Edited version of private ruling

Authorisation Number: 1011542855186

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Ruling

Subject: Goods and services tax and GST branches and GST groups

Question 1

Do the Goods and services tax (GST) branching provisions apply?

Advice/Answers

Yes.

Question 2

Does X make taxable supplies to you?

Advice/Answers

Where X supplies the services to you, these supplies are not taxable where X provides these supplies to entities outside Australia. However, where X supplies the services to you and these supplies are provided to entities in Australia, these supplies are taxable.

Question 3

Do the GST grouping provisions apply?

Advice/Answers

No.

Question 4

Can X issue tax invoices to you?

Advice/Answers

X must issue a tax invoice to you if X makes a taxable supply to you, and you request X to issue a tax invoice for the supply.

Question 5

Are you entitled to input tax credits for acquisitions you make from X?

Advice/Answers

You are entitled to input tax credits for acquisitions you make from X where the supplies made by X to you are taxable supplies. You are not entitled to input tax credits for acquisitions you make from X where the supplies made by X to you are not taxable supplies.

Relevant facts and circumstances

X was incorporated overseas.

You are registered for GST.

Your head office (Y) is in an overseas country.

You supply pre sale and post sale training/consulting and liaison services related to the use of software products to a software company's worldwide customers (the services).

You have an Australian branch - X.

X is a GST branch of yours.

X supplies the services to Y.

You are not in Australia (apart from X) when X supplies the services.

X provides the supplies of the services to entities in Australia as well as entities overseas. The arrangements between X and Y require that the supplies of the services be provided to entities in Australia as well as entities overseas.

X incurs expenses such as office rental, employees' salaries, superannuation, travelling, telecommunications, accommodation expenses while its employees perform their duties. X charges Y for the services supplied by X to Y using a cost plus method.

Reasons for decisions

Question 1

A GST branch is formed where a business entity separately registers its branch to suit the structural, management and accounting arrangements of the organisation.

In your situation, GST branching provisions apply, as X is a GST branch of yours.

The GST branch effectively operates as a distinct entity for GST reporting purposes.

The enclosed fact sheet, GST branches, may be of assistance to you.

Question 2

Summary

Where X makes supplies of the services to you, these supplies are not taxable where the services are provided to entities outside Australia. However, where X makes supplies of the services to you and these supplies are provided to entities in Australia, these supplies are taxable.

Detailed reasoning

You make a taxable supply where you satisfy the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), which states:

You make a taxable supply if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an *enterprise that

you *carry on; and

(c) the supply is *connected with Australia; and

(d) you are *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.

(*Denotes a term that is defined in section 195-1 of the GST Act)

GST branches

Subsection 54-40(1) of the GST Act states:

If an entity (the parent entity) has a *GST branch, Division 17 applies to the parent entity as if it had an additional *net amount, relating to the branch, for each tax period.

In accordance with paragraph 54-40(2)(c) of the GST Act, the additional net amount relating to the GST branch is worked out as if the GST branch were a separate entity and as if any transfers of anything by the GST branch to the parent entity that would have been supplies made by the GST branch if it were an entity, were supplies made by the separate entity.

Therefore, as X is a GST branch of yours, X can make supplies to you, for GST purposes.

X's supplies of the services to Y are supplies made by X to you for GST purposes. These supplies satisfy the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act. That is, these supplies are made for consideration and in the course or furtherance of X's enterprise. Additionally, these supplies are connected with Australia and X is a branch of a GST registered entity.

There are no provisions of the GST Act or any other Act under which X's supplies of these services are input taxed.

Therefore, what remains to be determined is whether X makes GST-free supplies to you.

Item 2 in the table in subsection 38-190(1) of the GST Act provides that a supply of a thing other than goods or real property is GST-free where the supply 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.

However, subsection 38-190(3) of the GST Act states:

Without limiting subsection (2) or (2A), a supply covered by item 2 in that table is not GST-free if:

(a) it is a supply under an arrangement 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.

Item 3 in the table in subsection 38-190(1) of the GST Act provides that a supply of a thing other than goods or real property is GST-free where the supply:

(a) is made to a *recipient who is not in Australia when the thing supplied is done; and

(b) the effective use or enjoyment of the supply takes place outside Australia; other than a supply of work physically performed on goods situated in Australia when the thing supplied is done, or a supply directly connected with *real property situated in Australia.

Paragraph 208 of Goods and Services Tax Ruling GSTR 2007/2 (GSTR 2007/2) provides that the entity that actually uses or enjoys the supply is the entity to which the supply is provided (that is, the providee).

In accordance with paragraph 83 of GSTR 2007/2, effective use or enjoyment of the supply only takes place outside Australia, and thus paragraph (b) of item 3 is only satisfied, if there is provision of the supply to the providee entity outside Australia.

Item 2

The supply of the services by X to you is a supply other than a supply of goods or real property.

You are a non-resident who is not in Australia (other than X) when the services supplied by X to you are performed.

The supply of these 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.

The arrangements X has with Y require that the supplies of the services be provided to entities in Australia as well as entities outside Australia. Additionally, the supplies of the services may be provided to entities in Australia or outside Australia.

Therefore:

· Where X provides the supplies of the services to entities outside Australia, and the arrangement X enters into with Y does not require the supplies of the services to be provided to entities in Australia, the supplies of the services are GST-free under item 2 in the table in subsection 38-190(1) of the GST Act. Therefore, the supplies of the services are not taxable under such circumstances.

· Where the supplies of the services are provided to entities in Australia or the arrangement between X and Y requires that the supplies of the services be provided to entities in Australia, the supplies of the services are not GST-free under item 2 in the table in subsection 38-190(1) of the GST Act.

Item 3

The supply of the services by X to you is a supply other than a supply of goods or real property.

You are not in Australia (apart from X) when these services are performed.

The provision of these supplies may be to entities outside of Australia or in Australia.

The supplies of the services are not supplies of work physically performed on goods situated in Australia when the services are performed or supplies directly connected with real property situated in Australia.

Therefore, where X supplies the services to you and the supplies of the services are provided to entities outside Australia, these supplies are GST-free under item 3 of the table in subsection 38-190(1) of the GST Act.

Hence, where X supplies the services to you and the supplies of the services are provided to entities outside Australia, these supplies are not taxable supplies.

However, where X supplies the services to you and the supplies of the services are provided to entities in Australia, these supplies are not GST-free under Item 3 of the table in subsection 38-190(1) of the GST Act.

There are no provisions in the GST Act or any other Act under which X's supplies of the services to you are GST-free where these supplies are provided to entities in Australia. Hence, under such circumstances, X's supplies of these services are taxable supplies, as all of the requirements of section 9-5 of the GST Act are satisfied.

Question 3

Summary

The GST grouping provisions do not apply as you have a GST branch.

Detailed reasoning

In accordance with subsection 48-5(1) of the GST Act, the Commissioner must approve 2 or more entities as a GST group if certain requirements are satisfied. One of these requirements is that each of the entities satisfies the membership requirements for that GST group.

In accordance with subsection 48-10(1) of the GST Act, one of the membership requirements for each entity is that the entity does not have a GST branch. You have a GST branch. Hence, you do not satisfy all of the membership requirements of a GST group. Therefore, you cannot be registered as a member of a GST group.

The enclosed fact sheet, GST groups, may be of assistance to you.

Question 4

Summary

X must issue a tax invoice to you if X makes a taxable supply to you, and you request X to issue a tax invoice for the supply.

Detailed reasoning

Subsection 29-70(2) of the GST Act states:

The supplier of a taxable supply must, within 28 days after the *recipient of

the supply requests it, give to the recipient a *tax invoice for the supply

unless it is a *recipient created tax invoice.

X makes taxable supplies to you. Therefore, when such supplies are made, X must issue tax invoices to you if you request them.

Question 5

Summary

Where X makes taxable supplies to you, you are entitled to input tax credits.

Where X makes non-taxable supplies to you, you are not entitled to input tax credits.

Detailed reasoning

You are entitled to input tax credits for your creditable acquisitions.

You make a creditable acquisition where you satisfy the requirements of section 11-5 of the GST Act, which states:

You make a creditable acquisition if:

(a) you acquire anything solely or partly for a *creditable purpose; and

(b) the supply of the thing to you is a *taxable supply; and

(c) you provide, or are liable to provide, consideration for the supply;

and

(d) you are *registered, or *required to be registered.

In accordance with paragraph 54-45(1)(d) of the GST Act, if an entity (the parent entity) has a GST branch, the entity's net amount is worked out as if all transfers of anything by any GST branch of the parent entity, that would have been acquisitions made from the branch if it were an entity, were acquisitions made by the parent entity.

Therefore, as X is your GST branch, you make an acquisition from X where X supplies services to you.

Creditable purpose

Section 11-15(1) of the GST Act states:

You acquire a thing for a creditable purpose to the extent that you acquire

it in *carrying on your *enterprise.

Section 11-15(2) of the GST Act states:

However, you do not acquire the thing for a creditable purpose to the

extent that:

(a) the acquisition relates to making supplies that would be *input taxed;

or

(b) the acquisition is of a private or domestic nature.

You acquire services from X in carrying on your enterprise.

These acquisitions do not relate to making supplies that would be input taxed. These acquisitions are not of a private or domestic nature.

Hence, you acquire services from X for a creditable purpose. Therefore, the requirement of paragraph 11-5(a) of the GST Act is satisfied.

Taxable supplies

As explained above, X will make taxable supplies to you in certain circumstances, but not in others. Where X makes taxable supplies to you, you will satisfy the requirement of paragraph 11-5(b) of the GST Act.

Consideration

You provide consideration for the supplies in question. Therefore, the requirement of paragraph 11-5(c) of the GST Act is satisfied.

GST registration

You are registered for GST. Therefore, the requirement of paragraph 11-5(d) of the GST Act is satisfied.

Hence, where X makes taxable supplies to you, all of the requirements of section 11-5 of the GST Act are satisfied.

Consequently, where X makes taxable supplies to you, you are entitled to input tax credits.

However, where X makes non-taxable supplies to you, you do not satisfy all of the requirements of section 11-5 of the GST Act.

Consequently, where X makes non-taxable supplies to you, you are not entitled to input tax credits.

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