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Edited version of your written advice

Authorisation No: 1051233780458

Date of advice: 5 June 2017

Ruling

Subject: Goods and services tax (GST) and supply of services

Question

Is the supply of services by Company A to a non-resident entity subject to GST?

Answer

No, your supply of services to a non-resident entity will be GST-free under subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Relevant facts and circumstances

You are an Australian company which is registered for goods and services tax (GST).

You have an Agreement with the non-resident entity to provide services in Australia to increase particular efficiencies.

A non-resident entity is based overseas and is not registered or required to be registered for GST in Australia.

The Non-resident entity manufactures and sells products in Australia.

Using your experience in the industry, you will identify prospective purchasers for the non-resident entity’s products. You will then contact the customers and demonstrate the benefits of using the products. You will take orders from the customers and submit the orders to the non-resident entity who will process and arrange for the products to be delivered to the customers.

Under the Agreement, the non-resident will pay you a monthly fee for taking the orders. In addition to the monthly fee, you will be eligible to earn a monthly bonus for achieving objectives as it relates to territory performance pursuant to the Agreement

The non-resident entity does not carry on any business in Australia. The non-resident entity does not have an office or representative or subsidiary in Australia in relation to your supply of services.

You do not have any agreement with the non-resident entity to provide your services to another entity in Australia.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 section 38-190

A New Tax System (Goods and Services Tax) Act 1999 subsection 38-190(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 38-190(3)

Reasons for decisions

Taxable supply

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

      (a) the entity makes the supply for consideration; and

      (b) the supply is made in the course or furtherance of an enterprise that it carries on; and

      (c) the supply is connected with Australia; and

      (d) 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.

The supply of your services to the non-resident entity in return for the commission will be a taxable supply if all the requirements in section 9-5 of the GST Act are satisfied.

Based on the facts provided, the supply of your services to the non-resident entity satisfies paragraphs 9-5(a) to 9-5(d) of the GST Act as follows:

      (a) you make a supply of services in return for consideration by way of a commission;

      (b) the supply is made in the course of your business;

      (c) the services are performed/provided in Australia and/or the supply is made through an enterprise (business) that you carry on in Australia (and therefore the supply is connected with Australia); and

      (d) you are registered for GST in Australia.

However, the supply of your services to the non-resident entity is not taxable to the extent that it is GST-free or input taxed.

The supply of your services to the non-resident entity does not satisfy the input taxed provisions under the GST Act. The GST-free provisions are taken into consideration.

GST-free

Section 38-190 of the GST Act lists supplies of things other than goods or real property, for consumption outside Australia that are GST-free. Of relevance to the supply of your services to the non-resident entity an item in the table in subsection 38-190(1) of the GST Act.

Under Item X a supply of things (other than goods or real property) is GST-free where it is a supply that is made to a non-resident who is not in Australia when the thing supplied is done and:

      (a) the supply is neither the 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

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

Accordingly, where the requirements of either paragraph (a) or (b) above are met, the supply will be GST-free if the non-resident is not in Australia when the thing supplied is done (that is, when the services are performed/provided).

For the supply of your services to be GST-free under Item X, there is a precondition that the non-resident must not be in Australia in relation to the supply when it is performed/provided.

Goods and Services Tax Ruling GSTR 2004/7 (available at ato.gov.au) provides guidance on when a non-resident is 'not in Australia' for the purposes of Item X.

From the facts provided the supply of your services are made and provided to the non-resident entity. You advise that the non-resident entity is not in Australia in relation to your supply of services, nor do they have any other representatives acting on their behalf in Australia in relation to those services. Accordingly, it is considered that the non-resident entity is 'not in Australia' in relation to the supply of your services Paragraphs (a) and/or (b) of Item X.

Where a non-resident entity is not in Australia in relation to the supply when the thing supplied is done, it is necessary to determine if the other requirements in either paragraph (a) or (b) of Item X are satisfied.

Paragraph (a)

Under paragraph (a) of Item X, a supply of a thing that is made to a non-resident who is not in Australia when the thing supplied is done is GST-free if the supply is neither a supply of work physically performed on goods situated in Australia nor directly connected with real property situated in Australia when the work is done.

Based in the facts provided, the supply of your services to the non-resident entity is neither a supply of work physically performed on goods situated in Australia nor a supply directly connected with real property situated in Australia. Accordingly, the supply of your services to the non-resident entity satisfies the requirement of paragraph (a) of Item X.

Paragraph (b)

Under Paragraph (b) of Item X, a supply of a thing that is made to a non-resident who is not in Australia when the thing supplied is done is GST-free if the non-resident acquires the thing in carrying on the non-resident's enterprise, but is not registered or required to be registered.

You advised us that the non-resident entity is neither registered nor required to be registered for GST in Australia, therefore, the supply of your services to the non-resident entity will also satisfy paragraph (b) of Item X.

Limitations

Subsection 38-190(3) of the GST Act

Having met the requirements of Item X, it is also necessary to consider subsection 38-190(3) of the GST Act.

Subsection 38-190(3) of the GST Act states that without limiting subsection 38-190(2) or (2A), a supply covered by item 2 in that table is not GST-free if:

    a) it is a supply under an agreement entered into, whether directly or indirectly, with a non-resident; and

    b) the supply is provided or the agreement requires it to be provided to another entity in Australia; and

    c) for a supply other than an input taxed supply – none of the following applies:

        i. the other entity would be an Australian-based business recipient of the supply, if the supply had been made to it;

        ii. the other entity is an individual who is provided with the supply as an employee or officer of an entity that would be an Australian-based business recipient of the supply, if the supply had been made to it; or

        iii. the other entity is an individual who is provided with the supply as an employee or officer of the recipient, and the recipient’s acquisition of the thing is solely for a creditable purpose and is not a non-deductible expense.

From the facts provided, the supply of your services is not provided, and there is no agreement(s) with the non-resident entity to provide these services to another entity in Australia. Accordingly, subsection 38-190(3) of the GST Act does not exclude the supply of your services being GST-free under Item X.

In summary, the supply of your services to the non-resident entity is GST-free under Item X and no GST payable on this supply.