioner has a general administration power for GST that is provided for by section 356-5 of Schedule 1 to the Taxation Administration Act 1953 under which it may be argued that the requirement to amend BAS' be waived.

The powers of general administration assist the Commissioner to administer the taxation laws in accordance with Parliament's legislative intent. The Commissioner's powers of general administration are narrow in scope in that they can only be exercised in relation to management and administrative decisions. They do not authorise the Commissioner to administer the taxation laws inconsistently with their purpose or object, whether express or implied, or their plain meaning.

The principles of administrative law and statutory interpretation require the Commissioner to operate within the bounds of the powers conferred on him by Parliament and to use them to give effect to Parliament's legislative intent as discerned by the application of those principles. As such, the powers of general administration cannot be used to extend, confine or undermine Parliament's intentions.

In this situation it is clear that Division 57 was enacted so that in instances where a non-resident is acting through an agent there is an entity in the Australian jurisdiction on which liability can be placed. Placing the liability on an entity that is in the Australian jurisdiction decreases the compliance risk.

It follows that in requiring the parties to relodge BAS' would be giving correct effect to the law as it was intended.