Yesterday the Commissioner issued ATO ID 2012/11 “Goods and Services Tax: Reduced input tax credit acquisitions and investment banking services acquired by a takeover target.
The issue dealt with in the ID is whether the target entity is acquiring a reduced credit acquisition under item 9 of sub-regulation 70-5.02(2) of the GST regulations when it acquires investment banking services to assist in considering a takeover bid by way of a scheme of arrangement proposal under s 411 of the Corporations Act 2001, and the subsequent implementation of the scheme so that the target entity shareholders dispose of their shares to the bidder entity – the ID considers that the answer is yes.
Under the scenario considered by the ID, the target entity makes ongoing input taxed supplies so that the target entity will be entitled to reduced input tax credits in respect of the acquisition of the services from the investment bank.
Under the scheme of arrangement the disposal of the shares is directly from the shareholder to the bidder and there is no disposal by the target entity. In considering this issue, the ID considers that Item 9 of the GST regulations only identifies the supplier of the service and it does not identity who the recipient must be – therefore it is not relevant that it is the target entity shareholders, rather than the target entity, who are disposing of the shares. Rather, it is a question of assessing if the supplier is in fact a financial supply facilitator and if its serviees can be characterised as arranging for the disposal of the target shareholder’s shares. In the present case, the target entity has engaged the investment bank to assist in the intended disposal of the shareholder’s shares because a takeover bid has commenced and this is sufficient to meet the requirements.