Edited version of private ruling

Authorisation Number: 1011624613586

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Ruling

Subject: GST and acquisition of goods from Australian entities

Question

Are the supplies of goods to an overseas company from Australian sub-contractors taxable supplies for the purposes of paragraph 11-5(b) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) where the goods are acquired under purchase orders raised by the overseas company via their agent an Australian company?

Answer

For the purposes of paragraph 11-5(b) of the GST Act and based on the information received, the supplies of goods to the overseas company from Australian sub-contractors are not taxable supplies to the extent where:

· all the requirements in item 1 or 2 in the table in subsection 38-185(1) of the GST Act are satisfied and the suppliers hold documentary evidence that the goods were exported; or

· all the requirements in subsection 38-185(3) of the GST Act are satisfied, the goods are exported within the 60 day period (or further period as the Commissioner allows) and the suppliers hold documentary evidence that the goods were exported.

Relevant facts:

You are a company incorporated overseas and you carry on your business activities outside Australia. You do not have a fixed place of business in Australia and do not conduct any business activities, whether directly or indirectly through an agent authorised to do so, in Australia. You have advised that you are not registered or required to be registered for the Australian goods and services tax (GST) and do not have a permanent establishment in Australia for income tax purposes.

You with some other entities have started an overseas project and your responsibility in this project is to construct facilities necessary to enable the overseas project to occur. To commit to your responsibility under the project, you have entered into an EPCM contract with an Australian company.

EPCM Contract

Under an EPCM contract, usually the EPCM contractor is responsible for:

· design (this includes producing the front-end engineering/FEED and developing the detailed design);

· the procurement of necessary materials and equipment; and

· management and administration of the construction contracts.

The EPCM contract is between you and the Australian company where the Australian company will provide professional services (engineering, procurement services and construction management services) for the Work as described in the contract. The Australian company is not contracted to undertake the construction work but to provide services to ensure that the construction work is undertaken in accordance with the agreed scope.

The Australian company's scope of work for procurement includes all purchasing, subcontracting and materials management activities and system requirement for Work. The procurement activities include activities associated with sourcing, tendering, awarding, quality assurance, material handling, material issue and so on for the Work outlined in the contract. These activities involve utilising a transport and logistics supervised contractor. The Australian company will act as the project manager for all procurement activities. All transport and logistics activities shall be carried out by your nominated freight forwarder, to your account but under the Australian company's instructions.

The Australian company shall work with your nominated freight forwarding contractor to perform all necessary work for the import, export and customs clearance of all materials, equipment, completed assemblies, construction equipment and tools and temporary facilities.

You shall review all purchase orders and subcontracts raised by the Australian company on your behalf and approve each under your delegation of authority (DOA), which is an internal process in your company for delegating authority within the organization to make financial commitments and/or expenditures. DOA is retained by you and is not extended to the Australian company.

You have provided to the Australian Taxation Office (ATO) a copy of a purchase order raised by you via the Australian company, a copy of the goods and services purchase order general terms and conditions, a copy of the pick up and export standard operating process - sea freight and the following additional information:

Some mechanical equipments are bulky items (packages) of equipment in their own right and will be exported as individual (bulk break) packages.

The smaller instruments and electrical components will not be exported piece by piece but rather will be aggregated together for export to the project area.

The preferred transport method is by sea freight (vessels) departing from Australia, which is also the location of your nominated freight forwarding contractor and customs broker. However, some goods might depart from other ports depending on factors including availability of suitable vessels or project logistics requirements. All orders to date for supplies of goods in Australia are on FCA terms with the goods to be delivered to the freight forwarder.

Your strong preference is that all goods are supplied 'FCA' although other terms cannot be ruled out entirely.

In relation to the requirements of subsection 38-185(3) of the GST Act, you submit:

· The goods are supplied to you and you are neither registered nor required to be registered for GST. The supply is made to you and not to the Australian company, freight forwarder or the land transport operator. The Australian company is procuring the goods as agent for and on behalf of you.

· You contract at your own expense with the sea carrier for the goods to be delivered overseas; or are responsible for delivery of the goods to the sea carrier engaged by the freight forwarder to deliver the goods overseas.

· The goods will be entered for export as the services to be provided by the freight forwarder include declaring the goods to Customs and obtain Exports Clearance for Shipment.

· The goods will not be altered or used in any way since their supply to you. The goods will be prepared for export by the vendors and not by you or the freight forwarder. The freight forwarder may undertake some aggregation of smaller items where appropriate, but that should not alter the goods in any way.

· The freight forwarder shall provide documentary evidence of export to the suppliers.

· You will keep the goods in the shortest time as possible in Australia, subject to availability of suitable vessels or other unforseen factors. In any event, you advised that the estimated time between deliveries to the freight forwarder on your behalf is fewer than 60 days.

· Payments of the goods will be either by single (lump sum) payment or by instalment arrangements depending on the terms offered by vendors and accepted by you.

· The suppliers of the goods (vendors) are registered or required to be registered for GST.

· The goods being specialised equipment will not be acquired for the purpose of an Australian presence and will be exclusively consumed overseas in relation to the Project.

Reasons for decision

Under section 11-20 of the GST Act, you are entitled to claim GST paid on any creditable acquisitions that you made.

Section 11-5 of the GST Act provides when a creditable acquisition is made. One of the requirements for a creditable acquisition is the supply of the thing to you (the recipient) is a taxable supply (paragraph 11-5(b) of the GST Act).

Under section 9-5 of the GST Act you make a taxable supply 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 to the extent that it is GST-free or input taxed.

For a supply to be a taxable supply all the requirements listed in section 9-5 of the GST Act must be satisfied.

From the information received, the suppliers of the goods would satisfy paragraphs 9-5(a) to 9-5(d) of the GST Act as:

· the suppliers make the supplies of goods to you for consideration;

· the supplies are made in the course of an enterprises that they carry on in Australia;

· the supplies of the goods are connected with Australia as the goods are made available to you in Australia before they are removed from Australia.

· the suppliers are registered or required to be registered for GST.

However, the supplies of the goods are not taxable supplies to the extent that they are GST-free or input taxed.

There is no provision under the GST Act that will make these supplies input taxed. The next step is to determine whether the supply of the goods will be GST-free.

GST-free

Section 38-185 of the GST Act covers the GST treatment of supplies of goods for export. The table in subsection 38-185(1) of the GST Act lists the supplies of goods that are GST-free.

A supply of goods, where those goods are exported from Australia, is GST-free if the requirements of one of the items in the table in subsection 38-185(1) of the GST Act are met.

Relevant to the supply of goods made by the suppliers and for which they receive consideration is items 1 and 2 in the table in subsection 38-185(1) of the GST Act (Items 1 and 2).

Items 1 and 2 appear as follows:

(* represents a defined term in section 195-1 of the GST Act)

Goods and Services Tax ruling GSTR 2002/6 provides guidance on exports of goods.

Item 1 applies to exports of goods generally. Item 2 applies where the consideration for the supply is provided in two or more instalments under a contract where it is an express or implied term that the goods are to be exported.

Under Items 1 and 2, a supply of goods is GST-free where the supplier exports them from Australia and exports occur before or within a 60 day period (or such further period as the Commissioner allows). Both items require, not only that there is an export of goods but that the supplier is the entity that exports them.

Supplier is the entity that exports

The requirement that the supplier is the entity that exports the goods is satisfied where either:

· the supplier contracts at their own expense with an international carrier for the transportation of the goods to a destination outside Australia; or

· the supplier is responsible for delivering the goods to the operator of a ship or aircraft that has been engaged by another party to transport those goods to a destination outside Australia; or

· the requirements of subsection 38-185(3) of the GST Act are met.

Where a supplier hands over physical possession of goods to an intermediate entity who is not buying the goods (such as a freight forwarder, consolidator, transport provider) the supplier has not made a supply of goods to that entity. When a supplier makes such a delivery, we consider that the supplier has supplied the goods to the recipient, rather than to the third party. The goods are only being delivered to the third party and not supplied.

However, a supplier does not export goods where the supplier's responsibility only extends to delivering the goods in Australia to a person who is not the operator of a ship or aircraft engaged to carry them out of Australia. A supplier does not export under a contract of sale with FCA terms where the carrier to whom the goods are delivered, is not the operator of a ship or aircraft, for example a freight consolidator.

A supplier who is not the exporter may still be treated as the exporter where the recipient exports and the requirements of subsection 38-185(3) of the GST Act are met. If so, the supply can still be GST-free.

60 day period for export of goods

For a supply of goods to be GST-free under Item 1 or 2, the supplier must export the goods before, or within a 60 day period (or such further period as the Commissioner allows).

Given that goods can only leave Australia on board a ship or aircraft, the time at which goods are exported from Australia is the time at which the ship or aircraft departs its final Australian port or airport and clears the territorial limits.

Accordingly, the timing requirement is met if the ship or aircraft departs its final Australia port or airport and leaves Australia before, or within 60 days (or such further period as the Commissioner allows) after, the time period commences.

The 60 day period commences on the day after the earlier of:

· the day on which the supplier receives any of the consideration for the supply; or

· the day on which the supplier gives an invoice for the supply.

However, in the case of supplies for which the consideration is provided in instalments, where the contract requires the goods to be exported, the period commences on the day after the earlier of:

· the day on which the supplier receives any of the final instalment of the consideration for the supply; or

· the day on which the supplier gives the invoice for that final instalment.

However, if a supplier contracts for carriage of the goods from Australia and hands over possession of the goods to an international transport provider (which includes freight forwarder, consolidator, air express courier, postal agency and so on, as well as a shipping line or airline) before or within the 60 day period, the Commissioner accepts that the timing aspect of the requirement is met.

Further if a supplier who is responsible for delivering the goods to the operator of a ship or aircraft, delivers those goods before or within the 60 day period, the Commissioner also accepts that the timing requirement is met, provided that the supplier completes all other actions necessary to export the goods, for example, obtaining necessary permits and Customs approvals.

Similarly, where a recipient contracts for the carriage of the goods and delivers the goods to the international transport provider (which includes freight forwarder, consolidator, air express courier, postal agency and so on, as well as a shipping line or airline), before or within the 60 day period the Commissioner accepts that the timing aspect of the requirement is met .This is also the case where the recipient delivers the goods to the operator of a ship or aircraft, provided that the recipient has completed all other actions necessary to export the goods.

Where the supplier is unable to satisfy the 60 day timing requirement, the supplier may apply to the Commissioner for an extension of time.

The onus is on the supplier to obtain evidence that the goods were exported. If the supplier obtains sufficient evidence within the 60 day period or obtains it after the end of the 60 day period and before the due date for lodgement of the next business activity statement (BAS), the requirement to have documentary evidence that the goods were exported is satisfied.

If the supplier is unable to obtain sufficient documentary evidence within the time frame, the requirement that the supplier has sufficient documentary evidence is not met. The supply is therefore a taxable supply unless the supplier takes immediate action to obtain without delay the required documentary evidence.

Subsection 38-185(3) of the GST Act

Under subsection 38-185(3) of the GST Act, a supplier who has not exported goods is treated as having exported them for the purposes of Item 1 or 2 if the following conditions are met.

· before the goods are exported, the supplier supplies them to an entity that is not registered or required to be registered; and

· that entity exports the goods from Australia; and

· the goods have been entered for export within the meaning of section 113 of the Customs Act 1901; and

· since their supply to that entity, the goods have not been altered or used in any way, except to the extent (if any) necessary to prepare them for export; and

· the supplier has sufficient documentary evidence to show that the goods were exported; and

· if that entity is covered by paragraph 168-5(1A)(c) - .the supplier has a declaration by that entity stating that:

· a payment has not been sought under section 168-5 for the supply; and

· If the goods are wine (within the meaning of the A New Tax system (Wine Equalisation Tax) Act 1999) - a payment has not been sought under section 25-5 of that Act for the supply.

However, if the goods are reimported into Australia, the supply is not GST-free unless the re-importation is a taxable importation.

Where the requirements in subsection 38-185(3) of the GST Act are met, the supplier is treated for the purposes of Items 1 or 2 as the exporting entity. The GST-free status of the supply then depends on the other requirements of Item 1 or 2 being met. For instance the export must occur before or within a 60 day period.

Are the supplies of goods to you GST-free?

From the information received, you are the recipient of the supply of the goods as the purchase orders are between you and the Australian suppliers. Payments for the goods may be in a lump sum or in instalments. Further the suppliers may export the goods themselves or deliver them to a third party in Australia who is acting on your behalf.

Supplier exports the goods

Where the supplier exports the goods, their supply of goods to you will be GST-free under Item 1 or 2 where they export the goods within 60 days (or such further period as the Commissioner allows) after:

· the day on which they receive any of the consideration for the supply (or any of the final instalment of the consideration for the supply where the supply is paid for by instalments); or

· the day they give an invoice for the supply (or give an invoice for the final instalments of the consideration for the supply where the supply is paid for by instalments).

However, the supplier should be able to demonstrate that they have sufficient documentary evidence to show that all the requirements in either Item 1 or 2 are met before they treat their supplies as GST-free. The supplier should obtain such documentary evidence during the process of exporting the goods or within a reasonable period of time after the goods have been exported.

Goods delivered to you in Australia

Where the supplier delivers the goods to a third party who is acting on your behalf in Australia, it is relevant to consider subsection 38-185(3) of the GST Act in order to determine whether the supplier can be treated to have exported the goods for the purposes of Item 1 or 2.

From the facts received, you would satisfy all the requirements in subsection 38-185(3) of the GST Act as:

In this case, the suppliers are considered to have made their supplies to you despite the fact they delivered the goods to a third party acting on your behalf. This is because the contract of sale is between the suppliers and you and the goods are delivered in accordance with the contract of sale.

You have advised that you are not registered or required to be registered for GST. Accordingly, before the goods are exported, the suppliers have supplied them to an entity that is not registered or required to be registered for GST.

You have advised that you either contract the sea carrier for the goods to be delivered overseas or are responsible for delivery of the goods to the sea carrier engaged by the freight forwarder for the delivery of the goods overseas. In this case you are considered to be the entity that exports the goods from Australia.

The goods will be entered for export since the freight forwarder, as part of their supply to you prepares the Bill of Lading, declares the goods to Customs and obtains export clearance for the shipment.

The goods will not be altered or used since the supply to you. Though there may be some aggregation of the smaller items where appropriate, that should not alter the goods in any way.

The holding of sufficient documentary evidence is a condition that must be satisfied before a supplier can be treated under that subsection as having exported the goods.

You have advised that the freight forwarder shall provide documentary evidence to the suppliers. Where the freight forwarder provides the evidence within the specified period (that is within the 60 day period or if after the end of the 60 day period before the due date for lodgement of the supplier's next BAS), the requirement in this paragraph is satisfied.

An entity will be covered by paragraph 165-5(1A)(c) if the entity is an individual who resides in an External Territory. This paragraph is not applicable to you.

In addition to your meeting the requirements in subsection 38-185(3) of the GST Act, the goods will need to be exported within the 60 day period so that the suppliers can treat their supply as GST-free.

You have advised that the goods will be delivered to the freight forwarder within the 60 day period and the freight forwarder will keep the goods in the shortest time as possible subject to availability of suitable vessels or other unforeseen circumstances. In this case the suppliers would be considered to have exported the goods within the 60 day period and would treat their supplies as GST-free where they hold documentary evidence that the goods have been exported.

Export not made before or within 60 days

Suppliers unable to deliver the goods on board the ship or to the operator of the ship or aircraft, or unable to hand over possession of the goods to an international transport provider within the 60 day time period, may apply to the Commissioner for an extension of time. The application should be in writing clearly setting out the length of the extension required and the circumstances why an extension to the 60 day period is being requested.

The Commissioner will exercise this discretion where there are physical, practical or commercial circumstances which reasonably explain the delay, provided the Commissioner is satisfied that the goods will be exported.

For example, where the ship or aircraft departs its final Australian port or airport and leaves Australia after the end of the 60 day period, the Commissioner will grant an extension of time equal to the additional time required for the export to occur.

Applications for extension should be lodged before the expiry of the normal 60 day period, or immediately upon discovery that the time period will not be, or has not been met.

For further information on the export of goods and extension of time to export please refer to the Practice Statement Law Administration PSLA 2006/16 which outlines the issues that will be considered in exercising the discretion to provide an extension of time to export where goods have not been or will not be exported within the 60 day period allowed in the GST law.

Summary

To summarise, for a supply of goods from Australia to be GST-free under Item 1 or 2 the supplier must be the entity to export the goods and the goods must be exported before or within a 60 day period (or further period as the Commissioner allows).

Alternatively, the supply of goods from Australia can be GST-free provided you satisfy all the requirements in subsection 38-185(3) of the GST Act and the goods are exported within the 60 day period (or further period as the Commissioner allows).

Suppliers must obtain documentary evidence during the process of exporting the goods or within a reasonable period of time after the goods have been exported before they treat the supply of goods GST-free.

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