Edited version of private advice

Authorisation Number: 1051957980690

Date of advice: 16 March 2022

Ruling

Subject: GST and incentive payments

Question

Do the following incentive payments:

i) Commissions - Earning a % of transactions

ii) Incentives for achieving various targets

iii) Incentives for running campaigns and promoting usage of certain applications,

receive by the taxpayer from an overseas entity GST-free?

Answer

Yes. The incentives payments received from an overseas entity for services provided by the taxpayer are free from GST. However, the products and services provided to the Australian entities by the taxpayer as a reseller are subject to GST.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

XX Month 20XX

Relevant facts and circumstances

The taxpayer is a xxxxx company operating in xxxx.

The taxpayer is registered for GST.

As an online business the taxpayer is involved in xxxx through xxxx, xxxx, and xxxx.

The taxpayer promotes an overseas entity products. For e.g., the tax payer recommends using xxxx in relation to xxxx through xxxx and receives various incentive payments from the overseas entity. The payment remittance statements provided by the taxpayer show the incentive payments are from the overseas entity.

Dating as far back as XX Month 20XX, the taxpayer has processed the commissions and incentives received from the overseas entity as GST inclusive, therefore including the income in their BAS and paying GST on this income.

The taxpayer recently gained access to the payment remittance notifications via a client portal and upon reviewing the payment remittance notifications discovered they were addressed from the overseas entity.

The taxpayer does not supply anything to the overseas entity they are effectively a partner and on selling their xxxx and products. However, the clients the taxpayer is reselling to are mainly Australian entities.

In relation to the tax office question as to whether the taxpayer receives payment from customers or just the incentive, it was confirmed that the taxpayer is the on seller and receives payment for the underlying overseas entity products. The taxpayer receive payments from the Australian customers and invoices the Australian customers for the whole lot and then pays the overseas entity.

The taxpayer recognises the sale and the related cost of the 'goods' sold in their profit and loss. The products being sold are mainly to Australian entities.

The taxpayer also receives payments from the overseas entity. Below are the various reasons why the taxpayer would receive these various incentives:

i) Commissions - Earning a % of transactions

ii) Incentives for achieving various targets

iii) Incentives for running campaigns and promoting usage of certain applications.

All these incentives are based on the taxpayer's up-taking certain services and products from the overseas entity. On some the taxpayer has to report to the overseas entity on the projects they have signed as 'new businesses' and the rest the overseas entity can report on themselves as they are the service provider, and the taxpayer is effectively the on seller.

The taxpayer is now questioning whether they should be reporting GST on the incentives they receive from the overseas entity.

The taxpayer current understanding is that if the supply is made to the overseas entity as the overseas entity Regional office that supports the taxpayer is overseas therefore the supply may be GST free under section 38-190 of the GST Act.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 sections 9-5 & 9-40

A New Tax System (Goods and Services Tax) Act section 38-190

Reasons for decision

Subdivision 38 E

Subdivision 38-E of the GST Act provides that some exports and other supplies for consumption outside of Australia may be GST-free.

Supplies of things other than goods or real property, for consumption outside of Australia, is covered by section 38-190 of the GST Act.

Therefore, in order to identify the applicable section of the GST Act, it is necessary to determine whether the taxpayer makes supplies of goods or supplies of something other than goods or real property.

The overall supply that the entity makes, in fact, consists of two supplies.

One is the supply of running campaigns and promoting usage of certain applications, achieving various targets and for which the taxpayer receives incentive payments and commissions on a percentage of transactions. The payments are made by the overseas entity for the services provided by the taxpayer to the overseas entity.

The supplies described above relate to something other than goods or real property and therefore must be examined in the context of section 38-190 of the GST Act.

Relevant to the supplies described above is item 2 in the table in subsection 38-190(1) of the GST Act.

Item 2 provides that a supply of a thing (other than goods or real property) made to a non-resident is GST-free if it is a supply that is made to a non-resident, who is not in Australia when the thing supplied is done, and:

the supply is neither a supply of work physically performed on goods situated in Australia when the work is done, nor a supply directly connected with real property situated in Australia; or

the non-resident acquires the thing in carrying on the non-resident's enterprise but is not registered or required to be registered for GST.

Where the requirements of paragraphs (a) or (b) of item 2 are satisfied, the supply will be GST-free. However, item 2 is limited by subsection 38-190(3) of the GST Act.

Limitations of item 2 - subsection 38-190(3) of the GST Act

If the supplies covered by item 2 is under an agreement entered into, whether directly or indirectly, with a non-resident entity and that supply is provided or the agreement requires that it to be provided to another entity in Australia, subsection 38-190(3) of the GST Act negates the GST-free status of that supply.

When the taxpayer provides services described above to a non-resident over a period of time subsection 38-190(3) of the GST Act will not be applicable if that supply is not provided or the agreement does not require that it to be provided to another entity in Australia. Under such circumstances the services provided by the Australian company to the non-resident entity will be GST-free.

Division 9 of the GST Act

The other supply is the supply of the products and services the taxpayer makes to Australian entities as reseller. This is a supply of goods and services needing to be examined under Division 9 of the GST Act.

Section 9-40 of the GST Act provides that an entity must pay the GST payable on any taxable supply that it makes.

Under section 9-5 of the GST Act an entity makes a taxable supply if:

a) the entity makes the supply for consideration; and

b) the supply is made in the course or furtherance of an enterprise that it carries on; and

c) the supply is connected with the indirect tax zone (Australia); and

d) the entity is registered or required to be registered.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

In relation to the tax office question as to whether the taxpayer receives payment from customers or just the incentive, it was confirmed that the taxpayer is the reseller (on sell) and receives payment for the underlying overseas entity's products. The taxpayer receive payments from the Australian customers and invoices the Australian customers for the whole lot and then pays the overseas entity.

The taxpayer recognises the sale and the related cost of the 'goods' sold in their profit and loss. The products being sold are mainly to Australian entities.

Therefore, the taxpayer supplies are made for consideration, in the course or furtherance of an enterprise the taxpayer carries on in Australia and the taxpayer is registered for GST.

Among other things subsection 9-25(5) of the GST Act provides that:

•         a supply of goods is connected with Australia if the goods are imported by the supplier into Australia,

•         a supply of anything other than goods or real property is connected with Australia if the thing is done in Australia or the supplier makes the supply through an enterprise the supplier carries on in Australia.

Therefore, the taxpayer's supplies to the Australian entities are connected with Australia.

In this situation the taxpayer's supplies are neither GST-free nor input taxed. Further, the taxpayer's supplies meet all the other requirements of section 9-5 of the GST Act. Therefore, the taxpayer's supplies to the Australian entities are taxable and the income derived from the Australian entities is consideration received for the taxpayer's taxable supplies and is subject to GST.

This means that the taxpayer is required to remit GST on the consideration it receives from the Australian entities. However, the incentive payments as explained above are free from GST.