House of Representatives

Explanatory Memorandum

Circulated By the Authority of the Treasurer, the Hon Wayne Swan MP

Chapter 2 - GST relief for telecommunication supplies for global roaming in Australia

Outline of chapter

2.1 Schedule 2 to this Bill amends the A New Tax System (Goods and Services Tax) Act 1999 ( GST Act) to ensure telecommunication supplies under global roaming arrangements provided to subscribers of non-resident telecommunication suppliers while 'roaming' in Australia remain not subject to goods and services tax (GST). The global roaming telecommunication supplies covered by the amendment are mobile telephone global roaming and mobile Internet roaming.

2.2 This is consistent with an obligation imposed on Australia under the International Telecommunication Regulations ( Melbourne, 9 December 1988) known as the 'Melbourne Agreement'.

Context of amendments

2.3 Australia is a party to the Melbourne Agreement. Article 6.1.3 of the Melbourne Agreement provides that tax levied in accordance with the national law of a country on 'collection charges for international telecommunication services' can only be collected 'in respect of international services billed to customers in that country'.

2.4 This means that international telecommunication supplies made under arrangements for global roaming in Australia and provided to subscribers of non-resident telecommunication suppliers while those subscribers are 'roaming' in Australia, should not be subject to GST.

2.5 Up until 14 December 2005 these international telecommunication supplies were considered not to be taxable under the Australia GST law. However, the Commissioner of Taxation then determined that these supplies were taxable under the provisions of the GST Act.

2.6 Therefore it is necessary to amend the GST Act to ensure that the treatment of these supplies remains consistent with the Melbourne Agreement.

Operation of the existing law

2.7 Under section 9-5 of the GST Act an entity makes a taxable supply if:

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it makes the supply for consideration;

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the supply is made in the course or furtherance of an enterprise that the entity carries on;

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the supply is connected with Australia; and

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the entity is registered, or required to be registered.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

2.8 Division 38 sets out supplies that are GST-free. Subdivision 38-E sets out when exports and other supplies for consumption outside Australia are GST-free. Section 38-190 covers supplies of things, other than goods or real property, that are for consumption outside Australia.

2.9 The table in subsection 38-190(1) lists five items which set out supplies of things, other than goods or real property, that are GST-free.

2.10 Item 2 in the table treats as GST-free a supply made to a non-resident who is not in Australia when the thing supplied is done if:

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the supply is neither a supply of work physically performed on goods situated in Australia when the work is done nor a supply directly connected with real property situated in Australia; or

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the non-resident acquires the thing in carrying on the non-resident's enterprise but is not registered or required to be registered.

2.11 However, a supply covered by item 2 in the table in subsection 38-190(1) is not GST-free if it is a supply under an agreement entered into, whether directly or indirectly, with a non-resident and the supply is provided (or the agreement requires it to be provided) to another entity in Australia (subsection 38-190(3)).

Application of the existing law to international telecommunication supplies for global roaming in Australia

2.12 Global roaming occurs when a subscriber to an overseas telecommunication supplier is visiting Australia and uses a mobile phone or other portable device to connect to an Australian telecommunication supplier's network. The visiting subscriber is able, by connecting to the network, to obtain telephony services such as making and receiving phone calls and short messaging service (SMS) text messages, accessing emails and browsing the Internet.

2.13 The visiting subscriber has an agreement with their home country telecommunication supplier (the non-resident telecommunication supplier) for the provision of global roaming in Australia. This allows them to use a portable device whilst in Australia, to access telecommunication services through their home network subscription.

2.14 The non-resident telecommunication supplier enters into a wholesale roaming agreement with an Australian telecommunication supplier that allows their subscribers visiting Australia to 'roam' on the Australian telecommunication supplier's network for accessing telecommunication services. (The Australian telecommunication supplier may be supplying only part of the service, which may travel over networks owned by other telecommunication suppliers including the home country telecommunication supplier.) The Australian telecommunication supplier has no contract with the visiting subscriber and the Australian telecommunication supplier bills the subscriber's home country telecommunication supplier for access to Australian network services (the supply by the Australian resident telecommunication supplier).

2.15 The subscriber's home country telecommunication supplier bills the subscriber for global roaming provided in Australia through their billing arrangements in the home country (the supply by the non-resident telecommunication supplier).

2.16 The supply by the Australian resident telecommunication supplier to the non-resident telecommunication supplier is GST-free under item 2 in the table in subsection 38-190(1). However, the GST-free status of that supply is negated by subsection 38-190(3) because it is provided to another entity (the visiting subscriber) in Australia.

2.17 The supply by the non-resident telecommunication supplier to the subscriber while visiting Australia is performed, in part, in Australia and therefore the supply is, to that extent, 'connected with Australia' pursuant to paragraph 9-25(5)(a). If the other requirements of section 9-5 are met, the supply by the non-resident telecommunication supplier is (wholly or partly) a taxable supply.

The impact of the Melbourne Agreement

2.18 The imposition of GST on the supply by the Australian resident telecommunication supplier and the supply by the non-resident telecommunication supplier is considered to be inconsistent with Australia's treaty obligations under the Melbourne Agreement.

2.19 This amendment ensures that these global roaming telecommunication supplies are GST-free with effect from 1 July 2000.

Summary of new law

2.20 The amendment makes GST-free the following telecommunication supplies for global roaming in Australia, which are provided to subscribers of a non-resident telecommunication supplier while the subscribers are visiting Australia:

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the supply made by an Australian resident telecommunication supplier to a non-resident telecommunication supplier of use of its network in Australia and provided to subscribers of the non-resident telecommunication supplier when visiting Australia (the supply by an Australian resident telecommunication supplier); and

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the supply by the non-resident telecommunication supplier of global roaming in Australia made to its subscribers visiting Australia (the supply by the non-resident telecommunication supplier).

Comparison of key features of new law and current law

Detailed explanation of new law

Amendments relating to telecommunication supplies made under arrangements for global roaming in Australia

2.21 Subdivision 38-R is inserted into the GST Act to ensure that telecommunication supplies made under arrangements for global roaming in Australia are GST-free.

2.22 New section 38-570 means that telecommunication supplies made under arrangements for global roaming in Australia are GST-free. Specifically, the supply by an Australian resident telecommunication supplier (a carrier or carriage service provider as defined in the Telecommunications Act 1997 or an Internet service provider as defined in Schedule 5 to the Broadcasting Services Act 1992) made to a non-resident telecommunication supplier and provided to a subscriber of the non-resident telecommunication supplier while roaming in Australia, is GST-free. Further, the supply by the non-resident telecommunication supplier of global roaming in Australia, made to its subscriber visiting Australia, is also GST-free.

2.23 Subsection 38-570(1) describes a telecommunication supply under a global roaming arrangement that will be GST-free. Such a supply is to enable the use of a portable device (such as a mobile phone or laptop computer) in Australia while the device is linked to an International Mobile Subscriber Identity number (in the case of phone roaming), an Internet Protocol address (in the case of Internet roaming), or another internationally recognised identifier containing a home network identity which indicates that the subscription is to a telecommunication network outside Australia. The supply is made by either a non-resident telecommunication supplier or an Australian resident telecommunication supplier . [Schedule 2, item 1, subsection 38-570(1)]

2.24 Subsection 38-570(2) describes the supply by the non-resident telecommunication supplier under a global roaming arrangement. This supply is made to the subscriber (the visitor to Australia) in connection with their subscription to a telecommunication network outside Australia, the supply is billed to the subscriber's address outside Australia and the supply is made by a non-resident telecommunication supplier that carries on the enterprise of making telecommunication supplies outside Australia and not in Australia . [Schedule 2, item 1, subsection 38-570(2)]

2.25 Subsection 38-570(3) describes supply by an Australian resident telecommunication supplier under a global roaming arrangement. This supply is made by an Australian resident carrier, carriage service provider or Internet service provider to the non-resident telecommunication supplier and is provided to the user in Australia of the device described in subsection 38-570(1) . [Schedule 2, item 1, subsection 38-570(3)]

2.26 This amendment applies to supplies made on or after 1 July 2000 (the commencement of the GST). The retrospective application benefits suppliers as it is consistent with the existing industry practice of not applying GST to these supplies . [Schedule 2, item 2]

Examples of the application of new section 38-570 to telecommunication supplies made under arrangements for global roaming in Australia

Example 2.1

UK Phone Ltd, a telecommunication supplier in the United Kingdom carries on outside Australia an enterprise of making telecommunication supplies and does not carry on in Australia such an enterprise (a non-resident telecommunication supplier). Charlie (a subscriber) resides in the United Kingdom and has a contract with UK Phone Ltd (a subscription). Under that contract, UK Phone Ltd supplies Charlie with telecommunication services including mobile phone and Internet services in the United Kingdom and global roaming in Australia. Charlie is billed to his address in the United Kingdom.

To supply Charlie (and its other customers) with global roaming in Australia, UK Phone Ltd enters into a wholesale agreement with an Australian telecommunication supplier, Aus Phones Plus, to provide access to its Australian network to subscribers of UK Phone Ltd roaming in Australia.

While in Australia and global roaming on an Australian network, Charlie uses his smart phone under contract with UK Phone Ltd to make and receive phone calls and emails, use SMS, access the Internet and picture messaging etc.

Despite Charlie being physically located in Australia and global roaming on an Australian telecommunication network, the supply of global roaming is GST-free (both the supply by the non-resident telecommunication supplier and the supply by the Australian resident telecommunication supplier). This is because:

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Charlie is using a portable device in Australia for sending and receiving signals, writing, images, sound and information and the device is linked to an international mobile subscriber number containing a home network identity that indicates a subscription to a telecommunication network in the United Kingdom (that is, outside Australia) - paragraph 38-570(1)(a);

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The supply is made to Charlie in connection with his subscription to UK Phone Ltd - paragraph 38-570(2)(a);

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Charlie is billed for the supply to his address in the United Kingdom - paragraph 38-570(2)(b);

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UK Phone Ltd carries on outside Australia an enterprise of making telecommunication supplies and does not carry on in Australia such an enterprise - paragraph 38-570(2)(c);

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Aus Phones Plus is an Australian resident carriage service provider and provides Charlie, the user in Australia of the device, with telecommunication supplies - subparagraph 38-570(3)(a)(i) and paragraph 38-570(3)(b); and

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Aus Phones Plus makes the supply to UK Phone Ltd, a non-resident telecommunication supplier - paragraph 38-570(3)(c).

While in Australia, Charlie's smart phone is damaged and he acquires a replacement. Charlie inserts his Subscriber Identity Module (SIM) card into that phone so that he is able to continue to access his subscription to UK Phone Ltd. The supply of global roaming is still GST-free (both the supply by the non-resident telecommunication supplier and the supply by the Australian resident telecommunication supplier). This is because:

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Charlie is using a portable device in Australia for sending and receiving signals, writing, images, sound and information and the device is linked to an international mobile subscriber number containing a home network identity that indicates a subscription to a telecommunication network in the United Kingdom (and so on).

Example 2.2

NZ Telco carries on outside Australia an enterprise of making telecommunication supplies and does not carry on in Australia such an enterprise. A New Zealand resident company, NZ Co, has a mobile phone agreement with NZ Telco that enables employees of NZ Co to utilise mobile services in New Zealand and global roam in Australia (the supply by the non-resident telecommunication supplier).

Hayley, an employee of NZ Co, uses her mobile phone in Australia to call an Australian business contact, make calls to New Zealand and receive calls from Australia and New Zealand. The calls made and received involve usage of Aus Telco's Australian network as permitted under the international roaming agreement between NZ Telco and Aus Telco (the supply by the Australian resident telecommunication supplier).

The supply by the non-resident telecommunication supplier made by NZ Telco to NZ Co and the supply by the Australian resident telecommunication supplier made by Aus Telco to NZ Telco and provided to Hayley in Australia are both GST-free. This is because:

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Hayley is using a portable device in Australia for sending and receiving signals, writing, images, sound or information and the device is linked to an international mobile subscriber number containing a home network identity that indicates a subscription to a telecommunication network in New Zealand (that is, outside Australia) - paragraph 38-570(1)(a);

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The supply is made to NZ Co in connection with its subscription to NZ Telco - paragraph 38-570(2)(a);

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NZ Co is billed for the supply to its address in New Zealand - paragraph 38-570(2)(b);

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NZ Telco carries on outside Australia an enterprise of making telecommunication supplies and does not carry on in Australia such an enterprise - paragraph 38-570(2)(c);

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Aus Telco is an Australian resident carrier and provides Hayley with telecommunication supplies in Australia - subparagraph 38-570(3)(a)(i) and paragraph 38-570(3)(b); and

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Aus Telco makes the supply to NZ Telco, a non-resident telecommunication supplier - paragraph 38-570(3)(c).

Example 2.3

UKinternet Ltd (a United Kingdom Internet service provider) carries on outside Australia an enterprise of making telecommunication supplies and does not carry on in Australia such an enterprise. Julia resides in the United Kingdom and has a subscription with UKinternet Ltd. UKinternet Ltd provides Julia with broadband internet within the United Kingdom. She operates a voice over Internet protocol (VOIP) account and an email account through her broadband subscription. Prior to visiting Australia, Julia arranges with UKinternet Ltd to activate global roaming, which allows her to access her UKinternet Ltd service whilst in Australia (a supply by a non-resident telecommunication supplier) via her laptop.

UKinternet Ltd enters into a wholesale relationship with Austinternet Ltd, an Australian internet service provider, to provide UKinternet Ltd's global roaming customers with access to Austinternet Ltd's network. While in Australia, Julia enters her UKinternet Ltd username and password. She is then connected to her UKinternet Ltd account via Austinternet Ltd's network. UKinternet Ltd imposes a user charge on this service which appears on Julia's UKinternet Ltd account in the United Kingdom.

The supply by the non-resident telecommunication supplier, made by UKinternet Ltd to Julia and the supply by the Australian resident telecommunication supplier, made by Austinternet Ltd to UKinternet Ltd and provided to Julia in Australia, are both GST-free. This is because:

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Julia is using a portable device in Australia for sending and receiving signals, writing, images, sound or information and the device is linked to an Internet Protocol address containing a home network identity that indicates a subscription to a telecommunication network in the United Kingdom (that is, outside Australia) - paragraph 38-570(1)(a);

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The supply is made to Julia in connection with her subscription to UKinternet Ltd - paragraph 38-570(2)(a);

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Julia is billed for the supply to her address in the United Kingdom - paragraph 38-570(2)(b);

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UKinternet Ltd carries on outside Australia an enterprise of making telecommunication supplies and does not carry on in Australia such an enterprise - paragraph 38-570(2)(c);

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Austinternet Ltd is an Australian resident Internet service provider and provides Julia with telecommunication supplies in Australia - subparagraph 38-570(3)(a)(ii), paragraph 38-570(3)(b); and

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Austinternet Ltd makes the supply to UKinternet Ltd, a non-resident telecommunication supplier - paragraph 38-570(3)(c).

Example 2.4

Cheap Fones Pty Ltd carries on in Australia an enterprise of making telecommunication supplies. Edwin, a United Kingdom resident who is currently in Australia, enters into a telecommunication contract with Cheap Fones Pty Ltd (an Australian resident telecommunication supplier) to provide him with mobile telephone services, including global roaming, while he is in Australia. The supply of telecommunication services by Cheap Fones Pty Ltd to Edwin is not covered by new section 38-570 and is subject to GST.

Although Edwin is a non-resident, he is a subscriber of an Australian resident telecommunication supplier. There is no supply between a non-resident telecommunication supplier and its subscriber and consequently no supply made by an Australian resident telecommunication supplier to a non-resident telecommunication supplier to provide a subscriber of the non-resident telecommunication supplier with access to the Australian resident telecommunication supplier's network in Australia. The supply made by Cheap Fones Pty Ltd is a taxable supply (assuming the requirements of section 9-5 are satisfied).

If Edwin were to visit an Internet café in Australia to access Internet services, the supply of Internet access to Edwin by the Internet café would also be a taxable supply as it is not a supply between a non-resident telecommunication supplier and its subscriber.

Global roaming telecommunication supplies

2.27 The type of telecommunication supply provided to the user of a portable device under a global roaming arrangement is not limited by this amendment. Those supplies include transmission of voice, pictures and text messages, email and Internet access. A variety of information and entertainment services may be delivered by telecommunication suppliers to roaming customers. A charge that is for the content delivered to a portable device as distinct from the transmission service to deliver that content is not covered by this amendment. For example, a separate charge for a pay-per-view sporting event that is delivered to a portable device is not for a telecommunication supply.

Portable devices for the purposes of section 38-570

2.28 Due to the convergence of telecommunication device capabilities in recent years, there are many portable devices which subscribers of non-resident telecommunication suppliers may use to access global roaming in Australia. These include mobile phones, smart phones, personal digital assistants, laptop computers and Universal Serial Bus (USB) modems. However, portable devices do not include devices that do not use telecommunication networks, for example, walkie talkies and radio communications devices.

Application and transitional provisions

2.29 This amendment applies to supplies made on or after 1 July 2000, the commencement date of the GST.