Taxpayer Alert TA 2010/1: GST - interposing an associated 'financial supply facilitator' to enhance claims for reduced input tax credits for expenses incurred in the course of a company takeover
Date of issue: 18 February 2010
Status: Current


Description: This Taxpayer Alert describes an arrangement that attempts to create or increase an entitlement to a reduced input tax credit (RITC) for an entity that makes a financial supply of acquiring shares in a company as part of a takeover. | This Alert applies to arrangements with features that are substantially equivalent to the following: 1. A special purpose vehicle entity (SPV) is established for the purpose of acquiring shares in a company as part of a takeover. 2. Another entity within the broader economic group, that is an associate of the SPV but not a member of the same GST group, is designated to provide "arranging services" for the SPV's acquisition of shares. (Arranging services is a reduced credit acquisition which entitles the recipient to an RITC). 3. Under an "arranging services" agreement with the SPV, the associate undertakes to acquire and pay for, amongst other things, tax, legal, public relations and investment banking services supplied by third parties. These services are performed exclusively for the purpose of the SPV's takeover and there is insufficient commercial rationale for the associate's involvement in the supply of these services. 4. The associate claims input tax credits on its purported acquisitions of those services. 5. The associate then makes a single 'bundled' supply of 'arranging services' to the SPV, calculating its fee by reference to the costs it incurred in paying the service providers. 6. The SPV claims to have made a reduced credit acquisition on the basis that its interposed associate is a financial supply facilitator that has arranged the SPV's acquisition of the shares. 7. The SPV claims an RITC on its acquisition from its associate. The SPV would not have been entitled to an RITC on some or all of the acquisitions, such as tax, legal and public relations services, had it acquired those services directly from the service providers (i.e. without the interposition of the associate to provide the 'bundled' supply of 'arranging services'). 8. The basic features of this arrangement can be summarised diagrammatically as follows: | 1. A special purpose vehicle entity (SPV) is established for the purpose of acquiring shares in a company as part of a takeover. 2. Another entity within the broader economic group, that is an associate of the SPV but not a member of the same GST group, is designated to provide "arranging services" for the SPV's acquisition of shares. (Arranging services is a reduced credit acquisition which entitles the recipient to an RITC). 3. Under an "arranging services" agreement with the SPV, the associate undertakes to acquire and pay for, amongst other things, tax, legal, public relations and investment banking services supplied by third parties. These services are performed exclusively for the purpose of the SPV's takeover and there is insufficient commercial rationale for the associate's involvement in the supply of these services. 4. The associate claims input tax credits on its purported acquisitions of those services. 5. The associate then makes a single 'bundled' supply of 'arranging services' to the SPV, calculating its fee by reference to the costs it incurred in paying the service providers. 6. The SPV claims to have made a reduced credit acquisition on the basis that its interposed associate is a financial supply facilitator that has arranged the SPV's acquisition of the shares. 7. The SPV claims an RITC on its acquisition from its associate. The SPV would not have been entitled to an RITC on some or all of the acquisitions, such as tax, legal and public relations services, had it acquired those services directly from the service providers (i.e. without the interposition of the associate to provide the 'bundled' supply of 'arranging services'). 8. The basic features of this arrangement can be summarised diagrammatically as follows: | The Tax Office considers that an arrangement of the type described above gives rise to taxation issues that include whether: a. the associate may be entitled to input tax credits under Division 11 of the A New Tax System (Goods and Services Tax) Act 1999 ('GST Act'); b. the associate may be a financial supply facilitator for the purposes of item 9 of the table in sub-regulation 70-5.02(2) of the A New Tax System (Goods and Services Tax) Regulations 1999; and if so, to what extent the services provided by the associate to the SPV may be covered by that item; c. the anti-avoidance provisions of Division 165 of the GST Act may apply to the arrangement or any part of it; and d. any entity involved in the arrangement may be a promoter of a tax exploitation scheme for the purposes of Division 290 of Schedule 1 to the Taxation Administration Act 1953. | a. the associate may be entitled to input tax credits under Division 11 of the A New Tax System (Goods and Services Tax) Act 1999 ('GST Act'); b. the associate may be a financial supply facilitator for the purposes of item 9 of the table in sub-regulation 70-5.02(2) of the A New Tax System (Goods and Services Tax) Regulations 1999; and if so, to what extent the services provided by the associate to the SPV may be covered by that item; c. the anti-avoidance provisions of Division 165 of the GST Act may apply to the arrangement or any part of it; and d. any entity involved in the arrangement may be a promoter of a tax exploitation scheme for the purposes of Division 290 of Schedule 1 to the Taxation Administration Act 1953. | The Tax Office is currently reviewing these arrangements. Note 1: If you have received a private ruling in respect of your arrangement, please check whether the application of Division 165 of the GST Act is considered in that ruling. You may not have asked for us to rule on the application of Division 165 to the arrangement ruled upon, or to an associated or wider arrangement of which that arrangement is part. If you want us to rule on whether Division 165 applies to your arrangement, we will first need to obtain and consider all the relevant facts about the arrangement, including (if relevant) the manner in which it has actually been implemented. Note 2: Base penalties of up to 50% of the tax avoided can apply where Division 165 is applied. Base penalties of up to 75% of the tax avoided can apply where you make a false and misleading statement to the Commissioner. Reductions in base penalty will be available if you make a voluntary disclosure to the Tax Office. If you have any information about the current arrangement or about people or companies who may be promoting these or similar arrangements, please call us on 1800 060 062. Note 3: Penalties of up to 5,000 penalty units for individuals, 25,000 penalty units for bodies corporate or up to twice the amount of consideration received or receivable may apply to promoters of tax exploitation schemes under Division 290 of Schedule 1 to the Taxation Administration Act 1953. The Commissioner can also apply to the Federal Court of Australia for restraining and performance injunctions against promoters where prohibited conduct has occurred, is occurring or is proposed.





Related documents: GSTR 2002/2 | GSTR 2004/1 | GSTR 2006/9 | PS LA 2008/15 | Division 11 | 40-5 | Division 70 | Division 165 | Subdivision 40-A | 70-5.02 | Division 290

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