Edited version of your written advice

Authorisation Number: 1012852893015

Date of advice: 7 August 2015

Ruling

Subject: Goods and services tax and agency relationships

Question 1

For the purposes of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) is Entity A acting as an agent for their customer (Customer) when it facilitates the provision of Products by Entity B?

Answer

Yes, Entity A is acting as an agent for their Customer, when Entity A facilitates the provision of the Products supplied by Entity B.

Question 2

If Entity A is acting as agent of its Customers in acquiring the Products from Entity B is Entity A liable to account for GST on amounts paid to Entity A by Customers as a reimbursement of fees charged by Entity B for the Products?

Answer

No, Entity A is not liable to account for GST on amounts paid to Entity A by Customers as a reimbursement of the fees charged by Entity B for the Products.

Relevant facts and circumstances

Entity A is carrying on an enterprise of enabling its clients to access information from a third party (Entity B).

Entity A is registered for the goods and services tax (GST) from 1 July 2000.

Entity A enters into an agreement (Agreement) with its customers (Customer) for the supply of 'information services'. We have sighted a copy of the Agreement. The Agreement explains that Entity A is not required to provide any services to the Customer until the parties enter into a separate Statement of Work.

The Agreement defines the term 'Services' as the information and data analytic services and any other services more specifically set out in the particular Statements of Work formed under the Agreement.

The Statement of Work is a separate, binding contract between the Customer and Entity A formed in accordance with Agreement, relating to particular services that the Customer agrees to acquire and Entity A agrees to provide.

The Agreement provides that the Price that a Customer agrees to pay is the price for the Services to Entity A specified in the Statement of Work. This amount includes all charges for any items used or supplied in connection with the Services.

The Agreement explains that the Price will automatically increase by any amount equal to the increase in any tax, fee, levy, government charge, GST, statutory fee or third party input costs upon or in relation to the Services.

Statement of Work (Proposed version)

The Statement of Work Entity A now intends to enter with Customers explicitly states that Entity A is obtaining searches (the Product) as agent for the Customer. We have sighted a sample Statement of Work (Sample Statement).

To supply the information (i.e. the Product) Entity A will access (or provide Customers with access) to its computer system to obtain the Products.

The Sample Statement provides the following terms:

• In providing the services, the Customer appoints Entity A as its agent (emphasis added) to access the Product information on its behalf and to provide the services on a pass through basis.

• Customer indemnifies Entity A for acting as its agent in performing these services.

Entity A invoices their Customer independently and the invoice issued includes the amount Entity A has paid Entity B to provide the Product to the Customer. The invoice separately identifies the part of the payment which is due for the Product. The remaining part of the invoice is for the taxable supply of information services provided by Entity A.

Agreement between Entity A and Entity B

In order for Entity A to provide the information services to a Customer Entity A enters into a contract (Contract) with Entity B to access information maintained in their respective data system.

For the purposes of this ruling response the relevant information accessed from Entity B is referred to as the 'Product'.

Access to Products, either by Entity A or their Customer, is through use of Entity A's computer systems. This only occurs once Entity A has entered into the relevant Contract which grants Entity A the licence or access to the Product.

The Contract provides that Entity A is solely liable for the payment of all fees due for Products obtained through Entity A's computer.

Where there is a reference to 'customer' in the Contract this is a reference to Entity A's customers. These third parties, that are the Customers, do not have a contractual relationship with Entity B.

The Contract imposes conditions about the usage of the Products obtained which are applicable to whoever accesses the Product information in possession of Entity B.

Entity A is responsible to ensure the integrity of any access made to the information database. Entity B have no contract with Entity A's customer to enforce such integrity other than through other legal means.

Entity A notified Entity B in writing that it was updating and clarifying its services agreements with clients/customers. Relevantly Entity A has notified entity B that it is obtaining the Products as agent for a Customer.

In response to Entity A's notification, Entity B acquiesced with the terms and conditions in Entity A's letter.

Relevant legislative provisions

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

Reasons for decision

1. For the purposes of the GST Act is Entity A acting as an agent for their Customer when it facilitates the provision of Products by Entity B?

Section 9-5 of the GST Act provides the requirements for a 'taxable supply'.

The issues that need to be addressed is whether the supply of Entity B's information, that is the Products, to the Customer is either:

• acquired by Entity A as agent on behalf of the Customer, or

• acquired by Entity A in its own right to make the supply of a service (the information service) to the Customer, which will include providing the Product.

Entity A submits that under the terms of their Sample Statement with a Customer, it is acting as agent for the Customer when it provides Products from Entity B. On this basis the Products provided to a Customer are not a supply that is made for consideration by Entity A. That is, the Product does not form part of any taxable supply of the information services provided by Entity A.

Goods and Services Tax Ruling GSTR 2000/37, Goods and services tax: agency relationships and the application of the law (GSTR 2000/37) discusses the general law in relation to agency relationships and at paragraph 11 explains that for commercial law purposes, an agent is a person who is authorised, either expressly or implied, by a principle to act for that principle so as to create or affect legal relationships between the principle and third parties.

Paragraph 28 of GSTR 2000/37 also provides for consideration a list of factors which may indicate an agency relationship.

Agency relationships

Factors that indicate an agency relationship

28. In most cases, any relevant documentation about the business relationship, the description used by the parties and the conduct of the parties establish the existence of an agency relationship. Therefore, the following factors may show that you are an agent under an agency relationship, although no single factor (by itself) is determinative:

• any description of you as an agent, having authority to act for another party, in an agreement (expressed or implied) between you and the other party;

• any exercise of the authority that you are given to enter into legal relations with a third party;

• whether you bear any significant commercial risk;

• whether you act in your own name;

• whether you are remunerated for your services by way of commissions and whether you are entitled to keep any part of your remuneration secret from another party; and

• whether you decide the price of things that you might sell to third parties.

Further paragraph 29 of GSTR 2000/37 acknowledges that situations may arise where the existence of a principle is disclosed but not named, or may not be disclosed to third parties. In such cases the documents used by the parties and the conduct of the parties may still indicate the existence of an agency relationship.

Therefore, whether a relationship between parties is one of agency is determined by an examination of the particular facts surrounding the relevant transaction. Agreements may seek to contain descriptions to clarify the relationship however, a clause in an agreement which states that an agency relationship exists must be considered with all the other terms of the agreement. Where an agency clause exists, such a clause cannot receive effect according to its terms if it contradicts the effect of the agreement as a whole.

In this case we accept the submission that Entity A acts as an agent for the Customer when they acquire the Products. This is because the Sample Statement effectively gives Entity A the authority to enter into arrangements such that they can acquire the Product on behalf of the Customer.

In this context Entity A had entered into the contractual relationship with Entity B to make the acquisition on behalf of their Customer. This contract does not disclose the identity of the principle (that is, the Customer) for whom Entity A makes the acquisition. However the contract does not alter the fact that Entity A is making the acquisition within the scope of their authority for the Customer.

Further the amount recovered by Entity A from the Customer is equivalent to the amount Entity A pays to Entity B. This amount is independently identified on the invoice provided to the Customer.

Accordingly, based on the above factors we consider that in the context of the supplies made by Entity A to their Customer under the Customer Agreement, Entity A obtains the Products from Entity B as a purchasing agent for the Customer.

2. If Entity A is acting as agent of its Customers in acquiring the Products from Entity B, is Entity A liable to account for GST on amounts paid to Entity A by Customers as a reimbursement of fees charged by Entity B for the Products?

Paragraph 48 of GSTR 2000/37 states:

48. Agents may incur expenses on a client matter both as an agent of the client and as a principal in the ordinary course of providing their services to the client. For example, in most cases, even though agreements between solicitors and clients may not use the term agent or agency, it is clear that the clients have authorised the solicitors to act on their behalf in the particular matter. When the solicitor acts as an agent for the client, the general law of agency applies so that the solicitor is 'standing in the shoes' of the client.

Where Entity A receives a payment from their Customer, which includes amounts to recover any fee charged by Entity B for Products obtained by Entity A, this payment does not form part of the consideration for a taxable supply Entity A makes to their Customer. Accordingly, Entity A does not have an obligation to remit GST on the amount received from the Customer which represents the acquisition of the Product made on behalf of the Customer.