1 Are xx ("You") making a creditable acquisition under Division 11 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) under the Promotional Arrangement (as described in paragraph 7 below)?
Yes, it will be a creditable acquisition provided you meet all the requirements of section 11-5 of the GST Act. Question 2 Does the reduction amount constitute a change in consideration payable by the customer under the Discount Arrangement (described in paragraph 7 below) for an earlier supply made by you under section 19-10 (1) (b) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? Answer Yes, the amount will constitute a change in consideration payable by the customer for the earlier supply of goods. This ruling applies for the following period : xxx The scheme commences on: xxx
xxx ("You") are a xxx incorporated entity that operates in the xxx industry. Broadly, you are a wholesale supplier of branded goods in various segments. Your key customers are major retail supermarkets and pharmacies. You have been registered for GST since xx and is currently part of a GST group. During a recent GST Streamlined Assurance Review, you identified issues with the GST treatment of customer discounts and promotional payments. You lodged with the Commissioner a voluntary disclosure in relation to these issues in xx.
As outlined in the Voluntary Disclosure, you advised you have taken various steps to improve accuracy of GST reporting with respect to GST (noting that these issues did not result in any underpayment or overclaim of GST- they were simply reporting errors, which the ATO has confirmed do not require historic correction). Part of the rectification steps undertaken by you included amending existing accounting processes to characterise certain transactions (broadly, Promotional Arrangements, and Discount Arrangements, as described in paragraphs 6 and 7 below) in accordance with the ATO's views outlined in its public GST ruling on the issue, GSTR 2000/19: making adjustments under Division 19 for adjustment events (GSTR 2000/19). You are seeking a private binding ruling (PBR) for the Commissioner's confirmation that, subsequent to the rectification steps referred to above and in the Voluntary Disclosure, you are now treating the Promotional and Discount) correctly for GST purposes.
As a supplier in the xx industry, you regularly offer discounts, rebates, or payments to customers under various arrangements. These discounts / rebates / payments can take on a number of forms and can have various types of terms and conditions attached to them. While there are various arrangements with customers which may have varying nuances in their terms, for the purposes of this PBR application we have grouped the arrangements into two categories which have substantially similar terms / features: a) Promotional Arrangements; and b) Discount Arrangements. A summary of the arrangements are as follows: a) Promotional Arrangement i. Volume based ('Scan Deal Price Promotion') (a) You offer a price reduction in return for the customer providing promotional services which includes advertising and selling your products at your recommended discounted price; (b) The promotional services fee is calculated based on an agreed amount per unit sold by the customer in store, to reflect the services performed and associated expenses incurred (i.e. being the promotional services and selling the product at your recommended discounted retail price to retail customers in store).
(c) Customer issues a credit advice tax invoice (or similar) to you reflecting the amount of promotional services fee payable by you. Fixed Fee ('Display / Feature / Catalogue') (a) The arrangement is the same as volume based except that the fee payable amount for the promotional services is based on an agreed fixed amount. In both cases, the customer provides something of commercial value to you. The key difference between the two above is that the Display / Feature / Catalogue is offered by way of fixed fee in return for the promotional services, whereas Price Promotion is calculated based on the number of qualifying products sold. b) Discount arrangement ("Trade terms") i. You offer the customer a discount to the amount payable for certain goods where certain requirements related to the supply of those products from you to the customer are met, such as: (a) Prompt payment / settlement discount - where the customer's payment meets a specified early payment criteria and accordingly is offered a discount to the gross invoice amount; and
(b) Volume rebates (can also be called contracted trading term, distributor discount or shipment based case deals) - calculated and paid based on the sold (shipped) volume of goods by you to the customer. ii. The key features of Discount Arrangements are as follows: (a) The discount is calculated as a percentage discount to gross invoice value; (b) The customer is not obliged to provide anything of commercial value to you by way of in-store advertising or other services. You provided an example of both these arrangements via a tax invoice in your ruling application. For these arrangements, you have advised that there are no documents or any legal agreements in place. This is evidenced in the application at 4.10 where you have stated the following in relation to the Promotional Arrangement:
4.10 The precise arrangements with each customer are generally agreed informally, in phone calls and emails chains. There is no template legal agreement that is put in place, or amended, to reflect each arrangement. As such, the price arrangement between different customers will vary in immaterial terms. We have there sought to categorise the various arrangement based on their common, material feature.
A New Tax System (Goods and Services Tax) Act 1999 section 11-5 A New Tax System (Goods and Services Tax) Act 1999 section 11-15 A New Tax System (Goods and Services Tax) Act 1999 section 19-10
Promotional arrangements The promotional arrangement that you have which includes advertising services that you pay for via a price reduction to customers is consideration for the acquisition. Under section 11-20, an entity is entitled to an input tax credit for any creditable acquisition it makes. Section 11-5 provides the criteria for making a creditable acquisition as follows: (a) you acquire anything solely or partly for a *creditable purpose; and (b) the supply of the thing to you is a *taxable supply; and (c) you provide, or are liable to provide, *consideration for the supply; and (d) you are *registered, or *required to be registered. (* denotes a term defined in section 195-1 of the GST Act) You are required to meet all the above requirements for it to be a creditable acquisition. Subsection 11-15(1) of the GST Act provides that you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. However, pursuant to subsection 11-15(2) of the GST Act, you do not acquire the thing for a creditable purpose to the extent that: (a) the acquisition relates to making supplies that would be input taxed, or
(b) the acquisition is of a private or domestic nature. You acquired the promotional services for a creditable purpose The promotional services that you acquired are used in carrying on your consumer goods business where you supply them to supermarkets for sale. Accordingly, it can be considered that you acquired the services solely for a creditable purpose and not for a private purpose. Therefore, the requirement of paragraph 11-5(a) of the GST Act is met. The sale of the promotional services to you is a taxable supply The promotional services provided to you by virtue of the arrangement described above is a separate supply by your customers to you. The promotional services provided to you is a taxable supply if (emphasis added) your customers meet all the requirements of section 9-5 of the GST Act, which states: You make a taxable supply if: (a) you make the supply for *consideration; and (b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and (c) the supply is connected with the indirect tax zone; and (d) you are *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 regards to 11-5(b), presuming that the supply of goods provided to you under the Promotional Agreement is a taxable supply under section 9-5 of the GST Act then you will satisfy this criterion. You will need to check with your customers and a valid tax invoice will need to be obtained from them. Paragraphs 11-5(c) and 11-5(d) You provided consideration for the supply of the services made to you by way of the reduction in the gross amount payable by your customers. Therefore, you meet the requirement of paragraph 11-5(c) of the GST Act. You are registered for GST. Therefore, you meet the requirement of paragraph 11-5(d) of the GST Act. If you meet all the requirements of section 11-5 of the GST Act, your purchase of the promotional services will be considered as creditable acquisitions. Therefore, you are entitled to input tax credits for the purchase. Discount arrangements Division 19 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) deals with adjustment events. Section 19-10 of the GST Act states: '(1) An adjustment event is any event which has the effect of:
(a) cancelling a supply or acquisition; or (b) changing the consideration for a supply or acquisition; or (c) causing a supply or acquisition to become, or stop being, a taxable supply or creditable acquisition.' Section 29-75 of the GST Act sets out the requirements of an adjustment note and it states: ' (1) An adjustment note for an adjustment that arises from an adjustment event relating to a taxable supply: (a) must be issued by the supplier of the taxable supply...' Goods and Services Tax Ruling GSTR 2000/19 explains the Commissioner's view on the operation of Division 19 of the GST Act. Paragraph 20-24 of the Ruling deals with discounts and volume rebates and it states:
20. After a supply occurs, a discount may be granted for early payment. Discounts referred to as settlement discounts or prompt payment discounts are made for the purpose of encouraging early payment of an amount owing for a supply. Benefits to the supplier include early cash flow, certainty of payment at an earlier point and avoidance of collection costs. Although the discount is typically expressed as a percentage of the amount owing and is conditional on payment within a specified period, the discount is considered to be a change in consideration. 24. Under their terms of trade, suppliers may pay rebates to customers who reach certain levels of purchases. The rebates are typically expressed as a percentage of the purchases made in a particular period. A payment of this type is regarded as a reduction in the consideration for the relevant purchases and so is an adjustment event. Accordingly, consistent with the Commissioner's views in GSTR 2000/19, the Discount Arrangements, described in paragraph 7, above, represents a change in the consideration for your supply to your customers, and as such give rise to a decreasing adjustment event for the purposes of section 19-10.
In accordance with section 29-75 of the GST Act, you must issue an adjustment note to your customer containing the requisite information outlined in that section.