Edited version of your written advice

Authorisation Number: 1051470407507

Date of advice: 01 February 2019

Ruling

Subject: GST and 153-B Agreements

Question 1

Does the 153-B Agreement fall within the parameters of Subdivision 153-B of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? In particular, will section 153-50 apply in circumstances where the relevant tax invoices are issued to the principle?

Answer

The 153-B Agreement will meet the requirements of section 153-50 of the GST Act. However, you will still need to hold a valid tax invoice to claim GST credits. Subsection 29-70 (1A) states where a document does not satisfy the tax invoice criteria a recipient may treat a document as a tax invoice, if all the required information can be clearly ascertained from other documents the supplier has provided to the taxpayer.

Question 2

Does the amount payable to you under the agreement include a 'commission or similar payment' for the purposes of subsection 153-60(3) of the GST Act?

Answer

No.

The scheme commences on:

The date of issue of the notice of private ruling.

Relevant facts and circumstances

Background

You currently conduct a business in Australia.

You entered into an agreement for the sale of your business to the purchaser.

The purchaser currently conducts no business operations in Australia. In order to facilitate a smooth transition of ownership of the business from you to the purchaser, the parties will enter into a transitional agreement (TA). Broadly, the TA will state that you will provide services to the purchaser, on a transitional basis, until the purchaser has the requisite capacity to carry on the business in Australia without assistance. A draft TA was provided as Annexure B.

The draft TA sets out the terms of the arrangement as currently proposed by the parties, with one exception; namely, that the parties intend to insert into the draft TA an additional clause setting out a Subdivision 153-B agreement prepared in accordance with the requirements of the GST Act, in the form set out in Annexure C (153-B Agreement).

The Commissioner is asked to rule on the basis that the terms of the TA and the 153-B Agreement will be materially the same as those set out in the annexures and form part of the scheme for the purposes of the ruling request.

The TA also refers to a supply agreement which will be entered into by you and the purchaser on or about the same day as the TA. You submit that the supply agreement is not necessary for the purpose of the Commissioner issuing the private ruling in response to this ruling request and has not been provided.

Proposed arrangement

In order to give effect to some of its obligations under the TA, you intend to enter into the 153-B Agreement which, as noted above, will be inserted into the TA. Pursuant to the arrangement, you will enter into an agreement with the purchaser (as contemplated by subsection 153-50(1)) to make acquisitions from third parties on behalf of the purchaser and to facilitate acquisitions from third parties, including by providing consideration for such acquisitions, for the purposes of subparagraphs153-50(1)(a)(iii) and (iv) of the GST Act. The 153-B Agreement will set out the specified kinds of acquisitions that fall within the scope of the arrangement, as required by paragraph 153-50(1)(b).

The TA sets out in detail the services to be provided. It is noted that most of the supplies listed in Schedule 1 are not "specified acquisitions" for the purposes of the 153-B Agreement. Most of the services set out in Schedule 1 will be provided directly by you to the purchaser and will not involve acquisitions made or facilitated on the purchaser’s behalf, notwithstanding that in some cases you may make acquisitions of supplies from third parties to enable you to discharge your obligations under the TA.

The acquisitions that will fall within the scope of the 153-B Agreement are those that relate to goods acquired by you from third parties on behalf of the purchaser. The goods will be acquired in the course of you fulfilling your duties under the 'Function' headings 'Trade procurement' and 'Non-trade Procurement' in Schedule 1. The acquisitions will mainly be of goods but may include incidental services, such as delivery of the goods. This is further reflected in the draft 153-B Agreement.

For ease of reference, you referred to relevant clauses of the TA, which are relevant for the purposes of the ruling request.

You note the following relevant facts in relation to the acquisitions you intend to make under the 153-B Agreement:

1. You and the purchaser are both registered for GST (or will be registered for GST by the time of completion of the SPA).

2. To the extent that acquisitions would be creditable in the hands of the purchaser:

a. You intend to treat the acquisitions as creditable acquisitions made by you from the relevant suppliers.

b. You will then recognise a supply made by you to the purchaser of the same thing that you acquired from the relevant supplier, with a value equal to 10/11 of the amount that is payable to you by the purchaser in respect of the acquisition.

c. You understand that the purchaser will recognise a corresponding creditable acquisition made from you.

d. the purchaser will be liable to pay to you an amount with respect to products acquired by you from third parties on its behalf. The amount includes the GST­ exclusive price paid by or on behalf of a company to acquire the product from a third party supplier less any rebate, discount or similar benefit.

3. None of the acquisitions are inbound intangible consumer supplies or offshore supplies of low value goods for the purposes of section 84-55 of the GST Act.

4. With respect to the tax invoices issued by suppliers in relation to the relevant acquisitions, you understand the following:

a. in some cases, the relevant tax invoices will be made out to the purchaser;

b. in some cases, the relevant tax invoices will be made out to you, who will be acting entirely in your capacity as agent for the purchaser under the 153-B Agreement with respect to those acquisitions; and

c. in some cases, the relevant tax invoices will be made out to you and will specify supplies that are made to you acting in your capacity as agent for the purchaser under the 153-B Agreement as well as supplies that are made to you acting in your own right.

5. The Commissioner is asked to assume that, with the exception of the requirement in subparagraph29-70(1)(c)(ii), that is, the specification of the recipient's identity or ABN, the requirements for a valid tax invoice set out in section 29-70 of the GST Act will be satisfied in respect of the tax invoices issued by suppliers with respect to the relevant acquisitions made under the 153-B Agreement.

The agency arrangement will not involve the making or the facilitation of supplies by you on behalf of the purchaser. This is reflected in the 153-B Agreement which is concerned only with acquisitions. It is noted in this regard that the words "any or all" in paragraph153-50(1)(a) indicate that parties to a Subdivision 153-B arrangement can agree that the arrangement will apply to specified acquisitions but not to taxable supplies.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 19 Section 29-70(1)

Reasons for decision

Question 1

Section 153-50 provides that an entity (the principal) may, in writing, enter into an arrangement with another entity (the intermediary) under which the intermediary is treated as a separate supplier and/or acquirer. The intermediary is treated as principal in its own right.

Section 153-60, which is about the effect of these arrangements on acquisitions, only applies to the creditable acquisitions covered by the arrangement.

Subsection 153-60(1) provides that the principal (the purchaser) and the intermediary (you) treat creditable acquisitions that the principal makes from third parties through the intermediary as two separate acquisitions and that they are treated as acting between themselves as principal to principal for GST purposes. When you make a creditable acquisition from a third party on behalf of the purchaser, you are taken to make a taxable supply to the purchaser of the same thing that you are taken to acquire (subsection 153-60(2)).

The acquisitions that will fall within the scope of the 153-B Agreement are those that relate to goods acquired by you from third parties on behalf of the purchaser. The goods will be acquired in the course of you fulfilling your duties. The acquisitions will mainly be of goods but may include incidental services, such as delivery of the goods.

Therefore, your 153-B Agreement will fall within the parameters of Subdivision 153-B of the GST Act.

Tax invoices

The 153-B Agreement is in place as part of a transitional arrangement where you will provide goods and services to the purchaser until they have the requisite capacity to carry on the business in Australia without assistance.

As the third party suppliers become more familiar with the new arrangement, there are likely to be variances in the tax invoice details provided by them. For example, at the commencement of the transition, it would be expected that all invoices will remain addressed to you. However, as time elapses, it would be expected that some tax invoices will begin to be issued in the name of the purchaser due to suppliers adapting to the new arrangement.

You have explained that, regardless of the name on the tax invoice, while the 153-B Agreement is in force, all acquisitions will be made by you and only you will be in a position to make payment. This is because throughout the transition period the purchaser will not have access to the information technology systems to enable them to make payments to the suppliers.

However, you will still need to hold a valid tax invoice to claim your GST credits. Subsection 29-70 (1A) states where a document does not satisfy the tax invoice criteria a recipient may treat a document as a tax invoice, if all the required information can be clearly ascertained from other documents the supplier has provided to the taxpayer.

Providing the invoices from the third party suppliers meet all the other criteria for a valid tax invoice apart from the recipient’s name, you may be able to combine that information with other documentation provided by the supplier. For example, the contractual or transitional arrangements between you and the suppliers may contain enough information, when combined with the deficient invoice, to allow you to treat the supplier’s invoice as a valid tax invoice for your acquisitions as intermediary under the 153-B Agreement.

Question 2

Subsection 153-60(3) states:

If the principal pays, or is liable to pay, an amount, as a commission or similar payment, to the intermediary for the intermediary’s acquisition from the third party:

(a) for the purpose of paragraph (2)(b), the amount payable by the principal to the intermediary is taken to be increased 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.

Under the TA, the purchaser will be liable to pay to you, on a cost recovery basis, an amount with respect to products acquired by you from third parties on its behalf.

The amount includes the GST­ exclusive price paid by or on behalf of a company to acquire the product from a third party supplier less any rebate, discount or similar benefit.

As the charges for your transition services under the 153-B Agreement are on a cost recovery basis only, they do not include a separate commission or similar payment that would trigger subsection 153-60(3).