Since July 2000, deals have been done in Australia on the basis of fairly consistent goods and services tax (GST) rules. However, new GST measures affecting how foreign entities do business in Australia could impact on deal structures.
While the new GST business to business measures (effective 1 October 2016) will result in non-resident businesses staying out of the GST net where they make supplies to Australian registered recipients, other measures that will be effective from 1 July 2017 will bring foreign businesses into the GST net for the first time.
An example of the impact of the new GST measures is if a foreign resident sets up a holding entity in Australia to make an acquisition in Australia and the holding entity is not registered or entitled to be registered for GST (maybe because it is not carrying on an enterprise). If the non-resident parent entity has incurred transaction costs in relation to the activities of the holding entity, then it may be liable to register and remit GST on the value of transaction costs recharged to the holding entity.
In this example, the GST will be unrecoverable at the holding entity level. Where the costs are not recharged, or recharged at less than market value, there could be a deemed taxable supply which could give rise to a GST liability for the non-resident parent that would again not be recoverable as a credit by the unregistered holding entity.
The potential impact of the new measures necessitates the careful consideration of structures ahead of the deal to ensure that GST is accurately modelled.