1 Is the entity entitled to claim all input tax credits on purchases even though the tax invoices are issued to the agent and the sub-agent?
Yes. Under the circumstances described in this ruling the entity is entitled to claim all input tax credits on purchases even though the tax invoices are issued to the agent and the sub-agent. Question 2 Is the entity required to withhold 47% of the commission paid to labour hire company based overseas when no ABN is quoted on the invoice? Answer No. The requirement to withhold an amount does not apply to payments for supplies made by enterprises which are not carried on in Australia. Question 3 Is the entity required to charge GST on sales when the resale process happened overseas? Answer No. the entity is not required to charge GST on sales when the resale process happened overseas. Question 4 Is the entity required to withhold 47% of the extra payments (differences between the total instalment payments and the lump sum payments) paid to labour hire company based overseas? Answer No. See answer to question 2. This ruling applies for the following period : Year ending 30 June 20YY The scheme commences on: DD Month 20YY
Step 1 - Engage Buying Agent The entity is a proprietary limited company registered with ASIC. The main business activity for the entity is Xxxxx . As the pandemic continues, online shopping has become more and more popular, and the cross-border online shopping market is rapidly expanding. When foreign customers shop in Australia, they may encounter a number of barriers related to language, postage and payment method. In order to solve these problems, the entity has taken this opportunity to develop a new business model. The basic business process is as follows: • An overseas customer places an order with the entity. • The entity Ltd purchases the product from the store or online store in Australia. • The entity exports the product to the overseas customer.
However, due to the high volumes of demand, it is inefficient for the entity to purchase every single order by itself. Thus, the entity engages buying agents to assist with carrying out these purchase orders. Within the buying agency agreements, there is a clause which indicates that the agents may engage another party (a sub-agent) to complete the engagement. This could be an employee of theirs or a contractor for example. After engaging with external agents, the detailed business processes include: • An overseas customer places an order with the entity. • The entity writes to the agent to enquire if the agent can provide the product. • The agent confirms in writing that the product is available. • Once the agent confirms, the entity is liable to complete the purchase from the agent. • The agent purchases the product from the store or online store in Australia. • After the agent ships the product to the entity or directly to overseas customers, the entity reimburses the agent. The agent then needs to send the product and provide tracking number.
• In the event when the agent chooses to use a sub-agent, the sub-agent is the person who physically makes the purchase in store/online. • Due to the nature of the products involved, the tax invoice cannot be issued directly to the entity and can only be issued to the person physically present in the store i.e., the agent and the sub-agent. • It is very likely that the entity prepays the agent before the agent pays for the product in the store/online, or the agents seeks reimbursement from the entity upon successfully completing the purchase. The entity at the direction of the agent may also reimburse their sub-agent. • The entity is not aware of the existence of the sub-agent until it receives the purchase invoices, which showing the name of sub-agent. • The entity is not aware of any details in the agreement between the agent and the sub-agent.
Currently, one of the buying agents of the entity is a labour hire company based overseas. As the labour hire company (the agent) has the right to delegate the agency authority that the entity gives to it, to our acknowledgment, the labour hire company engages several sub-agents to complete the purchase. As explained above, the tax invoices for purchases will be issued to either the agent or a sub-agent. Considering both of them are acting in an agency capacity for the entity, in accordance with GSTR 2000/37 , the entity is treated as making the acquisition of the goods for GST purposes from the shop. Therefore, the entity is the only entity that will be entitled to an input tax credit on the purchase from the shop. Additionally, based on the fact that the labour hire company based overseas is an overseas agent, it is not necessary to quote an ABN. Therefore, the entity Ltd does not have obligation to withhold 47% from the commission paid to them as well. The commission can be paid in full amount. Step 2 - 'Buy Now Pay Later': To drive more business, the entity plans to provide a 'Buy Now Pay Later' (BNPL) service to its customers (similar to Afterpay
). Eligibility for this special service will be assessed based on the customers' credit rating and consumption level. Should the customer choose to use this method, they will be able to purchase the product and pay for it in a series of interest-free instalments. Customers delay payment and slowly pay off their purchase over a period of weeks or months. This method comes with its own set of extra risks. There is always default risk associated with the BNPL model, and the chance that the entity will be unable to recover the full sales amount from customers. To help mitigate this risk, the entity has come up with a plan, outlined below in Step 3. Step 3 - Repurchase and resale It is very possible that a customer purchases the product using Buy Now Pay Later, but ultimately never ends up paying later. This leads to a situation where the customers are in possession of the product and are either unable or unwilling to repay the amount owed to the entity. This results in the entity facing significant losses in revenue.
However, the entity has a business plan in place to recover such losses when this happens. First, the entity will offer to repurchase the product back from the customer, at a discount. Considering that the products have already been exported overseas, they will not be shipped back to Australia. Instead, the entity will engage an inspection agent in local markets to assess the quality and genuineness of the product. Only after the product has been approved by the inspection agent, will the entity pay the customer in exchange for the product. The agreed price is reached after adjusting for market value as well as any discount. In this exchange, the customer can choose to be paid in either cash/bank transfer or platform coupons. (Platform coupons can be used with the entity to make new purchases). Now, the repurchase from the customer is complete and the entity has ownership of the product once more. From here, the entity will then engage in the local second-hand market, and attempt to sell the product again. Buying agent / Investments
The entity also plans to provide its buying agents with a special offer. When the buying agent purchases a product on behalf of the entity, the agent can choose to be paid the full amount as normal. Alternatively, now the agent can also choose to be paid by instalment with the total instalment amounts are more than the amount paid in lump sum. The benefit to the entity on the other hand, is holding extra capital and the ability to use this capital to make different investments. Under this agreement, the entity is not required to pay the buying agent the full amount upfront. Thus, it can use the remaining money to invest elsewhere as another source of income. Ideally, these investments will be able to cover the instalment payments made to the buying agents, as well as provide an extra stream of revenue for the entity. The types of investments include but are not limited to shares, funds, private placement.
A New Tax System (Goods and Services Tax) Act 1999 sections 9-5, 11-5, 11-20 Taxation Administration Act 1953 (TAA 1953) subsection 12-190(1)
Question 1 Is the entity entitled to claim all input tax credits on purchases even though the tax invoices are issued to the agent and the sub-agent? Summary Yes. Under the circumstances described in this ruling the entity is entitled to claim all input tax credits on purchases even though the tax invoices are issued to the agent and the sub-agent. Detailed reasoning Section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you are entitled to the input tax credit for any creditable acquisition that you make. You make a creditable acquisition if all the requirements of section 11-5 of GST Act are met. You make a creditable acquisition if: (a) you acquire anything solely or partly for a creditable purpose (b) the supply of the thing to you is a taxable supply (c) you provide, or are liable to provide, consideration for the supply and (d) you are registered or required to be registered.
Goods and services tax ruling (GSTR 2000/37) describes what is meant by principal/agent relationships ('agency relationships') and explains the operation of Subdivisions 153-A (General) and 153-B (Principals and intermediaries as separate suppliers or acquirers). The facts provided indicate that Subdivision 153-B does not apply in this case. Further, the special rules in Division 57 that apply to resident agents acting for non-residents does not apply in this case as the entity is a resident of Australia. Paragraph 11 of GSTR 2000/37 provides that for commercial law purposes, an agent is a person who is authorised, either expressly or impliedly, by a principal to act for that principal so as to create or affect legal relations between the principal and third parties. Paragraph 12 of GSTR 2000/37 continues stating that the 'principal is bound by the acts of an agent as a result of the authority given to the agent'.
Paragraph 15 of GSTR 2000/37 provides that when an agent uses his or her authority to act for a principal, then any act done on behalf of that principal is an act of the principal. Also, a principal is not bound by acts that are not within the expressed, implied or ostensible authority conferred on the agent. According to the facts provided there is an agency agreement in place between the entity and the buying agents. GST payable and input tax credits under agency relationships In relation to GST payable and input tax credits under agency relationships paragraph 55 of GSTR 2000/37 provides: If you are an agent at general law, you are an agent for GST purposes unless Subdivision 153-B applies. Accordingly, if you are an agent (where taxable supplies are made through you), the principal is liable for any GST payable on the supplies. Also, if you are an agent (where creditable acquisitions are made through you), the principal is entitled to any input tax credits.
Please also refer to WTI 2013/1 - A New Tax System (Goods and Services Tax) Waiver of Tax Invoice Requirement (Acquisitions Under an Agency Relationship) Legislative Instrument 2013 for information on tax invoices and agents. https://www.ato.gov.au/law/view/document?DocID=GLD/WTI20131/00001&PiT=99991231235958 Question 2 Is the entity required to withhold 47% of the commission paid to labour hire company based overseas when no ABN is quoted on the invoice? Summary No. The requirement to withhold an amount does not apply to payments for supplies made by enterprises which are not carried on in Australia. Detailed reasoning Taxation Ruling (TR 2002/9) provides guidance as to whether an entity making a payment in respect of a supply is required to withhold an amount under section 12-190 of Part 2-5 (the PAYG provisions) of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953). In what circumstances does a payer need to withhold
Subsection 12-190(1) of Schedule 1 to the TAA 1953 provides that an entity (the payer) must withhold an amount from a payment it makes to another entity if the payment is for a supply that the other entity has made, or proposes to make, to the payer in the course or furtherance of an enterprise carried on in Australia by the other entity; and none of the exceptions in this section applies. Paraph 45 of TR 2002/9 provides that for the no ABN withholding event to apply, the supply must be made in the course or furtherance of an enterprise carried on in Australia. In this case we have been informed that the labour hire company is based in China and does not carry on an enterprise in Australia. Hence, no ABN withholding applies. However, please note that paragraph 48 of TR 2002/9 mentions that if the payer does not have adequate evidence to satisfy itself that the payee is a non-resident and is not carrying on an enterprise in Australia, it would be prudent for the payer to seek a written statement from the payee. Question 3 Is the entity required to charge GST on sales when the resale process happened overseas? Summary
No. The entity is not required to charge GST on sales when the resale process happened overseas. Detailed reasoning An entity is required to collect an amount for GST where their supply is taxable under section 9-5 of the GST Act. For a supply to be a taxable supply one of the conditions is that the supply needs to be connected with Australia. In the event the resale process happened overseas then the sale is not connected with Australia. Therefore, when the resale process happens overseas the entity is not required to charge GST on those sales. Question 4 Is the entity required to withhold 47% of the extra payments (differences between the total instalment payments and the lump sum payments) paid to labour hire company based overseas? Answer No. See answer to question 2.