|ATO warns of exploitative GST arrangements using inflated valuation of intangibles|
The Australian Taxation Office (ATO) today issued a taxpayer alert warning people to be cautious about non-commercial arrangements where large input tax credits are claimed on acquisitions of intangible items (such as rights) at grossly inflated values. The arrangements feature uncommercial vendor finance agreements where payments are contingent on future events.
Payment or the existence of a presently existing obligation to pay GST is required for an input tax credit entitlement under the GST Act.
The ATO considers that the use of vendor finance agreements where payments to the supplier are dependent on an implausible future outcome do not create an obligation to pay. Further, agreements are seemingly structured so that the corresponding GST payment by the supplier is unlikely to occur.
"We are concerned about arrangements which included uncommercial features and which therefore may be ineffective under Australian tax laws. Under this arrangement, the purchaser may not be entitled to input tax credits," Tax Commissioner Michael D'Ascenzo said.
A typical arrangement covered by the Taxpayer Alert involves the supply of intangible items on non-commercial terms and at inflated prices.
"The ATO is investigating whether valuations used are appropriate, whether the participants have a presently existing liability against which a GST credit can be claimed, whether the GST anti-avoidance provisions apply and whether the arrangement is a sham at general law," Mr D'Ascenzo said.
Taxpayers wishing to make a voluntary disclosure should call the ATO on 1800 177 006.
Taxpayer Alert TA 2012/5 Acquisition of intangible right for inflated consideration which is financed by supplier is available from the ATO website.
Taxpayers who are unsure about their own circumstances should seek independent advice or apply for a private ruling from the ATO.
Taxpayer alerts are intended as an 'early warning' to taxpayers and their advisers of significant tax planning issues or arrangements that the ATO has under risk assessment or about which it has concerns.
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