Edited version of your written advice

Authorisation Number: 1051479469072

Date of advice: 13 March 2019

Ruling

Subject: GST and loan arrangements

Questions

1. Have the following fees charged by you to your Australian resident customers been appropriately classified as consideration for input taxed supplies under subparagraph 40-5.09(1)(a)(i) of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations)?

● commitment fee;

● establishment & underwriting fee; and

● ticking fee.

2. Has the following fee charged by you to your Australian resident customers been appropriately classified as consideration for a supply under paragraph 9-5(a) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

● advisory fee.

All further legislative references are to the GST Act unless stated otherwise.

3. Are you entitled to recover reduced input tax credits (RITCs) for syndication services and credit execution services provided to you by your related entity, AAA?

4. Are you entitled to recover RITCs for general head office services provided to you by the following related non-resident entities for which you pay ‘regional charges’?

● AAA

● BBB

● CCC

● DDD

● EEE

● FFF

Answers

1. Syndicated loan arrangements

Yes. With regard to syndicated loans provided by you, the commitment fee, and the ticking fee are considered to be consideration for input taxed supplies under subparagraph 40-5.09(1)(a)(i) of the GST Regulations in the given circumstances.

The treatment of the commitment fee is in accordance with its definition contained in Goods and Services Tax Ruling GSTR 2002/2 Goods and services tax: GST treatment of financial supplies and related supplies and acquisitions (GSTR 2002/2) and its treatment at Line No. B11 in the table to Schedule 2 of GSTR 2002/2.

The nature of the ticking fee is to offset the cost of keeping funds available beyond certain dates as stipulated in your contractual documentation and is considered to form consideration for your input taxed supply of an interest in a credit arrangement.

The establishment & underwriting fee is considered to form consideration for both input taxed and taxable parts of your supply. Please refer to the reasons for decision for more detailed explanation.

Bilateral loan arrangements

As confirmed with you, establishment & underwriting fees, and commitment fees are generally not charged under bilateral loan arrangements. It is also noted that neither an establishment & underwriting fee, commitment fee, nor ticking fee was charged under the bilateral loan arrangement with the mentioned client.

In the circumstances set out in this private ruling we consider that a commitment fee, if charged by you under a bilateral loan arrangement would be consideration for an input taxed supply under subparagraph 40-5.09(1)(a)(i) of the GST Regulations and input taxed where the nature of the fee is in accordance with its definition contained in GSTR 2002/2.

In the circumstances set out in this private ruling we consider that a ticking fee, if charged by you under a bilateral loan arrangement would be consideration for an input taxed supply under subparagraph 40-5.09(1)(a)(i) of the GST Regulations and input taxed where the nature of the fee is to offset the cost of keeping funds available beyond certain dates.

Establishment and underwriting fees are not charged under bilateral loan arrangements thus its GST treatment under bilateral loan arrangements has not been addressed.

2. It is noted that you have not yet charged advisory fees to its Australian resident customers and that the terms and conditions relating to such advisory fees have not yet been documented. On this basis, advice of a general nature on the treatment of advisory fees has been separately provided to you and not under this private ruling.

3. Yes, you are entitled to RITCs on its acquisition of syndication services & credit execution services from AAA as it is considered such services would fall under item 11(e) in the table to subregulation 70-5.02(2) of the GST Regulations.

4. Apart from the following service components:

● Local BOP and INEA support – PRO (Appendix C4 and N2);

● Workplace Services Team (Appendix C3), and

● Application Support Services, IT infrastructure Services, Information Security & Control and IT Compliance Services, Workplace Support Services, Trade Floor Services (Appendix N1);

you are entitled to recover RITCs for the general head office services provided to you by the following related non-resident entities for which you pay ‘regional charges’:

● AAA

● BBB

● CCC

● DDD

● EEE

● FFF

Please refer to the reasons for decision for further discussion.

Time limits for claiming an input tax credit or fuel tax credit

You have recently requested a private ruling about claiming a GST (input tax) credit or fuel tax credit.

Under Division 93 of the GST Act and Division 47 of the Fuel Tax Act, your entitlement to claim a GST credit or fuel tax credit ends four years from the due date of the first activity statement in which it could have been claimed in accordance with subsections 29-10(1) or (2) of the GST Act or subsections 65-5(1), (2) or (3) of the Fuel Tax Act. Lodging a private ruling application, amendment request or objection does not extend this four year time limit for claiming these credits.

For more information, view our draft Miscellaneous Taxation Ruling, MT 2018/D1 on Time limits for claiming an input tax credit or fuel tax credit. It was released on 23 November and is open for consultation until 25 January 2019.

While we are progressing your private ruling, if you have credits you have not claimed, you can still make a claim in a:

- current activity statement, provided it is lodged within the four year time limit

- revised activity statement, allowing time for it to be processed within the four year time limit.

If you take reasonable care in your GST or fuel tax credits claim, no penalty will apply. The usual penalty and interest rules apply if you make a false or misleading statement when you claim GST or fuel tax credits.

Relevant facts and circumstances

Background

DDD is an offshore bank and financial services provider.

You hold an Australian Financial Services Licence.

You provide wholesale clients with debt and risk management products and services and access to global investment banking, capital markets, correspondent banking, commodity, rates, cash management and trade finance platforms. You do not offer retail banking services and do not have ATM facilities.

DDD, through its representative office in Australia was registered for Australian GST on a certain date.

You are a branch of DDD and thus you are not a separate legal entity to DDD.

The applicant of this private ruling is you.

In carrying on its enterprise, you derive income from the following categories of transactions (the Services):

○ Lending,

○ Treasury activities,

○ Trade Finance, and

○ Swaps.

You supply the above Services to Australian resident customers and to other related entities based overseas. The other related entities are neither registered for GST, nor operate, in Australia. As a result, you make both input taxed and GST-free supplies, and may make a small number of taxable supplies.

In carrying on its enterprise, you make acquisitions which are directly attributable to making input taxed, GST-free, and/or taxable supplies, as well as acquisitions which are not directly attributable to making such supplies but are indirectly attributable to making the particular supplies.

Where you make acquisitions from non-resident suppliers, you reverse charge yourself GST in accordance with Division 84 of the GST Act.

You do not have any branches registered as a GST branch under Division 54 of the GST Act.

You do not currently claim input tax credits on acquisitions you make in carrying on your enterprise.

You exceed the financial acquisitions threshold (FAT).

In general, in providing lending services to its Australian resident customers, you can charge commitment, establishment & underwriting, ticking, and advisory fees.

In its private ruling application, you sought the Commissioner’s confirmation of the GST treatment of the following fees for both bilateral and syndicated loans provided by you to your Australian customers in general:

○ commitment fees;

○ establishment & underwriting fees;

○ ticking fees; and

○ advisory fees

You subsequently confirmed that establishment & underwriting fees are not charged under bilateral loan arrangements.

● For the purposes of this private ruling, where a supply is the supply of an interest mentioned in subregulation 40-5.09(3) apart from subparagraph 40-5.09(1)(a)(i) of the GST Regulations, all other relevant requirements for a supply to be a financial supply are assumed to be satisfied in respect of syndicated loan and bilateral loan arrangements.

● For the purposes of this private ruling, where a supply is not the supply of an interest mentioned in subregulation 40-5.09(3) apart from paragraph 9-5(a), all other relevant requirements for a taxable supply are assumed to be satisfied in respect of syndicated loan and bilateral loan arrangements.

● In your private ruling application you also sought the Commissioner’s confirmation on your entitlement to RITCs on the acquisition of syndication services and credit execution services from AAA, and its entitlement to RITCs on the acquisition of general head office services provided by AAA and other related non-resident entities.

● Copies of the following documentation concerning a syndicated loan arrangement with a client have been provided to the ATO and which provide the circumstances on which this private ruling is based in respect of your syndicated loan arrangements with your Australian resident customers:

○ Syndicated Loan Agreement;

○ Syndicated Fee Letter;

○ Commitment Letter; and

○ Syndication Transfer Certificate.

● Copies of the following documentation concerning a bilateral loan arrangement with a client have been provided to the ATO:

○ Bilateral Loan Agreement; and

○ Bilateral Fee Letter.

It is noted that whilst the bilateral loan documentation above were intended to provide the circumstances on which this private ruling is based in respect of your bilateral loan arrangements with your Australian resident customers, the documentation does not specifically refer to an advisory fee, commitment fee, ticking fee, or establishment & underwriting fee. Additionally, you advised that establishment & underwriting, and commitment fees are generally not charged under bilateral loan agreements. In this regard, please refer below for relevant assumptions made under this private ruling.

The syndicated loan arrangement

● On a certain date, you entered into a syndicated loan agreement (the Syndicated Loan Agreement) with a client.

● Broadly, a Facility is a loan facility made available in accordance with the terms of the Syndicated Loan Agreement and is a financial supply for GST purposes. The Syndicated Loan Agreement covers several facilities.

● You were one of several Mandated Lead Arrangers, Underwriters and Bookrunners (MLAUBs) out of which a certain number participated in the syndication process.

● Under the Commitment Letter, each MLAUB committed to act as an original lender of their respective stipulated amounts to the borrower. The Commitment Letter provides that the MLAUBs named in the letter are pleased to set out the terms and conditions on which the MLAUBs commit to arrange and provide the loan facilities.

● Certain specific clauses in the contracts are removed for the purposes of this edited version.

● As advised, as an MLAUB, you discussed the pricing to offer to the market, tranches to offer to the market, identified and discussed which financiers to invite, and agreed a timetable for the syndication process, upon consultation with the borrower and other MLAUBs.

● In general, MLAUB’s do not necessarily have to be a lender also. As advised, a bank can have separate entities as MLAUB and original lender. Not all lenders are MLAUBs. Lenders substituted during the syndication process are only lenders. In this case, you acted as both a lender and an MLAUB as per the contracts.

● The MLAUBs invited a certain number of banks to the syndication process and the banks were divided amongst the MLAUBs, which resulted in you bookrunning one financier, which is an Australian based entity. The process of bookrunning involves becoming the liaison person between the potential new financier and the borrower and assisting the potential new financier with obtaining information, assisting them with understanding the transaction structure, providing clarification on any other queries and assisting them with the documentation and substitution process upon receipt of their commitments.

● You also had to provide regular status updates to the borrower/other MLAUBs on anticipated timing and size of commitment.

● MLAUBs receive the establishment & underwriting fee (described in further detail below) as consideration for its work as an MLAUB.

● Following the close of syndication, you sold down your interest in the loan by a proportion of X%. In respect of this sell down transaction AAA was engaged to provide “syndication & credit execution services” to you. Further details relating to the nature of AAA’s services and this transaction is set out below.

● You advise that the loan under Syndicated Loan Agreement adopted a ‘post signing sell down underwriting’ process. The Syndication Transfer Certificate provides the sell down process that occurred post signing of the Syndicated Loan Agreement. The original lenders had committed themselves to lend the entire amount in the Syndicated Loan Agreement as documented in the Debt Commitment Letter.

● The Syndicated Fee Letter was executed by AAA and not you. Pursuant to the Syndicated Loan Agreement executed at financial close, it is noted that the rights of AAA under the Commitment Letter and Syndicated Fee Letter would be novated to you. On this basis, the establishment & underwriting fee was charged by you as the lender named in the Syndicated Loan Agreement to the borrower. An explanation of the reasons for the novation, which included the booking of loans extended to Australian borrowers to an Australian branch as required by APRA, was provided to the ATO and is not reproduced here.

Establishment & underwriting fee

● In general, in providing lending services to Australian resident customers, you can charge an establishment & underwriting fee to such customers.

● In respect of the syndicated loan arrangement governed by the Syndicated Loan Agreement, you received an establishment & underwriting fee of approximately $X.

● You are an MLAUB under the Syndicated Loan Agreement and charged an establishment & underwriting fee based on your role as an MLAUB under the agreement. The Syndicated Loan Agreement identifies you (amongst other entities) as an MLAUB (whether acting individually or together as MLAUB’s).

● Syndicated Fee Letter, (which is not reproduced here) provides some detail regarding when and how the establishment & underwriting fee is charged and its calculation.

● You contend that as the loan was a ‘post –signing sell down underwriting’ you have adopted the treatment stated by a private ruling previously issued by the ATO. Thus establishment & underwriting fees paid have been treated as consideration for a financial supply by you and not subject to GST. You provided to the ATO a copy of the private ruling.

● You advised that the establishment & underwriting fee represents an establishment for the loan committed at signing and is not consideration for underwriting or an indemnity.

● The establishment & underwriting fee is one single fee and not two separate fees.

● As advised, this case does not involve best endeavours underwriting on your part when providing the finance to the borrower. The Commitment Letter establishes a firm commitment on your part as the MLUAB to make the loan to the borrower. The commitment was a firm irrevocable commitment made that was not contingent upon the success of placing the debt with other lenders.

Commitment fee

● In general, in providing lending services to Australian resident customers, you can charge a commitment fee to such customers.

● In respect of the syndicated loan arrangement, the Syndicated Loan Agreement provides some detail regarding when and how the commitment fee is charged.

● As advised, the commitment fee is charged by you and other lenders in the Syndicated Loan Agreement and is consideration for keeping available each loan facility for a specified period of time.

● The commitment fee is collected by an agent on behalf of the lenders in accordance with the terms of the Syndicated Loan Agreement.

Ticking fee

● In respect of the syndicated loan arrangement governed by the Syndicated Loan Agreement, you charge a ticking fee.

● The nature of the ticking fee is designed to offset the cost of keeping funds available beyond certain dates.

● When MLAUBs have committed to a borrower an underwritten sum for the purposes of acquisition, there is a ticking fee (a % of the margin) which should be awarded for the undrawn commitment should there be delays in completing the acquisition. Ticking fees are designed to compensate banks for the capital they are obligated to set aside by banking regulators as soon as a Commitment Letter is signed. They are typically seen in scenarios where the funds are to be used as consideration for an acquisition, but where the funds / loan may not reach financial close for many months, if at all.

● In respect of the syndicated loan arrangement governed by the Syndicated Loan Agreement, there was a grace period – whereby should the borrower’s acquisition not take place by a certain date; a ticking fee representing Y% of the margin will apply. However, as the acquisition was completed on a certain date the ticking fee did not ultimately apply at any stage.

● In respect of the syndicated loan arrangement governed by the Syndicated Loan Agreement, the Syndicated Fee Letter, (which is not reproduced here) provides some detail regarding when and how the establishment & underwriting fee is charged and its calculation.

Advisory fee

● You do not yet charge advisory fees to your Australian resident customers for loan advisory. However, you consider that the nature of the supply would be a supply of advisory services and the advisory fee would be charged to the customer for advisory services and would be separate from the loan fees and split out in the fee letter. You also advise that the terms and conditions of such advisory fees have not yet been documented.

Syndication & credit execution services provided by AAA

● In 20XX, you engaged an offshore related entity, AAA to provide syndication & credit execution services in relation to the sell-down of X% of your interest in the syndicated loan to another financier.

● The syndication & credit execution services acquired from AAA were acquired in relation to a specific one-off transaction being the sell-down of the relevant loan.

● AAA identified and introduced that financier (an Australian-based resident entity) who has taken up the X% interest of your interest in the syndicated loan.

● In consideration for the services provided by AAA in relation to the sell-down of the loan, you paid a fee of approximately $Z to AAA. The fee was calculated based on a percentage of the upfront establishment & underwriting fee charged by you to the borrower under the loan facility.

● Based on the ‘Services Agreement’ between you and AAA (a copy of which was provided in your private ruling application), the fee of $Z paid to AAA was consideration for the ‘Scope of Services’ as described in the Services Agreement which is not reproduced here.

● The Services Agreement also contains the provisions regarding the relationship between you and AAA in relation to the services.

● As advised, AAA did not provide finance or credit in respect of the sell-down of the loan. Furthermore, you advised that AAA provided you with credit execution services which include but are not limited to:

○ drafting credit applications and obtaining credit approval;

○ working to establish internal risk ratings;

○ reviewing credit quality of the borrower;

○ acting as liaison on credit matters;

○ prepare collateral documentation;

○ review/prepare loan documentation;

○ monitor conditions precedents on loan arrangements;

○ approve loan draw downs.

The bilateral loan arrangement

● On 20XX, you (as a lender) entered into the Bilateral Loan Agreement with a borrower. By way of background, the borrower and a related non-resident party of yours (the original lender) were parties to an agreement under which the rights and obligations of the related non-resident party were to be novated to you (as the new lender). The Bilateral Loan Agreement gave effect to the amendment and reinstatement of the original agreement such that you will now be the lender.

● You have not yet charged advisory fees to its Australian resident customers for loan advisory. However, you consider that the nature of the supply would be a supply of advisory services and the advisory fee would be charged to the customer for advisory services and would be separate from the loan fees and split out in the fee letter. You also advised that the terms and conditions of such advisory fees have not yet been documented.

● For the purposes of this private ruling, it is assumed that:

○ You charge commitment fees under your bilateral loan arrangements such that the nature of such fees meets the definition of a ‘commitment fee’ contained in GSTR 2002/2;

○ You charge ticking fees under your bilateral loan arrangements such that the nature of such fees is to offset the cost of keeping funds available beyond certain dates;

○ Establishment & underwriting fees are not charged under bilateral loan arrangements.

General head office services provided by AAA and other related non-resident entities

● In carrying on its enterprise, you incur charges for acquiring general head office services from AAA and other related non-resident entities (also known as, regional charges). As advised, the regional charges broadly fall into the following categories:

○ Taxation;

○ Compliance;

○ Finance;

○ Human Resource support;

○ Loan Portfolio Management;

○ Human Resources;

○ IT support services; and

○ Treasury functions.

● Each supply of general head office service to you is governed by:

○ a Master Service Level Agreement (Master SLA) that is entered into between all the relevant parties within the corporate group; and

○ a schedule entered into with a specific supplier within the corporate group detailing the nature and scope of the supplier’s services.

● Relevant clauses within the Master SLA are not reproduced here.

● For the avoidance of doubt the “other related non-resident entities” apart from AAA are as follows:

○ BBB

○ CCC

○ DDD

○ EEE

○ FFF

● All the related non-resident entities who supplied you with general head office services (which are the subject of this private ruling) as well as the corresponding contractual documentation governing the respective supplier’s services are:

○ AAA – General AAA SLA

○ BBB – General BBB SLA

○ CCC – Appendix C1

○ DDD – Appendices C2, C4, N1 and N2

○ EEE – Appendix C3

○ FFF – Appendix C5

The contents of the above documents are not reproduced in full here. However, a summary of the nature of the services under each respective document is as follows:

○ AAA’s services under the General AAA SLA:

­ Credit execution

­ Credit administration

­ Problem credits support

­ Front office support

­ General support

○ BBB services under the General BBB SLA

­ Loan referrals or origination services

­ Negotiation of terms conditions and performing other activities directly related to the origination services

­ Conducting all necessary due diligence and maintaining adequate transaction documentation including instructing and dealing with external counsel where necessary

­ Credit execution

­ Providing such other services relating to corporate loans and other products that shall be mutually agreed upon by the parties from time to time

○ CCC services under Appendix C1

­ Support services in respect of:

● Loan operations

● Term deposits and cash deposits

● Treasury front office

● Treasury support

● Trade accounting

● SWIFT

● Compliance

● Operations

● Trade finance

● Derivatives

○ DDD services under Appendices C2 and C4

­ Support services under Appendix C2 in respect of:

● Real estate

● Compliance

● Finance.

● Human resource support.

● Human resources.

● Loan portfolio management.

● Taxation

­ Support services under Appendix C4 in respect of:

● Taxation

● Economics

● Legal

● Finance

● Human Resources

● Other

● Trade Finance Risk Control

● Global Risk Management

­ Support services under Appendix N1 in respect of:

● Application Support Services

● IT Infrastructure Services

● Information Security & Control and IT Compliance Services

● Workplace Support Services

● Trade Floor Services

● Data Centre Operation Services

­ Support services under Appendix N2 in respect of:

● Taxation

● Legal

● Finance

● Human Resources

● Trade Finance Risk Control

● Global Risk Management

● Internal Audit

● Anti-Money Laundering

○ EEE services under Appendix C3

­ Support services in respect of:

● Process account transactions

● Process expense payment

● Trade finance support

● Workplace services team

○ FFF services under Appendix C5

­ Support services in respect of:

● Expense processing

● Bank reconciliation

● AAA and the other non-resident entities are understood to be closely related entities of you for GST purposes.

● In the circumstances of this case, it is not contested that the requirements under subregulation 70-5.02A(1) of the GST Regulations are met.

● With regard to whether regulation 70-5.02C of the GST Regulations has any application in your circumstances you confirmed that, AAA and other related non-resident service providers do not directly outsource services to external parties and do not merely pass through costs to you. The general head office services are charged at cost with a small mark-up. AAA and other related non-resident service providers do not use subcontractors. Therefore, on the basis of these facts regulation 70-5.02C of the GST Regulations does not have application in this case.

● Such services of AAA and other related non-resident service providers to you are undertaken by the relevant branch/subsidiary based on their capabilities in performing the service.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 - section 40-5

A New Tax System (Goods and Services Tax) Act 1999 - section 70-5

A New Tax System (Goods and Services Tax) Regulations 1999 - regulation 40-5.09

A New Tax System (Goods and Services Tax) Regulations 1999 - regulation 70-5.02A

A New Tax System (Goods and Services Tax) Regulations 1999 - regulation 70-5.02B

A New Tax System (Goods and Services Tax) Regulations 1999 - regulation 70-5.02C

Reasons for decision

1. Have the following fees charged by you to your Australian resident customers been appropriately classified as consideration for input taxed supplies under subparagraph 40-5.09(1)(a)(i) of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations)?

● commitment fee;

● establishment & underwriting fee; and

● ticking fee.

The following reasons relate to the treatment of the establishment & underwriting fee.

Mixed and composite supplies

Determining whether a supply is a mixed or composite is critical as it informs the extent to which a supply may be a taxable supply where the supply has taxable and non-taxable components.

The term 'mixed supply' is used to describe a supply that has to be separated or unbundled as it contains separately identifiable taxable and non-taxable parts that need to be individually recognised.

The term 'composite supply' is used to describe a supply that contains a dominant part and includes something that is integral, ancillary or incidental to that part.

Paragraph 92 of GSTR 2002/2 provides that:

92. Where a supply contains a part that is a taxable supply and another part that is a financial interest, the relevant facts will determine the treatment of the supply. If it is a composite supply, there will be no need to separate the part that is a financial interest from the taxable part, as one is so integral, ancillary or incidental to the other part of the supply that it cannot be separately identified. If on the facts it is a mixed supply then you will need to separate the parts of the supply.

By having regard to the essential character or features of the transaction it can be ascertained whether a supply contains separately identifiable taxable and non-taxable parts or is a composite supply of a single thing.

The discussions at paragraphs 45 to 59A of Goods and Services Tax Ruling GSTR 2001/8 Goods and services tax: Apportioning the consideration for a supply that includes taxable and non-taxable parts (GSTR 2001/8), which are not reproduced here, provide guiding principles to determine whether the parts of a supply are separately identifiable and retain their own identity, or are integral, ancillary, or incidental to the dominant part. Those paragraphs recognise that determining this is a matter of fact and degree.

With regard to the GST treatment of underwriting, its definition contained in GSTR 2002/2 provides that:

Underwriting

Underwriting is simply defined in section 9 of the Corporations Act to include 'sub-underwrite'. In general, an underwriter assumes risk by agreeing to take up securities if unable to place them.

Best endeavours underwriting does not involve the underwriter assuming risk because the underwriter does not commit to taking up securities if the issue is undersubscribed. The underwriter undertakes to use its best endeavours to sell securities for the issuer as agent. Best endeavours underwriting is not the provision of an interest mentioned in subregulation 40-5.09(3).

Underwriting includes both debt and equity underwriting.

As advised, this case does not involve best endeavours underwriting on the part of you when providing the finance to the borrower. Thus your supply is not merely that of an arranger and/ or manager. The Commitment Letter establishes a firm commitment on the part of you as the MLUAB to make the loan to the borrower. The commitment was a firm irrevocable commitment made that was not contingent upon the success of placing the debt with other lenders.

In this case, in making its supply as an MLAUB for which the establishment & underwriting fee is consideration, you provide the borrower with the following:

○ A commitment to lend (as an original lender) the amount stipulated in the Commitment Letter and the Syndicated Loan Agreement (the stipulated facility); and

○ to arrange and provide the facility, and manage all aspects of the syndication.

The Commitment Letter stipulates each MLAUB’s commitment to act as an original lender of the stipulated facilities and to arrange and provide such facilities. In respect of syndication, the Commitment Letter provides that the MLAUBs will, in consultation with the Borrower, manage all aspects of the syndication (including timing, the selection of potential lenders based on an agreed whitelist, the acceptance and allocation of commitments and the amount and distribution of fees to the lenders) in accordance with a syndication strategy to be agreed between the MLAUBs and the Borrower (the Syndication Strategy).

The commitment by you as an MLAUB to arrange and provide the facility and manage all aspects of the syndication is consistent with descriptions submitted to the ATO of your role as an MLAUB. As described, as an MLAUB, you discussed the pricing to offer to the market, tranches to offer to the market, identified and discussed which financiers to invite, and agreed a timetable for the syndication process, upon consultation with the borrower and other MLAUBs. Additionally, under the syndication process, you were bookrunning one financier that involved you becoming the liaison person between the potential new financier and the borrower and assisting the potential new financier with obtaining information, assisting them with understanding the transaction structure, providing clarification on any other queries and assisting them with the documentation and substitution process upon receipt of their commitments. You also had to provide regular status updates to the borrower/other MLAUBs on anticipated timing and size of commitment.

In this case, you acted as both a lender and an MLAUB as per the Syndicated Facility Agreement. However, MLAUB’s do not necessarily have to be a lender also. As advised, a bank can have separate entities as MLAUB and original lender. Not all lenders are MLAUBs.

In a general sense, the role of an arranger (also known as a ‘manager’ or lead manager’) typically includes:

○ developing and settling the syndicate structure;

○ negotiating and settling a terms sheet or facility and security documentation with the borrower;

○ underwriting the provision of the loan or a substantial part of it;

○ preparing or assisting the borrower in the preparation information memorandums;

○ funding or liaising with potential participants; and

○ arranging the syndication of the loan.

This is typical of the role of an arranger in a syndicated loan arrangement where generally, there are two groups of lenders in a typical syndicated loan deal. The more senior group consists of a small number of banks chosen by the borrower to put the deal together. These banks, usually known as arrangers or lead managers, are responsible for structuring the loan facility, including negotiating the pricing and terms and conditions. Most of the banks in this lead group would be involved in funding the loan and, in larger deals, also responsible for underwriting and marketing the loan to other banks who are generally the second group of participants that simply provides funds for the loan.

Having regard to the circumstances in this case governed by the contractual terms and descriptions provided, our view is that the essential character of your supply as an MLAUB contains two separately identifiable components. These components being the provision of an interest in a credit arrangement as an original lender as per your commitment which would be input taxed on the basis that all other relevant requirements of financial supply under regulation 40-5.09 of the GST Regulations are satisfied, and also the provision of a taxable service of arranging the loan facility and managing all aspects of the syndication.

We understand that you currently treat its establishment & underwriting fee as input taxed on the basis of Line No. B4 in the table to Schedule 2 of GSTR 2002/2, and items 1 and 2 of subegulation 40-5.09(3) of the GST Regulations. For the establishment & underwriting fee to attract one type of GST treatment (that is, input taxed), the supply by the MLAUB will need to be one that is composite such that any parts of that supply are in essence integral, ancillary, or incidental to the dominant part of the provision of an interest in a credit arrangement.

However, in applying the principles at paragraphs 45 to 59A of GSTR 2001/8, our view is that the element of arranging and managing all aspects of the syndication of your supply is not so dominated by the element of the provision of an interest in a credit arrangement so as to lose separate identity leaving the provision of the interest in a credit arrangement as the only supply.

In our view, the element of arranging and managing all aspects of the syndication requires individual recognition as a separate part due to its relative significance in your supply. This element cannot be said to be one that is provided merely as a means of better enjoying your provision of an interest in a credit arrangement as an original lender. This is supported by the fact that MLAUBs do not necessarily have to be a lender and not all lenders are MLAUBs.

This outcome is supported by the GST treatment contained at Line No’s. D41 and K14 in the table to Schedule 2 of GSTR 2002/2 which concern the treatment of ‘underwriting of securities (eg. Shares or debentures) as financial supply provider’ and ‘arranging of scrip loan facilities’ in the context of ‘fees and services involving securities’ and ‘supplies related to underwriting by a financial supply facilitator’ respectively but the principles from which would be applicable to this case.

Line No.’s D41 and K14 respectively provide that:

D. Summary of fees and services – Securities

K. Summary of fees and services – Brokerage & Facilitator Services

You contend that as its syndicated loan was a ‘post–signing sell down underwriting’ it has adopted the treatment stated by the ATO in another private ruling it provided to another client. In this regard, we note that the GST treatment of a client’s transaction is dependent on the specific contractual terms governing the client’s arrangement under which the transaction occurs. Furthermore, the private ruling that you refer to does not conclude that the fee paid by the Borrower to the Arranger, a portion of which may arguably relate to facilitation in the given circumstances, is entirely input taxed.

In our view, the treatment of the establishment & underwriting fee in your case is dependent on its individual merits. That is, the specific contractual terms governing your arrangement.

Therefore in light of this and the reasoning set out above, as your supply as an MLAUB consists of separately identifiable parts which are taxable and non-taxable, the establishment & underwriting fee which is consideration for that supply would form consideration for both input taxed and taxable parts. This outcome is not inconsistent with that in the private ruling that you refer to.

For completeness, Paragraphs 60 of GSTR 2001/8 provides that:

60. As a means of minimising compliance costs, you may treat something (or things taken together) as being integral, ancillary or incidental if the consideration that would be apportioned to it (if it were part of a mixed supply) does not exceed the lesser of:

● $3.00; or

● 20% of the consideration of the total supply.

You may be able treat its supply as a composite supply if the above is met. If the above is not applicable an apportionment of the consideration for the mixed supply will thus be required. Paragraphs 92 to 113 of GSTR 2001/8 provide some guiding principles for reasonable methods of apportioning the consideration.

4. Are you entitled to recover RITCs for general head office services provided to you by the following related non-resident entities for which you pay ‘regional charges’?

● AAA

● BBB

● CCC

● DDD

● EEE

● FFF

Mixed acquisitions and composite acquisitions

Whether an acquisition is a ‘mixed acquisition’ or ‘composite acquisition’ is important if the acquisition contains parts that are reduced credit acquisitions and parts that are not. The terms mixed acquisition and composite acquisition are intended to be similar to the concepts of a mixed supply and composite supply, and adopt similar principles.

Paragraphs 223 to 256 of GSTR 2002/2, discusses the treatment of mixed and composite acquisitions and the principles that are applicable for determining whether an acquisition is mixed or composite. While those paragraphs are not reproduced here in full, paragraphs 232 and 233 relevantly provides that:

232. A mixed acquisition contains separately identifiable parts where one or more of the parts is a reduced credit acquisition and one or more of the parts is not a reduced credit acquisition. In a mixed acquisition, no part is dominant, and each part has a separate identity.

233. On the other hand, a composite acquisition is an acquisition of one dominant part and includes other parts that are not treated as having a separate identity as they are integral, ancillary or incidental to the dominant part of the acquisition. Where an acquisition is a composite acquisition, then it is essentially the acquisition of a single thing, and will be either wholly a reduced credit acquisition or wholly not a reduced credit acquisition.

In this case, the Master SLA stipulates that the corporate group members provide centralised support services to other members to achieve efficiencies of scale, enhance operational effectiveness, leverage centres of expertise, and help ensure that group standards apply consistently across the group and with all applicable legal and regulatory requirements.

Thus it is this context in which each supplier’s respective service is considered when considering their nature. This, together with the service descriptions set out in the respective contractual documents (schedules) are important when considering whether the acquisition acquired is a mixed acquisition or a composite acquisition.

Having regard to all the contractual documents, we are of the opinion that apart from the service components referred to as “Compliance – Regulatory Trends/Requirements”, “Local BOP and platform support – PRO”, and “Workplace Services Team”, you are entitled to recover RITCs for the general head office services provided to you by the related parties listed in this private ruling.

For those acquisitions which are considered to give rise to an entitlement to RITCs, the relevant RITC item or items under which the services of each supplier are considered to fall are as follows.

● AAA – item 7 in the table to subregulation 70-5.02B(1) of the GST Regulations.

● BBB – item 11(e) in the table to subregulation 70-5.02(2) of the GST Regulations.

● CCC – item 7 in the table to subregulation 70-5.02B(1) of the GST Regulations.

● DDD

○ items 7, 3, and 18 in the table to subregulation 70-5.02B(1) of the GST Regulations in respect of the services under Appendix C2;

○ items 7, 3, 6, 10, 12 and 13 in the table to subregulation 70-5.02B(1) of the GST Regulations in respect of the services under Appendix C4;

○ item 16 in the table to subregulation 70-5.02B(1) of the GST Regulations in respect of the Data Centre Operations Services under Appendix N1;

○ items 7, 3, 6, 10, 12 and 13 in the table to subregulation 70-5.02B(1) of the GST Regulations in respect of the services under Appendix N2;

● EEE - item 7 in the table to subregulation 70-5.02B(1) of the GST Regulations.

● FFF - item 7 in the table to subregulation 70-5.02B(1) of the GST Regulations.

The discussion below relates to the service components we consider the acquisition of which will not give rise to entitlement to RITCs.

EEE - Workplace Services Team service

The service description contained in the relevant schedule demonstrates that the nature of the Workplace Services Team service is that of general IT technical support. This is further supported by the fact that your IT department is based in a certain country and covers desktop support, system support, network and ad-hoc IT issues as per your private ruling application.

In this case, the essential character of the EEE’s service is considered to contain separately identifiable components one of which is the Workplace Services Team service which is not so dominated by the other components so as to lose separate identity leaving any other as the only supply. Furthermore, in the given circumstances, it cannot be established that the Workplace Services Team service is provided as a means of better enjoying other service components.

As such, consideration is given to the Workplace Services Team service component individually to determine whether the component, on its own, is a reduced credit acquisition.

For an acquisition to attract RITCs, it must fall within one of the items in either the table to subregulation 70-5.02(2) or the table to subregulation 70-5.02B(1) of the GST Regulations. However, in this case, you are not entitled to RITCs on its acquisition of the Workplace Services Team service as general IT technical support does not fall within any of the items in those tables.

To provide further detail on the nature of the Workplace Services Team service, you referred to Appendix N1. However, we note that Appendix N1 does not concern services by EEE as the providing party in that appendix is DDD and not EEE.

DDD – Local BOP and platform support

The service description contained in the relevant schedules demonstrates that the nature of the Local BOP and platform support service is that of technical support to users of software platforms.

In this case, the essential character of the DDD’s service is considered to contain separately identifiable components one of which is the Local BOP and platform support service which is not so dominated by the other components so as to lose separate identity leaving any other as the only supply. Furthermore, in the given circumstances, it cannot be established that the Local BOP and platform support service is provided as a means of better enjoying other service components.

As such, consideration is given to the Local BOP and platform support service component individually to determine whether the component, on its own, is a reduced credit acquisition.

For an acquisition to attract RITCs, it must fall within one of the items in either the table to subregulation 70-5.02(2) or the table to subregulation 70-5.02B(1) of the GST Regulations. However, in this case, you are not entitled to RITCs on its acquisition of the Local BOP and platform support service as technical support to users of software platforms does not fall within any of the items in those tables.

DDD – General head office service under Appendix N1

The service description contained in Appendix N1 demonstrates the nature of the support services provided by DDD to BNS.

In this case, the essential characters of DDD’s services are as depicted by their descriptions under the six respective numbered categories of services. Namely, Application Support Services, IT infrastructure Services, Information Security & Control and IT Compliance Services, Workplace Support Services, Trade Floor Services, and Data Centre Operation Services.

For an acquisition to attract RITCs, it must fall within one of the items in either the table to subregulation 70-5.02(2) or the table to subregulation 70-5.02B(1) of the GST Regulations. In determining whether the services in each of the six categories give rise to an entitlement to RITCs, consideration has been given to each category individually to determine whether each, on its own, is a reduced credit acquisition. However, in this case, you are not entitled to RITCs on your acquisition of the following categories of services as they do not fall within any of the items in those RITC tables:

● Application Support Services;

● IT infrastructure Services;

● Information Security & Control and IT Compliance Services;

● Workplace Support Services; and

● Trade Floor Services.

With regard to Application Support Services, when considering the nature of such services in totality, it is noted that while the opening description of such services refers to ‘application development’, the detailed tabled service descriptions do not provide for application development to a level that’s beyond supporting “implementation and the ongoing production environment from application support” as well as one element of performing quality assurance testing (QAT) on enhancements to a client relationship management software. Whilst the QAT element individually may be considered in the nature of software development, we do not consider based on available information, that the quality assurance testing element within the application support category warrants separate recognition from other elements within the application support category. Thus in considering the overall nature of the Application Support Service provided, we do not consider it to be a reduced credit acquisition.

Additional information

As the acquisitions from EEE and DDD respectively consists of separately identifiable parts which are and are not reduced credit acquisitions, the consideration for such mixed acquisitions should be apportioned.

Paragraphs 92 to 113 of GSTR 2001/8 provide some guiding principles for reasonable methods of apportioning consideration.

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