Edited version of your private ruling

Authorisation Number: 1012534060934

Ruling

Subject: GST and section 153-B arrangements

In relation to the First Arrangement (1st Arrangement) referred to in this ruling application:

(a) Does the 1st Arrangement meets the requirements of section 153-50 of the GST Act and can therefore be dealt with in accordance with section 153-60 of the GST Act?

(b) Do you make a creditable acquisition from Entity A to whom you makes a payment of Entity A Commission under subsection 153-60(1) of the GST Act?

(c) Under subsection 153-60(2) -

(i) Do you make a taxable supply to Entity B of the same thing acquired by it from Entity A?

(ii) Does the supply made by you to the Entity B have a value equal to 10/11^ths of the Entity A Commission that is payable to you by Entity B in respect of your acquisition from the Entity A?

(iii) Does Entity B make a corresponding acquisition from you?

Answer

Yes to all.

Question 2

In relation to the Second Arrangement (2nd Arrangement) referred to in this ruling application:

(a) Does the 2nd Arrangement meet the requirements of section 153-50 of the GST Act and can therefore be dealt with in accordance with section 153-60 of the GST Act?

(b) Under subsection 153-60(1) -

(i) Does Entity C make a creditable acquisition from you?

(ii) Do you make a creditable acquisition from each Entity A to whom you make a payment of Entity C Commission?

(c) Under subsection 153-60(2) -

(i) Does Entity C make a taxable supply to Entity B of the same thing acquired by Entity C from you?

(ii) Does the supply made by Entity C to Entity B have a value equal to 10/11^ths of the Entity C Commission that is payable to Entity C by Entity B in respect of the Entity C's acquisition from you?

(iii) Does Entity B make a corresponding acquisition from Entity C?

(iv) Do you make a taxable supply to Entity C of the same thing acquired by you from Entity A?

(v) Does the supply made by you to the Entity C have a value equal to 10/11^ths of the Entity C Commission that is payable to you by Entity C in respect of your acquisition from Entity A?

(vi) Does Entity C make a corresponding acquisition from you?

Answer

Yes to all.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are a company that specialises in providing services to Clients (Entity C).

You provide services on behalf of Entity C.

Entity B also has arrangements with other entities who provide services that assist the Entity B with their decisions.

You enter into an Agreement (Agreement 1) with Entity B.

Under the Agreement 1 you charge Entity B two different types of commission:

Entity A Commission; and

Entity B Commission

You charge Entity B GST on both the Commissions unless Entity B is a non-resident of Australia who is not registered for GST in which case the service is treated as a GST-free supply.

You act as a payment facilitator for Entity B in respect of Commission A received from the Entity B under Agreement 1. You use the Commission A to pay Entity A on behalf of the Entity B for the services provided by Entity A to Entity B.

Under Agreement 1 you may also act as a payment facilitator for Entity C through whom Entity B trades (2nd Arrangement). Under the terms of this arrangement, Entity C will pay to you Commission C received from Entity B that have agreed to the 2nd Arrangement. You will then use the Commission C received from Entity C to make payments to Entity A.

The 1st Arrangement and the 2^nd Arrangement are designed to deliver efficiencies for all parties in relation to the payment of Entity A for services they provide to Entity B. The effect and commercial benefit of the 2nd Arrangement is that Entity B can have all of its payments to Entity A managed in one centralised system which avoids the need to duplicate the management of those payments across a number of Entity Cs.

Any payment from you to Entity A (using the Commission A or Commission C funds) is supported by a tax invoice issued by Entity A to you or a Recipient Created Tax Invoice (RCTI) issued by you to Entity A. You will not issue an RCTI to a Service Provider in circumstances where the Service Provider has already issued a tax invoice to the Customer.

You contend that in relation to the 1st Arrangement, the Agreement 1 contains a written agreement between you and Entity B that complies with the requirements of section 153-50 of the GST Act.

For any 2nd Arrangement, you enter into a separate Subdivision 153-B Agreement (Agreement 2) with Entity C and the Entity B that complies with the requirements of section 153-50 of the GST Act. Agreement 2 contains two separate Subdivision 153-B Agreements, one between the Entity C and the Entity B and the second between you and Entity C.

You do not charge either Entity B or Entity C for the service you provide to them in respect of making payments to Entity A on their behalf and they do not provide any form of non-monetary consideration to you for the provision of the payment facilitation service.

1st Arrangement

You will issue a tax invoice to Entity B for the supply made to Entity B in respect of the Entity A Commission.

You will remit GST to the ATO in respect of the supply made to Entity B.

Entity A will issue a tax invoice to you or you will issue an RCTI to Entity A, in respect of the supply made to you.

Entity A will remit GST to the ATO in respect of the supply made to you.

You will claim an input tax credit in respect of the acquisition made from Entity A.

2nd Arrangement

Entity C will issue a tax invoice to Entity B for the supply made to Entity B in respect of the Entity C Commission.

Entity C will remit GST to the ATO in respect of the supply made to Entity B.

You will issue a tax invoice to Entity C or Entity Cwill issue an RCTI to you for the supply made Entity C in respect of the Entity C Commission.

You will remit GST to the ATO in respect of the supply made to Entity C.

Entity C will claim an input tax credit in respect of the acquisition made from you

Relevant legislative provisions

All references are to the A New Tax System (Goods and Services Tax) Act 1999:

Section 153-50

Section 153-60

Division 9

Division 11

Reasons for decision

Issue 1

Question 1

Summary

The Agreement 1 satisfies all the requirements in subsection 153-50(1) of the GST Act, therefore, you can apply the simplified accounting procedures under section 153-60 of the GST Act.

Detailed reasoning

General

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.

The general effect of entering into a subdivision 153-B arrangement in respect of supplies is that the principal and the intermediary treat the taxable supply of goods or services that the principal makes to third parties through the intermediary as two separate supplies:

· A taxable supply made to a third party is taken to be a taxable supply made by the intermediary and they will issue a tax invoice to the third party. The intermediary will be required to remit 1/11 of the price of the supply to the ATO.

· The principal is taken to have made a taxable supply to the intermediary of the same thing that the intermediary is taken to supply to the third party. The value of the supply is determined by reference to the amount the intermediary is actually required to pay the principal. This amount is the price charged and paid by the third party for the supply less the amount the intermediary is permitted (under the contract with the principal) to keep as a commission or similar remuneration for intermediary services.

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 March 2010) 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.

The relevant sections of 153-50(1) of the GST Act that need to be considered are as follows:

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.

A. Applying the CPF Arrangement to subsection 153-50(1) of the GST Act

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

As you are a paying 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 Customer).

You and your Customers are required to enter into an arrangement in writing that you will facilitate acquisitions from Service Providers (third parties) on behalf of your Customers. 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.

Paragraph 153-50(1)(a) of the GST Act - subparagraph iv

This paragraph is satisfied as a clause of the Customer Agreement provides that you will facilitate the payment of the Service Provider Commission to Service Providers.

Paragraph 153-50(1)(b) of the GST Act

This paragraph is satisfied as a clause of the Customer Agreement provides that the acquisitions you will facilitate are research and/or other services commonly provided by Service Providers to their customers.

Paragraph 153-50(1)(c) of the GST Act

This paragraph has two requirements and they are:

(v) the intermediary will be treated as making acquisitions from the third parties; and

(vi) the principal will be treated as making corresponding acquisitions from you.

The effect of this paragraph is:

· you and your customers will be treated as acting as principal to principal for GST purposes;

· where you have made a creditable acquisition on behalf of your customers, you would be treated to have made a creditable acquisition in your own right. You will be able to claim input tax credit for that creditable acquisition;

· you are also treated to have made a taxable supply to your customers of the same thing that you are treated to have acquired. You will issue a tax invoice to your customers and will be liable to remit 1/11 of the price of the taxable supply to the ATO; and

· your customers are treated to have made a corresponding acquisition from you and will be able to claim to claim input tax credit for the creditable acquisition on receipt of the tax invoice.

Accordingly, both requirements in this paragraph need to be satisfied.

First requirement

In your case, the first requirement is satisfied as a clause of the Customer Agreement provides that you will be treated as making acquisitions from Service providers by making payments of the Service Provider Commission to those Service Providers.

Second requirement

In your case, the second requirement is satisfied as a clause of the Customer Agreement provides that the Customer will be treated as making corresponding acquisitions from you..

Paragraph 153-50(1)(d) of the GST Act

The 153-BAgreement is about acquisitions from third parties and not about supplies to third parties. This paragraph is therefore not applicable

Paragraph 153-50(1)(e) of the GST Act

This paragraph is satisfied as a clause of the Customer Agreement provides that the Customer Agreement will cease to have effect and terminate immediately if either party ceases to be registered for GST.

For similar reasons referred to above, the arrangement between the Third Party Broker and the Customer also satisfies the requirements of section 153-50 of the GST Act.

Summary

In this case the arrangements between you and the Customers are intended to facilitate the payment by Customers for services provided to them by Service Providers.

The CPF Arrangement is specifically covered by section 153-50(1)(a)(iv), being the facilitation of acquisitions from third parties by providing consideration for such acquisitions.

You provide brokerage and related services to the Customers and Service Providers provide their respective services (including research) to the Customers.

The TPB Commission and the Service Provider Commission charged by you to Customers represent the consideration for the supplies made to the Customers by the parties. The TPB Commission represents consideration for the brokerage services supplied by you to the Customers. The Service Provider Commission represents consideration for the supplies made by the Service Providers to the Customers, payment of which you facilitate on behalf of the Customers.

You, as the intermediary, on a Customer's behalf (the principal), facilitate acquisitions from third parties (Service Providers) by providing consideration for the acquisitions;

The kinds of acquisitions to which the arrangement applies are specified in the Customer Agreement between you and your Customers; and you, as the intermediary, are to be treated as making the acquisitions from the third party (Service Provider); and the Customer (the principal) is to be treated as making corresponding acquisitions from you (the intermediary).

Thus, when considering section 153-50 of the GST Act we are satisfied that all of the conditions will be met and the Customer Agreement satisfies all the requirements in subsection 153-50(1) of the GST Act, therefore, you and the Customer can apply the simplified accounting procedures under section 153-60 of the GST Act.

B. Section 153-60(1) of the GST Act

Where an agreement under section 153-50 is made, you and the Customer 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 Customer).

Subsections 153-60(1) and (2) of the GST Act explain the effect of section 153-50 arrangements on acquisitions:

(1) An acquisition that the principal makes from a third party through the agent is taken to be a creditable acquisition made by the agent from the third party, and not by the principal, if:

(a) the acquisition is of a kind to which the arrangement applies;

and

(b) the acquisition is made in accordance with the arrangement; and

and

(c) both the principal and the agent are registered.

(2) In addition, the agent is taken to make a supply that is a taxable supply to the principal. This supply is taken:

(d) to be a supply of the same thing as is acquired in the creditable acquisition (the agent's acquisition) that the agent is taken to make; and

(e) to have a value equal to 10/11 of the amount that is payable to the agent by the principal in respect of the agent's acquisition.

The principal is taken to make a corresponding acquisition from the agent, and the acquisition is taken to be a creditable acquisition if, apart from this section, the principal's acquisition from the third party would have been a creditable acquisition.

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

In this case:

· You will issue a tax invoice to the Customers 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 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 Customer.

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

It is considered that section 153-60(1) of the GST Act applies to you in the way provided above.

C. Section 153-60(2) of the GST Act

If the arrangement meets the requirements of section 153-50 of the GST Act then, under subsection 153-55(2) of the GST Act, any taxable supply that the principal makes to a third party through the agent is taken to be a taxable supply made by the principal to the agent. Subsection 153-60(2) of the GST Act provides for a similar outcome in relation to creditable acquisitions.

We have previously found that the conditions in section 153-50 of the GST Act are satisfied and you are therefore able to apply the simplified accounting procedures under section 153-60 of the GST Act.

Subsections 153-60(1) and (2) of the GST Act explain the effect of section 153-50 arrangements on acquisitions. Subsection 153-60(2) states:

(2) In addition, the agent is taken to make a supply that is a taxable supply to the principal. This supply is taken:

(f) to be a supply of the same thing as is acquired in the creditable acquisition (the agent's acquisition) that the agent is taken to make; and

(g) to have a value equal to 10/11 of the amount that is payable to the agent by the principal in respect of the agent's acquisition.

The principal is taken to make a corresponding acquisition from the agent, and the acquisition is taken to be a creditable acquisition if, apart from this section, the principal's acquisition from the third party would have been a creditable acquisition.

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

On the facts provided we are satisfied that you are making a taxable supply to the Customer of the same thing acquired by you from the Service Provider and the supply made by you to the Customer has a value equal to 10/11^ths of the Service Provider Commission that is payable to you by the Customer in respect of your acquisition from the Service Provider; and the Customer is deemed to make a corresponding acquisition from you.

Goods and Services Tax Ruling entitled Goods and services tax: agency relationships and the application of the law GSTR 2000/37 provides the Commissioners view on agency relationships. Paragraphs 55 to 91 of GSTR 2000/37 discuss the requirements for an arrangement to satisfy Subdivision 153-B of the GST Act including the treatment of acquisitions and supplies. A copy of this ruling is provided.

Question 2

Detailed reasoning

A. Applying the TPBF Arrangement to subsection 153-50(1) of the GST Act

The general effects of entering into a subdivision 153-B arrangement and the requirements of section 153-50 of the GST Act have been discussed in the reasons for decision relating to Question 1. What now needs to be discussed is whether the TPB Agreement satisfies the requirements of section 153-50 of the GST Act.

In this case you will facilitate the payments to Service Providers on behalf of the Third Party Broker. Under the terms of the proposed arrangement, payment will be made from the Third Party Broker to you for you to facilitate payment to the relevant Service Providers, you will act on behalf of (paying agent for) the Third Party Broker in respect of the payment to the Service Provider for the supply made by the Service Provider to the Third Party Broker's Customer.

It is considered that Third Party Broker facilitates acquisitions in respect of the supply made by the Service Provider to the Third Party Broker's Customer.

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

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

· You also facilitate the acquisitions made by the Third Party 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 Third Party Broker, and the Third Party Broker is treated as making corresponding acquisition from you.

Paragraph 153-50(1)(a) of the GST Act

This paragraph is satisfied as a clause of the TPB Agreement provides that you will act as an intermediary of the Third Party broker in respect of payments of Third Party Broker Commission to Service Providers.

Paragraph 153-50(1)(b) of the GST Act

This paragraph is satisfied as certain clauses of the TPB Agreement provide that the acquisitions you will facilitate are research and/or other services commonly provided by Service Providers to their customers and the facilitation of Third Party broker commission to Service Providers.

Paragraph 153-50(1)(c) of the GST Act

This paragraph has two requirements and they are:

(vii) the intermediary will be treated as making acquisitions from the third parties; and

(viii) the principal will be treated as making corresponding acquisitions from you.

The effect of this paragraph is:

· you and your customers will be treated as acting as principal to principal for GST purposes;

· where you have made a creditable acquisition on behalf of your customers, you would be treated to have made a creditable acquisition in your own right. You will be able to claim input tax credit for that creditable acquisition;

· you are also treated to have made a taxable supply to your customers of the same thing that you are treated to have acquired. You will issue a tax invoice to your customers and will be liable to remit 1/11 of the price of the taxable supply to the ATO; and

· your customers are treated to have made a corresponding acquisition from you and will be able to claim to claim input tax credit for the creditable acquisition on receipt of the tax invoice.

Accordingly, both requirements in this paragraph need to be satisfied.

First requirement

In your case, the first requirement is satisfied as a clause of the TPB Agreement provides that you will be treated as making acquisitions from Service Providers by making payments of the Third Party Broker Commission to those Service Providers.

Second requirement

In your case, the second requirement is satisfied as a clause of the TPB Agreement provides that the Third Party Broker will be treated as making corresponding acquisitions from you.

Paragraph 153-50(1)(d) of the GST Act

The 153-BAgreement is about acquisitions from third parties and not about supplies to third parties. This paragraph is therefore not applicable

Paragraph 153-50(1)(e) of the GST Act

This paragraph is satisfied as a clause of the TPB Agreement provides that the TPB Agreement will cease to have effect and terminate immediately if either party ceases to be registered for GST.

Summary

In this case you (as an intermediary), on behalf of the Third Party Broker (the principal), facilitates acquisitions from third parties (Service Providers) by making payments of Third Party Broker Commission to the Service Providers;

The kinds of acquisitions to which the arrangement applies are specified in the 153-B Agreement.

You are to be treated as making the acquisitions from the Service Providers; and the Third Party Broker is to be treated as making corresponding acquisitions from you.

Thus, when considering section 153-50 of the GST Act we are satisfied that all of the conditions will be met and the TPB Agreement satisfies all the requirements in subsection 153-50(1) of the GST Act, therefore, you can apply the simplified accounting procedures under section 153-60 of the GST Act.

We are therefore satisfied that all of the conditions of section 153-50 of the GST Act will be met and you and the Customer can apply the simplified accounting procedures under section 153-60 of the GST Act.

B. Section 153-60(1) of the GST Act

Where an agreement under section 153-50 is made, you and the Customer 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 Customer).

Subsections 153-60(1) and (2) of the GST Act explain the effect of section 153-50 arrangements on acquisitions.

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

You have provided that:

· The Third Party Broker will issue a tax invoice to its Customers for the supply made to the Customer.

· The Third Party Broker will remit GST in respect of the supply made to its Customer.

· The Third Party Broker will issue a RCTI to you for your supply to the Third Party 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 Third Party Broker.

· It is considered that section 153-60(1) of the GST Act can apply to you the way you have provided above.

C. Section 153-60(2) of the GST Act

Refer to the reasoning in Qu 1 'C' above.

On the facts provided we are satisfied that the Third Party Broker is making a taxable supply to the Customer of the same thing acquired by the Third Party Broker from you. The supply made by the Third Party Broker to the Customer has a value equal to 10/11^ths of the Third Party Broker Commission that is payable to the Third Party Broker by the Customer in respect of the Third Party Broker's acquisition from you. The Customer is deemed to make a corresponding acquisition from the Third Party Broker and you make a taxable supply to the Third Party Broker of the same thing acquired by you from the Service Provider.