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Edited version of your written advice

Authorisation Number: 1051279038986

Date of advice: 12 September 2017

Ruling

Subject: GST and supply of services to a non-resident

Question 1

Is the supply of services made by you to the non-resident company under the Services Agreement, a GST-free supply under item 2 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Advice

Yes, the supply of services made by you to the non-resident company under the Services Agreement is a GST-free supply under item 2 in the table in subsection 38-190(1) of the GST Act.

Relevant facts

You are an Australian company and registered for the goods and services tax (GST). Your business activities include the supply of information services to international companies wanting to understand and enter the Australian market. You market in your own right, products and services to consumers in Australia.

You have entered into an independent contractor agreement (Services Agreement) with a non-resident company located outside Australia. Neither company is related to the other in any way nor does any other type of relationship exist other the terms outlined in the Services Agreement.

The non-resident has no presence in Australia as it is not incorporated in Australia, does not carry on business in Australia and does not have a central management and control in Australia or its voting power controlled by shareholders who are residents of Australia. Further the non-resident has no physical presence or permanent establishment in Australia and is not registered or required to be registered for GST.

The agreement between the non-resident and you is for professional services provided by you to facilitate the initial launch and continued promotion of an app in Australia, and for you to provide the non-resident company with various strategic information in relation to the app and app use.

The app is owned and developed by the non-resident company .There is no cost to download the app but users are required to register their personal details in order to obtain full functionality of the app. As an incentive, there are opportunities to win a prize (under a lottery system) based on the number of data lodged by the user.

The app usage information, user details along with any other data the app captures is securely kept, managed and analysed by the non-resident along with discussions held between the non-resident and you to assess the app’s performance in the Australian market.

The agreement stipulates two distinct functions to be carried on by you and which can be categorised as ‘strategic development’ and promoter. The information is provided to the non-resident directly by way of conference calls, emails and at physical meetings held overseas.

The non-resident company acquires ‘strategic development’ information, assistance, feedback and data supplied by you to carry on its enterprise of maintaining and improving its app, including customising the app for the Australian market.

The supply of services to the non-resident is not being physically performed on a good situated in Australia as there is no good in question since the app is an intangible asset. The supply is not connected with real property situated in Australia as there is no real property in existence

You are paid an annual service fee for the services. You also receive reimbursement of certain agreed costs and expenses for services performed under the Agreement and are entitled to receive a bonus.

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

Reasons for decision

Note: Where the term ‘Australia’ is used in this document, it is referring to the ‘indirect tax zone’ as defined in section 195-1 of the GST Act.

GST is payable on a taxable supply. A supply is a taxable supply under section 9-5 of the GST Act if:

    a) the supplier makes the supply for consideration; and

    b) the supply is made in the course of an enterprise that the supplies carries on; and

    c) the supply is connected with Australia; and

    d) the supplier is registered for GST.

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

You must satisfy all the above for its supply of services to the non-resident company to be a taxable supply and to be liable for the GST.

From the facts given, you satisfy paragraphs 9-5(a) to (d) of the GST Act as:

a) you make the supply for consideration (annual service fee, reimbursement of certain agreed costs and expenses and bonus when eligible).

    b) your supply is made in the course of the business that you carry on;

    c) your supply is connected with Australia as the supply is made through a business that you carry on in Australia; and

    d) you are registered for GST.

However, your supply of services is not a taxable supply to the extent that it is GST-free.

There is no provision under the GST Act that makes your supply of services input taxed.

GST-free supply

Relevant to your supply of services to the non-resident is item 2 in the table in subsection 38-190(1) of the GST Act.(item 2).

Item 2 provides that a supply of a thing (other than goods or real property) made to a non-resident is GST-free if 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 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

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

Only one of the paragraphs needs to be satisfied for the supply to be GST-free.

Precondition of item 2 – non-resident is 'not in Australia'

The requirement that the non-resident in item 2 is not ‘in Australia’ when the thing supplied is done is a requirement that the non-resident is not in Australia in relation to the supply when the thing supplied is done.

Goods and Services Tax Ruling GSTR 2004/7 provides guidance on when a non-resident is 'not in Australia' for the purposes of item 2. The ruling is available at ato.gov.au

We consider that a non-resident company is in Australia for the purposes of item 2 if that company carries on its business (or in the case of a company that does not carry on its business, carries on its activities) in Australia :

      a) at or through a fixed and definite place of its own for a sufficiently substantial period of time; or

      b) through an agent at a fixed and definite place for a sufficiently substantial period of time.

A non-resident company is in Australia in relation to a supply if:

      ● the supply is for the purposes of the Australian presence of the company; or

      ● the presence of the company in Australia is involved in the supply unless the only involvement is minor.

From the facts given the non-resident is a company located overseas and does not have a representative in Australia when you perform your services. In this instance, the requirement for the non-resident not to be ‘in Australia in relation to the supply’ is satisfied when you supply your services to the non-resident company.

The next step is to consider the paragraphs in item 2.

Paragraph (a) of item 2

Paragraph (a) of item 2 requires that the supply of services 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.

Goods and Services Tax Ruling GSTR 2003/7 provides guidance on when a supply is a supply of work physically performed on goods and when a supply is directly connected with real property.

From the facts given, your supply of services satisfies paragraph (a) of item 2 as your supply of services is neither a supply of work physically performed on goods situated in Australia when done nor a supply directly connected with real property situated in Australia.

In this instance your supply of services is GST-free to the extent it is not negated by subsection 38-190(3) of the GST Act.

There is no need to consider paragraph (b) as paragraph (a) is satisfied.

Subsection 38-190(3) of the GST Act

Subsection 38-190(3) of the GST Act provides 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 given, subsection 38-190(3) of the GST Act does not negate the GST-free status of your supply of services since you are not required to provide your services to an entity in Australia. Your supply of services to the non-resident company is therefore GST-free under item 2.