Edited version of private advice

Authorisation Number: 1012657239613

Ruling

Subject: GST and Subdivision 153-B arrangement

Question 1

A Does the Arrangement meet the requirements of section 153-50 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and can therefore be dealt with in accordance with section 153-60 of the GST Act?

B Under subsection153-60(1) of the GST Act

(i) Are you deemed to make a creditable acquisition from A? and

(ii) Is A deemed to make a creditable acquisition from each Service Provider to whom A makes a payment of the Commission?

C Under subsection153-60(2)

(i) Are you deemed to make a taxable supply to the Client of the same thing acquired by you from A?

(ii) Do the supply made by you to the Client have a value equal to10/11ths of the Commission that is payable to you by the Client in respect of your acquisition from A?

(iii ) Is the Client deemed to make a corresponding acquisition from you?

(iv) Is A deemed to make a taxable supply to you of the same thing acquired by A from the Service Provider?

(v) Does the supply made by A to you have a value equal to 10/11ths of the Commission that is payable to A by you in respect of A's acquisition from the Service Provider?

(vi) Are you deemed to make a corresponding acquisition from A?

Answer

A The Arrangement satisfies all the requirements in section 153 50 of the GST Act. Therefore, the parties can apply the simplified accounting procedures under section 153-60 of the GST Act.

B See Reason for decision

C See Reason for decision

Relevant facts and circumstances

BACKGROUND

• You are a financial institution that specialises in providing financial products, banking and asset management services to your clients (Clients) as well as related brokerage services such as, but not limited to pre and post trade analysis order management and trade execution.

• You execute orders for the sale and purchase of securities on behalf of your clients.

• Clients will often also have arrangements with other service providers ("Service Providers") who provide research and associated services that assist the Clients with their investment decisions.

• You enter into a Commission Sharing Agreement with selected Clients. Under the CS Agreement you charge the Clients commission encompassing the following:

• Broker Commission-charged to cover the execution cost of trades performed by you; and

• Service Provider Commission - charged to cover any amount that needs to be paid to Service Providers who provide other services directly to the Client.

• You charge the Client GST on both the Broker Commission and the Service Provider Commission, unless the Client is a non-resident of Australia who is not registered for GST in which case the service is treated as a GST-free supply.

• An Arrangement has been entered into between you, certain of your clients, and a third party (A) to deal with certain commission payments. This includes a number of agreements as set out below. This overall arrangement is referred to in this submission as the Arrangement.

The Arrangement

The Arrangement is designed to deliver efficiencies for the Client in relation to the payment of Service Providers for services they provide to Clients. The effect and commercial benefit of the Arrangement is that your Client can have all of its payments to Service Providers managed in one centralised system which avoids the need to duplicate the management of those payments across a number of Third Party Brokers.

• Under the terms of the Arrangement, you will pay to the Service Provider Commission received from your Clients that have agreed to the Arrangement. A will then use the Third Service Provider Commission received from you to make payments to third party Service Providers.

• For any Arrangement, you enter into a separate Subdivision 153-B Agreement with A and the Client that complies with the requirements of section 153-50. The Arrangement contains two separate Subdivision 153-B Agreements, one between you and the Client and the second between A and you.

• A does not charge either its Clients or you for the service it provides to them in respect of making payments to Service Providers on their behalf. Similarly, you or the Clients do not provide any form of non-monetary consideration to A for the provision of the payment facilitation service.

• The supplies illustrated in Attachment A are the underlying supplies between the parties prior to the application of the Subdivision 153-B Agreements.

• Any payment from A to a Service Provider (using the Service Provider Commission or Third Party Broker Commission funds) is supported by a tax invoice issued by the Service Provider to A or a Recipient Created Tax Invoice ("RCTI") issued by A to the Service Provider. A will not issue an RCTI to a Service Provider in circumstances where the Service Provider has already issued a tax invoice to the Client.

Relevant legislative provisions

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

Section 9-5

Section 11-5

Subdivision 153-B

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.

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.

From 27 June 2011 the Subdivision allows 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.

A. The requirements under subsection 153-50(1) of the GST Act

Subsections of 153-50(1) 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.

Applying subsection 153-50(1) of the GST Act to the Arrangement, it is considered that:

• You enter into an arrangement with A and the Client in writing [paragraph 153-50(1)(a)].

For any Third Party Commission payment you enter into a separate Subdivision 153-B Agreement with A and the Client. The Arrangement contains two separate Subdivision 153-B written agreements, one between you and the Client and the second between you and A.

• Under the written agreements [paragraph 153-50(1)(b)]:

• You (the intermediary), on behalf of the Client (the Principal), facilitates acquisitions from a third party (A) by making Third Party Broker Commission to A.

• A (intermediary) on behalf of you (the principal) facilitates acquisition (including by providing consideration for such acquisitions) from a third party (a Service Provider) [paragraph [153(50)(1)(a)].

• Under the terms of the Arrangement, you will pay to A Third Party Broker Commission received from their Clients that have agreed to the Arrangement. A will then use the Third Party Broker Commission received from you to make payments to Service Providers.

• Under the other arrangement with the Client, the CS Agreement, you charge the Clients commission encompassing the following:

- Broker Commission - charged to cover the execution costs of trades performed by you (this charge is not a part of the subdivision 153-B arrangement),

- Service provider commission - charged to cover any amount that needs to be paid to service provider who provides other services directly to the Clients.

• When a Client instructs you to pass on some or all of that Service Provider Commission to A, it then becomes the Third Party Broker Commission under the Arrangement.

• The kinds of acquisitions to which the arrangement applies are specified.

The agreement between you, the Client and A specifies the acquisitions are brokerage, research and/or other services to the Client [paragraph 153-50(1)(b)].

• For the purposes of the GST law:

You have provided that under the Arrangement [paragraph 153-50(1)(c)]

• The intermediary will be treated as making the acquisition from a third party.

• The principal will be treated as making corresponding acquisitions from the intermediary.

• All relevant parties to the arrangement are registered for GST [paragraph 153-50(1)(e)].

The Arrangement is designed to deliver efficiencies for the Client in relation to the payment of Service Providers for services they provide to Client. The effect and commercial benefit of the Arrangement is that your Client can have all of its payments to Service Providers managed in one centralised system which avoids the need to duplicate the management of those payments across a number of Third Party Brokers.

Under the terms of the Arrangement, you will pay to A Third Party Broker Commission (TPBC) received from your Clients that have agreed to the Arrangement. A will then use the TPBC received from you to make payments to Service Providers.

It is considered that the Arrangement satisfied all of the requirements in subsection 153-50(1) of the GST Act, therefore, you, A and the Client can apply the simplified accounting procedures under section 153-60 of the GST Act.

B The effect of the Arrangement on the acquisitions

Where an agreement under section 153-50 is made, all parties 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 Third Party Service Providers to the Client and the services between the you and A).

Section 153-60 of the GST Act explains the effect of section 153-50 arrangements on acquisitions.

(i) The effect of subsection 153-60(1) of the GST Act

An acquisition that the principal makes from a third party through an intermediary is taken to be a creditable acquisition made by the intermediary from the third party, and not by the principal.

When the principal makes an acquisition from a third party and the intermediary pays an amount on behalf of the principal to the third party, the intermediary is taken as having made a creditable acquisition from the third party (rather than the principal making the acquisition from the third party). The acquisition by the principal from the intermediary will be a creditable acquisition by the principal if the acquisition of the goods or services by the principal directly from the third party would have been a creditable acquisition.

Applying the subsection to the Arrangement, it is considered that:

• You are taken to make creditable acquisitions from A.

• A is taken to make creditable acquisitions from each of the Service Providers to whom A makes payment of TPBC.

(ii) The effect of subsection 153-60(2)

In turn, the intermediary will be taken to make a taxable supply of the same thing to the principal. The principal is taken to make a corresponding acquisition from the intermediary. The value of that supply is taken to have a value equal to 10/11 of the amount that is payable to the intermediary by the principal in respect of the acquisition made by the intermediary from a third party.

It is considered that under the Arrangement:

• You are taken to make a supply to the Client of the same thing acquired by you from A (the supply will be a taxable supply where the acquisition by you from A is a taxable supply).

The supply made by you to the principal (the Client) has a value of 10/11 of the TPBC that is payable to you in respect of your acquisition from A.

• A is taken to make a supply to you of the same thing acquired by A from the Service Provider (the supply will be a taxable supply where the acquisition by A from the Service Provider is a taxable supply).

The supply made by A to you has a value of 10/11 of the TPBC that is payable to IA in respect of A's acquisition from the Service Provider.

GST payable and input tax credit

As a separate supplier and recipients of the relevant supply, each party is responsible for their own GST payable and input tax credit entitlement (where the supply of the Service Provider is a taxable supply to the Client through an intermediary).

• You (the Third Party Broker) will issue a tax invoice to your Client for the supply made to the Client.

• You will remit GST in respect of the supply made to your Client.

• A will issue a tax invoice to you for A's supply to you, and you will claim an input tax credit for the acquisition from A.

• A will remit the GST payable in respect of its supply to you.

• Any payment from A to a Service Provider (using the Service Provider Commission or Third Party Broker Commission funds) is supported by a tax invoice issued by the Service Provider to A or a Recipient Created Tax Invoice ("RCTI") issued by A to the Service Provider. A will not issue an RCTI to a Service Provider in circumstances where the Service Provider has already issued a tax invoice to the Client.

• A will claim an input tax credit in respect of the acquisition that A is taken to acquire from the Service Provider.