Edited version of private ruling

Authorisation Number: 1011573591868

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Ruling

Subject: GST and supply of sales and engineering services

Question

Is your supply of sales and engineering services to a non-resident company GST-free under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) as per your written agreement in place with the non-resident company?

Advice/Answer

Yes. Your supply of sales and engineering services to the non-resident company as per your written agreement is GST-free.

Relevant facts

You (an Australian entity) carry on your business as a sole trader in Australia and are registered for the goods and services tax (GST). You provide consulting services from your home office.

You entered into a written agreement (Agreement) with a non-resident company located outside Australia. A copy of the Agreement has been provided to the Australian Taxation Office.

The non-resident company is an equipment manufacturer that distributes their products with an Australian distributor (Company A). The non-resident company is neither registered nor required to be registered for GST in Australia. Company A imports the products into Australia. The non-resident company does not have an Australian agent or subsidiary in Australia.

Under the Agreement:

You agreed to provide sales and engineering services to clients and other persons (as directed by the non-resident company) who will be operating, using and/or maintaining equipment supplied by the non-resident company, including but not limited to the services generally described in the Agreement.

You will report to and will receive direction and instructions from the Director of Sales and Marketing of the non-resident company. The details of the work you are instructed to do include sales layout drawings, configure and design equipment and this work is done at your home office on your computer. You provide engineering information to the non-resident company to support sales quotations for the region. The purpose of this work is to help the non-resident company in selling the correct equipment to the Australian distributor, Company A.

You access and share engineering information to the distributors as part of factory product services. This includes emailing and/or mailing of product manuals and engineering data for distribution in Australasia.

You review and monitor the applications, be they in Australia or elsewhere, and submit product development opportunities to the director. This work is done mainly from your office with occasional meetings in Australasia and abroad.

You will represent the non-resident company on a non-exclusive basis in Australasian territories including Australia by attending trade shows and conferences as required and available. You manage projects and relationships on behalf on the non-resident company.

You will travel to the clients' sites where the equipment is being commissioned by the non-resident company's field services representatives. While at the site you gather information and provide engineering solutions to the engineering department (located overseas) as required.

The 'client' is defined in the Agreement to mean any customer of the non-resident company or other person to whom you have been requested to provide services pursuant to the Agreement.

You have interactions with Company A while performing your sales and engineering services for the non-resident company. Your role is to configure and design equipment for the non-resident company and to be able to do this you liaise with Company A's account managers and applications engineers in Australia. This involves email, telephone and occasional visits to Company A's distribution offices throughout Australasia.

You also have interactions with Company A's customers that use the non-resident company's equipment throughout Australasia by email, telephone and occasional visits to the customers' sites in Australasia. The reason for your interactions with Company A's customers is to confirm requirements and specifications for equipment configuration to the non-resident company.

In summary, your job under the Agreement is to design and configure the equipment for the non-resident company which has been supplied to the client (via Company A), and your contact(s) with Company A and their clients is mainly to gather information to enable you to do your job for the non-resident company.

Where the non-resident company's equipment is faulty or requires servicing, the customer contacts the distributor Company A and they service the machine. The equipment does not need to be assembled in Australia. The non-resident company's service department provides the support and/or training directly from the factory (that is, the technicians fly into Australia).

Reasons for decision

GST is payable on taxable supplies. A supply is a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) if:

· you make the supply for consideration;

· the supply is made in the course or furtherance of an enterprise that you carry on;

· the supply is connected with Australia; and

· you are registered or required to be registered for GST.

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

All the requirements in section 9-5 of the GST Act need to be satisfied for the supply to be a taxable supply.

From the information received, you satisfy paragraphs 9-5(a) to 9-5(d) of the GST Act when you supply your sales and engineering services to the non-resident company as:

· you make the supply for consideration;

· the supply is made in the course or furtherance of an enterprise (business) that you carry on;

· the supply is connected with Australia as the supply is made from a business that you carry on in Australia; and

· you are registered for GST.

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

There is no provision under the GST Act that makes your supply input taxed. The next step is to determine whether your supply is GST-free.

GST-free

Subsection 38-190(1) of the GST Act specifies the circumstances where the supply of things other than goods or real property, for consumption outside Australia is GST-free.

Since your Agreement is with a non-resident company, of particular relevance to your supply is item 2 in the table in subsection 38-190(1) of the GST Act (Item 2).

Item 2 provides that a supply that is made to a non-resident who is not in Australia when the thing supplied is done will be GST-free where:

· 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

· 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 provisions in either (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.

Not in Australia in relation to the supply

For a supply of services to be GST-free under Item 2, there is a precondition that the non-resident must not be in Australia in relation to the supply when the thing supplied is done.

Where the thing supplied is a service, when the service is done refers to the period of time during which the service is performed.

Goods and Services Tax Ruling GSTR 2004/7 (available at www.ato.gov.au ) provides guidance on when a non-resident is not in Australia when the thing supplied is done.

A non-resident company is in Australia if the company carries on its business or its activities in Australia:

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

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

Further, a non-resident company is in Australia in relation to the supply if:

· the supply is solely or partly for the purposes of the Australian presence; or

· the presence of the company is involved in the supply, unless the only involvement is minor.

From the information received, the non-resident company does not carry on any business through any other representative or a subsidiary in Australia. As such, the non-resident company is not in Australia in relation to your supply to them, when you perform your services.

The next is to determine whether paragraphs (a) and/or (b) of Item 2 are satisfied.

Paragraph (a) of Item 2

The requirement in paragraph (a) of Item 2 is met if the thing supplied is neither work physically performed on goods situated in Australia when the work is done, nor directly connected with real property situated in Australia.

From the information received, you provide consulting services in the form of sales and engineering services to the non-resident company that is not in Australia. You report and receive instructions from the Director of Sales and Marketing of the non-resident company who is located outside Australia. Your job is to design and configure equipment for the non-resident company, and any interactions with Company A and their clients are mainly to gather information to enable you to perform your job for, and report to, the non-resident company. You will also provide/share engineering information with staff/representatives of the non-resident company located outside Australia, manage projects, and represent the non-resident company (at trade shows/conferences). Further, you advised that the equipment does not need to be assembled in Australia, the customers would contact Company A for equipment repairs and services, and the non-resident company's service department provides the support and training directly.

The supply needs to be analysed to determine whether it is properly characterised as a supply of work physically performed on goods. This is examined in Goods and Services Tax Ruling GSTR 2003/7.

Paragraphs 68 and 69 of GSTR 2003/7 state:

68. …If the supply includes work physically performed on goods but that work is ancillary to some other dominant part of the supply that is not work physically performed on goods, then that supply is not characterised as a supply of work physically performed on goods. This depends on the particular facts of each supply.

69. For example, a supply of a report on the results of testing and analysing samples of goods is characterised as a supply of information or advice if the dominant part of the supply is the analysis of data to enable a professional opinion to be provided. The supply is not characterised as a supply of work physically performed on goods. The testing and analysis of samples of goods enables the information to be compiled and is ancillary to the supply of that information.

On the basis of the facts provided, we consider that the requirements in paragraph (a) of Item 2 are satisfied because the provision of your consulting services in the form of sales and engineering services are neither a supply of work physically performed on goods situated in Australia nor a supply directly connected with real property situated in Australia.

Accordingly, your supply of sales and engineering services is GST-free under paragraph (a) of Item 2 to the extent that it is not negated by subsection 38-190(3) of the GST Act.

We note that in circumstances where your supply does involve any work physically performed on goods situated in Australia (for which is a dominant part of a supply), the supply may still be GST-free under paragraph (b) of Item 2.

Paragraph (b) of Item 2

Under paragraph (b) of Item 2, a supply other than goods or real property is GST-free if the

non-resident acquires your services in carrying on their business and is neither registered nor required to be registered for GST.

The supplier must be satisfied, on reasonable grounds that the non-resident is not required to be registered for GST before they can treat their supply as GST-free under paragraph (b) of Item 2. The supplier can check the GST registration status of an entity that they deal with by checking the Australian Business Register at www.abr.gov.au .

Where the supplier is not in a position to be aware of these circumstances, enquiries should be made of the non-resident. The Commissioner accepts that the supplier has reasonable grounds to be satisfied, if the non-resident has provided written statement, declaring that they are not required to be registered. This is only accepted where the supplier has no reason to believe that the statement is not accurate.

From the facts given, you have advised that the non-resident company is neither registered, nor required to be registered for GST in Australia. You informed that the goods are imported by Company A (that is, not imported by the non-resident company), and that the equipment does not need to be assembled in Australia. Therefore, where the non-resident company acquires your services in carrying on their enterprise, and is neither registered nor required to be registered for GST in Australia, the supply of your services will also be GST-free under paragraph (b) of Item 2.

Limitation - Subsection 38-190(3) of the GST Act

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:

· it is a supply under an arrangement entered into, whether directly or indirectly with a

· non-resident; and

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

Goods and Services Tax Ruling GSTR 2005/6 (available at www.ato.gov.au) provides guidance on the application of subsection 38-190(3) of the GST Act.

Subsection 38-190(3) of the GST Act applies if there is a supply of something, being a supply that is made to a non-resident and covered by Item 2, and the same supply is provided, or is required to be provided to another entity in Australia.

A supply is provided to another entity if the contractual flow is to one entity (the non-resident recipient) while the actual flow of that supply (for example, the doing of the thing supplied) is in whole or in part, to another 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 entity) and the actual flow of the supply is to another entity.

Although a third party may be involved with the provision of the supply and be in contact with the supplier, this is not determinative of whether the supply is provided to the third party. In all cases, it is necessary to consider the exact nature and circumstances of the supply to determine if the supply is provided to the third party or if the third party's involvement with the supply is to facilitate the provision of the supply to the recipient. For example, if an employee interacts with a law firm in circumstances where the firm is providing legal advice concerning a business venture of the employer, the employee merely facilitates provision of the services to the employer.

On the basis of the facts received, we do not consider that subsection 38-190(3) of the GST Act is applicable to your supply of sales and engineering services to the non-resident company because:

Although you have contact with other third parties (Company A and their customers) you are not providing your consulting services (in the form of sales and engineering services) to them, but the services are to the non-resident company. The reason for your contact with a third party is to gather information and use this information to design and configure the ordered equipment(s) as agreed with the non-resident company. Hence, these interactions are to facilitate the provision of the services to the non-resident company.

As part of your services to the non-resident company, you will also provide/share engineering information with staff/representatives of the non-resident company located outside Australia. When you provide this information to the non-resident company's staff/representatives, it is considered that the non-resident company is in fact receiving this information for their business purposes and the information is not personal to the non-resident company's staff when the latter receives them. Hence, your supply of the information is to the non-resident company.

Further, when you manage projects, and attend/represent the non-resident company at trade shows/conferences, you are not considered to be providing your supply to another entity (such as the attendees). Based on the nature of this supply, the services are provided to the non-resident company.

Therefore, your supply of the sales and engineering services to the non-resident company is not excluded from being GST-free under subsection 38-190(3) of the GST Act.

Summary

To summarise, your supply of consulting services (that is, sales and engineering services) to the non-resident company is GST-free under Item 2.

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