Edited version of private ruling

Authorisation Number: 1011828442314

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Ruling

Subject: GST and supplies to a non-resident

Question 1

Is the supply of support services on behalf of A Ltd to their Australian-based clients a GST-free supply under section 38-190 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No, the supply of support services on behalf of A Ltd to their Australian-based clients is not a GST-free supply. The supply is a taxable supply as it meets the requirements of section 9-5 of the GST Act.

Question 2

Will the Commissioner exercise his discretion under section 105-65 of Schedule 1 to the Taxation Administration Act 1953 (TAA) to refund any incorrectly remitted GST from your supplies?

Answer

As you have correctly remitted the GST on the supply of your support services, there is no need to exercise the Commissioner's discretion.

Facts

You are a subsidiary of A Ltd, which also has subsidiaries in other parts of the world.

A Ltd is based outside Australia. It provides various services which are delivered through all the subsidiaries by the client services and consultancy teams from the offices of its subsidiaries around the world and online through their website.

A Ltd provides clients all over the world with educational and training material by way of the internet. This information is sold as a product in conjunction with an additional support service, to assist customers if anything should go wrong when accessing the information via the website or applying it in practice.

You provide various types of services to A Ltd including support A Ltd clients that reside in Australia. This entails technical support to explain the data and information which is offered via the internet and its application.

With regards to this service, you provide support services to A Ltd's clients in Australia as A Ltd does not have any employees in Australia which can provide these support services. Apart from these support services, you do not supply any other additional services to A Ltd's clients. Further, you do not issue an invoice to A Ltd's clients nor do you receive consideration from them.

Your business operations and that of A Ltd are separate. You do not have the authority to enter into legal relations with other entities in Australia on behalf of A Ltd.

A Ltd does not have a permanent establishment in Australia. It does not carry on any business in Australia and it is not registered with ASIC. It is neither registered nor required to be registered for GST in Australia.

There is no written agreement between you and A Ltd. The arrangements have been made and agreed on orally by both parties.

You are registered for GST.

You invoice A Ltd in relation to the supply of the support service provided to A Ltd clients in Australia. You issue A Ltd with a tax invoice on a quarterly basis.

You currently treat all services to A Ltd as taxable supplies and have collected and paid GST to the ATO on them.

Your private ruling application is relevant only to the support services you provide to A Ltd's clients.

Reasons for decision

Question 1

GST is payable on the supply of your support services if you are making a taxable supply.

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states:

You make a taxable supply if:

(a) you make the supply for *consideration; and

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

(c) the supply is *connected with Australia; and

(d) you are *registered, or *required to be registered for GST.

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

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

Based on the information provided, you satisfy the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act because:

(a) you supply your support services to A Ltd for consideration

(b) the supply of your support services is in the course or furtherance of your enterprise

(c) the supply of your support services is connected with Australia as the services are performed in Australia and made through an enterprise that you carry on in Australia, and

(d) you are registered for GST.

The supply of your support services is not input taxed under the GST Act. Therefore, it remains to be determined whether the supply is GST-free.

The supply of your support services is not considered to be a supply of goods or real property. Hence, the GST status of this supply is appropriately considered under section 38-190 of the GST Act, which provides that certain supplies of things other than goods or real property, for consumption outside Australia, are GST-free. Of relevance, are items 2 and 3 in the table in subsection 38-190(1) of the GST Act.

Item 2 in the table in subsection 38-190(1) of the GST Act (item 2)

Item 2 provides that a supply of a thing (other than goods or real property) made to a non-resident is GST-free if it is:

a supply that is made to a *non-resident who is not in Australia when the thing supplied is done, and:

(a) the supply is neither a supply of work physically performed on goods situated in Australia when the work is done, nor a supply directly connected with *real property situated in Australia; or

(b) the *non-resident acquires the thing in *carrying on the non-resident's *enterprise, but is not *registered or *required to be registered for GST.

Non-resident is not in Australia when the thing supplied is done

Goods and Services Tax Ruling GSTR 2004/7 provides guidance on when a supply is made to a non-resident who is not in Australia for the purposes of item 2.

A non-resident for GST purposes is an entity that is not an Australian resident for the purposes of the Income Tax Assessment Act 1936.

· A company is a resident of Australia if:

· the company is incorporated in Australia, or

the company is not incorporated in Australia but has either its central management and control in Australia or its voting power is controlled by shareholders who are residents of Australia.

On the information provided A Ltd is not a resident of Australia for income tax purposes.

As stated in paragraph 37 of Goods and Services Tax Ruling GSTR 2004/7, we consider 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.

You have advised that A Ltd does not have a permanent establishment in Australia and does not carry on a business of its own in Australia nor does it carry on a business through a representative in Australia. Therefore, based on the information provided, we consider that A Ltd is not in Australia in relation to your supply of support services when such supply is made.

The supply of your support services must also satisfy the requirements of either paragraph (a) or paragraph (b) of item 2 for the supply to be GST-free.

Paragraph (a) of item 2

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

Paragraph 21 of GSTR 2003/7 states:

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

On the information provided, the supply of your support services 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. As such, the supply of your support services to A Ltd satisfies the requirements of paragraph (a) of item 2.

As the supply of your support services satisfy the requirements of paragraph (a) of item 2, it is not necessary to consider whether the requirements of paragraph (b) of item 2 are satisfied.

Limitations of item 2

If the supply covered by item 2 is under an agreement entered into, whether directly or indirectly, with a non-resident entity and that supply is provided to another entity in Australia, or the agreement requires that it be so provided, subsection 38-190(3) of the GST Act negates the GST-free status of that supply.

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

Without limiting subsection 38-190(2) or (2A), 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.

GSTR 2005/6 which provides the Tax Office view on the operation of subsection 38-190(3) of the GST Act states at paragraphs 59 and 61:

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

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

In this case, the supply of your support services is a supply under an agreement entered into with a non-resident, A Ltd, therefore paragraph 38-190(3)(a) is satisfied.

However, what is being supplied is a service of supporting A Ltd's client in Australia. The supply you make to A Ltd of support services is provided to A Ltd's client, an entity in Australia. Accordingly, subsection 38-190(3) of the GST Act applies and the GST-free status of the supply covered by item 2 is negated.

Hence, the supply of your support services to A Ltd but provided to A Ltd's clients in Australia is not GST-free under item 2.

Item 3 in the table in subsection 38-190(1) of the GST Act (item 3)

Item 3 provides that a supply of a thing (other than goods or real property) is GST-free if it is:

a supply:

that is made to a *recipient who is not in Australia when the thing supplied is done; and

(a) the effective use or enjoyment of which takes place outside Australia;

(b) other than a supply of work physically performed on goods situated in Australia when the thing supplied is done, or a supply directly connected with *real property situated in Australia.

Both paragraphs (a) and (b) of item 3 must be satisfied for the supply to be GST-free.

Paragraph (a) of item 3

Similar to the precondition of item 2 discussed above, paragraph (a) of item 3 requires that the recipient must not be in Australia in relation to the supply when it is done (that is, when services are provided/performed).

As stated above, on the information provided, it is considered that A Ltd is 'not in Australia' in relation to your supply, and therefore paragraph (a) of the item 3 is satisfied.

Paragraph (b) of item 3

Paragraph (b) of item 3 requires that the place of effective use or enjoyment of a supply to be determined (that is, whether the place is outside Australia).

Goods and Services Tax Ruling GSTR 2007/2 examines the circumstances in which the effective use or enjoyment of a supply takes place outside Australia for the purposes of paragraph (b) of Item 3. We take a two step approach to work out whether effective use or enjoyment of a supply takes place outside Australia. Firstly, we determine the entity to which the supply is provided (the providee entity). We then determine whether provision of the supply to the providee entity is outside Australia.

Paragraphs 52 to 54 of GSTR 2007/2 deal with identifying the entity to which the supply is provided (the providee entity). These paragraphs state:

52. A supply may be made and provided to the same entity, or may be made to one entity but be provided to another entity (or entities)...

53. The entity to which the supply is made is the recipient. The supplier may provide the supply to that recipient entity (in which case the recipient is also the providee) or may provide the supply to another entity (in which case the other entity is the providee).

54. A supply is provided to another entity if, in the performance of a service (or in the doing of some thing), the actual flow of that supply is to an entity that is not the recipient. The contractual flow is to the recipient and the actual flow of the supply is to another entity and thus the other entity is the providee.

In this case, you supply support services under your agreement with A Ltd. However, you provide, or are required to provide, the support services to A Ltd's clients in Australia.

The providee entity is A Ltd's client, being the entity who receives your support services. The providee entity (A Ltd's client) is in Australia when you perform your support services in Australia. Hence, the effective use and enjoyment of your support services does not take place outside Australia. As such, paragraph (b) of item 3 is not satisfied.

Accordingly, the supply of your support services made to A Ltd but provided to A Ltd's clients in Australia is not GST-free under item 3.

The supply of your support services is not GST-free under any other provision of the GST Act or any other Act. Therefore, as all the requirements of section 9-5 of the GST Act are met, you are making a taxable supply when you supply support services to A Ltd, but provide the services to A Ltd's clients in Australia.

Question 2

Sub-section 105-65(1) of Schedule 1 to the TAA states:

The Commissioner need not give you a refund of an amount to which this section applies, or apply (under Division 3 or 3A of Part IIB) an amount to which this section applies, if:

(a) you overpaid the amount, or the amount was not refunded to you, because a *supply was treated as a *taxable supply, or an *arrangement was treated as giving rise to a taxable supply, to any extent; and

(b) the supply is not a taxable supply, or the arrangement does not give rise to a taxable supply, to that extent (for example, because it is *GST-free); and

(c) one of the following applies:

i. the Commissioner is not satisfied that you have reimbursed a corresponding amount to the recipient of the supply or (in the case of an arrangement treated as giving rise to a taxable supply) to an entity treated as the recipient;

ii. the recipient of the supply, or (in the case of an arrangement treated as giving rise to a taxable supply) the entity treated as the recipient, is *registered or *required to be registered.

Miscellaneous Taxation Ruling MT 2010/1 explains the circumstances in which the Commissioner may exercise the discretion to refund where section 105-65 of Schedule 1 to the TAA applies.

As outlined in question 1 above, the supply of your support services is a taxable supply. Hence, you have correctly included GST in the price and remitted the GST to the ATO. Therefore, there is no need to consider the application of subsection 105-65 of Schedule 1 to the TAA.

GSTR 2003/7, GSTR 2004/7, GSTR 2005/6, GSTR 2007/2 and MT 2010/1 are available on our website www.ato.gov.au

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