Edited version of private advice

Authorisation Number: 1051676912776

Date of advice: 12 May 2020

Ruling

Subject: GST and electronic distribution platform

Question 1

Is the service that you provide an 'Electronic Distribution Platform' for the purposes of subsection 84-70(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes. The service that you provide is an 'Electronic Distribution Platform' for the purposes of subsection 84-70(1) of the GST Act.

Question 2

Does section 84-55 of the GST Act apply to your supplies?

Answer

Yes, but not all supplies made through your servicecome within section 84-55 of the GST Act.

Supplies made through your service that fall within section 84-55 are:

·         All supplies made by means of electronic communication (digital supplies) including those supplies that are treated as inbound intangible consumer supplies under section 84-60.

·         All offshore supplies of low value imported goods due to subsection 84-81(3).

The scheme commences on:

xx xx xxxx

Relevant facts and circumstances

You are a private company incorporated in an overseas jurisdiction and you sell your product, (the/your product), to your customers (merchants) to "assist and facilitate" the sale of certain on-line supplies to international customers (consumers).

When purchasing the product, the merchant signs an agreement allowing you to be an entity selling goods in your own name but on behalf of the merchant for the on-line sales made through your product.

A copy of the unsigned agreement was provided to the ATO on xx xx xxxx. The entire agreement is relevant to this private ruling. (This agreement may be updated and amended if in the future you are to include supplies of low value imported goods (amended agreement). The roles, functions and obligations of the Merchant and you will not be materially different to those described in the agreement and it is contemplated that the merchant will always assume product liability for low value imported goods in any amended agreement.

The practical effect of the agreement is that the product becomes embedded into the merchant's existing website, through the operation of your product.

You may not have direct custody or receipt of the payment but do have control or discretion over the remittance of the funds. You control whether payments happen or not and are always the final step before payment is progressed through the checkout process. Your product must be used in order to progress the payment to payment service providers.

Merchants who are also EDPs

Currently you do not sell your product to merchants who are an online market place (i.e. EDP). In the future, if you sold the product to an entity that is an EDP there will be an agreement entered into for the purposes of subsection 84-55(2) which states the entity to be treated as the supplier of the online sales.

Relevant legislative provisions

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

Section 84-55

Section 84-60

Section 84-65

Section 84-70

Subsection 84-81(3)

Reasons for decision

Summary to Question 1

Yes. The service that you provide is an 'Electronic Distribution Platform' for the purposes of subsection 84-70(1) of the GST Act.

Unless expressly quoted all references in this ruling are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

If you buy and resell products then you would not be an EDP as you would be the entity selling to the end-users.

Are you a reseller?

In this case it is concluded that, based on the agreement and product's functionality, your role is that of an agent, and not a seller/reseller in your own right.

As you are not a reseller we now can consider if the service you provide to merchants through your product is an electronic distribution platform (EDP).

Law Companion Ruling LCR 2018/2 GST on supplies made through electronic distribution platforms explains the EDP rules. The EDP rules require that supplies made by you meet four steps:

·         Step 1 Is the supply made through an EDP?

·         Step 2 Is the supply subject to the EDP rules?

·         Step 3 Is the supply excluded from the EDP rules?

·         Step 4 If multiple EDPs are involved, is the EDP operator responsible for GST?

If each of the EDP rules is satisfied, you instead of the merchant are treated for GST purposes as:

• having made the supply
• having done so for the consideration for which it was made, and
• having done so in the course or furtherance of an enterprise that it carries on.

Step 1: Is the supply made through an EDP?

Subsection 84-70(1)

Section 84-70 explains the meaning of EDP. The definition provides that an EDP is:

(1) A service (including a website, internet portal, gateway, store or marketplace) is an electronic distribution platform if:

(a) the service allows entities to make supplies available to end-users; and

(b) the service is delivered by means of electronic communication; and

(c) any of the supplies that are inbound intangible consumer supplies are to be made by means of electronic communication.

Provides a service: - meaning of 'service':

Law Companion Ruling LCR 2018/2 GST on supplies made through electronic distribution platforms explains the EDP rules.

Paragraph 20 of LCR 2018/2 states the following:

A service that can be an EDP includes (but is not limited to) a website, internet portal, gateway, store or marketplace.

The wording in subsection 84-70(1) states a service includes a number of examples and paragraph 20 of LCR 2018/2 indicates that something else apart from the examples given in the subsection may be considered to be an EDP.

The description of service is very broad. Your product is an interface that receives requests, returns information, performs actions, and performs applications components such as the taxpayer's logo. The software integrates with the merchant's website, or platform, and enables transactions from the merchant to the buyer to occur in real time, electronically, without human intervention.

Each example listed in subsection 84-70(1) of 'website', 'internet portal, 'gateway', 'store' or 'marketplace' is not defined in the Dictionary in section 195-1. The term 'gateway' can be explained as a device that interconnects two networks (see A Dictionary of Computer Science (7^thed), Andrew Butterfield, Gerard Ekambe Ngondi, Anne Kerr (eds), Oxford University Press, online version 2016). Your product is described as 'interface' which is a connection between two connections and a 'gateway' has a similar function. It is considered that the term 'interface' fits within the context of the terms listed in subsection 84-70(1). It is an electronic device that operates over the internet and which interconnects two networks and allows these networks to communicate in real time.

We are of the view that you are engaged in rendering services to merchants who make supplies to end-users or consumers. The primary service of the company as per the agreement is to assist and facilitate supplies of digital services by merchants and capture relevant information to support Tax Compliance obligations.

A service will be an EDP for digital supplies to end-users where it satisfies all of three positive requirements found in subsection 84-70(1) and for offshore supplies of low value goods the first two positive elements.

In this case we are of the view that

(a) your service allows entities to make supplies available to end-users; and

(b) your service is delivered by means of electronic communication; and

(c) any of the supplies that are inbound intangible consumer supplies are to be made by means of electronic communication.

Therefore, all requirements of subsection 84-70(1) are satisfied.

Other supplies by merchants through your electronic product can also be subject to the EDP rules in the GST Act and this is further discussed under question 2 and the application of section 84-55.

Services excluded from the definition of EDP

Subsection 84-70(2)

(2) However, a service is not an electronic distribution platform solely because it is:

(a) a carriage service (within the meaning of the Telecommunications Act 1997); or

(b) a service consisting of one or more of the following:

(i) providing access to a payment system;

(ii) processing payments;

(iii) providing *vouchers the supply of which are not *taxable supplies because of section 100-5.

In this case according to the facts you provided to us the exclusions in subsection 84-70(2) do not apply to your situation.

Therefore, the service that you provide through the product meets the requirements of subsection 84-70(1) and is not excluded by subsection 84-70(2).

Summary to Question 2

Yes, but not all supplies made through your productcome within section 84-55 of the GST Act.

Supplies made through your productcome that fall within section 84-55 are:

·         All supplies made by means of electronic communication (digital supplies) including those supplies that are treated as inbound intangible consumer supplies under section 84-60

·         All offshore supplies of low value imported goods due to subsection 84-81(3).

Supplies made by Australian merchants through your product are not subject to the EDP rules.

Detailed reasoning

Under this part - steps 2 to 4 of the EDP rules are discussed.

Step 2: Is the supply subject to the EDP rules?

An operator of an EDP will be responsible for GST (provided there are no exclusions in Steps 3 and 4) and the supply is made through an EDP and the supply is:

• a supply of a digital service or digital product (inbound intangible consumer supply) -subsection 84-55(1).
• a digital supply that is not an inbound intangible consumer supply but there is an agreement in relation to these supplies pursuant to section 84-60.
• an offshore supply of low value goods - subsection 84-81(3).

Inbound intangible consumer supplies and exclusions

An inbound intangible consumer supply is defined in subsection 84-65(1) as a supply of anything other than goods or real property and the recipient is an Australian consumer, unless:

·         the thing supplied is wholly done in Australia, or

·         the supply is made wholly through an enterprise the merchant carries on in Australia.

Therefore, an inbound intangible consumer supplies is a supply of anything other than goods or real property if the recipient is an Australian consumer. This would encompass digital services and digital products. However, there are exclusions in subsection 84-65(1) from this definition where:

·         the thing is done wholly in Australia, or

·         the supply is made wholly through an enterprise the merchant carries on in Australia.

Paragraph 58 of LCR 2018/2 provides by way of practical guidance, unless the EDP operator has information to the contrary at the time of the transaction, if their agreement with the merchant supplying digital services or digital products specifies a business address for the merchant:

·         in Australia, it is reasonable to assume that the supply is not an inbound intangible consumer supply (and that therefore the merchant, and not you, will be responsible for GST).

Agreement to treat the supply of a digital service as an inbound intangible consumer supply when otherwise excluded (section 84-60)

An inbound intangible consumer supply is defined in section 84-65. A digital supply will not meet the definition when the thing being supplied is either done wholly in the indirect tax zone or the supplier makes the supply wholly through an enterprise that the supplier carries on in the indirect tax zone.

An EDP operator can treat these supplies as an inbound intangible consumer supply under section 84-60 only if your agreement with the merchant about these supplies satisfies each requirement in subsection 84-60(1) listed below:

·         the supply is made by means of electronic communication (it is a digital supply)

·         the supply is made through the EDP

·         the supply is covered by a written agreement entered into between the merchant and the EDP operator before the supply is made for the supply to be treated as if it were an inbound intangible supply made through the platform, and

·         the EDP operator is registered for GST in Australia.

The Agreement cannot, however, under subsection 84-60(2) extend the EDP operator role if:

·         the supply is GST-free or input taxed or

·         the operator will not be treated as being the supplier and making the supply as if it were an inbound intangible consumer supply.

The Agreement that you sign with each Merchant outlines your contractual obligations with that Merchant. Your Agreement is examined to determine the application of section 84-60 and whether your operator obligations under section 84-55 would be extended to include digital supplies that are:

·         done wholly in Australia; or

·         made by a supplier wholly though an enterprise that the supplier carries on in the indirect tax zone.

The examination focuses on whether Merchants, who use your product, and platform, make the types of supplies listed above. Then, as an EDP operator (satisfying section 84-70), you would be responsible under section 84-55 for these supplies.

In your Agreement:

·         In 'The Agreement' section, the Agreement is made between you and a 'Merchant'. The term 'Merchant' is not defined in the definitions clause.

·         Other terms (examples below) to be performed by the Merchant are defined in a clause to support an ordinary meaning of the term 'Merchant':

-            Price: "The Price of the Products as set by the Merchant";

-            Product Category: "...is the type of digital service offered for sale by the Merchant";

-            Refund: "The repayment of funds by the Merchant to the Customer ...".

·         The recitals (under 'Whereas') refer to a 'Merchant' without limitation, addition, or exclusion which supports that the term has a common or generic meaning;

·         The definition of 'Commissionaire' at (*) means "...acting in its own name on behalf of the Merchant..." without any limitation, addition, or exclusion which supports that the term has a common or generic meaning;

·         The definition of 'Intellectual Property Rights' in clause x refers to "All present and future right title and interest whatsoever whether legal or beneficial anywhere in the world in the copyright an in any registered designs..." - emphasis here on the words 'anywhere in the world' that supports the Merchants are global without restriction;

·         The appointment of Commissionaire in a clause and the role/functions as Commissionaire in clause xx (and addressed further in clause xxx) is without any reference to excluding Merchants located in specified global regions;

·         A clause refers to the taxes requirement including when and how the appointment as Commissionaire is to apply. Specifically, clause xxxx states that:

In relation to VAT (if any), where ...will be responsible for filing together with applying, collecting, and remitting the VAT to the appropriate taxing authority. This can apply for the sale of Products. ... will never be responsible for any taxes in the case of the sale of a good or service not constituting a Product as defined in clause xxxxx.

It is noted that there is no distinction made to Merchants based on location. Further, clause xxxxxx defines these associated terms without exclusion to any global region:

·         (xx) Relevant Tax Authorities: National tax authorities in any jurisdiction;

·         (xxx) Regulator: Any body.....in any jurisdiction;

·         (xxxx) Standard Rate: The Standard Rate of VAT in any country.

Section 84-60 would apply to extend section 84-55 to other supplies made by electronic communication (as discussed above) through your EDP.

Low value goods

We note that if a merchant using your product sells digital services and products as well as low value goods, for example accessories, you will be responsible for the GST on the digital services and products as well as for the GST on the low value goods. This is provided the supplies are not excluded under Steps 3 and 4. We also note that this requirement cannot be overridden by contractual obligations.

Step 3: Is the supply excluded from the EDP rules?

You won't be responsible for GST on supplies made through your platform where the exclusion under subsection 84-55(4) applies. In this situation, the merchant, instead of you, will be responsible for GST.

For the exclusion to apply, all of the following criteria must be met in relation to a supply made through the platform:

·         the EDP operator does not authorise:

-            the charge to the recipient of the supply

-            delivery of the supply

·         the EDP operator does not set (whether directly or indirectly) any of the terms and conditions under which the supply is made

·         a document relating to the supply issued to the recipient identifies the supply and the merchant as the supplier of that supply, and

·         the merchant and the EDP operator have agreed in writing that the merchant is the entity liable for paying the GST for the supply. Alternatively, the merchant and the EDP operator have agreed in writing that the merchant is the entity liable for paying GST for a class of supplies that includes the supply concerned.

You state the exclusion will not apply given the extent of your role under the agreement.

We agree that this exclusion does not apply as:

·         during the process at check-out, the product is integrated into the process of authorising the charge to the recipient of the supply

·         through the agreement you set the terms and conditions of the supply

·         you are identified on the invoice that is issued to the recipient of the supply, and

·         a clause of the agreement shows that you and the merchant have agreed in writing that you rather than the merchant are responsible for the GST on the supply.

Therefore, the exclusion in subsection 84-55(4) does not apply.

Step 4: If multiple EDPs are involved, which EDP operator is responsible for GST?

In some circumstances, an inbound intangible consumer supply or an offshore supply of low value goods may be made through multiple EDPs. There are special priority rules to ensure that only one of the EDP operators is responsible for GST on the supply.

Under paragraph 84-55(2)(a) EDP operators may agree amongst themselves, by way of a written agreement, on which operator is to be treated as making the supply and consequently responsible for the GST on the supply.

Currently, you do not sell the product to merchants who are an online market place (that is, an EDP). In the future, if you sold the product to an entity that is an EDP there will be an agreement entered into for the purposes of subsection 84-55(2) which states the entity to be treated as the supplier of the online sales.

However, the following is based on the existing agreement.

We note that a clause of the agreement shows that you intend to be responsible for the GST. However, this clause would only apply for digital products. This could arise where the merchants selling through both EDPs sell both digital products and goods.

There are currently no determinations that have been issued for the purposes of paragraph 84-55(2)(b). As such, in the absence of a written agreement that covers goods, paragraph 84-55(2)(c) provides default rules which apply. Under the default rules, the operator responsible for the GST for offshore supplies of low value goods is the first of the EDP operators to receive or authorise the charging of any of the consideration for the supply. In the event that none of the operators meet this criterion, the relevant operator will be the first of the operators to authorise the delivery of the supply.

LCR 2018/2 explains when an EDP operator authorises a payment:

72. The EDP operator authorises the charge to the recipient if it communicates the liability to pay to the customer, or otherwise influences whether or at what time the customer pays for the supply. This may be done by initiating the process through which the recipient is charged. This includes situations where an EDP operator's website connects the recipient to a third party who receives the EDP operator's instruction and processes the payment.

73. To authorise the charge, it is not necessary for the EDP operator to collect or receive payment, or that it is involved in each of the steps in the payment authorisation process.

As part of the transaction to sell the product, you calculate the tax and confirm that the payment can be processed. This means that you are part of the process of authorising the payment. From this perspective, it would mean that you will be the first EDP operator responsible for authorising the payment and so be responsible for the GST.

In summary under Step 4:

·         for digital supplies through both your product (your EDP service) and another EDP operator, your agreement would satisfy paragraph 84-55(2)(a) and therefore you and not the other EDP will be treated as the supplier, and

·         for offshore supplies of low value goods, as there is no agreement that covers goods, you and not the other EDP will be treated as the supplier due to the application of paragraph 84-55(2)(c).