Edited version of your private ruling

Authorisation Number: 1012569264259

Ruling

Subject: GST and multi-branded fuel cards

Question 1

Pursuant to the proposed Agreement between Entity A and Entity B and for the kinds of supplies and acquisitions specified therein:

a) will Entity A be treated as making the supplies to Entity C for the purposes of subparagraph 153-50(1)(c)(i) of the GST Act?

b) will Entity B be treated as making corresponding supplies to Entity A for the purposes of subparagraph 153-50(1)(c)(ii) of the GST Act?

Answer

Pursuant to the proposed Agreement between Entity A and Entity B and for the kinds of supplies and acquisitions specified therein:

a) Entity A will be treated as making the supplies to Entity C for the purposes of subparagraph 153-50(1)(c)(i) of the GST Act.

b) Entity B will be treated as making corresponding supplies to Entity A for the purposes of subparagraph 153-50(1)(c)(ii) of the GST Act.

Question 2

If the answer to Question 1 is in the affirmative, then:

a) will a taxable supply that a Entity B makes to Entity C through Entity A be taken to be a supply that is a taxable supply made by Entity A to Entity C and not by the Entity B in accordance with subsection 153-55(1) of the GST Act?

b) will Entity A be taken to make a corresponding creditable acquisition of Products from Entity B in accordance with subsection 153-55 (2) of the GST Act ?

c) will any discounts in relation to taxable supplies, made by either Entity B or Entity A for taxable supplies made under subsection 153-55(1) of the GST Act, give rise to a decreasing adjustment to Entity A under Division 19 of the GST Act?

d) will any bad debts written off in relation to taxable supplies made by Entity A, for taxable supplies to which subsection 153-55(1) applies, give rise to a decreasing adjustment to Entity A under subsection 21-5(1) of the GST Act?

Answer

a) Yes. In accordance with subsection 153-55(1) of the GST Act, a taxable supply that Entity B makes to Entity C through Entity A will be taken to be a supply that is a taxable supply made by Entity A to Entity C and not by Entity B.

b) Yes. In accordance with subsection 153-55(2) of the GST Act, Entity A will be taken to make a corresponding creditable acquisition of Products from Entity B.

However, subsection 153-55(3) will not be applicable to the Merchant Service Fee.

c) No. Discounts made by either Entity B or Entity A will not give rise to a decreasing adjustment to Entity A under Division 19 of the GST Act.

d) No. Bad debts under subsection 21-5(1) do not arise for Entity A in relation to taxable supplies to which subsection 153-55(1) applies.

Relevant facts and circumstances

Entity A is a provider and operator of multi-branded fuel cards ("Cards").

Entity A is registered for goods and services tax ("GST") purposes.

Entity A accounts for GST on an accruals basis.

Cards are used by customers ("Entity C") to purchase certain goods and services ("Products") at participating Australian retailers ("Entity B").

Cards may only be used to purchase Products that are taxable for GST purposes.

Entity B is registered for GST.

Entity A and the proposed Agreement

Under the proposed Agreement:

· Entity A issues Cards to facilitate the supply of goods and services to Entity C; and

· Entity B accepts the Cards against purchases of goods and services at sites by Entity C.

Under the proposed Agreement, a Merchant Service Fee is payable by Entity B to Entity A for each transaction where a Card is used by Entity C to purchase Products ("Transaction"). The Merchant Service Fee is defined as X% (GST-inclusive) of the GST inclusive retail price of the Transaction.

Pursuant to the proposed Agreement, Entity A in respect of each Transaction, pays to Entity B an amount equal to:

· the GST inclusive retail price of all Products the subject of the Transaction; less

· the Merchant Service Fee payable by Entity B to Entity A in respect of the Transaction.

Pursuant to the proposed Agreement, Entity A and Entity B agree to apply Subdivision 153-B of the GST Act whereby:

· Entity A will be treated as making the supply of Products to Entity C;

· Entity B will be treated as making the supply of Products to Entity A ;

· Entity A will issue tax invoices to the Entity C; and

· The Entity B will not issue tax invoices in relation to the supply of Products.

Under the proposed Agreement, Entity A and Entity B agree to Entity A issuing recipient created tax invoices to Entity B in relation to the acquisition of its Products.

Entity A - Entity C

On a monthly basis, Entity A generates Card statements for each Entity C. Card statements generated detail Transactions for Products purchased using the relevant Card, illustrating the GST exclusive amount and GST amount for each Transaction.

The Card statement contains the necessary requirements for a tax invoice, by including the words 'Tax Invoice', Entity A's name, address and ABN details and Entity C's name and address details.

Use of Cards may entitle Entity C to a reduction in the price of the Product. This may be funded by the Entity B or Entity A and is displayed on the Tax Invoice as a reduction in the GST-inclusive value of the Transaction.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Division 153

A New Tax System (Goods and Services Tax) Act 1999 Subdivision 153-B

A New Tax System (Goods and Services Tax) Act 1999 Division 19

A New Tax System (Goods and Services Tax) Act 1999 Subsection 21-5(1)

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

Reasons for decision

(All legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) unless stated otherwise and words denoted by asterisks are defined in section 195-1 of the GST Act)

Division 153 sets out the special rules for holding and issuing tax invoices and adjustment notes when your supplies or acquisitions are made through an agent. Section 153-1 states:

This Division sets out the rules for holding and issuing tax invoices and adjustment notes when your supplies or acquisitions are made through an agent, or when insurance is supplied through an insurance broker. It also allows in some cases a supply or acquisition made through, or facilitated by, an entity on your behalf to be treated as 2 separate supplies or acquisitions.

Subdivision 153-B deals with principals and intermediaries as separate suppliers or acquirers and states:

153-50 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

(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.

Entity A has submitted that it is an intermediary, which for the purposes of paragraph 153-50(l)(a), facilitates taxable supplies made by Entity B to Entity C in accordance with subparagraph 153-50(l)(a)(ii) by:

· issuing invoices (i.e. Card statements) to Entity C in relation to these taxable supplies;

· collecting and receiving consideration from Entity C for supplies made by Entity A; and

· providing consideration to Entity B pursuant to the proposed Agreement for these taxable supplies.

Entity A further submits that for the purposes of satisfying the requirements under paragraph 153-50(1)(b), Entity A will execute with Entity B a proposed Agreement. In particular:

· the proposed Agreement specifies the supplies and acquisitions to which the arrangement applies. Entity A and Entity B agree to enter into a subdivision 153-B arrangement in relation to a Transaction under which a Card is used by Entity C to purchase Products at retail outlets owned by Entity B;

· the proposed Agreement requires the parties to comply with paragraph 153-50(l)(d). When executed, the proposed Agreement will require Entity A to issue in its own name, tax invoices and adjustment notes relating to the supplies made to the third parties. Furthermore, Entity B must not issue to third parties any tax invoices and adjustment notes relating to those supplies; and

· the proposed Agreement sets out that both Entity B and Entity A acknowledge that the parties are registered for GST upon entry into the proposed Agreement (and requires that the parties will provide notification if the respective GST registration ceases).

Goods and Services Tax Ruling GSTR 2000/37 Goods and services tax: agency relationships and the application of the law (GSTR 2000/37) provide the Commissioner's view on principals and intermediaries as separate suppliers or acquirers. Paragraph 76 of GSTR 2000/37 states:

Written agreement

76. To enter this arrangement there must be a written agreement under which:

· the intermediary arranges to make supplies and/or acquisitions to or from third parties on behalf of the principal;

· the kinds of supplies and/or acquisitions to which the arrangement applies are specified;

· the intermediary is treated for the purposes of GST law as a principal in making supplies or acquisitions;

· the intermediary will issue all tax invoices and adjustment notes relating to those supplies to third parties in the intermediary's name and the principal will not issue such documents; and

· both parties must be registered.

Given the above, where the supplies to which the agreement applies are specified, the proposed Agreement will meet the requirements of a written agreement for the purpose of section 153-50.

Therefore, upon the proposed Agreement being executed between Entity A and Entity B, Entity A will be treated as making the supplies specified in the proposed Agreement to Entity C for the purposes of subparagraph 153-50(1)(c)(i). Entity B will be treated as making the corresponding supplies to Entity A for the purposes of subparagraph 153-50(1)(c)(ii).

Additional Issue

Under the proposed Agreement, Entity A and Entity B agree to Entity A issuing recipient created tax invoices (RCTI) to Entity B in relation to the acquisition of its Products.

Paragraph 29-70(1)(a) provides that 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.

Goods and Services Tax Ruling GSTR 2000/10 Goods and services tax: recipient created tax invoices (GSTR 2000/10) outlines the circumstances in which a recipient is entitled to issue a RCTI. The Commissioner has authorised the use of RCTIs for three classes of tax invoices as specified in GST Ruling GSTR 2000/10 and the A New Tax System (Goods and Services Tax) Act 1999 Classes of Recipient Created Tax Invoice Determination (No 1) 2000.

The Commissioner has also issued a number of determinations in relation to specific situations where RCTI can be issued.

In order for Entity A to issue valid RCTIs, they will need to fall within the classes of tax invoices as identified in GSTR 2000/10 and/or as specified in the Commissioner's determinations.

Question 2

Section 153-55 states:

(1) A *taxable supply that the principal makes to a third party through the intermediary is taken to be a supply that is a taxable supply made by the intermediary to the third party, and not by the principal, if:

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

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

(c)  both the principal and the intermediary are *registered.

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

(a) to be a supply of the same thing as is supplied in the taxable supply (the intermediary's supply) that the intermediary is taken to make; and

(b) to have a *value equal to 10/11 of the amount that is payable to the principal by the intermediary in respect of the intermediary's supply.

The intermediary is taken to make a corresponding *creditable acquisition from the principal.

(3) If the principal pays, or is liable to pay, an amount, as a commission or similar payment, to the intermediary for the intermediary's supply to the third party:

(a) for the purpose of paragraph (2)(b), the amount payable by the intermediary to the principal is taken to be reduced by the amount the principal pays, or is liable to pay, to the intermediary; and

(b) the supply by the intermediary to the principal, to which the principal's payment or liability relates, is not a *taxable supply.

(4) However, this section no longer applies, and is taken never to have applied, if the principal issues to the third party, in the principal's own name, any *tax invoice or *adjustment note relating to the supply.

(5) This section has effect despite section 9-5 (which is about what are taxable supplies), section 9-75 (which is about the value of taxable supplies) and section 11-5 (which is about what are creditable acquisitions).

(a) Taxable supply made by Entity A

Entity A submits that on the basis of a valid arrangement for the purposes of section 153-50, Entity B and Entity A will act as separate suppliers and acquirers in relation to the supplies and acquisitions covered by the proposed Agreement.

Subsection 153-55(1) provides that where there is a valid arrangement for the purposes of section 153-50 between the parties and a taxable supply is made in accordance with this arrangement, then the intermediary is taken to have made the taxable supply to the third party.

Paragraph 77 of GSTR 2000/10 states:

77. The effect of entering into these arrangements 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, and that they are treated as acting between themselves as principal to principal for GST purposes.

We have determined in Question 1 that the proposed Agreement will meet the requirements of section 153-50. Therefore where a taxable supply is made by Entity B through Entity A in accordance with the proposed Agreement, it is Entity A that is taken to have made the taxable supply of the Products to Entity C.

Accordingly, Entity A will be required to account for and remit the amount of GST payable on that taxable supply.

(b) Creditable acquisition made by Entity A

Subsection 153-55(2) provides that in circumstances where subsection 153-55(1) applies, the principal is also taken to make a taxable supply to the intermediary. This taxable supply is taken to be the same thing as is supplied by the intermediary to the third party and to have a value equal to 10/11 of the amount that is payable to the principal by the intermediary in respect of the intermediary's supply.

Therefore in circumstances where subsection 153-55(1) applies, Entity B will be taken to have made a supply of the same Products to Entity A as Entity A makes to Entity C. Further, the value of the Products supplied will have a value equal to 10/11 of the amount that is payable by Entity A to Entity B.

In these circumstances, Entity A will be taken to make a corresponding creditable acquisition from the Entity B and would be entitled to claim input tax credits in respect of that acquisition.

GST treatment of Merchant Service Fee

Entity A submits that by entering into the proposed Agreement, the effect of a merchant service fee is that the value of the taxable supply made by Entity B to Entity A will be reduced by the value of the merchant service fee payable by Entity B to Entity A in respect of the relevant transaction. Consequently, Entity A will make a creditable acquisition of a lower value and will not make a separate taxable supply of providing merchant services.

Paragraphs 80 and 81 of GSTR 2000/37 provide the Commissioner's view on the application of subsection 153-55(3):

80. In some cases, the agreement may require that the intermediary pay the principal the entire amount the third party is charged for the supply. Then, in a separate transaction, the principal pays the intermediary a commission or similar payment for the intermediary services. If this situation occurs, subsection 153-55(3) provides that the amount the intermediary has already been required to pay is reduced by the amount of the commission or similar payment for the intermediary services. In these circumstances, the intermediary's supply of services is not a taxable supply and the principal is not entitled to claim input tax credits relating to the payment of the commission or similar payment.

81. The meaning of 'a commission or similar payment' in subsection 153-55(3) cannot be read in isolation as these payments arise out of the principal's liability to pay the intermediary for the provision of the intermediary's services. That is, there is a direct relationship between the payments made by the principal and the services provided by the intermediary. Hence, regardless of their description (for example, as management fees), they are made to the intermediary by the principal in respect of services rendered by the intermediary for making the taxable supplies, taxable importations, creditable acquisitions or creditable importations for which the intermediary relationship was created.

It is our view that the Merchant Service Fee (as described in Entity A's submissions) is a fee payable under the existing payment system rather than a commission payable by Entity B to Entity A for "intermediary services". Therefore subsection 153-55(3) will not apply to the Merchant Service Fee.

(c) GST treatment of discounts

Section 19-10 states:

(1) An adjustment event is any event which has the effect of:

(a)  cancelling a supply or acquisition; or
(b)  changing the *consideration for a supply or acquisition; or
(c)  causing a supply or acquisition to become, or stop being, a *taxable supply or *creditable acquisition.

Goods and Services Tax Ruling GSTR 2000/19 Goods and services tax: making adjustments under Division 19 for adjustment events (GSTR 2000/19) explains the Commissioner's view on the operation of Division 19.

Paragraph 11 of GSTR 2000/19 provides that an adjustment event include changes in consideration for supplies and acquisitions (such as discounts) and cancellations of supplies or acquisitions (such as the return of a thing to the supplier).

One of the requirements for an adjustment event is that the GST on the supply was attributable to an earlier tax period. Where the adjustment event occurs in the same period in which the GST on the supply is attributable, this requirement is not met and therefore there is no Division19 adjustment (Paragraph 15 of GSTR 2000/19).

Further, paragraphs 20 and 21 of GSTR 2000/19 state the following in relation to discounts.

Discounts

20. After a supply occurs, a discount may be granted for early payment. Discounts referred to as settlement discounts or prompt payment discounts are made for the purpose of encouraging early payment of an amount owing for a supply. Benefits to the supplier include early cash flow, certainty of payment at an earlier point and avoidance of collection costs. Although the discount is typically expressed as a percentage of the amount owing and is conditional on payment within a specified period, the discount is considered to be a change in consideration.

21. This situation can be contrasted with a 'discount' offered in negotiating a price for an acquisition. In such a situation, the 'discount' is used to arrive at the consideration for the supply at the time the invoice is issued. As there is no change to the consideration, there is no adjustment event.

Entity A submits that under the proposed Agreement, the use of the Cards may entitle Entity C to a reduction in the price of the Product charged by Entity A and/or discount provided by Entity A. This may be funded by the Entity B or Entity A and is displayed on the Tax Invoice as a reduction in the GST-inclusive value of the Transaction.

The reduction in price/discount made by Entity B and Entity A is not for early payment but rather is more akin to 'negotiating a price for an acquisition' (paragraph 21 of GSTR 2000/19) in order to entice the cardholders to purchase the Products using the Cards. These discounts are used to arrive at the consideration at the time the invoice is issued. Therefore in accordance with paragraph 21 of GSTR 2000/19, there is no change to the consideration for the Products and it follows that there is no adjustment event under Division 19 of the GST Act for these discounts.

The application of Division 153-B does not alter this outcome.

(d) Adjustments for bad debts written off

Section 21-5 deals with writing off bad debts and states:

(1) You have a decreasing adjustment if:

(a)  you made a *taxable supply; and

(b)  the whole or part of the *consideration for the supply has not been received; and

(c)  you write off as bad the whole or a part of the debt, or the whole or a part of the debt has been *overdue for 12 months or more

The amount of the decreasing adjustment is 1/11 of the amount written off, or 1/11 of the amount that has been overdue for 12 months or more, as the case requires.

Entity A contends that where it has made a taxable supply to which subsection 153-55(1) applies, has not received some or all of the consideration for the taxable supply and has written off the whole or part of the debt (or the debt has been overdue for 12 months or more), Entity A is entitled to a decreasing adjustment pursuant to subsection 21-5(1).

We disagree with this contention. When Entity A issues the Cards to Entity C it makes a supply of an interest in a credit arrangement or a right to credit which is a financial supply under A New Tax System (Goods and Services Tax) Regulations 1999. When Entity C present the Cards as payment for their acquisitions of the Products, Entity C have effectively discharged their obligations to pay for these Products. Therefore there will be no amounts left outstanding for these Products.

Entity C is issued Card statements which, among other things, show amounts payable to Entity A by Entity C at the end of each month (or other relevant period). The terms of repayment of these amounts will be based on the terms and conditions as set out in the agreements that Entity A enters into with Entity C on issue of the Cards.

The repayments made by Entity C to Entity A are in relation to the supply of an interest in a credit arrangement or a right to credit by Entity A which is input taxed. Therefore, any bad debts in relation to amounts owing on the Card statements will not be in relation to any taxable supply that Entity A has made to Entity C under subsection 153-55(1) and accordingly does not give rise to any decreasing adjustment under subsection 21-5(1).