ATO Interpretative Decision

ATO ID 2003/1035 (Withdrawn)

Goods and Services Tax

• This ATO ID is withdrawn as it is superseded by GSTR 2005/6.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the entity, a legal service provider, making 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) when, in supplying legal services to a non-resident insurance underwriter, the entity is listed on court documents as acting for the insured who is in Australia?

Decision

Yes, the entity is making a GST-free supply under item 2 in the table in subsection 38-190(1) of the GST Act when, in supplying legal services to a non-resident insurance underwriter, the entity is listed on court documents as acting for the insured who is in Australia.

Facts

The entity is a supplier of legal services. The entity provides legal services to a non-resident insurance underwriter. The legal services include:

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an assessment of the relevant claim

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acting for the non-resident insurance underwriter to minimise the quantum of the claim, and

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preparing for and appearing in court in relation to the claim.

The non-resident insurance underwriter is not in Australia when the services are supplied.

The entity is contractually liable to provide legal services to the non-resident insurance underwriter; it receives all instructions from the non-resident insurance underwriter, including which claims they are to act in respect of. The entity invoices the non-resident insurance underwriter for the legal services it provides.

The contract that the non-resident insurance underwriter has with the insured is a standard contract of insurance in regard to professional indemnity. Under the terms of the insurance policy, if a claim is made against the insured, for which the underwriter becomes liable for payment, then the underwriter has rights of subrogation in regard to all the rights and remedies of the insured and shall be entitled to bring an action in the name of the insured. On the court record, the entity is stated as acting on behalf of the insured.

The insured is in Australia. The entity is registered for goods and services tax (GST).

Reasons for Decision

Under section 38-190 of the GST Act, certain supplies of things other than goods or real property, for consumption outside of Australia are GST-free. As the entity is supplying legal services, not goods or real property, it is appropriate to consider section 38-190 of the GST Act in relation to this supply.

Item 2 in the table in subsection 38-190(1) of the GST Act (Item 2) provides that a supply that is made to a non-resident who is not in Australia when the thing supplied is done, is GST-free where:

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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 for GST.

The non-resident insurance underwriter is not in Australia when the services are supplied. As the supply relates to professional indemnity insurance, it is not a supply of work physically performed on goods situated in Australia, nor a supply directly connected with real property situated in Australia. Therefore, the supply satisfies the requirements of Item 2.

However, Item 2 is limited by subsection 38-190(3) of the GST Act which provides that a supply covered by Item 2 is not GST-free if:

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

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the supply is provided, or the agreement requires it to be provided, to another entity in Australia.

Under the terms of the insurance policy, the rights of the insured have been transferred to the underwriter. The underwriter has rights of subrogation in regard to all the rights and remedies of the insured and shall be entitled to bring an action in the name of the insured. In exercising this right of subrogation, the underwriter contracts the entity to provide legal advice. On the court record, the entity is stated as acting on behalf of the insured. However, the entity receives all instructions from the non-resident insurance underwriter, including which claims they are to act in respect of. The entity invoices the non-resident insurance underwriter for the legal advice it provides and as such is providing its supply to the non-resident insurance underwriter and not the insured.

Therefore, the entity is not providing its supply to an entity in Australia and subsection 38-190(3) of the GST Act does not exclude the entity's supply from being GST-free under Item 2. As such, the entity is making a GST-free supply under Item 2 when it supplies legal advice to the non-resident insurance underwriter.

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 38-190
   subsection 38-190(1)
   subsection 38-190(1) table item 2
   subsection 38-190(3)

Related Public Rulings (including Determinations)
GSTR 2000/31
GSTR 2000/36

Keywords
Goods and Services Tax
GST free
GST international services
GST insurance

Business Line:  GST

Date of publication:  21 November 2003

ISSN: 1445-2782