Edited version of your written advice

Authorisation Number: 1012888483361

Date of advice: 6 October 2015

Ruling

Subject: GST and volume rebate received from non-resident company

Question 1

Is the cheque payment for the volume rebate that you receive from the overseas company, Company X consideration for a GST-free supply under section 38-190 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No. You have not made a supply to Company X under subsection 9-10(4) of the GST Act when you receive the cheque payment for the volume rebate as the payment is a supply of money and not consideration for a supply.

Question 2

Is Division 134 of the GST Act applicable to the payment of the volume rebate you receive from the overseas company, Company X?

Answer

No. The payment of the volume rebate you receive from Company X is not subject to an increasing adjustment under subsection 134-10(1A) of the GST Act.

Relevant fact

You are an Australian company and registered for the goods and services tax (GST).

You purchase goods from an Australian distributor that is registered for GST.

The Australian distributor purchases goods from Company X and imports the goods into Australia. The Australian distributor subsequently sells the goods to you and charges GST on the supply. You claim back the GST paid on the purchases as per amount in the tax invoice received from the Australian distributor.

You have signed up to participate in a Program organised by Company X. By entering into the program you receive a volume rebate from Company X.

In order to receive the rebate from Company X, you are required to meet the targets set quarterly by Company X. You do not provide any information to Company X to receive the rebate. All information is provided by the Australian distributor directly to Company X. Company X makes the payment of the rebate by sending a cheque to you.

If you do not meet the quarterly target you do not receive a rebate from Company X.

You do not receive the rebate because you discount the price of any products you sold to end users. You are not required to reflect the rebate by adjusting the price of the goods sold to the consumers. Company X does not dictate the price that you sell your goods.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 section 134-10

Reasons for decisions

Question 1

Summary

Based on the information received, you have not made a supply to Company X under subsection 9-10(4) of the GST Act when you receive a cheque for the volume rebate, as the payment is a supply of money and not consideration for a supply.

Detailed Reasoning

GST is payable on a taxable supply. One of the requirements for a taxable supply is the supply is made for consideration.

Section 9-10 of the GST Act provides the meaning of 'supply' and under subsection 9-10(4) of the GST Act a supply does not include a supply of money unless the money is provided as consideration for a supply that is a supply of money.

Goods and Services Tax Ruling GSTR 2006/9 examines the meaning of supply in the GST Act.

According to paragraph 123 in GSTR 2006/9, the Commissioner considers that an agreement that does not bind the parties in some way is not sufficient to establish a supply by one party to the other unless there is something else, such as goods, services or some other thing passing between the parties.

Example 3 in GSTR 2006/9 examines a transaction (in a tripartite) arrangement that is not based in an agreement that binds the parties and does not involve a supply of goods, services, or some other thing. Example 3 appears as follows:

Example 3: loyalty payment with no supply of goods, services, or some other thing

125. M is a manufacturer of goods. M supplies goods to authorised dealers who on-supply those goods to end users. M makes a standing offer to end users that if an end user's purchases from an authorised dealer reach a certain level, M will pay the end user a 'loyalty payment'.

126. D is a dealer and E is an end user. The supply chain is that M supplies goods to D and D supplies goods to E. E receives a loyalty payment from M.

127. There is no supply from E to M in relation to the loyalty payment. There is a contract between M and E as a result of E's acceptance of M's standing offer to make the loyalty payment. However, E is not under any binding obligation to M to purchase goods through D and does not make a supply to M simply by making acquisitions from D.

128. It is E's entry into the contract with D for supply of the goods to E that constitutes E's acceptance of M's standing offer and the contract between M and E is formed at this time. Although M is obliged to make the loyalty payment to E, at no point can M compel E to complete the contract of sale with D.

129. In the absence of any entry into an obligation by E to complete a contract of sale with D, E also does not provide or furnish anything else to M that may be considered to be a supply. There is no supply of goods, services or some other thing by E to M. The loyalty payment made by M to E cannot be consideration for a supply from E to M because E does not make a supply to M. Further, the payment does not give rise to an adjustment event for either M or E. However, if the payment is made on or after 1 July 2010, and the requirements of Division 134 are met, M will be entitled to a decreasing adjustment of 1/11 of the third party payment. If E is making the acquisition wholly for a creditable purpose and is registered or required to be registered E will be subject to an increasing adjustment of 1/11 of the third party payment.

From the information received your arrangement with Company X is similar to example 3 since under the program:

• you only accept Company X's offer to provide you with a rebate after purchasing a certain amount of goods from the Australian distributor; and

• you are not making any supply of goods, services or some other thing to Company X as you are not required to do something specific for Company X to receive the cheque payment for the rebate.

In this instance, the cheque payment you receive is a payment of money and therefore not a supply under subsection 9-10(4) of the GST Act. Accordingly, the rebate payment you receive from Company X is not consideration for a supply you have made to Company X.

Question 2

Summary

Based on the information received, the payment of the volume rebate you receive from Company X is not subject to an increasing adjustment under subsection 134-10(1A) of the GST Act.

Detailed reasoning

Division 134 of the GST Act is about adjustments in regard to third party payments.

Section 134-10 of the GST Act is about increasing adjustments for payments received by third parties and states:

(1) You have an increasing adjustment if:

a) you receive a payment from an entity (the payer) that supplied a thing that you acquire from another entity (whether or not that other entity acquired the thing from the payer); and

b) your acquisition of the thing form the other entity:

i. was a *creditable acquisition; or

ii. would have been a creditable acquisition but for a reason to which subsection (3) applies; and

c) that payment is in one or more of the following forms:

i. a payment of money;

ii. an offset of an amount of money that you owe to the payer;

iii. a crediting of an amount of money to an account that you hold; and

d) the payment is made in connection with, in response to for the inducement of your acquisition of the thing; and

e) the payment is not *consideration for a supply from you.

(*denotes a defined term in section 195-1 of the GST Act)

From the information received, the payment you received from Company X meets the requirements in subsection 134-10 of the GST Act as:

• You receive a payment from Company X that supplied the goods that you acquire from the Australian distributor;

• Your acquisition of the goods from the Australian distribution is a creditable acquisition since the acquisition is for your business purposes, you paid for the acquisition and you are registered for GST;

• You receive a cheque as payment for the rebate;

• The payment is made in connection to your acquisition of the thing; and

• The payment from Company X is not consideration for a supply from you.

However, under subsection 134-10(1A), subsection 134-10(1) does not apply unless the supply of the thing by the payer:

a) was a *taxable supply; or

b) would have been a taxable supply but for any of the following:

i. the payer and the entity that acquired the thing from the payer being *members of the same *GST group;

ii. the payer and the entity that acquired the thing from the payer being members of the same *GST religious group;

iii. the payer being the *joint venture operator for a *GST joint venture, and the entity that acquired the thing from the payer being a *participant in the GST joint venture.

Relevant to you is paragraph 134-10(1A)(a) of the GST Act.

One of the requirements for a supply of goods to be a taxable supply is that the supply of goods is connected with Australia.

Under subsection 9-25(3) of the GST Act, a supply of goods that involves the goods being brought to the indirect tax zone is connected with Australia if the supplier either:

a) imports the goods into Australia; or

b) installs or assembles the goods in Australia.

The Australian distributor is the importer of the goods when the goods are brought to Australia. In this instance the supply of the goods by Company X to the Australian distributor is not connected with Australia since the requirements in subsection 9-25(3) of the GST Act are not met (for more information on supplies connected with Australia refer to Goods and Services Tax Ruling GSTR 200/31 available from the legal database of www.ato.gov.au).

Accordingly, the supply of goods by Company X to the Australian distributor is not a taxable supply under section 9-5 of the GST Act because the supply of goods by Company X to the distributor is not connected with Australia. You therefore will not have an increasing adjustment under subsection 134-10(1A) of the GST Act.