Edited version of private advice

Authorisation Number: 1051770080473

Date of advice: 30 November 2020

Ruling

Subject: GST and acquisitions of services

Question

Is the entity making an acquisition under section 11-10 of the A New Tax System (Goods and Services Tax) Act 1999 under the umbrella agreement with the supplier for the procurement of services which are provided by a third party?

Answer

Yes.

This ruling applies for the following periods:

Tax periods beginning on or after 1 November 20XX

The scheme commences on:

1 November 20XX

Relevant facts and circumstances

The entity is registered for GST and makes a combination of input taxed, taxable and GST-free supplies.

The supplier provides a range of services including consultancy; tender management; contract management; negotiation services; probity services; business analysis; purchasing; and project management.

The supplier will enter into an agreement with a service provider which will set out the obligations of the parties in respect of the provision of services by the service provider firm to the entity. This 'umbrella agreement' will ensure that the supplier receives agreed discounted pricing and/or volume discounts (on either a client by client or aggregated basis). Additionally, the agreement provides that the supplier will receive other benefits such as:

•         training sessions;

•         legal alerts;

•         access to secondment arrangements; and

•         other services such as regular review meetings and network opportunities.

The entity will enter into an 'umbrella agreement' with the supplier which provides that the supplier will provide the service of procuring and arranging the provision of services to the entity as requested. Under this agreement, it is expected that the supplier will:

•         meet with the clients to ascertain scope of works/project requirements/ budget etc;

•         prepare a formal request for proposal or other tender package for distribution to suitable service providers;

•         seek, review and assess tenders;

•         report to the clients in relation to the request for proposal responses and liaising to select a preferred service provider; and

•         once a service providers has been engaged, managing billing and payment.

These umbrella agreements will be entered into prior to any engagement of the service provider for particular services.

For each services engagement, the supplier, the entity and the service provider will enter into a tripartite agreement consistent with the umbrella agreements. The entity will engage the service provider for the provision of services, establishing the requisite legal relationship and the supplier will procure, arrange and be liable to provide the consideration associated with the provision of services.

Relevant legislative provisions

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

Reasons for decision

In order for an entity to be entitled to input tax credits, it must make a creditable acquisition. An acquisition is defined by section 11-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) very widely as 'any form of acquisition whatsoever' and includes:

•         an acquisition of goods;

•         an acquisition of services;

•         a receipt of advice or information;

•         an acceptance of a grant, transfer, assignment or surrender of any right; and

•         an acquisition of a right to require another person:

-        to do anything;

-        or to refrain from an act; or

-        to tolerate an act or situation;

The umbrella agreement the entity enters into with the supplier provides that the supplier will undertake a range of activities for the entity including:

•         undertaking preliminary work with the entity to ascertain the scope and budget of the work required;

•         preparing, issuing and reviewing tenders;

•         liaising with the entity to select the preferred service provider;

•         providing ongoing management of the billing and payment with the service provider.

Although the entity will make an acquisition of from the service provider, the arrangement set out in the umbrella agreement means that the entity is not liable to pay the service provider for the entity's acquisition of services.

The Goods and Services Tax Ruling, Goods and services tax: supplies (GSTR 2006/9) discusses a range of propositions relating to supplies, and consequently, also discusses acquisitions by recipients of those supplies. Proposition 5 in GSTR 2006/9 is 'an entity will make a supply if it provides something to another entity'. Paragraph 71 of GSTR 2006/9 states:

71. An entity will make a supply whenever that entity (the supplier) provides something of value to another entity (the recipient). This is consistent with the ordinary meaning of 'supply', being to furnish or provide.

In discussing the United Kingdom House of Lords' value added tax decision in Customs and Excise Commissioners v. Plantiflor Ltd [2002] UKHL 33, GSTR 2006/9 explains that the case is a significant UK VAT case on multiparty arrangements which involves the application of several of the propositions discussed in GSTR 2006/9. At paragraph 261, GSTR 2006/9 states:

261. ... the Commissioner considers a supply can only be a supply of arranging for a supply to be made to the customer (or another entity) if that is what the first supplier has been contracted to supply. If the first supplier arranges for a second supplier to contract with the customer to supply the required thing, the first supplier is responsible for arranging for the second supplier to supply that thing...

262. Further, if the first supplier arranges for a second supplier to supply a particular thing to a customer, the customer typically has no legal recourse against the first supplier for the second supplier's failure to supply the thing. If the second supplier fails to supply that thing, the customer usually only has legal recourse in respect of that failure against the second supplier. If the first supplier promises to arrange for the supply of a thing and that promise is not carried out, the customer then usually has legal recourse against the first supplier for breach of its promise to arrange for the supply by the other supplier.

The umbrella agreement provides that the supplier will arrange for service providers to make supplies to the entity in addition to providing other supplies (such as tendering services, etc). As such, the entity will make an acquisition from the supplier.