Edited version of your private ruling

Authorisation Number: 1012464178901

Ruling

Subject: GST and transaction facilitation

Question 1

Does the Arrangement No 1 meet the requirements of section 153-50 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and therefore can it be dealt with in accordance with section 153-60 of the GST Act?

Answer

Yes

Question 2

Does the Arrangement No 2 meet the requirements of section 153-50 of the GST Act and therefore can it be dealt with in accordance with section 153-60 of the GST Act?

Answer

Yes

Relevant facts and circumstances

· You are a brokerage and financial markets technology firm.

· Your clients are generally large institutions, and not individual investors or retail investors.

· You execute orders for the sale and purchase of securities for your clients.

· Your clients often have arrangements with other service providers who provide research, or other services, to assist with investment decisions.

· You charge your clients two types of fees

· Fees to cover the execution cost of trades,

· Fees to cover any amount that needs to be provided to other parties who provide services directly to your client. (In some circumstances it may be you that provides services to the client).

· You will charge your client GST on both types of fees.

· You act as a payment facilitator for the amounts you receive that are to be paid to the other parties (service providers). You pay the amounts to service providers on behalf of your clients. This is known as the Arrangement No 1.

· You also intend to act as a payment facilitator for a number of other Brokers through whom your clients trade. This is known as the Arrangement No 2.

· The Broker provides services to their client and arranges for other services to be provided by service providers to the client. The client pays the Broker the total amount for services provided by the Broker and the service provider under their own Arrangement (between the Broker and its client). The Broker then pays an amount to you under the Arrangement No 2.

· You will then use the amounts received from the Brokers to make payments to service providers on behalf of the Brokers.

· Any payment from you to a service provider will be supported by a tax invoice issued by the service provider to you or a recipient created tax invoice (RCTI) issued by you to the service provider.

· For Arrangement No 1, you will enter into a written agreement with your client that complies with the requirements of section 153-50 of the GST Act.

· For any Arrangement No 2, you will enter into a written agreement with the Broker that complies with the requirements of section 153-50 of the GST Act.

· You do not charge either your clients or the Broker for the services you provide to them in respect of making payments to services providers on their behalf and they do not provide any form of non-monetary consideration to you for the provision of the payment facilitation service. The intention is that your clients have all their payments to service providers managed in one centralised system, rather than being duplicated by a number of Brokers.

Relevant legislative provisions

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

Section 9-5

Section 11-5

Section 153-50

Section 153-60.

Reasons for decision

Subdivision 153-B of the GST Act contains special rules for transactions made by, or through, an entity on behalf of a principal. Under this subdivision, entities may enter into an arrangement under which an agent is treated as a separate supplier and or acquirer. That is, the agent is treated as a principal in its own right. The agent and principal are treated as acting in a principal to principal relationship in relation to the supplies/acquisitions identified in the agreement. This simplifies the way principals and agents account for GST.

Previously, Subdivision 153-B only applied to common law agents and transaction made by those agents.

Following Tax Laws Amendment (2009 GST Administration Measures) Act 2010 (assent 24 March2010) a number of provisions in Subdivision 153-B of the GST Act have been amended.

The amendments allow entities that facilitate the supplies or acquisitions of another entity (by acting as their intermediary) to use Subdivision 153-B arrangements, irrespective of whether the intermediary can legally bind the principal by their acts.

Billing and paying agents, among others, are able to access these accounting procedures.

In short, the amendments permit those that are considered to be 'transaction facilitators', but fall short of the requirements to be regarded as common law agents, to use the same accounting procedures in Subdivision 153-B of the GST Act.

Section 153-50 of the GST Act states:

Arrangements under which intermediaries are treated as suppliers or acquirers  

(1) An entity (the principal) may, in writing, enter into an arrangement with another entity (the intermediary) under which:

(a) the intermediary will, on the principal's behalf, do any or all of the following:

(i) make supplies to third parties;

(ii) facilitate supplies to third parties (including by issuing *invoices relating to, or receiving *consideration for, such supplies);

(iii) make acquisitions from third parties;

(iv) facilitate acquisitions from third parties (including by providing consideration for such acquisitions); and

(b) the kinds of supplies or acquisitions, or the kinds of supplies and acquisitions, to which the arrangement applies are specified; and

(c) for the purposes of the GST law:

(i) the intermediary will be treated as making the supplies to the third parties, or acquisitions from the third parties, or both; and

(ii) the principal will be treated as making corresponding supplies to the intermediary, or corresponding acquisitions from the intermediary, or both; and

(d) in the case of supplies to third parties:

(i) the intermediary will issue to the third parties, in the intermediary's own name, all the *tax invoices and *adjustment notes relating to those supplies; and

(ii) the principal will not issue to the third parties any tax invoices and adjustment notes relating to those supplies; and

(e) the arrangement ceases to have effect if the principal or the intermediary, or both of them, cease to be *registered.

(2) For the purposes of subsection (1), an entity can be an intermediary whether or not the entity is the agent of the principal.

1. The Client Payment Facilitation Arrangement

A. Section153-50 of the GST Act

Under this arrangement, you are the paying agent acting on behalf of your client (the intermediary) in relation to payments to service providers who provide services directly to your client (the principal). Note that where you are a service provider in respect of any pre and post trade analysis for the client, you are not acting as agent (intermediary) for the client, you are a principal in your own right.

As you are a transaction facilitator, you are able to use the accounting procedures in Subdivision 153-B of the GST Act subject to having an agreement under subsection 153-50(1) of the GST Act with the principal (your client).

You and your client are required to enter into an arrangement in writing that you will facilitate acquisitions from service providers (third parties) on behalf of your client. The agreement also needs to specify matters required in section 153-50 of the GST Act, such as the kinds of supplies and acquisitions to which the arrangement will apply and the requirement for you (the intermediary) to issue tax invoices.

You have provided that for Arrangement No 1, you will enter into a written with the client that complies with the requirements of subsection 153-50(1) of the GST Act.

You have provided that:

· You (as an intermediary) act on behalf of the client (the principal) to facilitate acquisitions from third parties (service provider) by providing consideration for the acquisition (acquisition made by the client from a service provider) to you.

· You, as an intermediary, are treated as making the acquisition from the service provider.

· The client is treated as making corresponding acquisition from you.

We agree with your analysis. For the purposes of the GST law you will be treated as making acquisitions from the third parties (service providers), and your client will be treated as making corresponding acquisitions from you (see section 153-50(1)(c) of the GST Act).

Where an agreement conforming to subsection 153-50(1) of the GST Act takes effect, you and the client can apply the simplified accounting procedures under section 153-60 of the GST Act.

B. Section 153-60 of the GST Act

Where an agreement under section 153-50 is made, you and the client are taken, for GST purposes, as acting as separate supplier and acquirer in relation to the acquisitions covered by the agreement (the services provided by service providers to the client).

Where the client makes an acquisition from a third party (service provider) and you pay an amount on behalf of the client to the service provider, you are taken as having made a creditable acquisition from the service provider (rather than the client making the acquisition from the service provider). In turn, you will be taken to make a taxable supply of the same thing to the client. The acquisition by the client from you will be a creditable acquisition by the client if the acquisition of the goods or services by the client directly from the service provider would have been a creditable acquisition.

· You will issue a tax invoice to the clients for your supply (the on-supply of the services from the service provider).

· The service provider will issue a tax invoice to you or you will issue a Recipient Created Tax invoice (RCTI) to the service provider in respect of the supply made to you by the service provider.

· You will remit the GST payable in respect of the supply you made to the client.

· You will claim the input tax credit in respect of the acquisition made from the Service Provider.

It is considered that section 153-60 of the GST Act applies to you in the way provided above.

2. The Third Party Broker Payment Facilitation Arrangement

A. Section 153-50 of the GST Act

You will facilitate the payments to service providers on behalf of the Brokers.

Under the terms of the proposed arrangement (a written agreement that complies with subsection 153-50(1) of the GST Act between the Broker and you), payment will be made from the Broker to you for you to facilitate payment to the relevant service providers.

Under the proposed arrangement you will act on behalf of (paying agent for) the Brokers in respect of the payment to the service provider for the supply made by the service provider to the Broker's client.

It is considered that Broker facilitates acquisitions in respect of the supply made by the service provider to the Broker's client, provided the arrangement between the Broker and its client meets the requirements under section 153-50 of the GST Act.

You are the paying agent for the Broker in respect of the supply made by the service provider to the Broker (as a separate principal in respect of the supply deemed to be made to the Broker). You will make the payment to the relevant Service Provider under an arrangement with the Broker.

· The Broker (as an intermediary) acts on behalf of its client to facilitate acquisitions from third parties (service provider). This is done by the Broker engaging the services and therefore facilitating the acquisition. The Broker also receives consideration (which they forward to you). The Broker is deemed to make a corresponding supply to the client.

· You also facilitate the acquisitions made by the Broker by providing consideration for the acquisition to the relevant service provider.

· You, as an intermediary, are treated as making the acquisition from the service provider.

· In carrying out this arrangement you are also making a supply to the Broker, and the Broker is treated as making corresponding acquisition from you.

As you are a transaction facilitator, you are able to use the accounting procedures in Subdivision 153-B of the GST Act subject to an agreement that complies with subsection 153-50(1) of the GST Act.

'B. Section 153-60 of the GST Act

You have provided that:

· The Broker will issue a tax invoice to its clients for the supply made to the client.

· The Broker will remit GST in respect of the supply made to its client.

· The Broker will issue a RCTI to you for your supply to the Broker, and they will claim the input tax credit for the acquisition from you.

· You will remit the GST payable in respect of your supply to the Broker.

· The service provider will issue a tax invoice to you or you will issue a RCTI to the relevant service provider.

· You will claim the input tax credit in respect of the deemed acquisition made from the service provider.

It is considered that section 153-60 of the GST Act can apply to you the way you have provided above.