Edited version of private ruling

Authorisation Number: 1011558263909

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Ruling

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

Question 1

Are the call centre services supplied by an Australian entity (you) under contractual arrangements with its customer, X, GST-free in accordance with item 2 of subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Advice/Answers

The supply of call centre services by you to X may satisfy paragraph (a) of item 2 in the table in subsection 38-190(1) of the GST Act.

We are unable to determine that paragraph (b) of item 2 in the table in subsection 38-190(1) of the GST Act is satisfied.

Question 2

If the answer to question 1 is yes, does subsection 38-190(3) of the GST Act negate the GST-free status?

Advice/Answers

If you are making a GST-free supply of call centre services this GST-free status will not be negated by subsection 38-190(3) of the GST Act.

Relevant facts

You are an Australian incorporated company and have been registered for goods and services tax (GST) from 1 July 2000.

You are an outsourced call centre operator that provides call centre and customer sales services, handling inbound and outbound telephone, fax, email and online communications on behalf of your customers. You have particular experience with travel related call centre services.

One of your customers is a company incorporated overseas hereinafter referred to as X. X provides various services to its customers located in a number of countries including Australia, through websites it operates.

We requested that you identify X but you refused to do so. You advise that X is a non-resident of Australia and is not currently registered for GST. You also believe that X is not required to be registered for GST.

The majority of calls, emails etc that you receive/make in relation to your services to X are with callers located in Australia, Y and Z.

You and X have entered into an Agreement which details the services to be provided by you to X.

X offers its products both in Australia and outside of Australia.

All calls made to your call centre in Australia by X customers are in relation to products supplied by X. You do not provide any products to customers of X in your own right.

Customers of X can only make payments via credit card. No other form of payment is accepted by X. Your employees take credit card details over the phone from the X customers and enter the credit card details into the X website. You do not accept monies to be banked for payment by X's customers.

The agreement provides that you are paid the fees as listed. Expenses relating to your supply of services are included in the fees that you are paid and will not otherwise be reimbursed by X. The fees are inclusive of any GST which may be levied.

You receive payments based on the time spent by your staff on calls or other communication with customers of X. This is referred to as productive minutes. You also receive sales call remuneration based on blended productive minute and sales commission remuneration as per the agreement. You do not charge X for miscellaneous charges such as postage, courier services and photocopying unless you receive approval by X in writing.

Your facility infrastructure, technology infrastructure and telecom infrastructure are included in the price you receive as fees. Your telephony costs are billed back to X at actual cost, without mark-up.

You do not contract with X's customers on its behalf. Your role is to address queries that a potential customer of X would have to allow the booking to be made. The conclusion of the sale is done overseas and not by you. You provide an administrative function by taking customer details over the phone and directly entering those details into X's website.

The incoming calls are routed to your entity by X. You cannot identify the physical location of the caller. You can only identify the incoming calls by reference to which X website the caller has obtained the number from.

Your entity also performs work for other clients. The work that you perform for X represents less than 5% of your total revenue.

Reasons for decision

Issue 1

Question 1

Summary

We are unable to determine that Item 2 is satisfied because we have no basis upon which to conclude that X is a non resident that is not in Australia. We are also unable to rule that X is not registered or required to be registered. As such we cannot determine that paragraph (b) of item 2 in subsection 38-190(1) of the GST Act is satisfied.

We advise that the supply of call centre services provided by you to X is a supply that is not physically performed on goods nor a supply directly connected with real property in Australia. As such we rule that the requirements of paragraph (a) of Item 2 are satisfied (but we are not able to rule on whether the initial requirements of the third column and therefore the item overall are satisfied - see detailed reasoning).

Detailed reasoning

The requirements for a taxable supply are set out in section 9-5 of the GST Act. This section 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 defined in section 195-1 of the GST Act)

From the facts given, the supply of the call centre services by you to X satisfies all the requirements of paragraphs (a) to (d) of section 9-5 of the GST Act, as follows:

(a) you make a supply of call centre services to X and in return you receive consideration by way of payments from them

(b) you make the supply in the course or furtherance of your enterprise of call centre services

(c) you make the supply through an enterprise that you carry on in Australia and therefore the supply is connected with Australia, and

(d) you are registered for GST in Australia.

Subdivision 38-E of the GST Act determines when exports of goods and other supplies for consumption outside Australia are GST-free. Section 38-190 concerns supplies of things, other than goods or real property, for consumption outside Australia.

Item 2 of subsection 38-190(1) (Item 2) provides that a supply (except to the extent that it is a supply of 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 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.

Item 2 is subject to the further conditions provided in subsection 38-190(3) of the GST Act.

Is the supply by you made to a non resident?

You submit that X is an entity incorporated overseas, is a non-resident of Australia and is neither registered nor required to be registered for GST. Solely on the basis of your assertions we accept that X is a non-resident for the purposes of the GST Act.

Is X not in Australia?

As you have not identified X in your submission and have declined to identify X when specifically asked to, we have no basis to concur with your assertion that X is not in Australia. Further, X is not a party to your ruling request. However, you have asked us to rule on the application of Item 2 and it is necessary for you to determine that X is not in Australia in order to satisfy Item 2.

Goods and Services Tax Ruling GSTR 2004/7 explains the Commissioner's view as to when the recipient of a supply is not in Australia for the purposes of Item 2.

A non-resident company is in Australia for the purposes of item 2 if that company carries on business in Australia:

(a) at or through a fixed and definite place of its own, or

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

Paragraph 247 of GSTR 2004/7 states:

We consider that it would be reasonable for a supplier to conclude that a non - resident company is in Australia if:

· The non resident company is registered with ASIC; or

· The company has a permanent establishment in Australia.

You should undertake any checks as may be required to satisfy yourself that X is not in Australia. We make the following observations, which may assist you:

The agreement indicates that X has equipment in Australia (loaned to you). Permanent establishment is defined to include a place where a person has, is using or is installing substantial equipment or substantial machinery.

The OECD Model Tax Convention on Income and on Capital condensed version July 2008, commentary on Article 5 concerning the definition of Permanent Establishment provides guidance as to whether the mere use in electronic commerce operations of computer equipment in a country could constitute a permanent establishment. At paragraph 42.2 (paraphrased) an internet website does not have a location that can constitute a place of business; on the other hand the server on which the website is stored has a physical location and thus may constitute a fixed place of business. At paragraph 42.9, if the typical functions related to a sale are performed at the location of the server, for example, the conclusion of the contract with the customer, the processing of the payment and the delivery of the products are performed automatically through the equipment, that location may constitute a permanent establishment.

(Note that in GSTR 2000/31 in the context of considering whether a supply is made through a permanent establishment, the Commissioner acknowledges the authoritative nature of the commentary on the OECD Model Tax Convention on Income and on Capital).

GSTR 2004/7 at paragraph 281 also provides a number of indicators to assist in determining whether X is carrying on business in Australia through an agent. We have applied these indicators as follows to assist in determining whether you are the Australian agent of X:

1. Was the fixed place of business from which the agent operates originally acquired for the purposes of enabling the agent to carry on the business of the non-resident company?

You did not acquire its place of business for the purpose of carrying on the business of X. You already conducted business activities of the type provided to X.

2. Does the non-resident company directly reimburse the agent for the cost of accommodation or staff at the fixed place of business?

X pays you at specified rates for specified services rather than reimbursing for costs such as labour and accommodation.

3. Does the non-resident company make other contributions to the financing of the business carried on by the agent?

X reimburses you for telephone calls at cost. X does provide 'loaned equipment' to you. X does not make any other monetary contributions to the financing of the business carried on by you.

4. Is the agent remunerated by reference to transactions, for example, by commission, or by fixed regular payments or in some other way? Commission can be an indicator that the agent is carrying on its own business and not that of the non-resident. However, it is not determinative.

You are remunerated on a transaction basis.

5. What degree of control does the non-resident company exercise over the running of the business conducted by the agent?

X exercises a significant amount of control in terms of the detailed specifications for the services it requires - for example, in relation to hours of operation, number and skill levels of staff, ratio of staff to team leaders, service levels, service location, disaster recovery etc. However, it does not appear to be involved in the day to day management of your business.

6. Does the agent reserve part of the agent's staff or accommodation for the conducting of business related to the non-resident company?

You are required to have at least 2 dedicated staff per language group during the hours of operation.

7. Does the agent display the name of the non-resident company at the agent's premises or on stationery and, if so, does it indicate that the agent is an agent of the non-resident company?

It does not appear that your entity displays the name of X. As you operate a call centre rather than a place of business where customers may attend in person, this factor is of little relevance.

8. What business, if any, does the agent transact as principal exclusively on the agent's own behalf?

Your entity conducts call centre services for entities other than X. As a provider of a dedicated call centre services it is unlikely that your entity transacts exclusively on its own behalf but equally it could be argued that everything it does is on its own behalf.

9. Does the agent make contracts with customers or other third parties in the name of the non-resident company or otherwise in such a manner so as to bind it?

The agreements and information provided indicate that your entity does not contract with customers in the name of, nor on behalf of, X.

10. If the agent does make contracts so as to bind the non-resident company, does the agent require specific authority in advance before binding that foreign company to contractual obligations?

Your entity does not make contracts so as to bind X.

While some of the factors above indicate that you are the Australian agent of X, a greater number of the factors indicate that you and X are contracting on a principal - principal basis. You are not a dependent agent of X and are not X's permanent establishment in Australia.

You should also make enquiries of X as to whether it has any other dependent agent in Australia.

Paragraph (a) of item 2

A supply of hotel accommodation in Australia is a supply of real property that is connected with Australia pursuant to subsection 9-25(4) and the expanded definition of real property -SAGA Holidays Limited v. Commissioner of Taxation 2006 ATC 4841; GSTR 2003/7; GSTD 2004/3: Is a supply of rights to accommodation a supply of real property for the purposes of the A New Tax System (Goods and Services Tax) Act 1999?

You supplies call centre services to X that are, at least in part, connected with the supply of hotel accommodation.

Goods and Services Tax Ruling GSTR 2003/7 examines the meaning of the expressions 'directly connected with goods or real property' and 'a supply of work physically performed on goods' for the purposes of subsection 38-190(1) of the GST Act.

Directly connected with goods or real property'

Paragraph 21 of GSTR 2003/7 states:

21. Under items 1, 2 and 3 it is only where the connection between the supply and the goods or real property is a direct one that the location of goods or real property is regarded as the place where consumption occurs. The addition of the adverb 'directly' to the phrase 'connected with' implies a more emphatic connection between the supply and goods or real property. The inference is that the supply is so closely aligned with goods or real property that it is appropriate to treat the location of the goods or real property as the place where consumption occurs.

Paragraph 23 of GSTR 2003/7 provides that the goods or real property must be particular goods or real property for this very close connection to exist. A supply that is connected with goods or real property in general, rather than with particular goods or real property, does not have a sufficiently close connection with goods or real property for that connection to be a direct one.

Paragraph 33 of GSTR 2003/7 provides examples of situations where the Commissioner considers that a close link or association between the supply and particular goods or real property exists. For example, where the direct object of the supply is the goods or real property in the sense that the supply changes or affects the goods or real property in a physical way. Such supplies might include services physically performed on particular goods or real property such as repair services, installation, alteration, repair, cleaning, restoration or modification of goods.

The fourth dot point of paragraph 42 indicates that where the manager of real property takes overall responsibility for managing the property on behalf of a landlord, the manager's supply is directly connected with real property. This can be contrasted with a call centre booking service where although there is a connection with specific real property, the connection is less direct and is relatively minor. The call centre supply does not affect the nature or value of the property. As such the connection with real property is not direct.

A supply of work physically performed on goods'

It is apparent that even in cases where call centre services relate to supplies of particular goods, the services provided are not a supply of work physically performed on goods.

To conclude, we consider that paragraph (a) [in isolation] is satisfied.

Paragraph (b) of item 2

Is X required to be registered?

X is a non-resident. As concluded above, X is not in Australia through you as its dependent Australian agent. However, we cannot determine whether X is in Australia (through some other agent or permanent establishment). X makes supplies of services in Australia through a website and hosting server that we assume is in Australia, while noting that the location of the server is not necessarily determinative of X's presence in Australia. In the remainder of this section, we provide some consideration of whether X is required to be registered for GST in Australia; our analysis limited to its supplies of real property.

With regard to its supplies, we consider it likely that X makes supplies that are connected with Australia and that are not excluded from the registration turnover threshold. Paragraph (b) is therefore not satisfied.

A supply of accommodation in Australia is a supply of real property that is connected with Australia pursuant to subsection 9-25(4).

While we do not have details of X's operations nor of the contractual arrangements between X and Australian accommodation or between X and Australian customers we think it likely that X supplies rooms as principal rather than as agent of the operators. The UK decision in Secret Hotels2 Ltd (formerly Med Hotels Ltd) v. Revenue & Customs [2010] UKFTT 120 (TC) (Secret Hotels) concerns the operator of a number of websites through which hotels could be booked. The taxpayer is the owner of lastminute.com Ltd. Secret Hotels identifies a number of factors that indicate whether an online operator makes supplies as principal or agent (for the hotel). The Tribunal found that the taxpayer acted as principal notwithstanding the taxpayer's terms describing the parties as principal and agent.

While we are unable to draw any parallels or conversely any distinctions between the business models used, on account of not having been provided with any details of X's operations, it is particularly relevant to note that if X supplies rooms as agent for the operators, then the operators would be liable for GST on the total amount charged on X's website, including X's commission, charges, fees etc, rather than on the net amount that it receives either by way of remittance from X or by way of direct payment from a customer at check-in or check-out. We think it more likely that X supplies rooms as principal.

X's supplies of rooms are supplies connected with Australia pursuant to subsection 9-25(4) of the GST act . As such they are not excluded from the registration threshold pursuant to subparagraphs 188-15(3)(a) or 188-15(3)(b) or 188-20(3)(a) or 188-20(3)(b) of the GST Act but may be excluded by subparagraphs 188-15(3)(c) and 188-20(3)(c) of the GST Act.

Again we do not have sufficient information to definitively conclude whether these provisions apply; nonetheless consider it likely that X makes supplies through an Australian website, hosted on a server in Australia, of accommodation in Australia to Australian customers. As such it is probable that the requirement in subparagraph 188-15(3)(c)(ii) and 188-20(3)(c)(ii) of the GST Act, namely that the supply is 'not made in Australia' is 'not' satisfied and its supplies of accommodation are therefore included in X's GST turnover calculations.

The supplies by X of rights to use accommodation are only included in the registration threshold if the supply is 'made in Australia'. Clearly this test applies to the supply by X rather than the supply by the operator (the operator's supply would always be made in Australia). Cheshire and Fifoot's Law of Contract, 9^th Australian edition, suggests at 3.44 that for internet transactions the last click on 'OK' forms the contract. Footnote 352 states:

'See the discussion by Rares J in eBay International AG v Creative Festival Entertainment Pty Ltd [2006] FCA 1768 where, without close analysis (which was not required), it was assumed that the last act made the contract'.

Determining whether X's supplies are made in Australia requires analysis of the facts and circumstances of the arrangements, the contractual terms and an objective conclusion as to where the contract is formed. This would not be determined merely by reference to website terms and conditions that X purports to impose on its customers with regard to jurisdiction, taxation etc.

To conclude, on the information provided, we consider that paragraph (b) of item 2 in the table in subsection 38-190(1) of the GST Act is not satisfied.

Question 2

Summary

If the supply of call centre services satisfies the requirements of item 2 of subsection 38-190(1) of the GST Act, this GST-free status is not negated by subsection 38-190(3) of the GST Act.

Detailed reasoning

The scope of 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:

(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.

To determine whether this exclusion applies, it is therefore necessary to consider whether the services supplied by you to X are provided to another entity, namely the callers who receive assistance.

The term 'provided' is used in subsection 38-190(3) of the GST Act to differentiate from the term 'made' in item 2. The word provided focuses on the doing of the thing to be supplied and the flow of the actual services or thing required to be supplied under the contractual arrangements.

GSTR 2005/6 explains the operation of subsection 38-190(3) of the GST Act. Paragraphs 59 and 61 state:

The meaning of 'provided to another entity'

59. The word 'provided' is used in subsection 38-190(3) to contrast with the term 'made' in item 2. In the context of section 38-190, the contrasting words indicate that if a non-resident contracts for a supply to be provided to another entity, the place of consumption should be determined with regard to the entity to which the supply is provided, not the entity to which the supply is made.

61. Thus the expression provided to another entity means, in our view, that in the performance of a service (or in the doing of some thing), the actual flow of that supply is, in whole or part, to an entity that is not the non-resident entity with which the supplier made the agreement for the supply. The contractual flow is to one entity (the non-resident recipient) and the actual flow of the supply is to another entity.

The agreement between you and X states that you are to provide call centre services to X. As a result of this agreement you offer phone advice in relation to the products supplied by X. In addition you finalise bookings on behalf of X by taking credit card details over the phone and entering these details into the X website.

You submit that example 34 of GSTR 2005/6 is for all intents and purposes identical to your supply to X. Example 34 is about the provision of a telephone booking service made and provided to a non-resident.

The examples provided in GSTR 2005/6 are not statements of principles in themselves to be applied generally. They illustrate how subsection (3) applies in a given fact situation.

The first step is to characterise the supply. We then work out whether the supply is provided to another entity. If the supply is provided to another entity, the final step is to determine whether that other entity is in Australia.

You supply a telephone booking and enquiry service. The services provided are set out in the statement of works to include answering questions, provide customers with information and resolve customers' concerns.

We concur that while customers in Australia receive a benefit from the information provided and bookings made etc, your service is that of operating a call centre and is made and provided to X. Your supply of call centre services to X is not provided to another entity. Subsection 38-190(3) of the GST Act does not apply to negate the GST treatment of the supply that is determined pursuant to item 2 of subsection 38-190(1) of the GST Act.

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