• Introduction
• 3M Australia and 3M Pharmaceuticals Australian Business Number details
• Statement of Commitment
• 3M Price Lists
• 3M Invoices
• Charging of GST by 3M
• 3M Policy on Price Increases
• 3M Policy on Rebates
• Processing of credit adjustments & returned goods claims
• Tax Invoice requirements for 3M Suppliers
• Quotation and Purchase Order Documents
• Sources of help at 3M on issues relating to the New Tax System and GST
• Further information and sources of help available to customers and suppliers

Over the past year 3M has spent considerable time assessing the impact of the New Tax System, including the introduction of GST, on our business and in particular in respect with the way we interact with customers and suppliers.

During this time we have had many queries and requests from customers and suppliers who are in the process of assessing the impact of the new tax system on their own business.

This site contains information about 3M and the way it is proposing to handle such issues. It is intended to assist customers and suppliers with whom we do business, and is based on information available to us as at 1st June 2000. However we note that government requirements may change at any time. If they do so we will endeavour to promptly update this page.

The following represents our understanding of 3M's obligations under the New Tax System. While we hope this will be a useful reference point for you, it is strongly advised that you seek professional advice regarding the impact of the New Tax System on your business if you have not already done so.

3M have a formal policy of strict compliance with all aspects of the New Tax System, including the laws relating to GST and price exploitation.

Price increases will be implemented in accordance with the ACCC's guidelines and will typically be based on increases in cost of goods or services to 3M or other supply and demand conditions. Customers will be told the reason for all price increases.

3M will continue to unilaterally decide its pricing and other responses to the New Tax System. Arrangements or understandings between competitors remain an extremely critical area under the Trade Practices Act. There can be no question of a co-ordinated response or agreed industry approach to the GST, even where this is only indirectly proposed - for example by an industry body or trade association.

It is 3M's intention to pass on any direct or indirect cost savings that may occur as a result of the elimination of existing indirect taxes and the introduction of the GST.

It will be very clear from 3M's price lists and invoices that we have passed on to our customers the reduction in indirect tax from 22% WST to 10% GST where this is applicable.

So far as indirect cost savings are concerned, as at 1st July 2000, 3M's pricing will not be immediately adjusted to reflect any reductions on account of lower input costs to 3M relating to the New Tax System. 3M has done significant financial modeling to calculate input cost reductions. Those that are identifiable as savings at this point are negligible and in most cases incapable of being passed on, as they would reduce the unit cost of many of our products by less than one cent.

3M is continuing to monitor our input cost reductions, and we do intend to pass on any net reductions (after taking into account costs of compliance) to customers once it is clear that the reductions will be realised. The method of reimbursing customers is not yet determined.

3M's published price lists will continue to show tax exclusive prices of our goods. 3M have always utilised tax exclusive price lists.

Maintaining a tax exclusive price list format (and the fact that our invoices will show GST item by item) enables the company to manage the transition to a GST environment in a transparent and open fashion and demonstrate that for all goods where Wholesales Sale Tax has been replaced by a lower rate of GST, this tax reduction has been fully passed on to our customers.

3M invoices to customers will be changing as a result of the New Tax System. The GST legislation requires 3M and all enterprises that register for GST purposes to include some new and quite specific references on their invoices.

The references that 3M Australia and 3M Pharmaceuticals will now record are:

1. Notation of our ABN (Australian Business Number) - see earlier

2. Reference the words "TAX INVOICE " on all invoices and the words "ADJUSTMENT NOTE " on all adjustment notes (debits and credits)

3. Record the GST charged. In our situation this will appear as a separate amount against each product line item and miscellaneous charge. Miscellaneous charges such as freight will also incur a GST charge.

4. Display the total invoice value including the total GST charged.

All of the above requirements will be handled by enhancements that are already in place.

All sales of goods and services by 3M Australia and 3M Pharmaceuticals will be subject to 10% GST and this will be shown on invoices.

We cannot comply with customer requests that they are not to be invoiced for GST. No blanket exemptions exist, as was the case with Wholesale Sales Tax. Customers such as hospitals, dentists and doctors who buy some GST free products or have the benefit of certain limited GST exemptions will be able to claim back any GST we charge them as an input credit.

• Shipments to be directly exported to customers outside of Australia - these are "GST Free" provided they are shipped within 60 days from invoice or payment date. [Note that directions from an Australian based company to ship to an overseas customer will not qualify for this exemption.]
  
  
• Bonus stock, gratis supplies, samples etc which do not have a sales value are not subject to GST.

While pharmaceuticals will be GST free to consumers, 3M will in practice add GST to the base pricing of its pharmaceutical products to wholesalers, and it is anticipated wholesalers in turn will add the 10% GST to the pricing they give pharmacists. However both wholesalers and pharmacists will be able to get a tax credit for GST they have paid the party that they have received the goods from.

3M understands that during the period to 30th June 2002 we must be able to justify price increases by reference to increases in cost of goods or services to 3M, supply and demand conditions, or "other relevant matters", and that 3M should not increase the net dollar margin on its goods as a result of the New Tax System changes alone. We also understand that no margin or mark up may be applied to the GST component of a price and that no price should rise by more than 10% as a result of the New Tax System changes.

Most increases implemented will relate to increases in 3M's costs, which could relate to:

1. Increased cost of imported goods due to adverse currency fluctuations.

2. Increased contract prices (current or formally communicated to us) or increased prices from other suppliers.

3. Increased sales and marketing costs, or specific planned increases in marketing or promotional expenditure to support a new product introduction or program.

4. Increased wages, salaries or overheads.

Internal systems are in place to ensure that price increases we need to implement will be strictly reviewed against the ACCC criteria. 3M's Division Financial Controllers have been assigned responsibility for ensuring in these situations that stated reasons for increasing prices are factual and do have substance.

3M Australia and 3M Pharmaceuticals currently offer distributors and other customers a variety of rebate programs across our business groups as a means of encouraging customers to maximise sales of 3M's range of products. These rebate programs take various forms and may be based on sales growth or incentive rebates, volume rebates, promotional allowances, marketing allowances, case deals and other allowances.

Under the new GST legislation, rebates (or "adjusting events" as they are called) fall into two distinct categories, with different supporting documentation requirements for the two categories to allow both the supplier and the customer to maximise their GST impact.

The two categories are Price Related Rebates and Activity Related Rebates. Set out below is a brief commentary on these types of rebates as well as details of how claiming, processing and payment of rebates will take place from 1st July 2000:

Price Related Rebates:

These rebates have the effect of reducing the price charged for the original supply of goods. The new requirement is for the supplier to issue the customer who received the goods an adjustment note to account for the effect of the rebate in reducing the original price.

All rebates covered by this category will be calculated and reimbursed by 3M through the processing of a credit adjustment note in the month following the period end to which the rebate applies (monthly, quarterly or yearly). Customers will receive through the mail the original adjustment note and it will also appear on the following months account statement. Previous practices involving the deduction of rebates and allowances from monthly payments is not an acceptable practice for 3M and customers should cease this practice effective 1st July 2000.

Price related rebates require submission of information from our customers to 3M Marketing to enable the verification and approval of rebate claims. 3M is committed to adhering where practical to the requirement to process adjustments within the legislated period of 28 days pending receipt of notification.

Activity Related Rebates:

The other type of rebate category is one where 3M will perform or provide agreed services such as co-op, advertising or marketing promotions under the agreement between the customer and 3M.

To claim these rebates the customer should issue a Tax Invoice to 3M for the value of the specific services performed. If there is no invoice, we can't claim the credit, which results in an increased cost to 3M of providing the allowance. All services of this nature must be invoiced to 3M. Invoices will be paid through our Accounts Payable area under normal trading arrangements.

Again we emphasise that previous practices involving the deduction of such rebates and allowances from monthly payments as a means of reimbursement is not acceptable to 3M and customers should cease this practice effective 1st July 2000.

3M Rebates Paid on Tax Exclusive Invoiced Sales Value:

3M Policy is that rebates will be paid on the tax exclusive value of sales.

However 3M is seeing some customers seeking to impose on it terms of trade whereby rebates are requested to be calculated on a tax inclusive basis.

Whilst such requests are not at first sight at odds with the illustrations and guidelines issued by the ACCC, when the ACCC's examples supporting those guidelines are looked at in detail, it will be seen that the actual value of the rebate is in fact calculated on the GST exclusive value and that the rebate itself incurs a 10% GST.

No 3M employee is authorised to accept third party trading terms that seek to stipulate that the base sales value for the calculation of the rebate is the GST inclusive sales value. 3M pays rebates on a tax exclusive basis and adjustment notes will reflect an apportionment of this total GST inclusive tax value between the rebate amount and the GST charge component as separate items. (This approach is consistent with Example 7 of the ACCC guidelines released 9th March 2000. )

Example of 3M Method of Paying Price Related Rebates:

In practice, when we pay a price related rebate to a customer, this changes (i.e. reduces) the original or base price of the goods in question and it also impacts the original amount of GST charged. In this situation the new law requires 3M (the seller of the goods) to raise a credit adjustment note reflecting the changed price (as a result of the rebate), including a charge for GST, which is also a credit.

Example: 3M's customer buys goods valued at $1000 which are subject to 10 % GST. They are also entitled to a 5 % rebate paid monthly in arrears on all purchases.

NOTE:

** This is a new step in the adjustment process as a result of the new laws. Its effect is to reduce by $5 (from the original $100 to $95) the GST credit the customer can claim. Timing of rebate payments does not change the requirement to raise GST adjustments in this fashion.

3M will issue to its customers a credit adjustment note incorporating the rebate calculated on a tax exclusive basis plus 10% GST. No adjustments for the rebate by way of a deduction from monthly payments are permitted until the credit appears on your monthly statement.

3M views these protocols as providing mutually beneficial trading arrangements which will enable all parties to effectively manage this aspect of GST procedures and put in place the mechanisms that strengthen the co-operative relationship that has been fostered over time.

NOTE ON REBATE PAYMENT METHODOLOGY:

An alternative to the above is the use of what has been referred to as RCTI's or Recipient Created Tax Invoices. This activity (which has only recently been legislated) provides for the customer under certain criteria and with the mutual agreement of the provider of the goods and services, the opportunity to perform the invoicing function on behalf of the provider (3M). Recognising that the legislation is relatively new and there has been little time to prepare for this action, 3M has elected to refrain from participating in or associating with the use of RCTI's until it can assess the practical and financial implications of such a process.

GST does not change 3M's requirements in this area. Adjustments will still be required to be raised for all claims that are made by customers and must meet the requirements of 3M's Returned Goods and Claims Policy (which has recently been updated). 3M will continue to require documentary evidence to support the claim (i.e. claim advice from the customer) so as to enable evaluation prior to crediting the customer's account.

3M will no longer accept the customary practice of customers deducting adjustments / claims from monthly payments prior to acceptance.

From 1st July 2000 it is 3M's Policy to deal only with registered suppliers who have an Australian Business Number (ABN).

Suppliers that do not provide 3M with a valid tax invoice showing an ABN will have a Withholding Tax deduction of 48.5% made at the time of remittance. 3M will automatically remit such amount withheld to the Australian Taxation Office. It is the supplier's responsibility to make application to the ATO for refund of withholding amounts.

From 1st July 2000 3M will expect quotations from their suppliers to display the GST exclusive price, the separate GST component, and also the total GST inclusive price.

From 1st July 2000 3M Purchase Orders and quotations will be priced as GST exclusive.

For general information regarding this document and how 3M will; in interacting with customers and suppliers, be approaching GST related issues, you may contact the 3M Information hotline on 136 136.
For general information regarding the impact of GST on your business, contact your professional tax or legal advisers.

Guidelines published by the ACCC in March 2000 can be accessed and downloaded from the ACCC 's website at http://gst.accc.gov.au. Other useful websites are:

• GST News: www.gstmadeeasy.com.au
• Australian Competition & Consumer Commission: www.acc.gov.au
• Tax Reform: www.taxreform.gov.au