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Ruling

Subject: GST and recipient created tax invoices

Question:

Can an Australian company (you) issue recipient created tax invoices (RCTIs) for commissions paid to retailers in relation to the sale of the goods by you to the customers?

Answer:

Yes, the Commissioner will permit you to issue RCTIs in respect of the referral services and/or sales agent services made to you, provided you follow all the other requirements set out in A New Tax System (Goods and Services Tax) Act 1999 Classes of Recipient Created Tax Invoices Determination (No. 23) 2000 (RCTI Determination 2000/23) or A New Tax System (Goods and Services Tax) Act 1999 Classes of Recipient Created Tax Invoices Determination (No. 13) 2000 (RCTI Determination 2000/13)

Relevant facts:

An Australian company (you) is a wholesaler of goods.

In relation to some (models) lines sold, you sell directly to a retailer's customers and pay the retailer who assisted with the sale, a commission.

The commission paid to a retailer is calculated based on the sale price of an item including multiple accessory options to the customer(s). The precise make up of the purchase by the customer(s) is not precisely known by the retailer for sales you make directly to the customer(s).

Gaining tax invoices from the retailers with the correct amount is proving problematic for you. In addition the sale date of the item may not be precisely known by the retailers which is also problematic as this date determines the date the commission is payable to them.

The retailers are unable to ascertain the precise amount and date of invoice(s) for commissions due to them. Accordingly, you request to issue recipient created tax invoices (RCTIs) on behalf these retailers.

Both you (as the recipient) and the retailers (as the suppliers of the services in return for the commissions) are registered for goods and services tax (GST). You hold records of the Australian business numbers (ABN) for all retailers that commissions are paid to.

Commissions are calculable at the end of each calendar month and due within XX weeks at the end of the month that a sale is made. Thus, the payment is made within 28 days of determining the value of the supply.

You confirm that you will issue a tax Invoice or adjustment note at the time of payment, which will be within 28 days.

You confirm that you will or have entered into written agreements in relation to the RCTIs with all relevant retailers that commissions are paid to, in accordance with the requirement of Goods and Services Tax Ruling GSTR 2000/10.

Relevant legislative provisions:

A New Tax System (Goods and Services Tax) Act 1999, Section 29-70

A New Tax System (Goods and Services Tax) Act 1999, Subsection 29-70(1)

A New Tax System (Goods and Services Tax) Act 1999, Subsection 29-70(2)

A New Tax System (Goods and Services Tax) Act 1999, Subsection 29-70(3)

Reasons for decision

You are a supplier (wholesaler) of goods. In relation to some (models) lines sold, you sell directly to the customer(s) and pay the retailer who assisted with the sale, a commission. You calculate the commission based on the sale price of the goods including multiple accessory options. The precise make up of the purchase by a customer(s) is not precisely known by the retailer for sales you make directly to the customer(s). The retailers are unable to ascertain the precise amount of the purchase made by the customers, nor the date of invoices for commissions due to them. Accordingly, you request to issue RCTIs on behalf these retailers.

Under paragraph 29-70(1)(a) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) a tax invoice for a taxable supply must be issued by the supplier unless it is a RCTI (in which case it must be issued by the recipient of the supply).

Subsection 29-70(3) of the GST Act defines an RCTI as a tax invoice belonging to a class of tax invoices that the Commissioner has determined in writing may be issued by the recipient of the supply.

Goods and Services Tax Ruling GSTR 2000/10 outlines the circumstances in which a recipient can issue RCTIs. The Commissioner has determined that there are three broad classes of tax invoices that may be issued by the recipient of a taxable supply. These three classes are explained in Goods and Services Tax Ruling 2000/10.

Further, an entity can issue RCTIs if the Commissioner has determined in writing that the nature of the industry in which the entity operates warrants the use of RCTIs.

The Commissioner has issued RCTI Determination 2000/23 which permits the recipient of a taxable supply of referral services to issue a tax invoice for that supply. RCTI Determination 2000/23 states in clause 4 that:

Classes of Tax Invoices that may be issued by the recipient of a taxable supply 4. A tax invoice that belongs to a class of tax invoices for a taxable supply of referrals may be issued by an entity that is the recipient of that taxable supply where the recipient:

· establishes the value of those services after the supply is made using a calculation process; and

· satisfies the requirements set out in Clause 5.

Clause 5 of the RCTI Determination 2000/23 sets out the requirements that must be satisfied by the recipient of a taxable supply, and states:-

5. A recipient must satisfy the following requirements:

(a) the recipient must be registered for GST when the invoice is issued;

(b) the recipient must set out in the tax invoice the ABN of the supplier;

(c) the recipient must issue the original or a copy of the tax invoice to the supplier within 28 days of making, or determining, the value of a taxable supply and must retain the original or the copy;

(d) the recipient must issue the original or a copy of an adjustment note to the supplier within 28 days of the adjustment and must retain the original or the copy;

(e) the recipient must reasonably comply with its obligations under the taxation laws;

(f) the recipient must have either:

a written agreement with the supplier specifying the supplies to which it relates, that is current and effective when the RCTI is issued, agreeing that:

· the recipient can issue tax invoices in respect of the supplies;

· the supplier will not issue tax invoices in respect of the supplies;

· the supplier acknowledges that it is registered for GST when it enters into the agreement and that it will notify the recipient if it ceases to be registered; and

· the recipient acknowledges that it is registered when it enters into the agreement and that it will notify the supplier if it ceases to be registered for GST; or

· an agreement with the supplier embedded in an RCTI it issues that contains the following statement:

The recipient and the supplier declare that this agreement applies to supplies to which this tax invoice relates. The recipient can issue tax invoices in respect of these supplies. The supplier will not issue tax invoices in respect of these supplies. The supplier acknowledges that it is registered for GST and that it will notify the recipient if it ceases to be registered. The recipient acknowledges that it is registered for GST and that it will notify the supplier if it ceases to be registered for GST. Acceptance of this RCTI constitutes acceptance of the terms of this written agreement.

Both parties to this supply agree that they are parties to an RCTI agreement. The supplier agrees to notify the recipient if the supplier does not wish to accept the proposed agreement within 21 days of receiving this document.

(g) the recipient must not issue a document that would otherwise be a recipient created tax invoice, on or after the date when the recipient or the supplier has failed to comply with any of the requirements of this determination;

(h) if the recipient has a current GST turnover of less than $1,000,000, it must notify the Commissioner in writing of the recipient's intention to use recipient created tax invoices. This notification must be made before 14 days have elapsed after the first occasion that a recipient created tax invoice is issued by that recipient.

Further, clause 6 of RCTI Determination 2000/23 provides definitions of the following:

· calculation process means any process used by the recipient to calculate the commission or payment to the service provider;

· referrals means the activity of publicising and promoting an entity and/or the goods and services of that entity with the aim of directing potential clients to that entity. This includes but is not restricted to services such as direct referrals, the display of promotional pamphlets and the inclusion of a hyperlink on a website;

· service provider means the entity providing referrals to the recipient.

Based on the facts given, we consider that the activities of the retailers in return for the commission paid to them meet the definition of referrals, and that the retailers satisfy the meaning of service provider for the purposes of RCTI Determination 2000/23. This is because the retailer(s) assist with the sale by directing the customers to you. You are the recipient of that referral service and calculate the commission to be paid to the retailers based on set criteria (that is, a calculation process).

Accordingly, RCTI Determination 2000/23 will entitle you to issue RCTIs to the retailers for the supply of the referral services made to you by the retailers in return for the commission payable to them, provided you follow all the other requirements as set out in clause 5 of RCTI Determination 2000/23 (stated above).

Additional Information

The Commissioner has also issued RCTI Determination 2000/13 which permits the recipient of a taxable supply of selling agent services to issue a tax invoice for that supply. Paragraphs 4 and 5 of RCTI Determination 2000/13 set out the classes of tax invoices that may be issued by the recipient of a taxable supply and the requirements that must be satisfied by a recipient of a supply.

RCTI Determination 2000/13 states in clause 4 that:

Classes of Tax Invoices that may be issued by the recipient of a taxable supply

A tax invoice that belongs to a class of tax invoices for a taxable supply of selling agent services may be issued by an entity that is the recipient of that supply where the recipient:

· establishes the value of those services after the supply is made using a calculation process; and

· satisfies the requirements set out in Clause 5;

· Clause 5 of RCTI Determination 2000/13 is similar to Clause 5 discussed in RCTI Determination 2000/23 above.

Further, clause 6 of RCTI Determination 2000/13 provides (amongst other things) the definitions of the following:

· calculation process means any process used by the seller to calculate the commission or payment to the selling agent;

· purchase orders means any order or request for goods or services;

· seller means the entity that will satisfy the purchase order through the supply of goods or services;

· selling agent means any entity that is authorised by the seller to accept purchase orders on behalf of the seller;

· selling agent services means the collection and delivery of purchase orders by a selling agent to a seller;

In the circumstance where the activities of the retailers meet the definition of selling agent services in relation to the commission paid to them, and satisfy all the other requirements of RCTI Determination 2000/13, you will also be entitled to issue RCTIs to the retailers for the supply of the selling agent services made to you in return for the commission in accordance with RCTI Determination 2000/13. 

In summary, as you are the recipient of the referral and/or selling agent services made by the retailers and you establish the value of those services after the supply is made using a calculation process, you may issue RCTIs for the supply of those services to you, provided you follow all the other requirements in clause 5 in RCTI Determination 2000/23 or RCTI Determination 2000/13.

Effect of supplier ceasing to be registered for GST

Please note that sub-paragraph 5(f)(iii) of RCTI Determinations 2000/23 and 2000/13 require the supplier to acknowledge that it is registered for GST when it enters into the agreement with you. If the supplier ceases to be registered for GST the requirements of these determinations will not be met and you will not be able to issue RCTIs for the supplies made by the entity that is not registered for GST.

We attach a copy of both RCTI Determination 2000/23 and RCTI Determination 2000/13 for your reference.