Edited version of private advice

Authorisation Number: 1012673357396

Ruling

Subject: GST and tripartite arrangement - payment of fees for certain Persons

Question 1

Is Entity A (you) making creditable acquisitions for which you make payments to Service Providers for certain fees in respect of certain Persons?

Answer

No, you do not make creditable acquisitions for which you make payments to Service Providers for certain fees in respect of certain Persons.

Question 2

Are the payments you receive from Entity B relating to the fees for certain Persons, consideration for any taxable supplies made by you?

Answer

No, the payments you receive from Entity B relating to the fees for certain Persons, are not consideration for any taxable supplies made by you.

Relevant facts and circumstances

Entity A is registered for GST.

Entity B is registered for GST.

Under an Act, you enter into contracts with Service Providers for the supply of services to Persons.

A Service Provider may charge fees to these Persons.

When the Person is also a certain Person, they are exempt from paying the amounts because Entity B pays these amounts.

You advise Service Providers that they may not charge certain Persons the maintenance agreement fees and replacement fees.

You do not claim input tax credits in relation to the GST included in the certain Person's fees which you pay to the Service Providers.

Entity B is not a party to an agreement with any of the Service Providers.

You have an agreement with Entity B.

No additional payments are received by you.

A copy of the relevant agreements were provided to the ATO.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 9-5,

A New Tax System (Goods and Services Tax) Act 1999 9-10,

A New Tax System (Goods and Services Tax) Act 1999 9-15,

A New Tax System (Goods and Services Tax) Act 1999 11-5,

A New Tax System (Goods and Services Tax) Act 1999 11-10,

A New Tax System (Goods and Services Tax) Act 1999 11-20 and

A New Tax System (Goods and Services Tax) Act 1999 195-1.

Reasons for decision

Question 1

Summary

An examination of the arrangement indicates that you do not make a creditable acquisition of anything when you pay the fees for certain Persons. It is considered that you are merely paying for acquisitions made by certain Persons for which Entity B accepts financial responsibility. That is, you are a third party payer of another entity's acquisition. As such, you do not acquire anything for which these payments are consideration.

The amount you pay to the Service Providers is inclusive of GST but you are not the acquirer of the relevant supplies. Therefore, you are not entitled to claim an input credit for the GST inclusive payment that you make.

Detailed reasoning

Under section 11-20 you are entitled to input tax credits for any creditable acquisition that you make.

Section 11-5 provides you make a creditable acquisition if:

(a) you acquire anything solely or partly for a creditable purpose

(b) the supply of the thing to you is a taxable supply

(c) you provide, or are liable to provide, consideration for the supply, and

(d) you are registered or required to be registered for GST.

Section 11-10 defines an 'acquisition' as any form of acquisition whatsoever.

Section 11-15 provides that you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise.

We must examine if all of the requirements of section 11-5 will be satisfied to determine if the maintenance agreement fees and replacement fees you pay are for creditable acquisitions to you from the Service Providers.

You make these payments to the Service Providers as part of arrangements involving several parties.

There is no requirement under the Act for you to pay the Service Providers the fees. You have agreed to pay for these fees under an administrative arrangement you have with Entity B. It is Entity B who has accepted financial responsibility for the supplies that are provided to certain Persons.

In relation to the requirement in paragraph 11-5(b), if you are the recipient and the supply is a taxable supply, then this element would be satisfied. The supplies that you are paying for include some taxable supplies and some GST-free supplies. For the supplies that are taxable supplies we need to determine if you are the recipient for paragraph 11-5(b) to be satisfied. It is important to note that the recipient of the supply will not necessarily be the entity who pays the supplier.

An analysis of an arrangement may reveal that:

• a supply is made to one entity (the recipient) but be provided to another entity

• two or more supplies are made for the one activity, or

• a supply is made and provided to one entity but the consideration for the supply is paid by a third party.

In your case, despite paying for these supplies we do not consider that you are the recipient. You have agreed to pay for these supplies because of your agreement with Entity B and not because you are acquiring these supplies from the Service Providers. But for Entity B's financial acceptance of these payments, the payments for these supplies would be payable by the certain Persons as the Act does not require you to pay for these supplies.

Furthermore, you do not receive anything additional other than the amounts payable by you under the agreement with Entity B.

You are merely paying for acquisitions made by the certain Persons for which Entity B accepts financial responsibility. That is, you are making third party payments to the Service Providers on behalf of Entity B. As such, you do not acquire anything when you pay the fees to the Service Providers.

Consequently the requirements of paragraph 11-5(b) have not been met and you do not make creditable acquisitions. You are therefore not entitled to input tax credits when you pay the Service Providers for the fees relating to the certain Persons.

Question 2

Summary

An examination of your arrangement indicates that these payments are not consideration for any taxable supplies made by you. The payments made by Entity B to you are reimbursements of the third party payments that you make on Entity B's behalf to the Service Providers and do not have sufficient nexus with any supplies you make to Entity B. Rather, the payments made by Entity B to you have a nexus with the supplies made by the Service Providers to the certain Persons.

Consequently, no GST should be included in the amounts you invoice Entity B.

Detailed reasoning

Section 9-40 provides that you must pay GST on any taxable supply that you make.

Section 9-5 provides that you make a taxable supply if:

• you make the supply for consideration

• the supply is made in the course or furtherance of an enterprise that you carry on

• the supply is connected with Australia, and

• you are registered or required to be registered for GST.

However the supply is not a taxable supply to the extent that it is GST-free or input taxed.

The term 'supply' is defined in section 9-10 as 'any form of supply whatsoever' and includes:

• a supply of goods

• a supply of services

• the creation, grant, transfer, assignment or surrender of any right, and

• an entry into, or release from an obligation:

• to do anything

• to refrain from an act, or

• to tolerate an act or situation.

Further, subsection 9-10(2) states that it does not matter whether the payment, act or forbearance was voluntary, or whether it was by the recipient of the supply.

'Consideration' is defined in section 9-15 as any payment or any act or forbearance in connection with, in response to or for the inducement of a supply of anything. Further, subsection 9-15(2) states that it does not matter whether the payment, act or forbearance was voluntary, or whether it was by the recipient of the supply.

'Recipient' is defined in section 195-1 to mean the entity to which the supply was made.

We must examine if all of the requirements of section 9-5 will be satisfied to determine if the amounts you receive from Entity B are consideration for a supply you either make to Entity B or which you make to another party and which is paid by Entity B.

Paragraph 180 of GSTR 2006/9 advises that in determining whether there is a supply for consideration, other GST rulings take the view that:

• the test is whether there is a sufficient nexus between the supply and the payment made, and this test is objective

• regard needs to be had to the true character of the transaction, and

• an arrangement between parties will be characterised not merely by the description that the parties give to the arrangement, but by looking at all of the transactions entered into and the circumstances in which the transactions are made.

Paragraphs 40 to 43 of GSTR 2012/2 discuss where there is an insufficient nexus between a financial assistance payment and a supply. A comparison can be drawn with your case.

Paragraph 40 of GSTR 2012/2 advises that things are often supplied by the payee to the payer that satisfy the statutory definition of a 'supply', given the broad meaning of 'supply'. In some circumstances, things may be supplied by the payee that are merely incidental or have an insufficient nexus to the financial assistance payment. Further, in such circumstances, although there may be supplies which are merely incidental or have an insufficient nexus to the financial assistance payment, the payment may be consideration for a good, service or some other thing supplied under the arrangement.

Example 6 in GSTR 2012/2 provides an example of where there is an insufficient nexus:

41. A business qualifies for a government financial assistance payment that is to promote the advancement of technology. For the purposes of the government agency's own internal assurances, the business is required to provide a report to the agency outlining how the funds were expended.

42. The payment is made to enable the business to improve its technological capability, not to obtain the report on how the financial assistance payment was expended. The financial assistance payment does not have a sufficient nexus with the supply of the report because the payment was not in connection with, in response to or for the inducement of the report.

43. Therefore, there are no GST consequences for either party.

We have established that you make payments on Entity B's behalf to the Service Providers for fees relating to certain Persons. You then invoice Entity B for those fees.

While the agreement entered into between you and Entity B may give rise to supplies such as a promise to do something, it is considered that, in the context of the overall arrangements anything supplied by you under the terms of the agreement has an insufficient nexus with Entity B's payments. Rather, the payments are reimbursements of the third party payments that you make on Entity B's behalf to the Service Providers and have a nexus with the supplies made by the Service Providers to the certain Persons.

As such the payments received from Entity B in respect of the fees you paid to the Service Providers for certain Persons are not consideration for taxable supplies made by you. Consequently, no GST should be included in the amounts you invoice Entity B.