USA Intercompany and GST

[Lily0208]

Hello!
My company, who has a lot of foreign subsidiaries, has received an invoice issued to our Australian Subsidiary that includes GST (during the acquisition, US was paying for all the costs but now they are shared).

Normally, I would expect the Australian sub will pay for the invoice, claim the GST and invoice US through our intercompany process. However, I was just told the US will pay for the invoice, but thatwe should still send the invoice to the Australian sub so that they can claim the GST back.Say what?

If we pay the invoice and then re bill them viathe Intercompany process, we will not add GST to the invoice. If they don’t book the 3rd party invoice in Australia, how can they be entitled to claim the GST? I am so confused. Has someone dealt with this?

I don’t even think the US should be paying invoices that are not made out to the US company name.

 

[Dave In Capital]

There are two issues that I see here. The first is that the Australian Tax Authority (ATO) does not require GST on exports in most cases. Even though it's not necessarily an export, it might appear as one if payment is remitted by a foreign entity. So, to an ATO auditor, it might be an issue to see GST being collected from an entity not subject to GST.

ATO on Exports

The other issue is like you stated, which is how the subsidiary will claim the credit. In order to claim a GST credit, the GST is required to be paid to a GST-registered entity.

ATO on claiming GST credits

 

[Lily0208]

Thanks Dave!
I don’t think is technically an export because the services are being provided from an Australian company, to our Australian entity. The only reason US is involved is because we agreed to share these costs and we are the ones paying them, if that makes sense.

 

[Dave In Capital]

Yes you're correct it isn't functionally an export. But, to give myself a little bit of credit, I did address that in my post.

My concern is how the ATO auditors will interpret it when / if they audit the GST claims for this supplier. They will see that the entity is billing GST to an organization that is not subject to GST. This concern might also compel the entity to be cautious about accepting payment from your organization on behalf of the subsidiary.

 

[Lily0208]

Haha you do have a ton of credit! The invoice is issued to a GST registered entity because it is made to the Australian Sub, I wonder if the ATO cares if that entity didn’t actually pay the invoice? I think l they should care right? If they are not paying the invoice themselves, they shouldn’t be allowed to claim the GST back.

 

[Dave In Capital]

If your organization actively manages the subsidiary, it might be able to claim the GST itself. But then that would preclude the subsidiary from claiming it.

Forbes on holding / parent companies claiming VAT

Also, the ATO discusses how the non-resident business can charge GST to the resident agent ie subsidiary if there is an agreement in writing:

ATO discussion on non-resident businesses charging GST to resident subsidiaries

Or, it might be a simple case of your organization needing to be GST-registered because it is effectively carrying on a business in Australia.

ATO on non-resident sales connected with Australia

 

[Lily0208]

Thanks heaps! this is very helpful!