Private ruling: GST and supply of agency services
Published: March 2013

Ruling: Q1: Is a supply of procurement agency services by an Australian entity (you) to another Australian company ('Company A') to act as an agent on A's behalf to acquire charter vessel services from a non-resident entity to transport goods from an overseas country to Australia, a taxable supply? | A1: Yes. The supply of procurement agency services by you to Company A to act as an agent on company A's behalf to acquire the charter vessel services from the non-resident entity to transport goods from overseas to Australia is a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax ) Act 1999 (GST Act). | Q2: Is a goods and services tax (GST) payable on the reimbursement received by you from Company A for the acquisition of charter vessel services when you act as a procurement agent on behalf of Company A to transport goods from an overseas country to Australia? | A2: No, where you are acting as a paying agent for Company A, the reimbursement for the acquisition of charter vessel services by you on behalf of Company A does not form part of the consideration for a taxable supply that you make and therefore, GST is not payable on the reimbursement of this expense. | Q3: Is the supply of procurement agency services by you to Company A to act as an agent on company A's behalf to acquire goods from an overseas country a taxable supply? | A3: Yes. The supply of procurement agency services by you to Company A to act as an agent on Company A's behalf to acquire goods from overseas is a taxable supply under section 9-5 of the GST Act. | Q4: Is a goods and services tax (GST) payable on the reimbursement received by you from Company A for the acquisition of goods from an overseas country, whilst acting as a procurement agent on behalf of Company A? | A4: No, where you are acting as a paying agent for Company A, the reimbursement for the acquisition of charter vessel services by you on behalf of Company A does not form part of the consideration for a taxable supply that you make and therefore, GST is not payable on the reimbursement of the goods.

Relevant facts and circumstances: You are an Australian company which is registered for goods and services tax (GST). You supply procurement agency services for mining, refining, energy and related industries around the world. Chartering the vessel You are acting as a third party procurement agent for another Australian company (Company 'A') to charter a vessel from a non-resident entity to transport goods from an overseas country to Australia. You act as a paying agent when you pay the non-resident entity for the charter vessel services on behalf of Company A. You are then reimbursed by Company A for the charter vessel services paid by you and any additional costs such as demurrage and wharfage. The non-resident entity is not registered for GST in Australia. In relation to the transaction for the supply of the charter vessel services, Company A organises the vessel for charter from the non-resident entity and then provides a purchase order to you for the charter vessel services. You then enter into a purchase agreement with the non-resident entity on behalf of Company A to acquire the charter vessel services. The non-resident entity issues an invoice to you for the charter vessel services. You pay for the charter vessel services and any other costs, as an agent for Company A. You then invoice Company A in Australian dollars the same amount for the charter vessel services that the non-resident entity invoiced to you. You also invoice Company A for your procurement agency services in return for payment in the form of commission. Company A pays you for the charter vessel services as well as your commission payment. Purchase of goods You are also acting as a third party procurement agent for Company A to purchase goods from other non-resident entities (Company X and Company Y). You receive payment in the form of commission for your supply of procurement agency services to Company A. Company X and Company Y, are non-resident companies who are not registered for GST in Australia. In relation to the supply of goods, when you receive a purchase order from Company A, you then enter into a purchase agreement with Company X and Company Y on behalf of Company A to acquire the goods. When the goods are ready, Company X and Company Y ship the goods directly to Company A. The goods are imported and cleared (that is, custom formalities are completed) by Company A and it is your view that Company A is the importer of the goods into Australia. You advise that you are not importing the goods and have no responsibility for the import of goods or how the goods are used by Company A. Company X and Company Y, issue the invoices to you for the goods, and you pay for the goods as an agent for Company A. You then invoice Company A in Australian dollars the same amount for the goods that Company X and Company Y invoice you. You also invoice company A for your agency services and impose your fees. Company A pays you for the cost of the goods as well as your fees. You advise that there is no written agreement between you and company A in relation to the supply of your procurement agency services. You have provided copies of the purchase orders, and invoice(s): · Purchase order issued by Company A to you; · Purchase order and invoice issued by you to the non-resident entity; · Purchase agreement between you and Company X; · Purchase agreement between you and Company Y; · Invoices issued by Company X and Company Y; · Invoice issued by you to Company A for the goods and services;

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 9-15 | A New Tax System (Goods and Services Tax) Act 1999 Section 9-70 | A New Tax System (Goods and Services Tax) Act 1999 Section 29-70 | A New Tax System (Goods and Services Tax) Act 1999 Section 195-1 Issue 1 | 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. | Accordingly, your supply of procurement agency services to Company A will be a taxable supply if it meets all the requirements in section 9-5 of the GST Act. | From the facts provided, you satisfy paragraphs 9-5(a) to 9-5(d) of the GST Act as: (a) you supply the procurement agency services in return for consideration by way of payments; | (b) the supply is made in the course of an enterprise (business) that you carry on; | (c) the supply is connected with Australia as you are carrying on your enterprise (business) in Australia; and | (d) you are registered for GST. | However, your supply of procurement agency services to Company A is not taxable to the extent that it is GST-free or input taxed. | Based on the facts provided, none of the GST-free or input taxed provisions under the GST Act are applicable to the supply of procurement agency services by you to Company A. | Therefore, the supply of procurement agency services by you to Company A is a taxable supply under section 9-5 of the GST Act. Consequently, GST is payable on commission charged by you to Company A for the supply of your procurement agency services to act as an agent on Company A's behalf to acquire the charter vessel services to transport goods from overseas. Issue 2 | As discussed in the reasons for decision to issue 1, your supply of procurement agency services to Company A is a taxable supply under section 9-5 of the GST Act. However, we need to determine whether the reimbursement of expenses for the charter vessel services by Company A to you forms part of the consideration for your supply of procurement agency services. | Under section 9-15 of the GST Act, consideration includes any payment, act or forbearance, in connection with, in response to or for the inducement of a supply of anything. Goods and Services Tax Ruling GSTR 2000/37 titled 'Goods and services tax: agency relationship and the application of the law' explains the GST implications arising from situations involving agency relationships. | The GST consequences of disbursements made by agents and their subsequent reimbursements by customers are discussed at paragraphs 48 and 49 of GSTR 2000/37. | Paragraphs 48 and 49 of GSTR 2000/37 state: | 48. Agents may incur expenses on a client matter both as an agent of the client and as a principal in the ordinary course of providing their services to the client. For example, in most cases, even though agreements between solicitors and clients may not use the term agent or agency, it is clear that the clients have authorised the solicitors to act on their behalf in the particular matter. When the solicitor acts as an agent for the client, the general law of agency applies so that the solicitor is 'standing in the shoes' of the client. | 49. If a disbursement is made by a solicitor and incurred in the solicitor's capacity as a paying agent for a particular client, then no GST is payable by the solicitor on the subsequent reimbursement by the client. This is because the goods or services to which the disbursement relates are supplied to the client, not to the solicitor, by a third party. Also, the reimbursement forms no part of the consideration payable by the client for the supply of services by the solicitor. However, if goods or services are supplied to the solicitor to enable the solicitor to perform services supplied to the client, GST is payable by the solicitor on any reimbursement by the client of expenses incurred on those goods or services, whether the reimbursement is separately itemised or included as part of the solicitor's overall fee. This is because the reimbursement is part of the consideration payable by the client for services supplied by the solicitor. | The GST implication on the reimbursements you received from Company A depends on whether you are acting as an agent for Company A or it is part of the consideration for the supply of your procurement agency services. | To make the distinctions clearer paragraphs 50 to 53 of GSTR 2000/37 describe the sort of fees that a solicitor may pay on behalf of a client and describes when those fees would be paid as an agent and as a principal. These paragraphs are reproduced below: | 50. The following are examples of common fees and charges, for which a client is liable, that may be paid for by a solicitor as a paying agent of the client. If the solicitor makes the payment, GST is not payable on the subsequent reimbursement by the client to the solicitor for: | · application fees; | · registration fees; | · court fees; | · barrister's fees when the barrister is engaged by the client; | · incorporation fees; | · most fees in connection with registering and maintaining the status of particular legal relationships such as companies, partnerships, societies or associations; | · fines, penalties, stamp duty and taxes; and | · probate fees. | 51. The following are examples of common disbursements that, depending upon the contractual arrangements between the client and the solicitor, can be incurred by a solicitor and then reimbursed by a client as part of the consideration payable for legal services provided to the client by the solicitor. If the following disbursements are incurred by a solicitor, GST is payable on the subsequent reimbursement by the client to the solicitor: | · search fees; | · municipal search fee (eg rates; zoning; permits); | · birth/death/marriage certificate fees; | · barrister's fees when the barrister is engaged by the solicitor; | · witness fees; | · fees for recording court proceedings; | · service of document fees; | · fees for expert report or attendance in court; and | · fees to obtain court transcript. | Based on the information provided, Company A has authorised you to act as an agent to acquire the charter vessel services from the non-resident entity. You are considered to be acting as a paying agent for Company A. In your capacity as the paying agent for Company A, you pay the non-resident entity for the expenses incurred in providing these services to Company A. It is Company A, who is personally responsible to pay for the charter vessel services, thus the acquisitions to which the reimbursement relates are also costs that Company A is responsible for. | Therefore the money paid for the charter vessel services by Company A to you is a reimbursement of expenses incurred by Company A, which forms no part of the consideration payable by Company A for your supply of procurement agency services. You do not make a taxable supply for which you receive the reimbursement payment from the clients. Consequently, GST is not payable on the reimbursement payment which you receive from Company A for the charter vessel services. | All public rulings and/or publications referred to in this ruling are available at the Tax Office website at www.ato.gov.au | Issue 3 | As discussed in the reasons for decision to issue 1, your supply of procurement agency services to Company A is a taxable supply under section 9-5 of the GST Act. | Based on the facts provided, none of the GST-free or input taxed provisions under the GST Act are applicable to the supply of procurement agency services by you to Company A | Therefore, the supply of procurement agency services by you to Company A to act as an agent on company A's behalf to acquire goods from overseas country is a taxable supply under section 9-5 of the GST Act. Consequently, GST is payable on the commission charged by you to Company A for the supply of your procurement agency services. Issue 4 | Based on the information provided, Company A has authorised you to act as an agent to acquire the goods from Company X and Company Y. You are acting as a paying agent for Company A. In your capacity as the paying agent for Company A, you pay Company X, and Company Y, for the expenses incurred in providing those goods to Company A. It is Company A, who is personally responsible to pay for goods, thus the acquisitions to which the reimbursement relates are also costs that Company A is responsible for. | Therefore the money paid for Company X and Company Y by Company A to you is a reimbursement of expenses incurred by Company A, which forms no part of the consideration payable by Company A for your supply of procurement agency services. You do not make a taxable supply for which you receive the reimbursement payment from the clients. Consequently, GST is not payable on the reimbursement payment which you receive from Company A for the goods.