Private ruling: GST and supply of services to an Australian client of arranging the execution of orders which facilitate a change in ownership of both listed and unlisted international securities.
Published: December 2013

Ruling: Q1: Is the supply by Aus Ltd (you) to an Australian client of arranging the execution of orders which facilitate a change in ownership of both listed and unlisted international securities (arranging services) a supply that is made in relation to rights that are for use outside Australia which is GST-free pursuant to paragraph (a) of item 4 of subsection 38-190(1) of the A New Tax System (Goods and Service Tax) Act 1999 (GST Act)? | A1: Yes, where Aus Ltd supplies arranging services to an Australian client in relation to the securities described below (specified products), that supply of arranging services is made in relation to rights that are for use outside Australia for the purposes of paragraph (a) in Item 4 in subsection 38-190(1) of the GST Act and is GST-free: Listed Share - where the listed share is a share in a company that is incorporated outside Australia and is listed on an exchange located outside Australia; Unlisted Share - where the unlisted share is a share in a company that is incorporated outside Australia; Exchange Traded Note (ETN) and Floating Rate Note (FRN) - where the ETN or FRN is issued by a company that is incorporated outside Australia and the right to payment of income or interest is enforceable in a jurisdiction outside Australia and the purchaser and seller intend either to trade the ETN or FRN on an exchange located outside Australia or over the counter outside Australia, or to hold the ETN or FRN to maturity; Listed Call Option or Warrant - where the purchaser and seller intend to trade the listed call option or warrant on an exchange located outside Australia or to exercise the listed call option or warrant and take delivery of the underlying shares via either an exchange located outside Australia or an issuer at a location outside Australia; Listed Put Warrant - where the listed put warrant is issued outside of Australia and traded on an exchange located outside Australia or delivery is effected through an exchange located outside Australia when the listed put warrant is exercised; and Unit in a Regulated Investment Trust - where the regulated investment trust is structured as a trust that was created outside Australia and is regulated in a jurisdiction outside Australia, the rights of unit holders are enforceable against the trustee outside Australia, and the register of unit holders is required to be kept outside Australia. Subsections 38-190(2) and (2A) of the GST Act do not apply to the supply of arranging services made by Aus Ltd to an Australian client in relation to the listed and unlisted securities as described above. | Q2: If the supply by Aus Ltd to an Australian client of arranging services is GST-free, will the Commissioner exercise his discretion under section 105-65 in Schedule 1 to the Taxation Administration Act 1953 (TAA) to allow Aus Ltd a refund of the goods and services tax (GST), which Aus Ltd remitted to the Australian Taxation Office (ATO) in respect of that supply where: a) the recipient of the supply is not registered or required to be registered for GST; or b) the recipient of the supply is registered or required to be registered for GST? | A2: As we have ruled in Question 1 that the supply by Aus Ltd to an Australian client of arranging services is GST-free: a) No, Aus Ltd's circumstances do not warrant the exercise of the Commissioners discretion contained in section 105-65 of Schedule 1 of the TAA. b) No. Aus Ltd's circumstances do not warrant the exercise of the Commissioners discretion contained in section 105-65 of Schedule 1 of the TAA. | Q3: If the Commissioner will not exercise the discretion under section 105-65 in Schedule 1 to the TAA to allow a refund of overpaid GST to Aus Ltd where the recipient of the supply of arranging services is registered or required to be registered for GST, will the Commissioner seek to recover any input tax credits (ITCs) or reduced input tax credits (RITCs) claimed by that recipient on the acquisition of the arranging services or impose any general interest charge? | A3: No. The Commissioner will not seek to recover any input tax credits or reduced input tax credits claimed by that recipient on the acquisition of the arranging services or impose any general interest charge.

Relevant facts and circumstances: Legal Arrangements Aus Ltd (you) is an Australian company which holds an AFS Licence and is registered for GST in Australia. Aus Ltd offers execution, clearing, settlement and custody services (arranging services) to clients in respect of shares in companies that are incorporated overseas where the shares are listed on an overseas exchange, unlisted shares, units in funds, exchange traded notes, and listed options and warrants issued by companies and funds that are established overseas (international securities). In order to become a client of Aus Ltd, prospective clients are required to apply for an account with Aus Ltd (which is a central recording of the clients dealings with Aus Ltd in relation to particular products or services). A copy of the application form was annexed to the ruling request. In the application form the client provides personal details, completes an investor profile, has the option of nominating a third party to provide instructions to Aus Ltd in relation to the client's portfolio account, and agrees on how Aus Ltd is to communicate with the client. In the 'Your Services' section of the application form the client selects the type of portfolio account applied for plus any additional services or accounts applied for and may apply for an Aus Ltd Cash Management Trust Account. The client agrees to be bound by the Aus Ltd Terms and Conditions. A copy of the Aus Ltd Account Terms and Conditions (AT&C) was also annexed to the ruling request. The AT&C set out the relationship terms between Aus Ltd and the client, e.g. how the client will give instructions to Aus Ltd and the client's payment obligations. It also states that, in consideration for the services performed by Aus Ltd, they may charge the client fees, including fees calculated by reference to the number or value of transactions which Aus Ltd executes or arranges for an Agent to execute on the client's behalf. 'Agent' is defined as any person that Aus Ltd engages as a delegate, sub-contractor or agent to perform services. The AT&C also sets out the transaction terms and states that the client appoints Aus Ltd to act as the client's agent for the purpose of executing or arranging the execution of Orders on the client's behalf. 'Order' is defined as any instructions placed by the client with Aus Ltd to buy, sell, subscribe for or otherwise deal in Financial Products. If the client places an Order for execution on an International Exchange (defines as any financial market operated outside Australia to which Orders may be transmitted for execution), Aus Ltd will arrange execution of that Order using an Agent who undertakes transactions on the International Exchange on which that Order must be executed. Aus Ltd provides custody services in relation to Financial Products acquired through Transactions which Aus Ltd executes, arranges to execute or otherwise agrees to hold and are authorised to use sub-custodians in each local market. Trade Flow The ruling request described the trade flow for the placement and execution of Orders for the purchase or sale of international securities as follows: (a) Australian client places the buy or sell order with the Aus Ltd client advisor located in Australia; (b) The Order is entered into the order entry system by the Aus Ltd client advisor and is then sent electronically to the Client Execution Services desk outside Australia before being sent for execution by the relevant entity (or third party broker) in the respective market as agent for Aus Ltd. (c) The international securities are held by sub-custodians appointed by Aus Ltd. (d) Aus Ltd issues a contract note to the Australian client setting out the details of the trade and the brokerage fee. The brokerage fee currently includes GST. A sample contract note was annexed to the ruling request. Question 1 - GST treatment of arranging services Aus Ltd advised that they have charged GST on the supply to an Australian client of arranging services (arranging the execution of orders for the sale or purchase of international securities) and remitted the GST to the ATO. Aus Ltd stated that this was consistent with the ATO's view in Goods and Services Tax Ruling GSTR 2003/8 (GSTR 2003/8) prior to GSTR 2003/8 being amended by Goods and Services Tax Ruling GSTR 2003/8A2 - Addendum following the decision in Travelex Ltd v Commissioner of Taxation [2010] HCA 33 ( Travelex ). GSTR 2003/8 records the ATO's view prior to Travelex and the issue of GSTR 2003/8A2: 57. Prior to the High Court's decision in Travelex Ltd v Commissioner of Taxation (Travelex ), the Commissioner considered that the expression 'a supply that is made in relation to rights' in item 4 encompassed only those supplies referred to in paragraph 9-10(2)(e) [of the GST Act]. Paragraph 9-10(2)(e) of the GST Act refers to a creation, grant, transfer, assignment or surrender of any right and the ATO considered that this referred to a proprietary right. Aus Ltd advised that Aus Ltd seeks a ruling confirming that the supply to Australian clients of arranging services in respect of international securities is GST-free before Aus Ltd stops charging GST on that supply. In support of such a ruling Aus Ltd referred to Travelex and to the amendments made to GSTR 2003/8 by GSTR 2003/8A2, particularly paragraph 62: Following Travelex , the Commissioner considers that the term 'supply that is made in relation to rights' in item 4 is capable of covering the following three categories of supplies (each of which is discussed in more detail at paragraphs 64 to 79C of this Ruling): Aus Ltd submitted that the supply of arranging services by Aus Ltd to an Australian client falls within the third category, being a supply of services directly connected with rights. Aus Ltd submitted that international securities are 'rights' for GST purposes: (i) A share is comprised of a bundle of rights and the value of the shares is in the rights that are attached to it. The rights of each shareholder in relation to each class of share are usually contained in the relevant law applicable to the share or the company's constitution (or the equivalent documents in overseas jurisdictions). The rights attaching to a share generally consist of: • A right to participate in dividends and equity distributions; • A right to participate in distribution of assets on winding up; and • A right to vote. (ii) Similarly, a unit in a fund is comprised of a bundle of rights, including: • A right to participate in income distributions; and • A right to participate in distribution of assets on winding up. (iii) Exchange traded notes issued by a company are debt securities providing the holder with a right to repayment of a specified amount together with interest at maturity. (iv) Listed options and warrants issued by a company provide the holder with a right to purchase a security (generally a share in the company) at a fixed exercise price until expiry. The supply by Aus Ltd to an Australian client of arranging services in relation to international securities facilitates the change in ownership of international securities and is therefore directly connected with rights as the arranging services facilitate a dealing in (being the purchase or sale of) rights: GSTR 2003/8, Para 77. Aus Ltd submitted that the fact that the supply made by Aus Ltd is in the nature of arranging the execution of an order and the execution of the order is sub-contracted to an agent does not change this analysis because the substance of the arranging services involves the facilitation of a change in ownership in the international securities. Aus Ltd submitted that this view is consistent with GSTR 2003/8 (Para 79A) and ATO ID 2012/1 which specifically deals with GST and brokerage services for foreign shares listed overseas. In relation to the requirement in item 4(a) in subsection 38-190(1) that the rights are for use outside Australia, Aus Ltd referred to ATO ID 2012/1 which states that if the company in which particular shares are held is incorporated overseas and the shares are listed overseas the rights attached to those shares will be for use at an overseas location, even if the holder of the shares is in Australia when any dividend is declared or received or when the shares are on-sold. Aus Ltd submitted that the same reasoning applied to units in funds which are listed and traded on exchanges outside Australia and to unlisted international shares and units which are traded overseas (Para 31: That is, the rights are for use where the fund is located and where the sale or purchase takes place. Question 2(a) - refund overpaid GST where the recipient of the supply of arranging services is not registered or required to be registered for GST Aus Ltd submitted that, on the basis that the ATO issues a favourable ruling in relation to Question 1 so that supplies of arranging services made by Aus Ltd are GST-free, Aus Ltd has overpaid GST and is entitled to a refund of that overpaid GST pursuant to section 8AAZLF of the Taxation Administration Act 1953 (TAA) within the four year time limit set by section 105-55 in Schedule 1 to the TAA (i.e. from December 2008). Aus Ltd advised that, in the event of a favourable ruling on Question 1, the ruling request constitutes a notification of entitlement to a GST refund for the December 2008 to December 2012 tax periods (inclusive) in accordance with section 105-55 in Schedule1 to the TAA. However, subsection 105-65(1) in Schedule 1 to the TAA states: The Commissioner need not give you a refund of an amount to which this section applies, or apply (under Division 3 or 3A of Part IIB) an amount to which this section applies, if: (a) you overpaid the amount, or the amount was not refunded to you, because a supply was treated as a taxable supply, or an arrangement was treated as giving rise to a taxable supply, to any extent; and (b) the supply is not a taxable supply, or the arrangement does not give rise to a taxable supply, to that extent (for example, because it is GST-free); and (c) one of the following applies: (i) the Commissioner is not satisfied that you have reimbursed a corresponding amount to the recipient of the supply or (in the case of an arrangement treated as giving rise to a taxable supply) to an entity treated as the recipient; (ii) the recipient of the supply, or (in the case of an arrangement treated as giving rise to a taxable supply) the entity treated as the recipient, is registered or required to be registered. Aus Ltd was concerned that, although Aus Ltd satisfies paragraphs (a) and (b) of subsection 105-65(1), the manner in which Aus Ltd proposes to reimburse an Australian client to whom they made a supply of arranging services and who was not registered or required to be registered for GST would fall within sub-paragraph 105-65(1)(c)(i), in which case the ATO had a discretion not to pay Aus Ltd a refund of overpaid GST. This is because, assuming that the ATO issues a favourable ruling in relation to Question 1, Aus Ltd intends to: o write to all past and current Australian clients to whom Aus Ltd supplied arranging services during the last four years and request confirmation as to whether each client was registered for GST at the relevant time or times; o once the unregistered clients have been identified, calculate the exact amount of overcharged GST to be refunded to each client; o lodge a BAS revision request with the ATO which quantifies the amount of overpaid GST in respect of every unregistered client and request that refunds be paid to Aus Ltd in respect of the unregistered clients; o once GST refunds have been received from the ATO, reimburse the exact corresponding amount which will be reimbursed to clients by way of a cheque or by crediting active clients' accounts with Aus Ltd within 20 business days of receiving the refund (Aus Ltd will not retain any amount of the refund received from the ATO). As the ATO will not be satisfied, at the time the ATO is asked to refund the overpaid GST, that Aus Ltd has reimbursed a corresponding amount to the recipient of the supply, sub-paragraph 105-65(1)(c)(i) applies and the ATO has a discretion not to refund the overpaid GST. Consequently in Question 2(a) Aus Ltd asks the ATO to confirm that the ATO will not exercise the discretion under subsection 105-65(1) in Schedule 1 to the TAA not to refund to Aus Ltd GST overpaid by Aus Ltd in respect of a supply of arranging services made to an Australian client where the Australian client is not registered or required to be registered for GST. In support of a favourable response to Question 2(a), Aus Ltd submitted that Miscellaneous Tax Ruling MT 2010/1 (MT 2010/1) supports the refund to Aus Ltd of GST overpaid on supplies of arranging services made to Australian clients who were not registered or liable to be registered for GST despite Aus Ltd not having reimbursed those clients. Aus Ltd referred to the statement in MT 2010/1 (Para 128(d) that it may be fair and reasonable to exercise the discretion to refund the overpaid GST where: (iii) The supplier is able to satisfy the Commissioner that an amount corresponding to the refund will be , or has been, passed on to the party that ultimately bore the cost of the overpaid GST . Question 2(b) -refund of overpaid GST where the recipient of the supply of arranging services is registered or required to be registered for GST Where the Australian clients to whom Aus Ltd supplied arranging services in respect of international securities were registered or liable to be registered for GST at the relevant times, sub-paragraph 105-65(1)(c)(ii) applies and the Commissioner need not give Aus Ltd a refund of the overpaid GST. The ruling request appears to accept this outcome: 44. For clients that are registered for GST, the discretion under s105-565 for the Commissioner not to pay the refund is activated. We understand that Aus Ltd is more concerned about the ATO now denying GST registered Australian clients any input tax credits (ITCs) which they have previously claimed in respect of GST charged by Aus Ltd on supplies of arranging services in respect of international securities. That issue is addressed in Question 3. Question 3 - will the Commissioner seek to recover any ITCs claimed by a recipient of a supply of arranging services who is registered or required to be registered for GST: An Australian client of Aus Ltd who is registered for GST may have claimed input tax credits for the GST charged by Aus Ltd in respect of the supply of arranging services. If the Commissioner rules in Question 1 that the supply of arranging services is GST-free, however, the GST registered client will have incorrectly claimed input tax credits on a supply that was not a taxable supply. In the ruling request Aus Ltd submitted that MT 2010/1 does not provide guidance as to how the Commissioner deals with such a situation, although in Draft Law Administration Practice Statement PSLA 3521 the Commissioner indicates that the Commissioner will not seek to recover over-claimed input tax credits from recipients or impose general interest charges where the Commissioner has exercised the discretion under section 105-65 in Schedule 1 to the TAA not to refund overpaid GST to the supplier. Request for further information: In response to a request for further information from the ATO, Aus Ltd advised that Aus Ltd wished to include floating rate notes (FRNs) within the scope of the ruling. Aus Ltd advised that FRNs are bonds issued by companies, have a variable coupon equal to a money market reference rate (e.g. LIBOR or federal funds rate) plus a quoted spread (which remains constant). Almost all FRNs have quarterly coupons, i.e. they pay out interest every three months. At the beginning of each coupon period, the coupon is calculated by taking the fixing of the reference rate for that day and adding the spread. A typical coupon would look like 3 months USD LIBOR +0.20%. Aus Ltd further advised that FRNs within the scope of the ruling request are issued by companies that are incorporated outside of Australia. Once purchased, FRNs are either held to maturity or traded via an overseas exchange or over the counter market. Aus Ltd considered that the rights attached to FRNs are for use outside of Australia as they are issued by companies incorporated outside of Australia and are either traded on an overseas exchange (or over the counter market) or held to maturity (and exercised against the relevant overseas company). Aus Ltd further clarified, in relation to units in a regulated investment fund, that the fund will be: · structured as a trust that was created outside of Australia, · be regulated in a jurisdiction outside Australia (for example that jurisdiction's equivalent of the MIS regime), · the fund will have a trustee and the unit holders will have rights that are enforceable against that trustee outside of Australia · the place where the register of unit holders is required to be kept will be outside Australia. Aus Ltd also confirmed that a unit in a fund is comprised of a bundle of rights including: · a right to participate in income distributions; and · a right to participate in distribution of assets on winding up and submitted that this will make the treatment of arranging services for the units a supply in relation to rights for reasons on par with that of shares. Aus Ltd also advised that exchange traded notes (ETNs) are senior, unsecured, unsubordinated debt securities issued by an underwriting bank which have a maturity date and are backed only by the credit of the issuer. ETNs are designed to provide investors access to the returns of various market benchmarks. The returns of ETNs are usually linked to the performance of a market benchmark or strategy, less investor fees. When an investor buys an ETN, the underwriting bank promises to pay the amount reflected in the index, minus fees upon maturity. As the ETNs are issued by banks incorporated outside of Australia and are either held for the purposes of trade on an international exchange or held to maturity (and hence exercised against the overseas bank), Aus Ltd submitted that that the rights attached to the ETNs are for use outside of Australia. In regard to listed options and warrants, Aus Ltd advised that:- · Aus Ltd intended that listed put warrants be included in the ruling request where they are issued outside of Australia and are traded on overseas exchanges; · listed put options are not included within the scope of the ruling request; · options and warrants may be issued by an overseas company or third party; and · the majority of Aus Ltd's clients trade these products on an overseas exchange, except where the product is exercised. In the event an option was exercised the company or third party that issued the options would issue the shares. For warrants, it would be exercised by the holder as against the company or third party issuer. All issuers would be located overseas and the exercise takes place at an overseas location. As listed options and warrants are issued by companies or third party issuers incorporated overseas and they are either traded on an overseas exchange or exercised against the company or third party issuer overseas, Aus Ltd considered that the rights attached to the listed options and warrants are for use outside of Australia. Withdrawal and replacement of GST private ruling issued to Aus Ltd: On the particular date the ATO issued a GST private ruling to Aus Ltd in respect of the Questions set out in this ruling. Subsequently in correspondence Aus Ltd stated that, in relation to Question 1 in the GST private ruling, the summary of the reasons for decision was not consistent with the detailed reasons for decision (because the summary did not refer to products other than listed shares) and asked for the ATO to issue a revised ruling. The ATO reviewed the GST private ruling and noted that Question 1 in the Notice of Private Ruling provided a general answer in relation to products other than listed shares rather than a specific answer in relation to each product (per the detailed reasons for decision). Given the recent decision of the Administrative Appeals Tribunal in Healy v FCT [2013] AATA 281 that there is a difference between a 'decision' and the reasons for it and that a distinction can be drawn between a 'Notice of Private Ruling' (which constitutes the 'decision' on a private ruling) and the 'Reasons for Decision' attached to that private ruling, we considered it prudent to withdraw GST private ruling and replace it with a ruling where, in relation to Question 1, the Notice of Private Ruling, the summary of reasons for decision, and the detailed reasons for decision address each of the products in respect of which Aus Ltd requested a ruling.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 9-5, | A New Tax System (Goods and Services Tax) Act 1999 section 9-25, | A New Tax System (Goods and Services Tax) Act 1999 subsection 9-30(1), | A New Tax System (Goods and Services Tax) Act 1999 subsection 38-190(1) item 4, | A New Tax System (Goods and Services Tax) Act 1999 subsection 38-190(2), | A New Tax System (Goods and Services Tax) Act 1999 subsection 38-190(2A), | Tax Administration Act 1953 section 105-55 of Schedule 1 | Tax Administration Act 1953 section 105-65 of Schedule 1.

Reasons for decision: Summary: Where arranging services are supplied by Aus Ltd to an Australian client in relation to a listed or unlisted international security as described below, that supply of arranging services is made in relation to rights that are for use outside Australia for the purposes of paragraph (a) in item 4 in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and is GST-free: Listed Share - where the listed share is a share in a company that is incorporated outside Australia and is listed on an exchange located outside Australia; Unlisted Share - where the unlisted share is a share in a company that is incorporated outside Australia; Exchange Traded Note (ETN) and Floating Rate Note (FRN) - where the ETN or FRN is issued by a company that is incorporated outside Australia and the right to payment of income or interest is enforceable in a jurisdiction outside Australia and the purchaser and seller intend either to trade the ETN or FRN on an exchange located outside Australia or over the counter outside Australia, or to hold the ETN or FRN to maturity; Listed Call Option or Warrant - where the purchaser and seller intend to trade the listed call option or warrant on an exchange located outside Australia or to exercise the listed call option or warrant and take delivery of the underlying shares via either an exchange located outside Australia or an issuer at a location outside Australia; Listed Put Warrant - where the listed put warrant is issued outside of Australia and traded on an exchange located outside Australia or delivery is effected through an exchange located outside Australia when the listed put warrant is exercised; and Unit in a Regulated Investment Trust - where the regulated investment trust is structured as a trust that was created outside Australia and is regulated in a jurisdiction outside Australia, the rights of unit holders are enforceable against the trustee outside Australia, and the register of unit holders is required to be kept outside Australia. Subsections 38-190(2) and (2A) of the GST Act do not apply to the supply of arranging services made by Aus Ltd to an Australian client in relation to the listed and unlisted securities as described above. | Detailed Reasoning - Detailed reasoning: Taxable supply GST is payable on a taxable supply. Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) you make a taxable supply if: (a) you make the supply for consideration; (b) the supply is made in the course or furtherance of an enterprise that you carry on; (c) the supply is connected with Australia; and (d) you are registered or required to be registered. However, a supply is not a taxable supply to the extent that it is GST-free or input taxed. GST-free supply Subsection 9-30(1) of the GST Act provides that a supply is GST-free if it is GST-free under Division 38 or under a provision of another Act. Division 38 of the GST Act includes section 38-190 which deals with supplies of things, other than goods or real property, for consumption outside Australia. Item 4 in subsection 38-190(1) states that a supply that is made in relation to rights is GST-free if: (a) the rights are for use outside Australia The meaning of 'rights' in Item 4 Goods and Services Tax Ruling GSTR 2003/8 states that 'rights' is not defined for GST purposes, has a very broad meaning under the general law and a 'right' has been defined as 'generally, a benefit or claim entitling a person to be treated in a certain way' (paragraph 50) and that it is not necessary for a right to be a proprietary right (paragraph 52). Below we consider whether each of the products for which Aus Ltd has sought a ruling (specified products) is 'rights' for the purpose of Item 4 in subsection 38-190(1). 'Rights' - listed and unlisted shares GSTR 2003/8 also states that a supply of services is a 'supply that is made in relation to rights' for the purpose of item 4 if the services are directly connected with rights and that a service is directly connected with rights if that service facilitates a dealing in the rights (paragraph 77). GSTR 2003/8 further states that a supply of services which falls within 'Category 3' (i.e. supplies of services directly connected with rights) is brokerage services in relation to the sale of shares because the services facilitate a change in ownership of the shares (paragraph 79A) This suggests that shares (both listed and unlisted) are considered to be 'rights' for the purposes of Item 4, a view supported by decided cases and Taxation Ruling TR 94/30. TR 94/30 discusses the nature of a share and refers (paragraph 22) to Borland's Trustee v Steel Brothers & Co Ltd (1901) 1 CH 279, 288 per Farwell J: The contract contained in the articles of association is one of the original incidents of the share. A share is not a sum of money…but is an interest measured by a sum of money and made up of various rights contained in the contract, including the right to a sum of money of a more or less amount. Borland's Trustee was applied in Australia in Associated Newspapers Limited v FCT (1944) 69 CLR 247 which characterised the acquisition of shares in Sun Newspapers Limited as follows: When, therefore, the appellant company purchased the whole of the shares in that company it purchased all the mass of rights incident to their ownership, and when, in the exercise of those rights, it chose to liquidate Sun Newspapers Ltd and obtain a transfer of the assets, it thereby changed those rights into ownership of the assets of that company. TR 94/30 also refers (paragraph 23) to Archibald Howie (1948) 77 CLR 143, 156 (HCA) where Williams J referred to Borland's Trustee and stated that a shareholder's rights included the right to participate in dividends whilst a company was a going concern, the right to participate in the distribution of assets available to shareholders upon a winding up, and the right to receive capital distributed in any reduction of capital. 'Rights' - Exchange Traded Note (ETN) and Floating Rate Note (FRN) Aus Ltd described an ETN as a senior, unsecured, unsubordinated debt security issued by an underwriting bank. Similar to other debt securities, an ETN has a maturity date and is backed only by the credit of the issuer. An ETN is designed to give an investor access to a return which is linked to a market benchmark or strategy, less investor fees. When an investor buys an ETN, the underwriting bank promises to pay the amount reflected in the index, minus fees upon maturity. Therefore, the rights that attach to an ETN include the right to receive periodic payments of interest and the right to be repaid the face value on maturity. We therefore consider that an ETN is 'rights' for the purpose of Item 4. A FRN is a bond issued by a company which has a variable coupon, equal to a money market reference rate (e.g. LIBOR or federal funds rate), plus a quoted spread. The spread is a rate that remains constant. Almost every FRN has a quarterly coupon, i.e. it pays out interest every three months. At the beginning of each coupon period, the coupon is calculated by taking the reference rate for that day and adding the spread. A typical coupon would look like 3 months USD LIBOR +0.20%. As with an ETN, the rights which attach to a FRN include the right to receive the periodic coupon and the right to be repaid the face value upon maturity. We therefore consider that an FRN is 'rights' for the purpose of Item 4. 'Rights' - Listed Call Option and Warrant The holder of a listed call option has the right, but not the obligation, to purchase a security (generally a share in a company) at a fixed exercise price on or before the date when the listed option expires. In the event a listed call option is exercised the company or third party that issued the listed call option would issue or transfer the relevant shares. The fact that a listed call option is listed on an overseas exchange does not alter its nature. The value of a listed call option is therefore found in the rights that attach to the listed call option. We therefore consider that a listed call option is 'rights' for the purpose of Item 4. A listed warrant is a longer-dated option in the form of a security which can be freely traded, often on a stock exchange. An issuer listed warrant is issued by a company in respect of that company's own shares and a covered listed warrant is sold by a bank or securities houses and is based on another company's shares or a basket of shares. The holder of a listed warrant exercises that warrant against the company or securities house which issued it. A listed warrant may be settled in cash. The value of a listed warrant is found in the rights that attach to it. We therefore consider that a listed warrant is 'rights' for the purpose of Item 4. 'Rights' - Listed Put Warrant A listed put warrant is a security issued by a company which gives the holder the right to sell back to the issuer a specified number of the company's shares at a specified price (the exercise price) on or before the expiration date of the put warrant. Aus Ltd sought a ruling in respect of listed put warrants which are issued outside of Australia and traded on an exchange located outside Australia (except where the listed put warrant is exercised). The value of a listed put warrant is found in the rights that attach to it. We therefore consider that a listed put warrant is 'rights' for the purpose of Item 4. 'Rights' - Unit in a Regulated Investment Fund A regulated investment fund is structured as a trust and the unit holders have rights that are enforceable against the trustee, including the right to participate in distributions of income and the right to participate in the distribution of assets on winding up. The value of a unit in a regulated investment fund is found in the rights that attach to it. We therefore consider that a unit in a regulated investment fund is 'rights' for the purpose of Item 4. Is the supply of arranging services by Aus Ltd a supply made in relation to rights? Following the High Court's decision in Travelex v Commissioner of Taxation [2010] HCA 33 ( Travelex ) the ATO issued an Addendum (G oods and Services Tax Ruling GSTR 2003/8A2) to GSTR 2003/8 in December 2011 which states that a supply of a thing is a 'supply that is made in relation to rights' if it fits into one of three categories, including category 3 - supplies of services directly connected with rights: 28 A supply of services (including provision of advice or information) that is directly connected with rights is a supply that is made in relation to rights for the purposes of item 4. A supply of services has a direct connection with rights if for example: the service facilitates a dealing in or exercise of the rights; or the service affects (or its purpose is to affect) or protects the nature or value (including indemnity against loss) of the rights. 28A. Item 4 only applies to a service that facilitates a dealing in rights if the essential character or substance of the dealing is one of rights. Similarly, item 4 only applies to services that affect or protect the nature or value of a thing if the essential character or substance of that thing is rights. 29. Examples of supplies that fit within the three categories outlined at paragraphs 27B to 28 of this Ruling include supplies of intellectual property rights (category 1), supplies of shares (category 2) and supplies of brokerage services in relation to shares (category 3). GSTR 2003/8 provides the following examples of supplies of services which fall within category 3: 79A. Some examples of supplies of services that are considered to fit within Category 3 are included in the following table: | Detailed Reasoning - Our view on why these services fall within item 4: Legal services for the preparation for a contract for the sale of copyright. The services facilitate a change in the ownership of the rights. Legal service of preparing and lodging an application for registration of a trademark. The services directly relate to the creation of a right. Brokerage services in relation to the sale of shares. The services facilitate a change in ownership of the shares. The arranging services supplied by Aus Ltd are services that facilitate the change in ownership of the specified products. The services have a direct connection with rights because through the acquisition or sale of the specified products, the recipient of the arranging services acquires or sells the rights that are attached to the products. This outcome remains the same even where Aus Ltd uses an agent to execute the relevant transaction order given by their client as the supply is made by Aus Ltd, not by the agent. Therefore, the supply of arranging services relating to the specified products is 'a supply made in relation to rights' for the purposes of Item 4 in subsection 38-190(1) of the GST Act. Are the rights for use outside Australia? GSTR 2003/8 states that whether rights are for use outside Australia depends on the intended use of those rights (paragraph 108A): A supply does not fall within item 4 simply on the basis that the essential characteristics of the rights demonstrate that they may be used outside Australia. It is the intended use of those rights that determines if the supply that is made in relation to the rights falls within item 4. The extent to which the supply is taxable or GST-free is not affected by the actual use of the rights, other than as potential evidence of the intended use. GSTR 2003/8 refers to Travelex as an example of rights that are intended for use outside Australia (Para 116A): In Travelex French CJ and Hayne J noted that 'where it is evident that the currency is to be used overseas, the rights that attach to the currency are for use outside Australia.' Heydon J pointed to the intention of the purchaser of the currency being relevant in determining if the rights were for use outside Australia. Specifically, his Honour noted that 'Mr Urquhart acquired the currency with the intention of spending it in Fiji, and that intention was confirmed by the fact that he did spend it there.' The Commissioner considers that the intention of the purchaser of currency is relevant in determining if the rights attached to that currency are for use outside Australia. A supply in Australia of foreign currency from a foreign currency exchange company to a bank in Australia is not a supply made in relation to rights that are 'for use outside Australia' where the bank intends to sell the currency in Australia. The supply by the bank may satisfy the test of 'for use outside Australia' if it is the purchaser's intention to use the currency outside Australia. The extract from Travelex referred to in paragraph 116A of GSTR 2003/8 focuses on the place where Mr Urquhart intended to use the foreign currency which he had acquired. The example in paragraph 116A of GSTR 2003/8 of the supply of foreign currency to a bank in Australia indicates that it is not the location of the recipient of the supply (i.e. the bank) but the place where the recipient of the supply intends to use the foreign currency which determines whether the rights attached to the foreign currency are for use outside Australia. We have already referred to the discussion in TR 94/30 of the rights attached to shares in a company. The Law of Cross-Border Securities Transactions (H van Houtte, Sweet & Maxwell 1999) discusses the law applicable to shares for the purpose of conflicts of law, describes a share as a collection of rights and liabilities, binding on the shareholders inter se, and binding as between the shareholders and the company (Para 1.03) and continues (Para 1.07): It is self-evident that a company or corporation is a legal (not a natural) person, which has to derive its existence as a legal creature from the law of a particular place …the Anglo-American systems subscribe to the theory that the personal law of a corporation is the law of the place where it is incorporated. and states that shareholders' rights and obligations are governed by the law of the place where the company is incorporated (Para 1.08): If the usual incidents of share ownership are expressed as simply a bundle of rights and obligations, it ought to follow that those rights and obligations are derived from the company's personal law. This is the generally accepted principle. Thus, in the English conflict of laws it has been held in many cases that a shareholder's contract of membership is governed by the law of the place of incorporation. The Law of Cross-Border Securities Transactions refers to Risdon Iron and Locomotive Works v Furness [1906] 1 KB 49 (CA) where a company incorporated in the United Kingdom as a limited liability company but carrying on business in California went into liquidation. The plaintiff, a creditor who entered into a contract with the company in California, commenced proceedings in the United Kingdom relying on a Californian law which made a company's shareholders personally liable for a company's debts. The plaintiff's claim was rejected by the United Kingdom courts on the ground that although the company was incorporated for the purpose of carrying on business in California, it was incorporated in the United Kingdom as a company with limited liability, a fundamental condition of its existence. Thus the rights and obligations of the shareholders were governed by the law of the place where the company was incorporated (United Kingdom) which included limited liability for the shareholders. We therefore agree with the submission made in the ruling request that the supply of arranging services by Aus Ltd to an Australian client in respect of shares in a company incorporated overseas that are listed and traded on an overseas exchange is made in relation to rights that are for use outside Australia. Aus Ltd further submitted that the same reasoning applies to arranging services supplied in relation to unlisted shares in companies incorporated overseas, units in a fund exchange traded notes and floating rate notes, listed options and warrants issued by a company outside Australia or unlisted but traded overseas: That is, the rights are for use overseas where the company or fund is located and where the purchase or sale takes place. This is consistent with the reasoning in ATO ID 2012/1. It is evident from the statement in paragraph 1.08 of The Law of Cross-Border Securities Transactions (above) that, in the case of a company, the principle that shareholders' rights and obligations are governed by the law of the place where the company is incorporated: …appears to follow from an implied choice that the law should be the law applicable to the contractual relationship between the company and its shareholders and not by way of automatic reference. 'Rights are for use outside Australia' - listed share In our view it is the intended use of the rights attached to a share that is relevant in determining whether paragraph (a) is satisfied - if it is evident that the share is to be used overseas, the rights that attach to that share will also be for use outside Australia. The intended uses of a share could be to generate income flow or return of equity through the right to a dividend or return of equity, to influence the relevant company through exercising any voting right attached to the share, or to generate a capital gain or profit through selling the share and thereby disposing of the rights attached to the share. Where the company in which a listed share is held by an Australian client of Aus Ltd is incorporated outside Australia and the share is listed on an exchange located outside Australia we consider that the rights attached to that listed share are for use outside Australia for the purposes of paragraph (a) in Item 4 in subsection 38-190(1) of the GST Act and that the supply of brokerage services by Aus Ltd to the Australian client in respect of the purchase or sale of that listed share is GST-free. 'Rights are for use outside Australia' - unlisted share Where the company in which an unlisted share is held by an Australian client of Aus Ltd is incorporated in a jurisdiction outside Australia, we consider that the rights attached to that unlisted share are for use outside Australia for the purposes of paragraph (a) in Item 4 in subsection 38-190(1) of the GST Act and that the supply of brokerage services by Aus Ltd to an Australian client in respect of the purchase or sale of that unlisted share is GST-free. Rights are for use outside Australia' - ETN and FRN: Where an ETN is issued by a bank incorporated outside of Australia and is either held for the purposes of trade on an international exchange or held to maturity (and hence exercised against the overseas bank), we consider that the rights attached to the ETN are for use outside of Australia for the purposes of paragraph (a) in Item 4 in subsection 38-190(1) of the GST Act and that the supply of brokerage services by Aus Ltd to an Australian client in relation to the purchase or sale of that ETN is GST-free. Where a FRN is issued by a company incorporated outside Australia and the right to payment of periodic coupon and repayment of face value upon maturity is enforceable in a jurisdiction outside Australia and the purchaser and seller intend to buy and sell the FRN on an exchange located outside Australia or over the counter at a location outside Australia, we consider that the rights attached to the FRN are for use outside of Australia for the purposes of paragraph (a) in Item 4 in subsection 38-190(1) of the GST Act and that the supply of brokerage services by Aus Ltd to an Australian client in relation to the purchase or sale of that FRN is GST-free. 'Rights are for use outside Australia' - Listed Call Option and Warrant Where the purchaser and seller intend to either buy or sell a listed call option on an exchange which is located outside Australia or exercise the listed call option and take delivery of the underlying shares either via an exchange located outside Australia or from an issuer at a location outside Australia, we consider that the rights attached to the listed call option are for use outside of Australia for the purposes of paragraph (a) in Item 4 in subsection 38-190(1) of the GST Act and that the supply of brokerage services by Aus Ltd to an Australian client in relation to the sale or exercise of that listed call option is GST-free. Where a listed warrant is issued by a company, bank or securities house which is incorporated overseas and is either sold and purchased on an exchange located overseas or exercised against the company, bank or securities house overseas, we consider that the rights attached to the listed warrant are for use outside of Australia for the purposes of paragraph (a) in Item 4 of subsection 38-190(1) of the GST Act and that the supply of brokerage services by Aus Ltd to an Australian client in relation to the sale or exercise of that listed warrant is GST-free. 'Rights are for use outside Australia' - Listed Put Warrant Where a listed put warrant is issued by a company incorporated outside Australia or a third party located outside Australia and is traded on an exchange located outside Australia, we consider that the rights attached to the listed put warrant are for use outside of Australia for the purposes of paragraph (a) in Item 4 of subsection 38-190(1) of the GST Act and that the supply of brokerage services by Aus Ltd to an Australian client in relation to the sale or exercise of that listed put warrant is GST-free 'Rights are for use outside Australia' - Unit in a Regulated Investment Fund Where the regulated investment fund is as described by Aus Ltd, i.e. structured as a trust that was created outside Australia, regulated in a jurisdiction outside Australia, the unit holder has rights that are enforceable against the trustee outside Australia, and the place where the register of unit holders is required to be kept is outside Australia, we consider that the rights attached to the unit are for use outside of Australia for the purposes of paragraph (a) in Item 4 of subsection 38-190(1) of the GST Act and that the supply of brokerage services by Aus Ltd to an Australian client in relation to the sale of that unit is GST-free Subsection 38-190(2) Subsection 38-190(2) of the GST Act states that a supply covered by item 4 is not GST-free if it is the supply of a right to acquire something the supply of which would be connected with Australia and would not be GST-free. The Explanatory Memorandum to the Indirect Tax Legislation Amendment Act 2000 (which added the words 'and would not be GST-free' to subsection 38-190(2)) explains the intent of subsection 38-190(2): 3.28 Subsection 38-190(2) is designed to ensure that the supply of a right in Australia to a non-resident is not GST-free if the right will ultimately be redeemed in Australia. This provision is appropriate where the ultimate supply, for which the right is effectively consideration, is or would otherwise be a taxable supply. However, where the right is redeemed for a GST-free supply (e.g. financial supplies made to non-residents), the result is inconsistent (e.g. financial supplies to non-residents would be input taxed rather than GST-free). In our view subsection 38-190(2) does not apply to a supply of arranging services made by Aus Ltd to an Australian client. Subsection 38-190(2A) Subsection 38-190(2A) of the GST Act states that a supply covered by Item 4 is not GST-free if the acquisition of the supply relates to the making of a supply of real property situated in Australia that would be wholly or partly input taxed under Subdivision 40-B (residential rent) or 40-C (sales of residential premises) of the GST Act. The operation of subsection 38-190(2A) is explained in Goods and Services Tax Determination GSTD 2007/3 which states that if a non-resident owns residential rental premises in Australia and an Australian accountant supplies advice and tax return preparation services in relation to those premises, that supply is not GST-free: Even if the supply made by the Australian accountant to the non-resident property owner is GST-free under item 2 or item 3 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), subsection 38-190(2A) negates the GST-free status of that supply. The GST-free status is negated under subsection 38-190(2A) because the acquisition of the advice and tax return preparation services by the non-resident property owner relates (directly or indirectly, or wholly or partly) to the making of a supply of real property situated in Australia that would be input taxed under Subdivision 40-B (lease, hire or licence of residential premises) or Subdivision 40-C (sale or long-term lease of residential premises In our view subsection 38-190(2A) is not intended to apply to the supply of arranging services made by Aus Ltd to an Australian client. | Detailed Reasoning - Question 2(a): Question 2(a) - refund of overpaid GST where the recipient of the supply of arranging services is not registered or required to be registered for GST | Summary: The Commissioner is satisfied that Aus Ltd has overpaid an amount of GST because Aus Ltd treated a supply as a taxable supply when that supply was not a taxable supply. However, the Commissioner is not satisfied that Aus Ltd has reimbursed a corresponding amount to the recipient of the supply and so need not give Aus Ltd a refund. Section 105-65 of Schedule 1 of the TAA contains a discretion which the Commissioner may exercise in certain limited circumstances to allow the refund, but Aus Ltd's circumstances do not warrant the exercise of that discretion. | Detailed Reasoning - Detailed reasoning: Aus Ltd submitted that, on the basis that the ATO issues a favourable ruling in relation to Question 1 so that supplies of arranging services made by Aus Ltd are GST-free, Aus Ltd has overpaid GST and is entitled to a refund of that overpaid GST pursuant to section 8AAZLF of the Taxation Administration Act 1953 (TAA) within the four year time limit set by section 105-55 in Schedule 1 to the TAA (i.e. from December 2008). Aus Ltd advised that, in the event of a favourable ruling on Question 1, the ruling request constitutes a notification of entitlement to a GST refund for the December 2008 to December 2012 tax periods (inclusive) in accordance with section 105-55 in Schedule1 to the TAA. Under the general rules the Commissioner is required to give a refund or apply that amount in accordance with the running balance account provisions in Divisions 3 and 3A of Part IIB of the TAA. However, the requirement to give a refund of overpaid GST is subject to section 105-65 of Schedule 1 to the TAA which modifies the general rules so that the Commissioner need not give a refund or apply that amount if an entity overpaid its net amount or an amount of GST where the requirements of the section are satisfied. Whether subsection 105-65(1) of Schedule 1 to the TAA applies to Aus Ltd's circumstances The restriction on refunds of overpaid GST under subsection 105-65 (1) of Schedule 1 to the TAA will apply if all three of the following conditions are satisfied: · there was an overpayment of GST, · a supply was treated as a taxable supply when it was not a taxable supply or was taxable to a lesser extent, and · either the recipient has not been reimbursed a corresponding amount of the overpaid GST and/or the recipient of the supply is registered or required to be registered for GST. Miscellaneous Tax Ruling MT 2010/1 provides the Commissioner's view on section 105-65 of Schedule 1 to the TAA. In this case Aus Ltd remitted GST of 1/11 of the price of their supply when in fact the relevant supply was GST-free. As the relevant supply was GST-free it follows that Aus Ltd remitted more than was legally payable and that there has been an overpayment of GST. On the facts provided the recipients of the supply are not registered for GST purposes. Aus Ltd has also advised that the recipients have not been reimbursed for any amount corresponding to the GST overpaid. As the three conditions are satisfied, section 105-65 of Schedule 1 to the TAA applies and the Commissioner has no obligation to pay a refund that would otherwise be payable under section 8AAZLF of the TAA. However, it is the view of the ATO in paragraph 27 of MT 2010/1 that the Commissioner may exercise his discretion and choose to pay a refund even though the conditions in paragraphs 105-65(1)(a), (b) and (c) of Schedule 1 to the TAA are satisfied. Paragraphs 116 and 117 of MT 2010/1 state: · 116. The operation of section 105-65 to deny the requirement to pay refunds that would otherwise be payable is not discretionary.…The words of the provision say that where the section applies the Commissioner need not give you a refund of the amount or apply the amount under the relevant RBA provisions…. · 117. The Commissioner considers that the words "need not", in the context of section 105-65, do not prohibit the giving of a refund and accordingly the Commissioner has a discretion to pay a refund in appropriate circumstances…. This view is supported by the decision in Luxottica Retail Australia Pty Ltd v FC of T 2010 ATC 10-119 at 57 when the AAT referred to "residual discretion": The question then becomes whether, in these circumstances, the discretion to pay the refund to the applicant should be exercised. Paragraph 128 of MT 2010/1 provides some guiding principles to consider when exercising the discretion. It states: 128. Section 105-65 does not specify what factors are relevant to the exercise of this discretion. In exercising the discretion, the Commissioner will have regard to the following guiding principles: (a) The Commissioner must consider each case based on all the relevant facts and circumstances. (b) The Commissioner needs to follow administrative law principles such as not fettering the discretion or taking into account irrelevant considerations. (c) The Commissioner must have regard to the subject matter, scope and purpose of section 105-65. As explained in paragraph 127 of this Ruling , it clear from the scope and purpose that section 105-65 is designed to prevent windfall gains to suppliers and to maintain the inherent symmetry in the GST system and is based on the underlying design feature and presumption of the GST system that the cost of the GST is ultimately borne by the non registered end consumer. (d) The discretion should be exercised where it is fair and reasonable to do so and must not be exercised arbitrarily. [Emphasis added]. Whether GST is passed on is a question of fact that needs to be determined in any particular case. Paragraphs 126 and 127 explain further: 126. The discretion contained in section 105-65 must be exercised within a framework that the GST Act is structured on a basis that GST is passed on when a supply is treated as a taxable supply. As such, factors outlined in Avon at paragraphs 9 to 12, albeit in a sales tax context, would equally apply in a GST context. 127. It is clear from the scope and purpose of section 105-65 that the provision is designed to prevent windfall gains to suppliers and to require the supplier to ensure that any refund ultimately compensates the person or entity who ultimately bore the cost. In relation to a refund of overpaid GST, the potential or otherwise for a windfall gain, the requirement to ensure the refund compensates the person or entity that ultimately bore the cost and the potential to disturb the symmetry envisaged by the GST system, are factors that must be taken into account in relation to the exercise of the discretion. It follows from the above that it is important when exercising the discretion to determine who has borne the burden of the GST. That is, whether a supplier has passed on the GST to the recipients. In answering this question, the Commissioner takes into consideration the factors outlined in paragraphs 9-12 of Avon Products Pty Ltd v Commissioner of Taxation (2006) HCA 29 (Avon) . It is considered that the guidance provided by the Avon case about who bears the burden of the indirect tax impost applies equally in the GST context given the similarity in the sales tax and GST regimes in that respect. Exercise of the discretion available under section 105-65 There are two important policy reasons behind the operation of section 105-65. These are that the GST on a taxable supply is intended to be borne by the end consumer, and that there should not be a refund of overpaid GST to a supplier where it may result in a windfall gain to the supplier. Potential exercise of the discretion must be considered with this policy in mind. Any refund must compensate the person or entity that ultimately bore the cost of the GST. Where Aus Ltd has passed on the cost of the GST to Aus Ltd's customers, and therefore cannot be said to have borne the cost of the overpayment it is not appropriate to refund the overpaid amount of GST to Aus Ltd. Whilst the overpayment is as a result of Aus Ltd's 'error' and Aus Ltd has remitted the amount to the ATO, it is Aus Ltd's customers who have borne the cost of this error. In Aus Ltd's circumstances the amount of GST has been passed on to its customers and 105-65 applies. The ruling request asks whether the Commissioner will exercise the discretion in 105-65 to refund the amounts to Aus Ltd before Aus Ltd reimburses the relevant customers. No exceptional circumstances We acknowledge and affirm that the discretion should be exercised where it is fair and reasonable to do so. Circumstances in which the Commissioner considers it may be fair and reasonable to exercise the discretion (Sub-paragraph 128 (d) MT 2010/1) include where the supplier is able to satisfy the Commissioner that an amount corresponding to the refund will be , or has been, passed on to the party that ultimately bore the cost of the overpaid GST (Sub-paragraph 128 (d)(iii) MT 2010/1). However, the Commissioner will generally not exercise the discretion in cases where the supplier has not reimbursed the unregistered recipients a corresponding amount of the overpaid GST, unless there are other countervailing reasons for doing so ( Paragraph 129 MT 2010/1). It is for the supplier to demonstrate that its circumstances make it appropriate for the Commissioner to give a refund (Paragraph 118 MT 2010/1). We consider that Aus Ltd has not presented any countervailing reasons why the Commissioner should exercise the discretion in these circumstances. Aus Ltd has not demonstrated that their circumstances are exceptional or different to any other entity that may prefer to receive a refund in advance from the ATO in order to reimburse its customers. If the Commissioner were to exercise the discretion in Aus Ltd's circumstances, then all future requests for similar arrangements would have to be considered accordingly. The wording of the legislation, and MT 2010/1, indicate that this is not the intention of the legislation. Even if the Commissioner considered that there was sufficient reason to consider exercising the discretion in these (or similar) circumstances, this would result in increased costs of administration for the Commissioner. The Commissioner would need to take appropriate measures to ensure that all the terms of the arrangement were complied with both before and after any refund was paid, otherwise there is a risk that any refund would not be passed on to end consumers and would result in a windfall gain to Aus Ltd. It is not fair and reasonable for the Commissioner to assume this burden in these circumstances. Paragraph 128(e) of MT 2010/1 indicates that when considering whether to exercise the discretion revenue outcomes must be considered. The example given to demonstrate this is where a supplier reimburses a registered recipient for the overpaid GST, but the Commissioner is unable to reclaim the over claimed input tax credit from the recipient. Where there is a risk of detriment to the Commissioner this would mean that the discretion would generally not be exercised. While the overpaid GST was not properly the revenue of the Commissioner, the Commissioner should not bear the administrative burden of ensuring that any refund is given to the appropriate persons, nor the revenue risk if it is not. The legislation provides that should Aus Ltd make arrangements to reimburse the full amount to Aus Ltd's customers, and hold evidence of full reimbursement having taken place, section 105-65 will no longer apply to restrict a refund of any such amount so reimbursed and Aus Ltd may amend the relevant Business Activity Statements to reflect the amended situation (and thereby claim a refund). If Aus Ltd satisfies the Commissioner that Aus Ltd has reimbursed the unregistered recipients, the Commissioner will be obliged to pay the refund of overpaid GST under section 8AAZLF provided Aus Ltd satisfies any other legislative conditions (for instance the time limits in section 105-55 of the TAA.) Question 2(b) Question 2(b) -refund of overpaid GST where the recipient of the supply of arranging services is registered or required to be registered for GST | Summary: The Commissioner is satisfied that Aus Ltd has overpaid an amount because they treated a supply as a taxable supply when that supply was not a taxable supply. However, the Commissioner is not satisfied that Aus Ltd has reimbursed a corresponding amount to the recipient of the supply and so need not give Aus Ltd a refund. Section 105-65 of Schedule 1 of the TAA contains a discretion which the Commissioner may exercise in certain limited circumstances to allow the refund, but Aus Ltd's circumstances do not warrant the exercise of that discretion. | Detailed Reasoning - Detailed reasoning: In the present case Aus Ltd treated the supply of arranging services as taxable and invoiced Aus Ltd's clients accordingly. Where Aus Ltd has made a taxable supply, when in fact the supply was GST-free and has remitted GST in connection with this supply, Aus Ltd has overpaid an amount of GST. Before any refund of the overpaid amount can be claimed, the impact of section 105-65 of Schedule 1 to the TAA (section 105-65) must be considered. Section 105-65 of the TAA applies and the Commissioner need not give Aus Ltd a refund if Aus Ltd overpaid an amount because a supply was treated as a taxable supply when the supply was not a taxable supply and one of the following applies: either the recipient has not been reimbursed an amount corresponding to the overpaid GST, or the recipient was registered or required to be registered. In the present case, the Commissioner is not required to refund the overpaid GST as Aus Ltd has advised that the recipients of the supply are registered for GST. However, there may be some circumstances where the Commissioner will consider exercising the discretion to allow a refund of the overpaid GST. The guiding principles for the Commissioner to exercise his discretion under section 105-65 of Schedule 1 to the TAA are discussed above. The scheme of the GST Act, on which the section 105-65 policy is based, is premised on the following principles: · it is the supplier that determines if the supply is taxable in the first instance. By determining that its supply is a taxable supply, an amount for GST is included in the price. · double taxation is avoided by the registered recipient being entitled to claim an input tax credit for that taxable supply where it is acquired for a creditable purpose and the supplier, in the relevant circumstances, issued a tax invoice. In this way the Act envisages symmetry between the GST payable and the input tax credit which may be claimed. · it is the unregistered end consumer that bears the cost of the GST (paragraph 38 MT 2010/1). Given the context in which it appears the section 105-65 provision will apply unless the Commissioner is satisfied that the taxpayer has reimbursed the recipient of the supply and the recipient is unregistered. As this is not the case, in the present circumstance, the Commissioner is under no obligation to refund the overpayment, the reason being that Aus Ltd has not reimbursed the recipient and the recipient is registered for GST and would have been entitled to claim the corresponding input tax credit. Therefore, the Commissioner will not exercise his discretion and refund the overpaid amount of GST to Aus Ltd where the recipient of the relevant supply is registered for GST. | Summary: The Commissioner continues to abide by the approach in ATO Practice Statement Law Administration PS LA 2002/12 (withdrawn) not to require reversal of transactions where registered entities enter into an arrangement that has resulted in incorrectly treating a supply as taxable, provided certain conditions are met. | Detailed Reasoning - Detailed reasoning: An Australian client of Aus Ltd who is registered for GST may have claimed ITCs or RITCs for the GST charged by Aus Ltd in respect of the supply of arranging services. If the Commissioner rules in Question 1 that the supply of arranging services is GST-free, however, the GST registered client will have incorrectly claimed ITCs or RITCs on a supply that was not a taxable supply. In the ruling request Aus Ltd submitted that MT 2010/1 does not provide guidance as to how the Commissioner deals with such a situation, although in Draft Law Administration Practice Statement PS LA 3521 the Commissioner indicates that the Commissioner will not seek to recover over-claimed ITCs or RITCs from recipients or impose general interest charges where the Commissioner has exercised the discretion under section 105-65 in Schedule 1 to the TAA not to refund overpaid GST to the supplier. The Commissioner continues to abide by the approach in ATO Practice Statement Law Administration PS LA 2002/12 (withdrawn) not to require reversal of transactions where an arrangement occurs between registered entities that have resulted in incorrectly treating a supply as taxable, provided the following conditions are met. The conditions for a registered supplier are: · A non-taxable supply has been treated as a taxable supply; · The supplier issued to the recipient an invoice that would be a valid tax invoice if the supply had been a taxable supply; · The supply did not occur in the current tax period. The amount incorrectly included as GST in the price has been included in the supplier's activity statement for a previous tax period and the amount remitted to the ATO; · The supplier has not reimbursed the registered recipient for the amount incorrectly included as GST in the price; · The supplier has not cancelled the tax invoice by issuing any later document that indicates the correct non-taxable status of the supply; and · The supplier began to treat current and future supplies of the same type as non-taxable as soon as it became aware of the error. The conditions for a registered recipient are: · The recipient is in possession of a document that would be a valid tax invoice if the supply had been a taxable supply; · The invoice indicates that a supply is a taxable supply and includes an amount represented as GST in the price; · The supply is non-taxable; · The recipient relied on the tax invoice to claim the input tax credit; · If the supply had been a taxable supply the recipient would have been entitled to claim full or partial input tax credits; · The ATO has already refunded or credited the amount included as GST in the price to the recipient; · The recipient has not been reimbursed by the supplier; · The tax invoice has not been cancelled by the supplier and superseded by a later document that indicates the true status of the supply as non-taxable; and · The registered recipient ceased to claim input tax credits for current and future acquisitions of the same type as soon as it became aware of the error. The policy will apply to an entity only if the conditions in both the paragraphs above are met. The conditions are self-regulating, and if one of the entities to a supply fails to meet all of its conditions, the other party would also fail to meet its conditions. · The ATO will not require the supplier to retrospectively amend its activity statements in relation to non-taxable supplies that have been incorrectly treated as taxable; · The ATO will not credit or refund to a supplier the amount of GST incorrectly included in the price; · If the supplies were non-taxable because they were input-taxed, and the supplier has claimed input tax credits on acquisitions in relation to those supplies because it incorrectly treated those input-taxed supplies as taxable, the supplier must repay those input tax credits. If the supplier had treated the supplies as taxable supplies in reliance on an earlier ruling issued to it by the ATO, it may ask the Commissioner to decide whether subsection 105-60(2) of Schedule 1 to the TAA requires the credits to be repaid; · The ATO will not require the registered recipient to retrospectively revise its activity statements and repay the input tax credits it claimed in reliance on incorrect tax invoices; and · … This policy recognises that reversal of transactions and revision of BAS to make corrections of this type amount to a round robin among the registered recipient, the supplier and the ATO. Significant compliance costs can be incurred with no change to the financial result. The thrust of the policy is that if both of the registered parties meet the criteria and do nothing to disturb the situation, then neither will the ATO if there is no compromise to revenue or the integrity of the tax system by doing so. We confirm that the ATO will adopt a 'preserving the status quo' approach and not seek to recover ITCs or RITCs claimed by Australian clients of Aus Ltd that are registered or required to be registered for GST in respect of supplies of arranging services by Aus Ltd to those clients which were incorrectly treated as taxable supplies and where, pursuant to section 105-65 in schedule 1 to the TAA, the ATO has not refunded to Aus Ltd any GST paid by Aus Ltd in respect of those supplies. Nor will those Australian clients be required to pay general interest charge to the extent that such payment would be contrary to the 'preserving the status quo' approach.

Subject: GST and supply of services to an Australian client of arranging the execution of orders which facilitate a change in ownership of both listed and unlisted international securities.: This ruling replaces GST private ruling Authorisation Number 1012525730047 which is withdrawn. | supplies identified in paragraph 9-10(2)(e); | supplies of things that derive their value exclusively, or almost exclusively, from rights; and