Private ruling: GST and acquisitions of services
Date of advice: 30 November 2020
Published: January 2021
Ruling period: Tax periods beginning on or after 1 November 20XX
Date scheme commenced: 1 November 20XX

Ruling: Q1: Is the entity making an acquisition under section 11-10 of the A New Tax System (Goods and Services Tax) Act 1999 under the agreement with a service provider for the procurement of services which are provided to a customer of the entity? | A1: Yes.

Relevant facts and circumstances: The entity provides professional procurement services and is registered for GST. The entity provides a range of services including consultancy; tender management; contract management; negotiation services; probity services; business analysis; purchasing; and project management. The entity will enter into an agreement with a service provider which will set out the obligations of the parties in respect of the provision of services by the service provider to the customers of the entity. This 'umbrella agreement' will ensure that the entity receives agreed discounted pricing and/or volume discounts (on either a client by client or aggregated basis). Additionally, the agreement will provide that the entity will receive other benefits. The entity will also enter in an 'umbrella agreement' with its clients which provides that the entity will provide the service of procuring and arranging the provision of services to the customers as requested. Under this agreement, it is expected that the entity will: • meet with the clients to ascertain scope of works/project requirements/ budget etc; • prepare a formal request for proposal or other tender package for distribution to suitable service providers; • seek, review and assess tenders from service providers; • report to the clients in relation to the request for proposal responses and liaising to select a preferred service provider; and • once a service provider has been engaged, managing billing and payment with the service provider. These umbrella agreements will be entered into prior to any engagement of the service providers. For each engagement, the entity, the customer and the service provider will enter into a tripartite agreement consistent with the umbrella agreements. The customer will engage the service providers for the provision of services, establishing the requisite legal relationship and the entity will procure, arrange and be liable to provide the consideration associated with the provision of services.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 11-10

Reasons for decision: Summary: In order for an entity to be entitled to input tax credits, it must make a creditable acquisition. An acquisition is defined by section 11-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) very widely as 'any form of acquisition whatsoever' and includes: • an acquisition of goods; • an acquisition of services; • a receipt of advice or information; • an acceptance of a grant, transfer, assignment or surrender of any right; and • an acquisition of a right to require another person: - to do anything; - or to refrain from an act; or - to tolerate an act or situation; The Goods and Services Tax Ruling, Goods and services tax: supplies (GSTR 2006/9) discusses a range of propositions relating to supplies, and consequently, also discusses acquisitions by recipients of those supplies. For example, Proposition 2 in GSTR 2006/9 is 'generally, for every supply there is a recipient and an acquisition' and Proposition 15 in GSTR 2006/9 is 'one set of activities may constitute the making of two (or more) supplies'. Paragraph 217A of GSTR 2006/9 refers to the Full Federal Court case of Federal Commissioner of Taxation v. Secretary to the Department of Transport (Vic) [2010] FCAFC 84 (Department of Transport), where the activity undertaken by the taxi operator of transporting the eligible passenger resulted in a supply of transport to the passenger as well as a supply to the Department of Transport of the service of transporting the eligible passenger. Paragraph 221B of GSTR 2006/9 states: 221B. The Commissioner considers that the following factors, in combination, may point to a supply being made by the supplier to the payer under a tripartite arrangement that involves a supply by the supplier to the customer, even where there is no binding obligation between the payer and the supplier for the supplier to make a supply to the customer: (a) there is a pre-existing framework or agreement between the payer and the supplier which contemplates that the parties act in a particular manner in respect of supplies by the supplier to particular third parties or a class of third parties; (b) the pre-existing framework or agreement: (i) identifies a mechanism by which the particular third parties or the class of third parties are to be identified such that the supplies made to them come within the scope of the framework or agreement; and (ii) specifies that the payer is under an obligation to pay the supplier if there is a relevant supply by the supplier to a third party and also sets out a mechanism by which such payment is authorised; (c) the framework or agreement and the mechanism for authorising the payment are in existence before the supply by the supplier to the third party (that is, the supplier knows in advance that the payer is obliged to pay some or all of the consideration in the event of the supply to the third party); (d) the supplier makes the supply to the third party in conformity with the pre-existing framework or agreement between the parties; and (e) the obligation of the payer to make payment pursuant to the pre-existing framework or agreement is not an administrative arrangement to pay on behalf of the third party for a liability owed by the third party to the supplier. Rather, once the supply becomes a supply to which the framework or agreement applies, the framework or agreement establishes a liability owed by the payer (not the third party) to the supplier in the event that there is a supply by the supplier to the third party. The umbrella agreements which the entity enters into with the service providers and the customers satisfy the requirements stated in paragraph 221B of GSTR 2006/9 that there is a pre-existing framework between the entity and the service providers which contemplates that the parties act in a particular manner in respect of supplies by the service providers to the customers of the entity and that the entity is obliged to pay the service providers if and when the service providers make a supply to the customers. A key aspect of the arrangement explained in paragraph 221B of GSTR 2006/9 is that the contractual framework under which supplies will be made exists prior to any supplies actually being made. As the umbrella agreements are entered into prior to the service providers making any future supplies to the customers, the requirement to have an existing framework, as mentioned in paragraph 221B is satisfied. Paragraph 221C of GSTR 2006/9 states that the umbrella agreements 'must set out the terms and conditions governing the parties and require the [service provider] to act in a particular manner with respect to supplies to [customer]'. This requirement cannot be optional as explained in paragraph 221D of GSTR 2006/9. Paragraph 221E of GSTR 2006/9 states that the umbrella agreements must identify the customers and set out the authorisation process by which the obligation arises for the entity to make payment to the service provider. Paragraph 221F of GSTR 2006/9 states that the arrangement must be more than merely an administrative payment arrangement on behalf of the customers. That is, the obligation by the entity to pay must not be for a liability owed by the customer to the service provider. The umbrella agreements must establish the fact that the entity has the liability to pay for any future services provided to the customers. The umbrella agreements will create enforceable obligations on the service providers in which something of value is passed to the entity. That is, the service providers will make a supply that may be described as the entry into an obligation to provide services to the customers of the entity. In addition, the service providers will make other ancillary supplies under the agreements including training sessions, industry alerts and detailed reports. The umbrella agreements, as described, indicate that the service providers make a supply to the entity and that the payments made by the entity in accordance with the agreements are consideration for those supplies. Consequently, the entity will be making an acquisition under section 11-10 of the GST Act of the procurement of services which are provided to a customer of the entity.