Today the Commissioner issued Taxpayer Alert TA 2012/5 ‘Acquisition of intangible right for inflated consideration which is financed by supplier’. The arrangement described in the Alert is where an entity claims an input tax credit on a purported acquisition (on non-commercial terms which has an inflated or commercially unrealistic price) of an intangible right from a supplier, with the provision of vendor finance under which payments are contingent on a future event. The vendor issues a tax invoice for the stated purchase price, irrespective of whether the conditions requiring payment have been met. The purchaser accounts on an accruals basis and claims an input tax credit. The vendor accounts on a cash basis and does not remit GST.
The aspects of the arrangements which concern the Commissioner are stated to be:
- whether the purchaser has made a creditable acquisition at all;
- whether the purchaser is entitled to attribute any input tax credits before the contingency for payment is satisfied – this raises the question of whether the purchaser is “liable to pay” consideration at this time;
- whether the anti-avoidance provisions in Division 165 of the GST Act apply, as it appears artificial and contrived in its design;
- whether the arrangement, or certain steps within it, constitute a sham at general law.
The Alert also states that the Commissioner will consider the income tax and GST implications for the vendor.
My thanks to Rhys Penning of Greenwoods & Freehills for alerting me to the publication.