Edited version of private ruling

Authorisation Number: 1011593335368

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Ruling

Subject: GST and the supply of online advertising

Subject: GST and the supply of online advertising services

Questions

Is the supply by Company A and/or Company B of online advertising to both its Australian and non-Australian customers outside the scope of Australian GST as the supply is not connected with Australia in accordance with section 9-25 of the A New Tax System (Goods and Services Tax) Act 1999 ('GST Act'), taking into consideration whether or not Company A is registered for GST in Australia?

Is the supply of marketing (including possibly minor technical support) services by Company C to Company A and/or Company B GST-free in accordance with item 2 in the table in section 38-190(1) of the GST Act?

Decisions

Yes, the supply by Company A ('Company A') and/or Company B Limited ('Company B') of online advertising to both its Australian and non-Australian customers is outside the scope of Australian GST as the supply is not connected with Australia in accordance with section 9-25 of the A New Tax System (Goods and Services Tax) Act 1999 ('GST Act'), taking into consideration whether or not Company A is registered for GST in Australia.

Yes, the supply of marketing (including possibly minor technical support) services by Company C to Company A and/or Company B is GST-free in accordance with item 2 in the table in section 38-190(1) of the GST Act.

Facts and relevant circumstances

Our ruling is based on the following facts.

The parties:

Company A ('Company A') is a company incorporated outside of Australia. Company A is not registered in Australia as a foreign company, is not an Australian resident, and is not registered for GST in Australia (although Company A may register for GST in Australia in the future).

Currently two employees of Company A have been seconded to Australia for two to three years and work at the Company C Pty Ltd ('Company C') office.

Company A's principal source of income is derived from the sale of advertising.

Company C is a private company incorporated in Australia. Company C is registered for GST in Australia.

Company B Limited ('Company B') is a company incorporated outside of Australia. Company B is not registered in Australia as a foreign company, is not an Australian resident, and is not registered for GST in Australia (although Company B may register for GST in Australia in the future). Company B does not have an office or branch in Australia. Company B is not currently involved in the arrangements described below but that Company B may step into the shoes of Company A in relation to those arrangements. Company B may step into Company A's shoes in relation to advertising sales.

Sales of advertising

Currently Company A sells advertising on a specific website ('the website') to its Australian customers in three ways - direct sales, inside sales, and on-line sales.

Direct sales of advertising on the website

The ruling request did not contain or refer to any contract relevant to direct sales of advertising on the website, we asked you to provide any documents relevant to direct sales.

You provided a sample Insertion Order ('IO') which is signed and dated by Company A and the customer.

Among other details in the IO, the servers referred to in the ruling request are currently located in a country outside of Australia but could be moved to another country outside of Australia.

Online sales of advertising on the website

As the ruling request did not contain or refer to any contract relevant to online sales of advertising on the website, we requested any documents relevant to on-line sales.

You advised that the terms and conditions for online sales of advertising on the website were somewhat different - each advertiser must have an account which is governed by a Terms of Use, which contains the terms and conditions for on-line sales of advertising on the website.

We asked you to provide the relevant portions of the Terms of Use. In response to our request you provided a copy a Statement of Rights and Responsibilities ('SRR').

Inside sales of advertising on the website

The inside sales of advertising on the website followed the terms and conditions for direct sales where Company A was assisting the advertiser with the advertising program and managing it through one of Company A's internal direct sales account managers. If the advertiser was managing the advertising program, however, the advertiser would use an on-line self-serve tool and the terms and conditions applicable to on-line sales of advertising on the website would apply.

Supply of services by Company C:

In the ruling request it was stated that Company C is not authorised to conclude contracts on behalf of Company A but that Company C supplies sales and marketing services to Company A for a price equal to an arm's length cost plus a mark-up.

A copy of an undated Service Agreement between Company A and Company C was provided, which appeared to have been executed outside of Australia by the same person as the duly authorised representative of both Company A and of Company C and which had a 'Commencement Date' which was prior to the ruling request.

Whereas:

[Company A] carries on the business of a provider of an internet website used by customers in Australia and other markets and requires certain support services to do so.

[Company C] has available to it expertise and experience in a range of customer support, user support, media operations, sales, marketing, operational, and other support services and is prepared to make such services available to [Company A]

[Company C] has agreed to provide the Services (as such term is defined below) and the company has agreed to accept the Services on the terms and conditions set out in this Agreement.

Pursuant to clause 1.9 of Section 3 of the Services Agreement ('the Services'), Company C agrees to supply the 'Services' in consideration of payment of the 'Fees' by Company A. 'Services' are set out in Part 1 of the Second Schedule as follows:

The services shall comprise the provision of all required and support services required by [Company A] to support its commercial activities and this will include but shall not be limited to the following types of services:

Customer support, user support, media operations, sales, marketing, operational, and other support services.

Part III of the Second Schedule to the Services Agreement provides that the initial Fees to be charged shall be the costs incurred by Company C plus an arm's length mark-up, but adjusted for costs incurred by Company A on behalf of Company C.

Contrary to the statement in the ruling request, Company C is not authorised to conclude contracts on behalf of either Company A or Company B and no such restriction appears in the Service Agreement.

Additional information received:

Company C is not an agent of and will not become an agent of Company A or Company B. The issue of agency is absent from the contract as Company C is not an agent of Company A. or Company B and will never have ostensible authority to be such, therefore, this is not an issue that needed to be considered in the relevant contracts between the parties.

The current Sales and Marketing Services Agreement (Agreement) which provides;

The Agreement is between Company B and Company C.

Company B is engaged in the development, expansion and maintenance of the user, advertiser, and developer communities in the Territory.

Company B obtains Company C' services, assistance and advice in connection therewith in the Territory (defined as Australia or as agreed) as an independent contractor.

Company C is willing to use its personnel, expertise and facilities to provide such services on a non-exclusive basis in exchange for compensation.

Contacted Services mean services, consulting, advice and assistance required by Company B in connection with marketing and sales support activities for Company B development, expansion, and maintenance of the user, advertiser and developer communities in the Territory, including marketing and demonstrating the Company B website, advertising system , developer platform, community features and procedures, providing market and strategic analysis, and providing consulting services to advertisers with invoicing addresses in the Territory on strategies to optimize such advertiser's adverting campaigns in the Territory.

Company C agrees that in providing sales support assistance, it does not have authority to obligate or contract on behalf of Company B, as an agent or represent that it is authorized to act as an agent of behalf of Company B, create or assume any obligation on behalf of Company B, negotiate contracts or licenses on behalf of Company B, or accept orders on behalf of Company B.

Each party is acting as principal, and not as agent. The parties at all times remain independent contractors.

Company B shall supply to Company C with marketing and similar materials to reasonably assist Company C in the performance of its obligations.

Company B assumes all responsibility for invoicing and collecting payment and fees from advertisers with invoicing addresses in the Territory, and assumes all liability for uncollected fees and debts and related collection costs.

In consideration for the performance of the Contacted Services, Company B shall pay Company C an amount equal to Company C expenses, plus a mark-up.

Company C provides marketing and sales support services to Company A and Company B in respect of which Company C derives service fee income.

Company A has seconded two employees to Company C. The employees during their period of secondment have assumed the role of Account Executive and Head of Sales of Company C, respectively. These seconded employees are conducting typical marketing and sales support activities targeted towards large advertisers in Australia on behalf of Company C.

The activities of each secondee in their respective role for Company C are as follows:

Account executive -

The responsibilities of the secondee appointed are focused on prospecting and developing relationships with existing and target customers and advertising agencies and then ensuring that these clients receive the highest level of customer service.

Serve as a trusted consultant to these customers and agencies, including working with them to analyse and campaign performance statistics and make recommendations about optimized media solutions.

Provide industry expertise about social media and digital advertising, including marketing trends, case studies, and network solutions.

Head of Sales -

Have largely the same responsibilities as an Account Executive but the activities are targeted toward larger and more strategic clients. In addition to those responsibilities, the Head of Sales will define and drive Company C' overall market strategies in Australia and execute those strategies.

Generally acts as the country market spokesperson for Company C in Australia.

Responsible for setting the overall culture and tone for the Company C office.

Neither of the employees either expressly or impliedly have the authority to act on behalf of Company A or Company B during the period of their secondment to Company C. The seconded employees are employees of Company C during the period of their secondment to Company C. It was also noted that neither the seconded employees, nor indeed Company C, have the authority to conclude contracts on behalf of, or bind Company A or Company B. in any way.

The business location of the two employees based in Australia is in Company C's office.

Reasons for decision

Question 1

Under subsection 9-25(5) of the GST Act, it states:

A supply of anything other than goods or real property is connected with Australia if:

the thing is done in Australia (paragraph 9-25(5)(a));

the supplier makes the supply through an enterprise that the supplier carries on in Australia (paragraph 9-25(5)(b)); or

all of the following apply:

(i)neither paragraph 9-25(5)(a) nor (b) applies in respect of the thing;

(ii)the thing is a right or option to acquire another thing; and

(iii)the supply of the other thing would be connected with Australia (paragraph 9- 25(5)(c)).

You only need to satisfy one of the paragraphs in subsection 9-25(5) of the GST Act for the supply to be connected with Australia.

Goods and Services Tax Ruling GSTR 2000/31 discusses when a supply is connected with Australia.

From the facts provided, Company A sells advertising on the website in three ways: direct sales, inside sales and online sales. These methods of sales will be addressed separately as follow:

Direct sales

Connected with Australia - thing done in Australia:

Paragraph 9-25(5)(a) of the GST Act provides that a supply of anything other than goods or real property is connected with Australia if the thing is done in Australia.

Thing is defined in section 195-1 of the GST Act to mean anything that can be supplied or imported. Things other than goods or real property that can be supplied include services, advice, information, rights, obligations to do anything, or any combination of these things. Under paragraph 9-25(5) of the GST Act the connection with Australia requires that the 'thing' being supplied is 'done' in Australia.

The meaning of 'done' depends on the nature of the 'thing' being supplied. Goods and Services Tax Ruling GSTR 2000/31 state at paragraph 183:

If the supply is the supply of services, services are commonly performed. 'Done' in this context means performed and a service is connected with Australia, if it is performed in Australia…

The supply of the direct sales of the online advertising services is done where the services are performed. From the facts provided, the direct sales of the online advertising services on the website are provided on the servers operated and located outside Australia. Therefore, we consider that the direct sales of the online advertising services is not done in Australia, and paragraph 9-25(5)(a) of the GST Act is not satisfied.

Connected with Australia - supply made through an enterprise that the supplier carries on in Australia

A supply of a thing other than goods or real property, is connected with Australia under paragraph 9-25(5)(b) of the GST Act if the supplier:

carries on an enterprise through a permanent establishment in Australia; and

(ii) the supply is made through that permanent establishment.

For a supply to be connected with Australia under paragraph 9-25(5)(b) of the GST Act, a connection must be established between the Australian permanent establishment (PE) and the supply.

Specifically, under subsection 9-25(6) of the GST Act, the supplier carries on an enterprise in Australia if the enterprise is carried on through:

a permanent establishment (as defined in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936); or

a place that would be such a permanent establishment if paragraph (e), (f) or (g) of that definition did not apply.

Goods and Services Tax Ruling GSTR 2000/31 states at paragraphs 87 and 88:

The definition of permanent establishment for the purposes of subsection 9-25(6) is wider than the definition of permanent establishment found in subsection 6(1) of the Income Tax Assessment Act 1936. This is because the exclusions from a permanent establishment in subsection 6(1) of the Income Tax Assessment Act 1936 - paragraphs (e), (f) and (g) are not similarly excluded from the definition of permanent establishment for the purposes of subsection 9-25(6).

Thus, permanent establishment for the purposes of subsection 9-25(6) means a place at or through which a person carries on any business and, without limiting the generality of the foregoing, includes:

a place where the person is carrying on business through an agent;

a place where the person has, is using or is installing substantial equipment or substantial machinery;

a place where the person is engaged in a construction project; and

where the person is engaged in selling goods manufactured, assembled, processed, packed or distributed by another person for, or at or to the order of, the first-mentioned person and either of those persons participates in the management, control or capital of the other person or another person participates in the management, control of both of those persons - the place where the goods are manufactured, assembled, processed, packed or distributed.

From the facts provided, paragraphs (b), (c) and (d) listed above (in paragraphs 87 and 88 of GSTR 2000/31) are not applicable, as Company A does not have substantial equipment/machinery in Australia (that is, the server is located outside of Australia), the supply of the online advertising services is not in relation to a construction project, and is not a supply of goods.

Place at or through which a person carries on any business

Subsection 6(1) of the ITAA 1936 defines permanent establishment as:

Permanent establishment, in relation to a person.., means a place at or through which the person carries on any business…

The general definition of PE in subsection 6(1) of the ITAA 1936 is that it is a place at or through which the person carries on business.

Taxation Ruling TR 2002/5 states at paragraph 9 that these words are:

…a reference to a place used for carrying on that person's business activities. That place must have an element of permanence, both geographic and temporal. Permanence must be construed in the context of each particular business and is a question of fact and degree. Permanent in this context does not mean forever.

Further Goods and Services Tax Ruling GSTR 2000/31 states at paragraph 85:

…in establishing whether a supply is made through a permanent establishment it may be possible to draw some guidance from existing case law and commentaries such as the commentaries on the 'OECD Model Tax Convention on Income and on Capital'.

Goods and Services Tax Ruling GSTR 2004/7 states at paragraph 253:

Place of its own

A non-resident company clearly has a place of business of its own if it leases or owns a place at which it conducts business through it servants or agents. However, a place of its own is not limited to such a place. A non-resident company occupies a place as a place of its own if it has a right to be there. Evidence of that right is generally to be found in the fact that the company's employees or agents occupy that place for the purposes of its business.

The OECD Commentary on Article 5 (Permanent Establishment) of the OECD Model Tax Convention on Income and on Capital (OECD Commentary) specifically addresses the issue of a PE. The OECD Commentary indicates that:

4.1 '…the mere fact that an enterprise has a certain amount of space at its disposal which is used for business activities is sufficient to constitute a place of business…'

Paragraph 4.3 of the OECD Commentary provided the following example:

4.3 '…example of is that of an employee of a company who, for a long period of time, is allowed to use an office in the head quarters of another company (e.g. a newly acquired subsidiary) in order to ensure that the latter company complies with its obligations under contracts concluded with the former company. In that case, the employee is carrying on activities related to the business of the former company and the office that is at his disposal at the headquarters of the other company will constitute a permanent establishment of his employer, provided that the office is at his disposal for a sufficiently long period of time so as to constitute a 'fixed place of business'…

The seconded employees during their period of secondment have assumed the role of Account Executive and Head of Sales of Company C, respectively. These seconded employees are conducting typical marketing and sales support activities targeted towards large advertisers in Australia on behalf of Company C.

The activities of each secondee in their respective role for Company C are as follows:

Account executive -

The responsibilities of the secondee appointed are focused on prospecting and developing relationships with existing and target customers and advertising agencies and then ensuring that these clients receive the highest level of customer service.

Serve as a trusted consultant to these customers and agencies, including working with them to analyse and campaign performance statistics and make recommendations about optimized media solutions.

Provide industry expertise about social media and digital advertising, including marketing trends, case studies, and network solutions.

Head of Sales -

Have largely the same responsibilities as an Account Executive but the activities are targeted toward larger and more strategic clients. In addition to those responsibilities, the Head of Sales will define and drive Company C' overall market strategies in Australia and execute those strategies.

Generally acts as the country market spokesperson for Company C in Australia.

Responsible for setting the overall culture and tone for the Company C office.

Neither of the employees either expressly or impliedly have the authority to act on behalf of Company A or Company B during the period of their secondment to Company C. The seconded employees are employees of Company C during the period of their secondment to Company C. It was also noted that neither the seconded employees, nor indeed Company C, have the authority to conclude contracts on behalf of, or bind Company A or Company B. in any way.

The business location of the two employees based in Australia is in Company C's office.

On the facts provided the two Company A employees are currently employed by Company C. While working at Company C' premises they use part of Company C' premises as would any other employee of Company C. They do not do so in the context of being employees of Company A. While seconded to and employed by Company C they do not act for Company A for a sufficiently substantial period of time in relation to activities related to Company A's business, thereby causing Company A to have a 'place of business' (and therefore permanent establishment) in Australia. We therefore consider the presence of two of Company A's employees at Company C' premises not to cause Company A to have a place in Australia at or through which Company A carries on business. From the facts given, we do not consider that the presence of employees seconded from Company A. to Company C constitutes a permanent establishment of Company A or Company B in Australia.

A place where the person is carrying on business through an agent:

Paragraph (b) of the 'permanent establishment' definition states that 'permanent establishment' includes:

A place where the person is carrying on business through an agent.

For GST purposes the exclusions in paragraph (e) of the 'permanent establishment' definition (i.e. for a place where the person is engaged in business dealings through a broker) and paragraph (f) of the 'permanent establishment' definition (i.e. where a person carries on business through an agent who neither has nor exercises authority to negotiate or conclude contracts on behalf of then person) do not apply.

The discussion in the 2000 OECD Commentary about Paragraph 5 of Article 5 of the OECD Model Convention (which deems a person, other than an agent of independent status, who acts on behalf of an enterprise and has and habitually exercises authority to conclude contracts in the name of an enterprise to be a permanent establishment of that enterprise) states (Paras 31 and 32) that the activities of a dependent agent may create a permanent establishment for the principal:

It is a generally accepted principle that an enterprise should be treated as having a permanent establishment in a State if there is under certain conditions a person acting for it, even though the enterprise may not have a fixed place of business within that state within the meaning of paragraphs 1 and 2….

Persons whose activities may create a permanent establishment for the enterprise are so-called dependent agents, i.e. persons, whether employees or not, who are not independent agents falling under paragraph 6. Such persons may be either individuals or companies.

In the ruling request it was stated that Company C was not Company A's agent because Company C was not described as an 'agent' to the customers, Company C was not remunerated by commission but by a service fee on a cost plus mark-up basis, and because:

Company C merely has an agreement with Company A and/or Company B to promote Company A and/or Company B's on-line advertising services in Australia and potentially provide minor technical support services. Company C does not have any authority to sell the on-line advertising services or enter into contracts with customers on behalf of Company A and/or Company B. Company C does not make any supplies of advertising services to customers, but does provide marketing (and possibly minor technical support) services to Company A and/or Company B.

The matters referred to by the advisor are set out in Goods and Services Tax Ruling GSTR 2000/37 (Para 28) as indicators of an agency relationship. We note that the Service Agreement between Company A and Company C states (in the 'Commencement Date' definition):

…services have been provided by the Company [sic] under an arrangement substantially similar to that set forth in this Agreement and this Agreement memorializes that arrangement.

and that Section 23 of the Service Agreement provides:

This Agreement embodies the entire contractual understanding between the parties and supersedes all previous statements, representations and agreements between the parties relating to the subject matter of this Agreement.

Recital B to the Service Agreement provides:

The Service Provider [i.e. Company C] has available to it expertise and experience in a range of customer support, user support, media operations, sales, marketing, operational, and other support services and is prepared to make such services available to the Company.

Section 3 of the Service Agreement provides (clause 1.9):

The Service Provider agrees to supply the Services in accordance with the Agreement, in consideration of the payment by the Company of the Fees and upon the terms and conditions of this Agreement.

and the 'services' are set out in Part 1 of the Second Schedule as follows:

The services shall comprise the provision of all required and support services required by [Company A] to support its commercial activities and this will include but shall not be limited to the following types of services:

Customer support, user support, media operations, sales, marketing, operational, and other support services.

Goods and Services Tax Ruling GSTR 2004/7states (Para 283) that if an agent has the power to make contracts on behalf of a non-resident company then that is a factor of great importance in establishing that the non-resident company carries on business through that agent. Goods and Services Tax Ruling GSTR 2004/7 also approves (Para 310) The World Harmony [1965] 2 All ER 139 which held that even where an agent did not have authority to conclude contracts the non-resident principal carried on business through that agent because of the agent's involvement in day to day management of the principal's business.

While the Service Agreement does not limit Company C' role to promoting Company A's on-line advertising services and providing 'minor technical support', the Sales and Marketing Agreement provided by you on 14 April 2010 does not provide that Company C has the authority to sell on-line advertising services or enter into contracts on Company B's behalf. You have advised that the substance of the arrangement between Company C and Company A accords with the agreement between Company C and Company B.

While in our view the Service Agreement does not support the submission that Company C does not have authority to sell on-line advertising services or enter into contracts on Company A's behalf and the recitals to the Service Agreement state that Company C is prepared to make sales services available to Company A. and section 3 states that Company C agrees to supply all services required by Company A, including 'sales', you have advised that Company C does not sell on-line advertising or enter into contracts on Company A's behalf.

You advised by email dated 26 November 2009 that Company C is not an agent of and will not become an agent of Company A./Company B. You also advised that the issue of agency is absent from the contract as Company C is not an agent of Company A. or Company B and will never have ostensible authority to be such, therefore, this is not an issue that needed to be considered in the relevant contracts between the parties.

In your letter to this Office of 30 July 2010 you also said '…neither the seconded employees, or indeed Company C, have the authority to conclude contracts on behalf of, or bind Company A, or Company B in any way.

We therefore consider that Company C does not have the authority as agent for Company A or Company B. Accordingly, Company A. nor Company B. are carrying on a place of business in Australia and therefore do not have permanent establishments in Australia.

On-line sales

As SRR indicates that, in relation to online sales of advertising on the website, Company B (not Company A) makes the supply to customers located in Australia (and the rest of the world, apart from one particular country) and that Company A makes on-line sales of advertising on the website to customers located in one particular country). We note that the advisor also stated in the ruling request (Para 1.3.2):

Company B operates as a hub, where certain contracts are entered into and executed by Company B.

Clause 17(2) of the SRR, which provides:

By 'us', 'we', and 'our' we mean Company A, or if you are outside a particular country, Company B Limited.

indicates that on-line sales of advertising are made to customers a particular country (including customers in Australia) by Company B.

Based on the SRR, the on-line supply of on-line advertising made by Company B is the supply of a service, i.e. delivery of client advertising on the websites, including a 'www' address or other properties operated by or on behalf of Company A or its affiliates. Clause 10 of the SRR provides:

About advertisements on the website:

Our [i.e. Company B's] goal is to deliver ads that are not only valuable to advertisers, but also valuable to you. In order to do that you agree to the following…

Thing done in Australia:

In our view that service of delivering the advertisements is performed on the websites included in the definition of 'the website' in clause 17 of the SRR. In the ruling request the advisor advised (Para 2.3.1):

The computer infrastructure, servers and associated contracting activities that enable and produce the website are located and operated outside of Australia. As the servers and associated contracting activities are located outside of Australia, the on-line advertising services performed by Company A are physically performed outside Australia.

Subsequently the advisor advised that the relevant servers were located outside of Australia. On that basis we consider that the service of delivering the advertising is not connected with Australia pursuant to paragraph 9-25(5)(a) of the GST Act as being a thing done in Australia.

Supply made through an enterprise that the supplier carries on in Australia.

Paragraph 9-25(5)(b) of the GST Act provides that a supply of anything other than goods or property is connected with Australia if the supplier makes the supply through an enterprise that the supplier carries on in Australia.

'Enterprise' is defined in section 9-20(1) of the GST Act and includes an activity or series of activities in the form of a business. Company B is carrying on a business. In relation to the requirement in section 9-25(5)(b) of the GST Act that the supply is made through an enterprise that the supplier carries on in Australia, section 9-25(6) of the GST Act provides that an enterprise is carried on in Australia if the enterprise is carried on through:

a permanent establishment (as defined in subsection 6(1) of the Income Tax Assessment Act 1936); or

a place that would be such a permanent establishment if paragraph (e), (f), or (g) of that definition did not apply,

We have now ruled that direct sales of advertising by Company A are not connected with Australia. In the ruling of 16 October 2009 we did not know whether there was a similar Service Agreement in place between Company C and Company B in relation to on-line sales of on-line advertising by Company B, although the advisor did not indicate that such a Service Agreement existed. In the ruling request the advisor simply stated (Para 1.4.5) that Company C will perform 'sales and marketing activities' for Company B without referring to any agreements or providing any details, and submitted (p.11) that Company B was not carrying on an enterprise through an agent (being Company C) in Australia because:

Company C merely has an agreement with Company A and/or Company B to promote Company A and/or Company B's on-line advertising services in Australia and potentially provide minor technical support services. Company C does not have any authority to sell the on-line advertising services or enter into contracts with customers on behalf of Company A and/or Company B.

On 14 April 2010, you provided the current Sales and Marketing Services Agreement (Agreement) which provides;

The Agreement is effective from 1 January 2010.

The Agreement is between Company B and Company C.

Company B is engaged in the development, expansion and maintenance of the user, advertiser, and developer communities in the Territory with effect from January 19, 2009.

Company B obtains Company C' services, assistance and advice in connection therewith in the Territory (defined as Australia or as agreed) as an independent contractor.

Company C is willing to use its personnel, expertise and facilities to provide such services on a non-exclusive basis in exchange for compensation.

Contacted Services mean services, consulting, advice and assistance required by Company B in connection with marketing and sales support activities for Company B development, expansion, and maintenance of the user, advertiser and developer communities in the Territory, including marketing and demonstrating the website, advertising system , developer platform, community features and procedures, providing market and strategic analysis, and providing consulting services to advertisers with invoicing addresses in the Territory on strategies to optimize such advertiser's adverting campaigns in the Territory.

Company C agrees that in providing sales support assistance, it does not have authority to obligate or contract on behalf of Company B, as an agent or represent that it is authorized to act as an agent of behalf of Company B, create or assume any obligation on behalf of Company B, negotiate contracts or licenses on behalf of Company B, or accept orders on behalf of Company B.

Each party is acting as principal, and not as agent. The parties at all times remain independent contractors.

Company B shall supply to Company C with marketing and similar materials to reasonably assist Company C in the performance of its obligations.

Company B assumes all responsibility for invoicing and collecting payment and fees from advertisers with invoicing addresses in the Territory, and assumes all liability for uncollected fees and debts and related collection costs.

In consideration for the performance of the Contacted Services, Company B shall pay Company C an amount equal to Company C expenses, plus a mark-up.

We have now ruled that neither Company A. and Company B. have a permanent establishment in Australia.

The supply of on-line sales of on-line advertising services will therefore not be connected with Australia

Inside Sales

Inside sales of advertising on the website:

In the e-mail dated 7 July 2009 the advisor advised that inside sales of advertising on the website followed the terms and conditions for direct sales where Company A was assisting the advertiser with the advertising program and managing it through one of Company A's internal direct sales account managers. If the advertiser was managing the advertising program, however, the advertiser would use on on-line self-serve tool and the terms and conditions applicable to on-line sales of advertising on the website would apply.

From the foregoing we have now ruled that on-line advertising by Company A. and/or Company B. are supplies not connected with Australia. In the same way inside sales of advertising on the website by Company A. is also considered to be not connected with Australia.

Question 2

Marketing and technical support services supplied to Company A. and/or Company B.

GST is payable on a taxable supply. From the information received, the supply of marketing and technical support services supplied by Company C to Company A and/or Company B (non-residents) satisfies paragraphs 9-5(a) to 9-5(d) of the GST Act as follow:

Company C makes a supply of services in return for consideration by way of payments;

the supply is made in the course of its business;

Company C supplies these services through an enterprise that it carries on in Australia (and therefore the supply is connected with Australia); and

Company C is registered for GST.

However, section 9-5 of the GST Act also provides that a supply is not a taxable supply to the extent that it is GST-free or input taxed.

The supply of the marketing/technical support services to the non-residents (Company C/Company B) does not satisfy the input taxed provisions under the GST Act. The GST-free provisions of the GST Act are taken into consideration.

Section 38-190 of the GST Act specifies when supplies of things, other than goods or real property, for consumption outside Australia are GST-free. Of relevance to this circumstance is item 2 in the table in subsection 38-190(1) of the GST Act (Item 2).

Item 2 states:

Accordingly, where the provisions of 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.

However, in relation to this circumstances, the scope of Item 2 may be limited by subsection 38-190(2A) and subsection 38-190(3) of the GST Act. It is noted that the limitation by subsection 38-190(2) of the GST Act is not applicable as Company C is not supplying a right or option.

Non-resident not in Australia in relation to the supply

For the supply of marketing and technical support services to be GST-free under Item 2, there is a precondition that the non-resident must not be in Australia in relation to your supply when it is provided.

Under paragraph 37 of GSTR 2004/7, a non-resident company is in Australia if that company carries on business (or in the case of company that does not carry on business, carries on its activities) in Australia through:

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

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

In addition, if a non-resident company is determined to be in Australia on the basis of the above test, it is necessary to determine if the company is in Australia in relation to the supply, when the supply is done (that is, provided/performed).

Further, as provided in paragraph 375 of GSTR 2004/7, it states that for supplies of agency services made by the agent to the non-resident company, the company is not in Australia in relation to the supply of those agency services. This is because the agent does not make the company in Australia in relation to supplies that it makes itself to the company. If the other requirements of item 2 are met, the supply of services and other things made by the agent in the course of its own business (agency services) to the non-resident company is a GST-free supply.

From the facts provided the supply of marketing/support services to Company A and/or Company B is to non-resident companies. As has already been established, on the facts provided, the non-resident companies do not have a permanent establishment in Australia or representatives acting on their behalf in Australia in relation to these services. Nor have any facts been presented to indicate that the recipient of the supplies are in Australia when the services are performed. Company C deals directly with the non-resident companies without engaging any representatives in Australia. Therefore, it is considered that these non-resident entities are 'not in Australia' for the purposes of Item 2.

Paragraphs (a) and (b) of Item 2

Where a non-resident entity is not in Australia in relation to the supply when the thing supplied is done, it is necessary to determine if the other requirements in either paragraph (a) or (b) of Item 2 are satisfied.

Paragraphs (a) of Item 2

Under paragraph (a) of Item 2, a supply of a thing that is made to a non-resident who is not in Australia when the thing supplied is done, is GST-free if the supply is neither a supply of work physically performed on goods situated in Australia nor directly connected with real property situated in Australia when the work is done.

The supplies of marketing and advertising services are neither a supply of work physically performed on goods nor directly connected with real property in Australia.

Therefore, the supply of the marketing/technical support services to the non-resident companies (Company A/Company B) satisfies paragraph (a) of Item 2.

Paragraph (b) of Item 2

Under paragraph (b) of the Item 2, a supply is GST-free if the non-resident acquires the services in carrying its business, and is neither registered nor required to be registered for GST.

On the facts presented Company A and Company B are not registered for GST. No facts have been presented to indicate that Company A. or Company B. Are required to be registered for GST

Hence, where the non-resident companies (Company A/Company B) acquire your services in carrying on its enterprise, and are 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.

Limitations

Having met the requirements of Item 2, it is necessary to consider subsection 38-190(2A) and subsection 38-190(3) of the GST Act.

Subsection 38- 190 (2A) of the GST Act

Subsection 38-190(2A) provides that a supply covered by Item 2 is not GST-free if the acquisition of the supply relates (whether directly or indirectly, or wholly or partly) to the making of a supply of real property situated in Australia that would be input taxed under subdivision 40-B or 40-C of the GST Act.

No facts have been presented to indicate that Company C is or would be marketing/promoting/advertising services of a customer's real property, which may be input taxed.

Subsection 38-190(3) of the GST Act

Subsection 38-190(3) of the GST Act states:

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

it is a supply under an agreement 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.

From the facts given, the supply of Company C' marketing/technical support services to the non-resident companies (Company A/Company B) is not provided, and Company C do not have any agreements with the non-resident companies to provide the services, to any other entity in Australia. Therefore, subsection 38-190(3) of the GST Act does not exclude the supply of these services to Company A/Company B from being a GST-free supply under Item 2.

However, if at any time the non-resident companies request Company C to provide its services to another entity in Australia, the supply will no longer be GST-free under Item 2.

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