Private ruling: Goods and services tax reimbursement of advertising and promotional expenses
Published: October 2012

Ruling: Q1: Are you entitled to input tax credits where you reimburse company 3 for expenses relating to the advertising and promotional services supplied by company 4? | A1: No.

Relevant facts and circumstances: You are not registered for GST. You are a non-resident company that carries on an enterprise in an overseas country of supplying various products. You are a wholly owned subsidiary of a certain company. You export a certain product to the Australian distributor of the product, company 3. You do not carry on a business within Australia and you do not have a permanent establishment in Australia. You do not import the certain product into Australia. Company 3 imports the product into Australia. Company 3 is not your agent. Company 3 has engaged an Australian advertising company, company 4, to supply advertising and promotional services for this product in Australia. Company 4 invoices company 3 for the services and company 3 invoices the associated expenses on to you and you reimburse company 3 for these expenses. There is no written agreement in place between you and company 3 in respect of the reimbursement of expenses relating to the advertising and promotional services supplied by company 4. Company 3 is not in the business of providing advertising or promotional 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 paragraph 9-10(2)(b) | A New Tax System (Goods and Services Tax) Act 1999 section 11-5 | A New Tax System (Goods and Services Tax) Act 1999 paragraph 11-10(2)(b) | A New Tax System (Goods and Services Tax) Act 1999 section 11-20 | A New Tax System (Goods and Services Tax) Act 1999 section 23-5 | A New Tax System (Goods and Services Tax) Act 1999 subsection 23-10(1) | A New Tax System (Goods and Services Tax) Act 1999 paragraph 23-15(1)(b) | A New Tax System (Goods and Services Tax) Act 1999 section 111-5 | A New Tax System (Goods and Services Tax) Act 1999 Division 188

Reasons for decision: Summary: You are not entitled to input tax credits where you reimburse company 3 for expenses relating to the advertising and promotional services supplied by company 4, because you do not acquire any supply in return for these payments. | Detailed Reasoning - Detailed reasoning: You are entitled to input tax credits on your creditable acquisitions. You make a creditable acquisition where you satisfy the requirements of section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), which states: You make a creditable acquisition if: · you acquire anything solely or partly for a *creditable purpose; and · the supply of the thing to you is a *taxable supply; and · you provide, or are liable to provide, *consideration for the supply; and · you are *registered or *required to be registered. (*Denotes a term defined in section 195-1 of the GST Act) | Detailed Reasoning - Acquisition for a creditable purpose: In accordance with paragraph 11-20(2)(b) of the GST Act, an acquisition includes an acquisition of services. We consider that company 4 supplies advertising and promotional services to company 3 because company 3 contracts company 4 to supply the advertising and promotional services. Therefore, you do not acquire advertising or promotional services from company 4. We do not consider that company 3 supplies advertising or promotional services to you. You are merely reimbursing company 3 for supplies of advertising and promotional services by company 4 to company 3. Section 111-5 of the GST Act provides that where an entity reimburses an employee; an associate of an employee; an agent; an officer of the entity (if the entity is a company) or partner of the entity (if the entity is a partnership), the reimbursement could be treated as consideration for an acquisition that the entity makes from the employee, associate, agent, officer or partner. Section 111-5 of the GST Act is not relevant to your situation. As you do not make an acquisition of advertising or promotional services or anything else, you do not satisfy the requirement of paragraph 11-5(a). | Detailed Reasoning - Acquisition of a taxable supply: You make a taxable supply where you satisfy the requirements of section 9-5 of the GST Act, which states: You make a taxable supply if: · you make the supply for *consideration; and · the supply is made in the course or furtherance of an *enterprise that · you *carry on; and · the supply is *connected with Australia; and · 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. In accordance with paragraph 9-10(2)(b) of the GST Act, a supply includes a supply of services. As no supply is made to you, no taxable supply is made to you. Therefore, you do not satisfy the requirement of paragraph 11-5(b) of the GST Act. | Detailed Reasoning - GST registration: You are not registered for GST. However, you are eligible to register for GST as you are carrying on an enterprise. You are not required to be registered for GST if you do not make supplies that are connected with Australia. There is nothing in the facts you provided that indicates that you make any supplies that are connected with Australia. If you are not registered or required to be registered for GST, you do not satisfy the requirement of paragraph 11-5(d) of the GST Act. | Detailed Reasoning - Conclusion: As you do not satisfy all of the requirements of section 11-5 of the GST Act, you do not make creditable acquisitions in the circumstances. Therefore, you are not entitled to input tax credits where you reimburse company 3 for the advertising and promotional expenses. We cannot advise how to calculate the amounts of the reimbursements. This is a contractual matter between you and company 3.

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