Edited version of private ruling

Authorisation Number: 1011644731778

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Ruling

Subject: Supply of project management services to a non-resident

Question

Is the supply of your design and project management services under the circumstances described a taxable supply?

Answer

Yes, the supply of your design and project management services under circumstances described is a taxable supply.

Relevant facts and circumstances

You, are registered for GST.

You have provided project management services to an offshore entity (the offshore entity) to launch their products in Australia.

The offshore entity is a non-resident for income tax purposes, is based overseas and is not registered or required to be registered for GST in Australia.

The offshore entity has offices throughout the world including Australia.

You have billed the offshore entity despite them having local offices in Australia.

The project did not relate to the day to day sales generation. It was to introduce the new products to specifically nominated people.

You organised a number of events for launching the products.

The events were not open to the public. Attendance was by invitation only.

The attendees did not pay for attending the events.

You engaged local suppliers for their services as the events took place in Australia.

You were acting in your own right when dealing with third party suppliers including when you booked the accommodations. You were ultimately responsible for the payments to the third party suppliers.

You were not required to provide any services to the local offices. The local offices were not involved in the events.

You provided documents which outlined the scope of the project, works and services.

The supplies that you made had the following three major components:

· Supplies of real property - accommodation, room hire, etc

· Supplies of goods - food, beverages, vehicle hire, etc

· Supplies of services - staffing, labour, transport, security, cleaning, insurance, planning, ticket to shows, onsite management, etc

Summary

The supplies that you made to the offshore entity comprised a number of components or parts, namely, real property, goods, and services. As all the components were taxable supplies, you are liable to pay 1/11 of the consideration that you receive for these supplies as GST.

Detailed reasoning

Section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you must pay the GST payable on any taxable supply that you make.

Under section 9-5 of the GST Act, you make a taxable supply if:

(a) you make the supply for consideration

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

(c) the supply is connected with Australia, and

(d) 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.

The supply of your design and project management services has the following three major components:

· Supplies of real property - accommodation, room hire, etc

· Supplies of goods - food, beverages, boat hire, etc

· Supplies of services - staffing, labour, transport, security, cleaning, insurance, planning, ticket to shows, onsite management, etc

We need to determine the GST status of each component of the supply that you made to the offshore entity.

Supplies of real property

A supply of accommodation or the right to accommodation is a supply of real property for GST purposes.

You advised that you acquired the hotel accommodations and hired venues in your own right and not as an agent of the offshore entity. Accordingly, you made supplies of real property to the offshore entity.

Your supplies of accommodations and venues to the offshore entity meet the requirements of paragraphs 9-5(a), 9-5(b) and 9-5(d) of the GST Act. This is because the supplies were made for consideration, in the course of your enterprise and you were registered for GST at the time of the supply.

Paragraph 9-5(c) of the GST Act requires that the supply is connected with Australia.

Section 9-25 of the GST Act defines when a supply is connected with Australia and makes a distinction between a supply of goods, a supply of real property and a supply of anything other than goods or real property.

Subsection 9-25(4) of the GST provides that a supply of real property is connected with Australia if the real property, or the land to which the real property relates, is in Australia.

As the accommodations and venues that you made available to the participants are situated in Australia, these supplies are connected with Australia. Accordingly, these supplies meet the requirement of paragraph 9-5(c) of the GST Act.

Furthermore, your supplies of the accommodations and venues are not GST-free or input taxed under a provision of the GST Act or a provision of another Act.

As these supplies meet all the requirements of section 9-5 of the GST Act they are taxable supplies. You are therefore liable to pay GST equal to 1/11 of the consideration that you receive for these supplies.

Supplies of goods

Your supplies of goods meet the requirements of paragraphs 9-5(a), 9-5(b) and 9-(d) of the GST Act. This is because the goods were supplied for consideration, in the course of your enterprise and you were registered for GST at the time of the supply.

Subsection 9-25(1) of the GST Act provides that a supply of goods is connected with Australia if the goods are delivered, or made available, in Australia to the recipient of the supply.

As the food, beverages and other goods were made available to the participants in Australia, for the offshore entity, the supply of these items are connected with Australia. Therefore, the supplies meet the requirement of paragraph 9-5(c) of the GST Act.

Furthermore, the supplies of the goods are not GST-free or input taxed under a provision of the GST Act or a provision of another Act.

As the supplies of the goods meet all the requirements of section 9-5 of the GST Act, the supplies are taxable supplies. You are therefore liable to pay GST equal to 1/11 of the consideration that you receive for these supplies.

Supplies of services

The supplies of your services meet the requirements of paragraphs 9-5(a), 9-5(b) and 9-5(d) of the GST Act. This is because the supplies were made for consideration, in the course of your enterprise and you were registered for GST at the time of the supply.

Subsection 9-25(5) of the GST Act provides that a supply of anything other than goods or real property is connected with Australia if:

(a) the thing is done in Australia

(b) the supplier makes the supply through an enterprise that the supplier carries on in Australia, or

(c) all of the following apply:

(i) neither paragraph (a) nor (b) applies in respect of the thing

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

(iii) the supply of the other thing would be connected with Australia.

Subsection 9-25(6) provides that and 'enterprise is carried on in Australia' if the enterprise is carried on through:

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

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

You provided the services in Australia. Therefore, the services were done in Australia and the supplies of the services were connected with Australia under paragraph 9-25(5)(a) of the GST Act. Accordingly, the requirement of section 9-5(c) of the GST Act is met.

Additionally, the supplies of your services were not input taxed under a provision of the GST Act or a provision of another Act. What is left to be determined is whether the supplies were GST-free.

GST-free

Section 38-190 of the GST Act provides that certain supplies of things other than goods or real property, for consumption outside of Australia are GST-free.

As a component of your supply was the supply of services, section 38-190 of the GST Act is relevant for consideration.

Item 2 in the table in subsection 38-190(1) of the GST Act (Item 2) provides that a supply of a thing, other than goods or real property, made to a non-resident is GST-free if the non-resident 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-residents enterprise, but is not registered or required to be registered.

Non-resident not in Australia in relation to the supply

The term 'non-resident' is defined in section 195-1 of the GST Act to mean 'an entity that is not an Australian resident' for income tax purposes.

A company is a resident of Australia if the company is incorporated in Australia or, if not incorporated in Australia, it carries on business in Australia and has either its central management and control in Australia, or its voting power controlled by shareholders who are residents of Australia.

You advised the offshore entity is not a resident of Australia for income tax purposes.

For the supply of your 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 supply is done (that is when the services are performed/provided).

Goods and Services Tax Ruling GSTR 2004/7 discusses when an entity is not in Australia when the thing supplied is done.

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

(a) at or through a fixed and definite place of its own for a sufficiently substantial period of time, or

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

If it is determined that a non-resident company is 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.

You stated that the offshore entity has local offices in Australia. However, you supplied your services to the offshore entity that is based overseas. You also stated that you had no involvement or dealings with any Australian offices of the offshore entity. Therefore, it is considered that the offshore entity was 'not in Australia' in relation to the supply of your services for the purposes of Item 2.

Paragraphs (a) or (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 requirements of either paragraph (a) or (b) of Item 2 are satisfied.

From the information provided, the offshore entity acquired your services in carrying on its enterprise. You also advised that the offshore entity is neither registered nor required to be registered for GST. Therefore, the supply of your services to the offshore entity is a supply covered under paragraph (b) of Item 2.

However, the scope of Item 2 is limited by subsection 38-190(3) of the GST Act.

Limitations

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

Goods and Services Tax Ruling GSTR 2005/6 explains the operation of subsection 38-190(3) of the GST Act. GSTR 2005/6 provides that subsection 38-190(3) only applies if there is a supply of something, being a supply that is made to a non-resident and is covered by Item 2, and that same supply is provided, or is required to be provided to another entity in Australia. That is the contractual flow of the supply is to one entity (the non-resident) and the actual flow of the supply is to another entity in Australia.

The intent of this provision is to impose a further location test where the supply is provided or required to be provided to another entity. If that other entity is in Australia, subsection 38-190(3) of the GST Act operates to negate the GST-free status that would otherwise apply under Item 2.

Based on the information that you have provided, paragraph 38-190(3)(a) of the GST Act is satisfied as the supply of your services is under an agreement entered into with a non-resident.

In order to determine whether the requirement of paragraph 38-190(3)(b) of the GST Act is met, it must be established to which entity the supply is 'provided'.

In your case, you provided and the agreement required you to provide the services to the participants in Australia. Accordingly, the actual flow of the supply was to the participants in Australia, and not to the offshore entity. This means that paragraph 38-190(3)(b) of the GST Act is also satisfied. As such, subsection 38-190(3) of the GST Act excludes the supply of your services to the participants in Australia from being GST-free under Item 2.

Therefore, the supplies of your services to the offshore entity were not GST-free under Item 2. Furthermore, the supplies were not GST-free under any other provisions of the GST Act or a provision of another Act. Accordingly, the supplies of your services, which were made to the offshore entity but provided to the participants in Australia, are taxable supplies as they meet all the requirements of section 9-5 of the GST Act.

Summary

The supplies that you made to the offshore entity comprised a number of components or parts, namely, real property, goods, and services. As all the components were taxable supplies, you are liable to pay 1/11 of the consideration that you receive for these supplies as GST.

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