Private ruling: GST and supplies made to joint venture participants
Published: August 2012

Ruling: Q1: Do the sales companies (SCs) make a taxable supply to each joint venture (JV) participant, under or in connection with each Sales Agreement (Agreement), where a SC has contracted with the JV participant to buy, market and on-sell to non-resident third parties, goods from the JV participant? | A1: No.

Relevant facts and circumstances: The Agreements were entered into by A and B (together the 'SCs') and the participants of the various JVs. Each JV participant enters an Agreement with the relevant SC on substantially the same terms as the samples submitted. For the purposes of this ruling request you have focused on a single contract between a SC and a JV participant, however, you are seeking a ruling to cover all Agreements entered into by the SCs with each JV participant. A is the marketing and sales company for the JV participants in the A JV. B is the marketing and sales company for the JV participants in the B JV and the C JV. All JVs are GST JVs which have been set up and are operated for the same purpose at different sites. D is the representative member of the D GST group. A and B are both members, of the D GST group. The A and B Agreements are substantially the same in all relevant clauses. An Agreement is for the sale of goods from the JV participant to the SC. Under the Agreement, the JV participant (Vendor) agrees to sell its share of production to the SC subject to the conditions contained in the Agreement. The SC is required to negotiate in good faith and conclude sales with third parties for the sale of the goods it acquires from the JV participant. The SC will be responsible for all obligations imposed by any sales contracts it enters into with third parties for the sale of the goods. That is, the JV participant will not have any contractual liability or obligations to the third party purchaser of the goods. The JV participant sells the goods to the SC on an FOB basis. As such, title to the goods has not transferred prior to being loaded onto the relevant export bound vessel. The SC will immediately upon receiving title from the JV participant transfer title in the same to the third party purchaser. The third party purchaser pays the SC the price agreed for the purchase of the goods. The SC will pay the JV participant its portion of the revenue less a fee no later than four days after receiving payment, from the third party purchaser.

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 9-10 | A New Tax System (Goods and Services Tax) Act 1999 section 38-185

Reasons for decision: Summary: The SCs supply is characterised as a supply of goods to third party purchasers. | Detailed Reasoning - Detailed reasoning: For the SCs' supplies under the Agreements to be taxable, the supplies will need to meet the requirements of 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; and (b) the supply is made in the course or furtherance of an *enterprise that you carry on; and (c) the supply is *connected with Australia; and (d) you are *registered, or *required to be registered. However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed. A supply, pursuant to section 9-10 of the GST Act '… is any form of supply whatsoever.'. The SCs receive a payment (a fee) in return for the activities under the Agreements. Whether the fee is derived from the GST-free export sale of goods or some other activity is pivotal to the question asked. The test for determining whether a payment is consideration for a supply is whether there is sufficient nexus between the supply and the payment. Consideration for a supply may include acts, rights or obligations provided in connection with, in response to, or for the inducement of a supply. However, things such as acts, rights and obligations can often be disregarded as payments as they do not have economic value and independent identity separate from the transaction. For a thing to be treated as a payment for a supply, it must have economic value and independent identity provided as compensation for the making of the supply. That is, it must be capable of being valued and be a thing that an acquirer would usually or commercially pay money to acquire. Whether this requirement is satisfied will usually be demonstrated by the parties to an arrangement assigning a specific or separate value to the thing. However, the assigning of a value by the parties is not necessary for a thing to have economic value. Whether a payment is consideration for a supply depends on the true character of the transaction. Consideration for a supply is something the supplier receives for making the supply. Although a non-monetary payment (and acts or forbearances) can form consideration, the character of the transaction will determine whether it forms part of the consideration received by the supplier for making the supply. The GST ruling GSTR 2006/9 'Goods and service tax: supplies' at Proposition 16 indicates that it is the Commissioner's view that it is the total fact situation will determine the nature of a transaction, the entity that makes a supply and the recipient of the supply Australian courts have held that an arrangement between the parties will be characterised not merely by the description the parties give to the arrangement, but by looking at the transactions entered into and the circumstances in which the transactions are made. The Agreements provide that SCs have agreed to purchase goods from the JV participants on the terms set out in the agreement. The SCs under the Agreements shall negotiate and conclude sales of goods with other parties on an arm's length basis. The Agreements requires the SCs to act in the best interest of the JV participant. The goods purchased by the SCs will be delivered to FOB vessels nominated by the SCs. Title and risk in the goods passes to the SCs at the point of delivery of the goods onto the nominated vessel. The SCs then pass title to the purchasers under its sale contracts. The SCs receive payment from the purchaser for the sale of the goods and are required then to pay the JV participant for its acquisition of the goods supplied. The amount the SCs are required to pay the JV participant is the sales proceeds less a fee. The SCs may also deduct an amount of other costs. The Agreement makes it clear that the parties (the SCs and the JV participant) are in a business to business supply chain rather than some other relationship. The parties are not partners, nor are the SCs the agents of the JV participant. Example 15 in GST ruling GSTR 2001/6 'Goods and services tax: non-monetary consideration' is instructive in respect of the SCs' activities under the Agreement: | Detailed Reasoning - Example 15 - associated promotional activities: 110. ElectricCo is a distributor of electronic goods and supplies its products to ShopCo, a major retailer. Under a supply of goods agreement between the parties, the distributor agrees to make available a staff member on a part time basis to promote its own goods in the stores of ShopCo free of charge. The parties expect that this part of the agreement will provide a mutual benefit to each in the nature of increased sales. 111. There are no separate supplies of services between the parties. These activities do not have an independent identity that is separate from the transaction for the supply of the goods. They occur as part of the transaction and are not treated as being consideration for a supply. As the property in the goods passes from the JV participant to the SCs (sale 1), and then from the SCs to purchaser (sale 2), it is accepted that the SCs are not making supplies of marketing to the JV participant. The SCs are, in fact, making a supply of goods to the purchaser.

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