Private ruling: GST and non-resident voucher provider, sell through arrangements.
Date of advice: 21 December 2017
Published: June 2018

Ruling: Q1: 1. Is ABC Pty Limited liable for GST on the supply of gift-cards sold by non-resident entities under a sell through arrangement? | A1: 1. No, ABC Pty Ltd is not liable to account for GST on the supply of gift-cards which satisfy section 100-5 of the A New Tax System (Goods and Services) Act 1999 (GST Act) (Division 100 gift-cards) sold by non-resident Card Partner under a sell through arrangement. ABC Pty Ltd is also not liable to account for GST on the supply of gift-cards which do not satisfy section 100-5 of the GST Act (non-Division 100 gift-cards) sold by non-resident entities under a sell through arrangement. ABC Pty Ltd is not an electronic distribution platform (EDP) under section 84-70 of the GST Act to the extent that it only builds or maintains the infrastructure behind a service that makes supplies available to end users. Further, ABC Pty Ltd is not an EDP to the extent that it sells gift-cards that are: ● not an inbound intangible consumer supply (eg. issued by Australian resident Card Partners); or ● issued by non-resident Card Partners that: - entitle the holder to an experience; - is a stored value card; - is a discount card that is not a Division 100 voucher. | Q2: 2. Is the non-resident entities or the retailer liable for GST on the sale of non-Division 100 gift-cards to Australian consumers under a sell through arrangement, including the situation where the gift-cards are ordered online but physically delivered? | A2: b. where the card entitles the holder to digital subscription / supply c. where the card is a stored value card d. where the card is a discount card. General Advice 2a. Yes. The non-resident entities would be liable for GST on the sale of non-Division 100 gift-cards to Australian consumers under a sell through arrangement which entitles the holder to an experience. This would include the situation where the gift-cards are ordered online but physically delivered. 2b. Yes. The non-resident entities would be liable for GST on the sale of non-Division 100 gift-cards to Australian consumers under a sell through arrangement which entitles the holder to a digital subscription. This would include the situation where the gift-cards are ordered online but physically delivered. However, if a gift card for a digital subscription is provided digitally via an retailer that would be an EDP, then the retailer would be liable for the GST. 2c. No. Neither the non-resident entities nor the retailer are liable for GST on the sale of non-Division 100 gift-cards to Australian consumers under a sell through arrangement where the card is a stored value card. This would include the situation where the gift-cards are ordered online but physically delivered. Note: the non-resident entities will be liable for GST when the card is used if that use is a supply that meets the requirements of a taxable supply under section 9-5 of the GST Act. 2d. Yes. The non-resident entities would be liable for GST on the sale of non-Division 100 gift-cards to Australian consumers under a sell through arrangement which entitles the holder to a discount. A discount card is not a Division 100 voucher; so the sale will be a taxable supply if the requirements of section 9-5 are met.

Relevant facts and circumstances: ABC Pty Ltd is an Australian subsidiary of a US based company listed on the NASDAQ. ABC Pty Ltd is registered for Australian GST. ABC Pty Ltd provides many services to its customers, including retail distribution, IT support services, card activation and transaction processing services. There are three primary constituents of ABC Pty Ltd’s operations: customers who purchase the products and services offered, providers who offer branded gift cards and other prepaid products that are redeemable for goods and services and organisations that sell those products to the retail market. Notably, ABC Pty Ltd provides card activation services in respect of the gift cards. Only valid, authentic gift cards that have been purchased through retailers and subsequently ‘activated’ by ABC Pty Ltd can successfully be used to purchase goods or services at retail outlets and internet stores. ABC Pty Ltd’s IT and activation systems interface with the retailer’s point of sale ( POS ) systems to facilitate activation of cards at the point of sale. As part of its business model, ABC Pty Ltd engages with both residents and non-residents in relation to the services described above. The non-resident entities are not making supplies through an enterprise in Australia and the thing is not being done in Australia (section 9-25 of the GST Act). The gift cards can be sold by means of two different selling models, namely, a sell-through arrangement or a buy-sell arrangement. For the purposes of this Private Ruling Request, only the sell-through arrangement will be examined.

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, Subsection 9-17(1) | A New Tax System (Goods and Services Tax) Act 1999, Section 84-55 | A New Tax System (Goods and Services Tax) Act 1999, Section 84-70 | A New Tax System (Goods and Services Tax) Act 1999, Section 100-5 | A New Tax System (Goods and Services Tax) Act 1999, Section 100-25

Reasons for decision: Summary: ABC Pty Ltd is not liable to account for GST on the sale of non-Division 100 gift-vouchers to Australian consumers through retail stores or on-line. ABC Pty Ltd is not the entity making the supply, rather ABC Pty Ltd provide services to non-resident entities and retailers which facilitate the supply. Although, if ABC Pty Ltd was considered to be an EDP, section 84-55 of the GST Act would shift the GST liability from the non-resident entities, if they were supplying an inbound intangible consumer supply (IICS), to the operator of an EDP through which that supply is made. However, ABC Pty Ltd is not an EDP to the extent that it only builds or maintains the infrastructure behind a service that makes supplies available to end users. In the current case, the service provided by ABC Pty Ltd is limited to the processing and activation of physical and digital gift-cards following approval by the non-resident entities, which enables the service to be made available to the end-users. We therefore consider that the services provided by ABC Pty Ltd on the sale of non-Division 100 gift-vouchers to Australian consumers are not subject to the EDP rules as stated at paragraph 25 of LCG 2017/D4: 25. A service is not an EDP if it only builds or maintains the infrastructure behind a service that makes supplies available to end-users. For example, a service provider who builds a website that includes a shopping cart functionality (for the operator of a website) is not itself an EDP. However, the operator of the website, which is the recipient of those services, could be an EDP. Note also that in respect of Division 100 cards the draft LCG 2017/D4 further clarifies that an entity that sells these cards are not treated as an EDP in relation to those sales: 43. The last exclusion concerns the supply of 'face value' vouchers which are taxed on redemption or expiry. This ensures that entities whose online business includes the sale of these vouchers such as gift vouchers that can be redeemed for a range of supplies up to a particular monetary value, are not treated as an EDP operator in relation to the sale of those vouchers. The merchant remains responsible for any GST when a face value voucher is redeemed, or to make any increasing adjustments if the voucher is not redeemed. | Detailed Reasoning - General advice: 2a Advice in regard to a gift card where the card entitles the holder to an experience. The draft LCG 2017/D4 advises that sales of experience vouchers are not caught be the EDPs rules: 49. The EDP rules apply only to digital supplies. If a customer purchases something which entitles the customer to a specific supply in the future, then that supply must be a digital service or digital product for the EDP rules to apply. For example, if a theme park operator issues digital confirmation of a booking, this will not be a supply made by electronic communication as the access to the theme park is not a supply made by electronic communication. By contrast, a supply of an online streaming subscription is a supply made by electronic communication, as the online streaming is a supply by electronic communication. 50. We will accept that the EDP rules will not apply to supplies of rights, even if issued as a digital voucher, if those rights entitle the customer to receive a non-digital product or service in Australia (such as a sky diving experience). | Detailed Reasoning - General advice: 2b Advice in regard to a gift card for a digital subscription provided digitally via a retailer that would be an EDP, the retailer would be liable for the GST. LCG 2017/D4 GST on supplies made through electronic distribution platforms confirms our view of the law relating to supplies made through electronic distribution platforms (EDP’s). A retailer could be subject to the EDP rules even if the service provider (ABC Pty Ltd) is not considered an EDP. LCG 2017/D4 provides guidance which suggests that retailers could be liable to account for GST on the sale of non-Division 100 gift-vouchers to Australian consumers through on-line stores if they satisfy the requirements and do not satisfy the exclusions outlined in the LCG for example: 3. An example where an EDP operator can be responsible for GST is if they operate an online marketplace through which merchants can make offshore supplies of low value goods or supplies of digital products or digital services available to end-users. 4. If each of the four steps set out in this draft Guideline are satisfied, an EDP operator will be responsible for GST on a supply made through their platform. If the EDP operator is responsible for GST, the merchant will not be responsible for GST. Retail Store A ‘bricks and mortar’ retail store cannot be an EDP because, as stated in the LCG: 29. The second requirement is that the service of allowing entities to make supplies available to end-users must be delivered by electronic communication. Online Store However, if the retail store makes supplies through an online presence it would satisfy this requirement, for example: 31. This requirement will be satisfied where the service is delivered by fully automated electronic communication, such as by a website, an automated email or an automated pre-recorded telephone call. If the retailers’ online store does not satisfy all of the criteria listed in paragraph 66 of LCG 2017/D4, the exclusion will not apply. As explained in the LCG: | Detailed Reasoning - Step 3: Is the supply excluded from the EDP rules?: 65. An EDP operator is not automatically responsible for GST on an offshore supply of low value goods, or an inbound intangible supply made through their platform. Where the exclusion applies, the merchant, instead of the EDP operator, will be responsible for GST. 66. For the exclusion to apply, all of the following criteria must be met in relation to a supply made through the platform: - the EDP operator does not authorise the charge to the recipient of the supply - the EDP operator does not authorise the delivery of the supply - the EDP operator does not set (whether directly or indirectly) any of the terms and conditions under which the supply is made - a document relating to the supply issued to the recipient identifies the supply and the merchant as the supplier of that supply, and - the merchant and the EDP operator have agreed in writing that the merchant is the entity liable for paying the GST for the supply. Alternatively, the merchant and the EDP operator have agreed in writing that the merchant is the entity liable for paying GST for a class of supplies that includes the supply concerned. Step four only applies if there are multiple EDP’s involved in the supply (see paragraphs 100 to 114 of the LCG). According to the facts you have presented in your submission, it appears unlikely (for example) that an online retai ler could not authorise the charge to the recipient. Therefore generally they would be liable to account for GST on the sale of non-Division 100 gift-vouchers to Australian consumers in the scenario where the other steps outlined in the LCG are satisfied. However, in the situation where non-Division 100 gift-vouchers for digital subscriptions are sold to Australian consumers and are ordered online but physically delivered, it is the non-resident entity who would be liable to account for GST. This is because the physical delivery of the gift-cards by the retailer means that the EDP requirement that supplies are to be delivered by electronic communication is not met. | Detailed Reasoning - General Advice: 2c Advice in regard to a gift card that is a stored value card. GSTR 2003/5 Goods and Services Tax: Vouchers states the following regarding stored value cards: 49. A credit to an account, by transferring money to the account, where that money is to be used for future supplies, is not a supply. This is the case even though a card or thing resembling a voucher may be given to create the credit or enable access or use of the credit in the account. 50. The supplier of the facility for the account is not supplying a voucher, nor is it making a supply of money. The supplier of the facility for the account is not making a taxable supply; and it is not providing consideration for a taxable supply. GSTR 2003/12 Goods and services tax: when consideration is provided and received for various payment instruments and other methods of payment also discusses stored value cards in the following paragraphs: | Detailed Reasoning - Stored value card: 51. For the purpose of this Ruling, the term 'stored value card' refers to a product taking the form of a card where value is stored on the card itself. Some stored value cards may be linked to accounts provided by an Australian authorised deposit-taking institution (ADI). Non-ADI stored value card 52. The supply of a non-ADI stored value card, with no credit on it, is a taxable supply, if the requirements of Division 9 are met. If you provide consideration to acquire the card, the time the consideration is provided and received is determined by the payment instrument used. 53. Loading value onto a non-ADI stored value card may not be consideration for any supply. When the card, loaded with value, is used to purchase a range of goods or services, consideration will be both provided and received at the time the card is used in payment for those goods or services. | Detailed Reasoning - Example 3 - non-ADI stored value card: 54. Haishin is a university student. She purchases a stored value card, with no credit on it, from her student union for $5.50 which she pays for in cash. She provides consideration for the supply of a card at the time she hands over the cash. If the requirements of Division 9 are met, this is a taxable supply by the student union for which the consideration is $5.50. 55. Later, Haishin loads $20 value onto the card using the machine provided by the union for that purpose. There is no supply when Haishin loads $20 value onto the card. Haishin uses the card to purchase photocopying, car parking, and confectionary from vending machines on the university campus. At the time she uses the card to pay for these goods and services, she provides, and the supplier receives, consideration for the supply. The consideration is the amount by which the value on the card is depleted. 56. Where you acquire a non-ADI stored value card on which value is already stored, and that card entitles you to certain specific goods or services, for example, a transit card, the supply of the card to you is a supply of rights to which sections 9-15 and 9-17 will apply. The payment instrument used for the purchase of the rights attached to the card will determine when consideration is provided and received. 57. If the card that entitles you to certain specific goods or services is able to be recharged by the supplier for further consideration provided by you, the recharging of the card will be a further supply of rights to you, and will be treated in the same way as the initial purchase of the card. 58. The supply of goods or services for which the card is utilised will not be a supply for consideration unless consideration in addition to the value on the card is provided. In that case the payment instrument used (for example, by cheque, credit card) will determine when consideration is provided and received. | Detailed Reasoning - Example 4 - non-ADI stored value card used for specific supplies: 59. Garth purchases a stored value card from his local council to pay for parking. The card does not have a monetary value stated on it. He pays $110 for the card and is told that at any time he can have the card recharged by calling the council and quoting them his credit card details. Both the initial payment and any further recharge payments are consideration at the time he makes the payment. When Garth uses the card to pay for parking, there is no consideration for the supply of parking. | Detailed Reasoning - General Advice: 2d Advice in regard to a discount card. GSTR 2003/5 Goods and Services Tax: Vouchers provide guidance regarding discount cards at paragraph 182 to 190 which includes the following statements: 182. A right to a discount or price reduction is not a voucher within the meaning of section 100-25 as it does not entitle the holder to receive supplies. 183. These discounts may show a dollar amount and may even state that the holder is entitled to supplies chosen from a range of items, but all that the holder is entitled to is a reduction in the price of a supply. A common feature of these discounts is that they require additional consideration to be provided either for the supply (made on redemption of the right) or in connection with the exercise of the right to the discount. 187. Section 100-5 does not apply to the supply of a discount entitlement. It is a taxable supply if the requirements of section 9-5 are met. In practice, such a supply is often made for no consideration. However, as the example below illustrates, it may be supplied for consideration. Example 40: supply of a book of discounts 188. Martin acquires a book of discounts from a promoter for $44. The discounts entitle him to percentage and money-off discounts at various restaurants. 189. The supply of the book of discounts is a taxable supply. GST of $4 (1/11 x $44) is payable by the promoter. The discounts are not vouchers for the purposes of Division 100 as they do not entitle the holder to supplies but rather to a price reduction. 190. When Martin uses a discount at a restaurant under subsection 9-17(1), GST for the restaurant supply is calculated on any additional consideration, provided by Martin.

a . where the card entitles the holder to an experience