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Ruling

Subject: GST and supply of services

Question 1

Are you acting as a resident agent on behalf of an overseas entity (the overseas entity) for the purposes of Division 57 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

You are acting as a resident agent for the purposes of Division 57 of the GST Act in respect of any supplies or acquisitions that the overseas entity makes through you as their agent.

Question 2

Do you have an obligation to charge GST in respect of invoices raised to the overseas entity in respect of:

(a) management services

(b) provision of staff, and

(c) other cost recoveries?

Answer

(a) No.

(b) Yes.

(c) This depends on the facts of each case.

Relevant facts and circumstances

You are an Australian resident entity for tax purposes and registered for GST.

You specialise in the management and operation of certain types of properties.

The overseas entity was formed outside Australian and its central management and control is outside Australia. The overseas entity is a non-resident for Australian income tax purposes. The overseas entity is not registered for GST in Australia.

The overseas entity is the owner of specified properties (the properties). The overseas entity leases the properties to another entity (entity A), who in turn leases the same properties to you. You then enter into contracts with the end clients in Australia who use the properties in Australian.

Entity A is a resident of Australia for income tax purposes and is jointly owned by the overseas entity and another entity (entity B). Entity B is an Australian resident that is related to you. Entity A was established whereby the overseas entity would provide the properties and entity B (through you) would provide the management and operation of the properties to provide various services to clients in Australia.

You are contracted to manage the properties in Australia for the purposes of leasing the properties to the end clients. You stated that the overseas entity cannot carry on is business in Australia without you. Furthermore, entity A is unable to directly contract with the end clients itself, for specified reasons. Therefore, the properties must be leased from entity A to you in order to contract with clients in Australia.

You have provided us with the structure.

You provided us with a copy of the management agreement (Management Agreement) that you entered into with the overseas entity.

Under the Management Agreement:

· you are appointed as the manager to manage the properties in Australia

· you are required to carry out the management services in Australia as agent for and on behalf of the overseas entity

· you have the authority to take all the actions necessary to perform your services under the agreement

· you are not given complete control of the properties and have to conform to such regulations, instructions and directions as might be given by the overseas entity. Subject to that limitation, you are given full power to act in respect of the properties

· you must make all information in respect of the properties and their leases available to the overseas entity and are bound by the overseas entity's decision

· you must obtain the overseas entity's prior consent in relation to any management decision that is out of the ordinary.

Under the Management Agreement you are required to provide the following management services:

· Staff management services - this includes selecting and engaging suitable staff to operate and manage the properties and dealing with all employment related issues such as, payroll, pension, insurance, taxes, and so on.

· Attend to the day-to-day operation and management of the properties in Australia.

· Arrange and supervise repairs and maintenance in respect of the properties.

· Arrange for the supply of equipment, stores and so on.

· Incur and make all the necessary payments for the operation, upkeep and maintenance of the properties.

· Maintain the properties to the required standards.

· Lease the properties in accordance with the overseas entities instructions, which include seeking and negotiating lease agreements, conclusion and execution of lease agreements or other contracts relating to the lease of the properties. All lease agreements must be approved by the overseas entity.

· Pay to the overseas entity all the lease and other income or other moneys to which the overseas entity is entitled.

· Provide estimates and accounts and calculate lease payments and so on.

· Pay for expenses.

· Appoint agents, sub-contractors and so on.

· Provide accounting services, such as maintaining the records of all costs and expenditure incurred in respect of managing the properties as well as the data necessary for the settlement of the accounts between the parties.

· Provide regular monthly reports and records to the overseas entity.

· Manage the properties in close cooperation with the overseas entity by regularly informing the overseas entity.

· Deal with the relevant authorities in Australia on issues relating to the properties.

You receive a specified amount as management fees for the supply of your management services.

The Management Agreement also provides that:

· You must endeavour to provide the agreed management services as an agent for and on behalf of the overseas entity.

· You must protect and promote the interest of the overseas entity in all matters relating to the provision of the management services.

· You must hold all the moneys that you collected under the terms of the Management Agreement in a separate bank account.

· You are entitled to allocate resources and services as you consider to be fair and reasonable.

· Essentially, the overseas entity is liable for the insurance of the properties.

· Any discounts or commission that you receive in the course of the management of the properties must be credited to the overseas entity's account.

· You are required to prepare and submit regular budgets and budget estimates in respect of the cost of managing the properties to the overseas entity for their approval.

· You receive funding based on the budget estimates for the management of the properties.

· You are not required to use your own funds to finance the provision of the management services. If in special circumstances you end up using your own funds, you will be compensated accordingly.

· You are responsible for your own office accommodation, office staff, facilities and stationeries at no extra cost to the overseas entity. You will be reimbursed for expenses such as, postage communication and other out of pocket expenses incurred by you in the course of the provision of you management services.

· You, office staff, agents or subcontractors are not liable for any loss, damage, or expense of whatsoever nature, whether direct or indirect (including but not limited to loss of profit) and however arising in the course of the performance of the management service, unless resulted from your negligence.

· You are not liable for the action of the staff that you employ for the purposes of providing the management services unless such actions arise as a result of your negligence in providing the staff management services required under the Management Agreement.

You issue invoices to the overseas entity in respect to:

· management fees - in respect to the services performed under the Management Agreement

· staff engaged to operate and manage the properties which are provided directly to the overseas entity, and

· other cost recoveries - for example insurance, repairs and maintenance, other statutory obligations incurred by you and reimbursed by the overseas entity.

You stated that apart from the staff engaged to manage the properties all the other acquisitions made by you in respect of the provision of the management services listed in the Management Agreement are made as an agent on behalf of the overseas entity. You stated that you disclose to third party suppliers that you are making the acquisitions as an agent of the overseas entity.

You supply the staff to the overseas entity in your own right. The contracts of employment are between you and the staff. The staff members are your employees and not the employees of the overseas entity.

You provided copies of some documents, which show that the properties were leased by the overseas entity to entity A for a specified price and a specified period. The properties were then leased by entity A to you under the same terms and conditions and for the same price and the same period.

You confirmed that the lease of the properties from the overseas entity to entity A, and from entity A to you happens simultaneously.

You have provided a copy of the lease agreement (Lease Agreement) between you and entity A. The Lease Agreement provides that the properties were leased to you for a specified period.

According to the Lease Agreement:

· The staff engaged to manage the properties are the responsibility of entity A.

· The operation and management of the properties is in the exclusive control and command of entity A and its staff.

· Entity A will operate and manage the properties as requested by you subject always to the exclusive right of entity A and its staff to determine whether the action taken is appropriate.

· Entity A is deemed to be an independent contractor, and you being concerned only with the results of the services performed by entity A when the properties are leased to you.

· Entity A is to provide and pay for all, wages, and all other expenses of the staff, all maintenance and repairs to the properties, machinery and equipment, insurance, all expenses directly related to the properties, stores, and so on.

· Entity A is liable to pay for all the charges made by the relevant authorities.

You advised that despite what is stated in the Lease Agreement, entity A does not pay for the staff, stores and so on. Entity A only receives the lease payments from you.

You also advised that the parties conduct their business differently to what the agreements state.

You stated that you do not provide the management services to entity A or any another entity in Australia.

There is no written lease agreement between the overseas entity and entity A. However, the overseas entity issues invoices to entity A for the lease of the properties.

In your opinion, the overseas entity is required to be registered for GST in Australia as it makes taxable supplies by way of lease of the properties to entity A in Australia, which is in excess of $75,000 in a 12 month period.

You also provide management services to other property owners.

You provided a copy of a lease agreement between you and a third party.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5.

A New Tax System (Goods and Services Tax) Act 1999 Section 9-40.

A New Tax System (Goods and Services Tax) Act 1999 Section 11-5.

A New Tax System (Goods and Services Tax) Act 1999 Section 11-15.

A New Tax System (Goods and Services Tax) Act 1999 Section 11-20.

A New Tax System (Goods and Services Tax) Act 1999 Section 57-5

A New Tax System (Goods and Services Tax) Act 1999 Section 57-10.

A New Tax System (Goods and Services Tax) Act 1999 Section 57-20.

A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-190(1).

A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-190(3).

Reasons for decision

Question 1

Summary

You are acting as a resident agent for the purposes of Division 57 of the GST Act in respect of any supplies or acquisitions that the overseas entity makes through you as their agent.

Detailed reasoning

Goods and Services Tax Ruling GSTR 2000/37 deals with agency relationships and the application of the law.

Paragraph 45 of GSTR 2000/37 provides that a transaction is considered to be made by the principal through the agent, if the agent is authorised to undertake the transaction on behalf of the principal, thereby binding the principal to the legal effects of the transaction.

Paragraph 28 of GSTR 2000/37 outlines the factors that indicate that an agency relationship exists. This paragraph states:

28. In most cases, any relevant documentation about the business relationship, the description used by the parties and the conduct of the parties establish the existence of an agency relationship. Therefore, the following factors may show that you are an agent under an agency relationship, although no single factor (by itself) is determinative:

· any description of you as an agent, having authority to act for another party, in an agreement (expressed or implied) between you and the other party;

· any exercise of the authority that you are given to enter into legal relations with a third party;

· whether you bear any significant commercial risk;

· whether you act in your own name;

· whether you are remunerated for your services by way of commissions and whether you are entitled to keep any part of your remuneration secret from another party; and

· whether you decide the price of things that you might sell to third parties.

Paragraph 29 of GSTR 2000/37 states:

29. In some situations, these factors may be difficult to establish. For example, situations may arise where:

· the existence of a principal is disclosed but not named; or

· the existence of a principal is not disclosed to third parties.

However, documents used by the parties and the conduct of the parties may still indicate the existence of an agency relationship.

Where the principal makes a taxable supply or a taxable importation through the agent, the principal is the entity that is liable for GST under sections 9-40 and 13-15 of the GST Act. In addition, where the principal makes a creditable acquisition or a creditable importation through the agent, the principal is the entity that is entitled to the input tax credit under sections 11-20 and 15-15 of the GST Act. This is consistent with the general law of agency. The acts of an agent are the acts of the principal, and the principal is bound to the legal effects of the transaction.

However, the general law agency principles are overridden in one special circumstance. Division 57 contains a special rule that makes resident agents acting for non-residents responsible for the GST consequences of supplies and acquisitions that the non-residents make through them.

Section 57-5 of the GST Act states:

(1) GST payable on a *taxable supply or *taxable importation made by a *non-resident through a *resident agent:

(a) is payable by the agent; and

(b) is not payable by the non-resident.

(2) This section has effect despite sections 9-40 and 13-15 (which are about liability for GST).

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

Section 57-10 of the GST Act states:

(1) If a *non-resident makes a *creditable acquisition or *creditable importation through a *resident agent:

(a) the agent is entitled to the input tax credit on the acquisition or importation; and

(b) the non-resident is not entitled to the input tax credit on the acquisition or importation.

(2) This section has effect despite sections 11-20 and 15-15 (which are about who is entitled to input tax credits).

Section 57-20 of the GST Act provides that a resident agent who is acting as agent for a non-resident is required to be registered for GST if the non-resident is registered or required to be registered for GST.

In your case, you have entered into the Management Agreement with the overseas entity. The Management Agreement outlines the services that you are required to perform and specifies that you are engaged to perform these services as an agent of the overseas entity.

You advised that the overseas entity is not a resident of Australia for income tax purposes. Therefore, the overseas entity is a non-resident for GST purposes.

You are registered for GST and advised that the overseas entity is required to be registered for GST in Australia.

Therefore, Division 57 will apply to any creditable acquisitions, creditable importations, taxable supplies and taxable importations that the overseas entity makes through you as their agent.

In your case, the Management Agreement indicates that an agency relationship exits between you and the overseas entity for the following reasons:

· The Management Agreement expressly provides that you are engaged by the overseas entity to provide the management services outlined in that agreement as an agent for and on behalf of the overseas entity.

· The Management Agreement gives you the authority to enter into legal relations with third parties on behalf of the overseas entity.

· You, your office staff, agents or subcontractors are not liable for any loss, damage, or expense of whatsoever nature, whether direct or indirect (including but not limited to loss of profit) and however arising in the course of the performance of the management service, unless resulted from your negligence.

· You are not responsible for the action of the staff employed to manage and operate the property.

· You are remunerated for your services by way of commission.

· All discounts and commissions obtained by you in the course of the management of the properties are required to be credited to the overseas entity, unless otherwise agreed.

· All the cost of daily running the properties is constantly monitored and agreed with the overseas entity.

· The overseas entity provides you the funds required to operate and maintain the properties.

· You are not required to use your own funds to finance the provision of the management services. If in special circumstances you end up using your own funds, you will be paid interest.

· You are required to provide leasing services in accordance with the overseas entity's instructions and every lease of the property has to be approved by the overseas entity beforehand.

Taxable supplies and taxable importations

According to the Management Agreement, as part of the provision of the management services, you are required to provide leasing services to the overseas entity in accordance with their instructions. These include, but are not limited to, seeking lease contracts and the conclusion and execution of such contracts and other contracts relating to the lease of the properties. This agreement further provides that every lease has to be approved by the overseas entity beforehand.

While the properties are leased to you by entity A, the Management Agreement indicates that you are leasing the properties to third parties as an agent of the overseas entity and not as a principal.

You have provided a copy of a lease agreement between you and a third party. However, the Management Agreement allows you to conclude and execute lease agreements and other contracts relating to the lease of the properties as an agent of the overseas entity.

You also stated that the parties conduct their business different to what is stated in the agreements. However, there is no evidence to suggest that you are not leasing the properties as an agent of the overseas entity.

Based on the information provided, we consider that the purpose of entering into the Management Agreement is for you to carry on the overseas entity's business in Australia and supply the properties by way of lease in Australia as an agent of the overseas entity (this is further discussed in reasons for decision for question 2). As such, the overseas entity is supplying the properties to the clients in Australia through you as its agent.

The supply of the properties by the overseas entity through you is a taxable supply as it meets all the requirements of section 9-5 of the GST Act. Section 9-5 of the 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.

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

Therefore, under section 57-5 of the GST Act you are liable to pay GST on the supplies of the properties by way of lease to clients in Australia.

Where you make any other taxable supplies or taxable importations on behalf of the overseas entity, you as the resident agent, are liable to pay the GST on those supplies and importations.

The term 'taxable importation' has the meaning given in section 13-5 of the GST Act.

Creditable acquisitions and creditable importations

You stated that apart from the provision of staff all the other acquisitions made by you in the course of providing your management services listed in the Management Agreement are made by you as an agent of the overseas entity. You also stated that you disclose to third party suppliers that you are making the acquisitions as an agent of the overseas entity.

Where you make an acquisition as an agent on behalf of the overseas entity, the overseas entity is the recipient of the supply and making the acquisition through you.

The overseas entity makes a creditable acquisition if the acquisition meets the requirements of section 11-5 of the GST Act. This section states:

You make a creditable acquisition if:

(a) you acquire anything solely or partly for a *creditable purpose; and

(b) the supply of the thing to you is a *taxable supply; and

(c) you provide, or are liable to provide, *consideration for the supply; and

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

Section 11-15 of the GST Act outlines the meaning of the term creditable purpose. Subsections

11-15(1) and 11-15(2) of the GST Act state:

(1) You acquire a thing for a creditable purpose to the extent that you acquire it in *carrying on your *enterprise.

(2) However, you do not acquire the thing for a creditable purpose to the extent that:

(a) the acquisition relates to making supplies that would be *input taxed; or

(b) the acquisition is of a private or domestic nature.

Accordingly, where the overseas entity makes a creditable acquisition or creditable importation through you as their agent, you as a resident agent are entitled to the input tax credit pursuant to section 57-10 of the GST Act.

The term 'creditable importation' has the meaning given in section 15-5 of the GST Act.

Question 2

Summary

Please refer to the explanation under the heading Detailed reasoning below.

Detailed reasoning

Under section 9-40 of the GST Act, you are liable to pay GST on any taxable supply that you make.

Supply of management services

The supply of your management services for which you receive a commission meets the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act. This is because:

· you supply your services for consideration

· you supply the services in the course of carrying on your enterprise

· the supply is connected with Australia as you carry on your enterprise in Australia, and

· you are registered for GST.

Furthermore, the supply of your management services is not input taxed under the GST Act or a provision of another Act. Therefore, what is left to determine is whether the supply is 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 the supply of your management services to the overseas entity is neither a supply of goods nor a supply of real property, 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-resident's *enterprise, but is not *registered or *required to be registered.

Non-resident

As explained earlier, the overseas entity is a non-resident for GST purposes as it is not a resident of Australia for income tax purposes.

Not in Australia

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 performed/provided.

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

Paragraphs 46 and 47 of GSTR 2004/7 state:

46. We consider that a non-resident corporate limited partnership is in Australia if that partnership carries on business (or in the case of a corporate limited partnership 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.

47. A non-resident corporate limited partnership is in Australia in relation to the supply if the supply is solely or partly for the purposes of the Australian presence, for example, its Australian branch. If the supply is not for the purposes of the Australian presence but that Australian presence is involved in the supply, the partnership is in Australia in relation to the supply, except where the only involvement is minor.

The test in determining whether a non-resident corporate limited partnership is in Australia is the same test used in determining whether a non-resident company is in Australia. As stated in paragraph 413 of GSTR 2004/7, the explanation of various elements of the test for a non-resident company is also relevant for applying the test to a non-resident corporate limited partnership.

Whether the overseas entity is carrying on business in Australia through you as their agent

Even if the overseas entity does not have a fixed and definite place of its own in Australia, it may still carry on its business in Australia through an agent at a fixed and definite place for a sufficiently substantial period of time.

Paragraphs 277 to 332 of GSTR 2004/7 discuss when a non-resident company carries on business in Australia through an agent. As stated above, this discussion equally applies when determining whether a non-resident corporate limited partnership carries on business in Australia through an agent.

Paragraph 280 of GSTR 2004/7 provides that whether the agent is carrying on the non-resident company's business or doing no more than carrying on the agent's own business necessitates an investigation of the functions which the agent performs and all aspects of the relationship between the agent and the non-resident company.

Paragraph 281 of GSTR 2004/7 states:

281. In this regard it is necessary to weigh up various factors, including but not necessarily limited to the following, to determine whether a non-resident company can properly be regarded as carrying on business in Australia through an agent:

· Was the fixed place of business from which the agent operates originally acquired for the purposes of enabling the agent to carry on the business of the non-resident company?

· Does the non-resident company directly reimburse the agent for the cost of accommodation or staff at the fixed place of business?

· Does the non-resident company make other contributions to the financing of the business carried on by the agent?

· Is the agent remunerated by reference to transactions, for example, by commission, or by fixed regular payments or in some other way? Commission can be an indicator that the agent is carrying on its own business and not that of the non-resident. However, it is not determinative.

· What degree of control does the non-resident company exercise over the running of the business conducted by the agent?

· Does the agent reserve part of the agent's staff or accommodation for the conducting of business related to the non-resident company?

· Does the agent display the name of the non-resident company at the agent's premises or on stationery and, if so, does it indicate that the agent is an agent of the non-resident company?

· What business, if any, does the agent transact as principal exclusively on the agent's own behalf?

· Does the agent make contracts with customers or other third parties in the name of the non-resident company or otherwise in such a manner so as to bind it?

· If the agent does make contracts so as to bind the non-resident company, does the agent require specific authority in advance before binding that foreign company to contractual obligations?

Paragraph 296 of GSTR 2004/7 provides that if the agent does not have the power to bind the

non-resident company without seeking the company's approval before binding that company, it is more likely that the agent is carrying on the agent's own business, unless circumstances are similar to those discussed in paragraphs 302 to 310 of GSTR 2004/7.

Paragraphs 302 to 310 of GSTR 2004/7 state:

302. The World Harmony [1965] 2 All ER 139 (' The World Harmony ') is the only jurisdiction case that we have found in relation to a company the business of which involves making contracts for sale, lease or the like where an agent that has no power to make contracts without submitting the contracts to the non-resident for approval or signature was found to be carrying on the business of the foreign corporation.

303. That case involved a Liberian shipping company and a company in England that managed ships in its business as shipping brokers. The Liberian company owned various ships including The World Harmony and appointed the English shipping brokers, as subagents, to attend to the day-to-day management and operation of the ships, exclusive of operations in the United States. The shipping brokers had offices in London which they paid for themselves. The activities of the shipping brokers were not restricted to ships owned by the Liberian company, but extended to ships owned by nine or ten other corporations.

304. The shipping brokers were not given complete control of these ships. In the performance of their duties they had to conform to such regulations, instructions and directions as might be given by the head agents.

305. Subject to that limitation the shipping brokers were given full power to act, exclusive of operations in the United States, in respect of any ship mentioned in the schedule to the agency agreement. Among other things this included: the collection of compensation due for use of any of the ships; authority to man and provision them; authority to contract for all necessary repairs to maintain them in a seaworthy condition and also to incur and make all payments necessary for the operation, upkeep and maintenance of the ships, including insurance, wages, bunkers, stores, repairs, replacements, pilotage, port fees and so on. The agents also had authority to select offices and crew; to designate brokers, underwriters, docks and so on and approve all prices and fees. For these and other services, which fully appear in the agreement, the shipping brokers were to receive fees annually.

306. While the shipping brokers had no general authority to bind the Liberian company, Hewson J considered the shipping brokers had extremely wide powers. His Honour found that:

They were in no sense just a ticket or freight office, nor did they act simply as an accommodation address. They attended to the day-to-day management of the World Harmony, among other ships, exclusive of operations in the United States. It has not been suggested that any other corporation did so. ...It is difficult to find who did, except for the [shipping brokers].

307. Hewson J acknowledged that the shipping brokers paid their own rent and that the work in relation to the Liberian company was only a fraction of their activities.

308. Hewson J referred to a number of jurisdiction authorities but noted that those cases are only helpful in a very limited degree:

...none of them really touches the present situation in which there is no evidence of active running of the ship elsewhere in the Western Hemisphere than here in [London].

309. Hewson J commented that if the day-to-day business of operating and controlling this ship was not in fact carried out by the shipping brokers, 'I know not who did. If the [shipping brokers] did so for nine or ten other companies, well, so be it, ...'. He concluded:

In my view, on all the facts of this particular case, the real place in which the business of the [Liberian company] was carried on was, as I have already said, at the [shipping brokers] office in [London], and I find that the [Liberian company's] place of business was in truth here.

310. Having regard to the decision in The World Harmony we consider that if, for example, a rental property managing agent attends to the day to day management and operation of a commercial rental property in Australia owned and leased by a non-resident company, the agent is carrying on the business of the non-resident company in Australia. This is the case irrespective of whether the agent has the power to conclude leasing contracts on behalf of the non-resident owner. In these circumstances, the presence of the agent makes the non-resident company in Australia.

In your case, your activities are not restricted to the properties owned by the overseas entity. You advised that you also manage properties of other entities. You are responsible for your own office accommodation, office staff, facilities and stationeries.

You have the authority to take all the actions necessary to perform your services under the agreement. However, you are not given complete control of the properties and have to conform to such regulations, instructions and directions as might be given by the overseas entity. Subject to that limitation, you are given full power to act in respect of the properties. You are authorised to lease the properties in accordance with the overseas entity's instructions which include seeking and negotiating lease agreements, conclusion and execution of lease agreements or other contracts relating to the lease of the properties. You have the authority to collect income, and provide the necessary staff to maintain and operate the properties. You have the authority to contract for all necessary repairs and to incur and make all the necessary payments for the operation, upkeep and maintenance of the properties, including, wages, stores, repairs, replacements and so on. You are required to deal with the relevant authorities on issues relating to the properties. You also have the authority to select and engage staff to maintain and manage the properties and handle all employment issues. For these and other services, which are outlined in the Management Agreement, you receive a fee.

While you have no general authority to bind the overseas entity you have extremely wide powers and attend to the day-to-day management of the properties in Australia and carry out the day-to-day business of operating and controlling the properties.

Accordingly, having regard to the decision in The World Harmony, and based on the facts of your case, we consider that you are carrying on the business of the overseas entity in Australia. Therefore, the overseas entity is carrying on its business in Australia through you as their agent at a fixed and definite place for a sufficiently substantial period of time. As such, the overseas entity is in Australia.

However, we need to consider whether the overseas entity is in Australia in relation to the supply of your agency/management services.

Paragraphs 374 to 379 of GSTR 2004/7 deal with the supply of agency services by an agent to a

non-resident and state:

374. If an agent carries on the business of a non-resident company in Australia at a fixed and definite place for a sufficiently substantial period of time, that company is in Australia. However, the supply of services by the agent to the non-resident company in the course of its own business ('agency services') may still be GST-free.

375. 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.

376. For example, a non-resident company that is in Australia because the real estate agent attends to the day to day management and operation of a commercial rental property in Australia on behalf of the company is not in Australia in relation to a supply of services that the real estate agent itself makes to that company. The company is not in Australia in relation to the supply unless those services are for the purposes of some other presence of the company in Australia, such as a branch, or there is some other connection (that is not minor in nature) between the agency services and that other Australian presence of the company. If this is the case, the company is in Australia in relation to the supply of the agency services through its other presence in Australia and the supply of the agency services is not GST-free.

377. This treatment of agency services also applies if the entity receiving the services is an entity other than a company, for example a partnership.

Example 21 - supply of agency services

378. Ausage acts as agent in Australia for NZ Co and is carrying on the business of NZ Co in Australia. NZ Co is therefore in Australia. In carrying on the business of NZ Co in Australia, Ausage enters into a contract with Aus Store, an Australian storage company, to secure storage services for stock held in Australia by Ausage on behalf of NZ Co. The supply of storage services to NZ Co is not GST-free as NZ Co is in Australia in relation to the supply .

379. Ausage also charges NZ Co a monthly fee for the agency services it provides to NZ Co in carrying on the business of NZ Co in Australia. Even though NZ Co is in Australia in relation to the supply from Aus Store, it is not in Australia in relation to the supply of the agency services supplied by Ausage. Therefore, the supply of agency services from Ausage to NZ Co is GST-free, provided the other requirements of item 2 are met.

In your case, the overseas entity is not in Australia in relation to the supply of the agency/management services that you supply to it. Therefore, the overseas entity is not in Australia in relation to the agency/management services for the purposes of Item 2.

Paragraphs (a) and/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.

For the purposes of paragraph (a) of Item 2, the supply must be analysed to determine whether it is properly characterised as a supply of work physically performed on goods or is directly connected with real property situated in Australia. This is examined in Goods and Services Tax Ruling GSTR 2003/7.

From the information provided, the nature of your supply is the provision of agency/management services. The supply of your services is neither a supply of work physically performed on goods situated in Australia nor a supply directly connected with real property situated in Australia. Therefore, the supply of your services to the overseas entity is a supply covered under paragraph (a) of Item 2.

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

Subsection 38-190(3)

Subsection 38-190(3) of the GST Act states 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. This ruling provides that subsection 38-190(3) of the GST Act 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.

Pursuant to 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'.

You advised that you do not provide your services to entity A or any other entity in Australia. You are providing and the agreement requires you to provide your agency/management services to the overseas entity.

Accordingly, the actual flow of the supply is also to the overseas entity. Therefore, paragraph

38-190(3)(b) of the GST Act is not satisfied. As such, subsection 38-190(3) of the GST Act does not exclude the supply of your agency/management services to the overseas entity from being GST-free under Item 2.

Therefore, the supply of your agency/management services is GST-free under Item 2.

Provision of staff

You supply the staff to the overseas entity in your own right. The contracts of employment are between you and the staff. The staff members are your employees and not the employees of the overseas entity or entity A.

When you supply the staff as a principal to the overseas entity, then the reimbursements are consideration for a supply that you make to the overseas entity.

The supply meets all the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act. The supply is not input taxed under the GST Act or a provision of another Act. Therefore, what remains to be determined is, whether the supply is GST-free.

The supply of the staff to the overseas entity is not a supply of goods or real property therefore section 38-190 of the GST Act is relevant for consideration.

We need to determine whether the overseas entity is in Australia in relation to the supply of the staff for the purposes of Item 2.

Paragraphs 417 and 418 of GSTR 2004/7 discuss how to determine if the presence of a corporate limited partnership in Australia is in relation to the supply for the purposes of items 2 and 3 and paragraph (b) of item 4 in the table in subsection 38-190(1) of the GST Act.

Paragraph 417 provides that to work out whether a corporate limited partnership is in Australia in relation to the supply, it is necessary to examine the role that the presence of the partnership in Australia plays in relation to the supply.

Paragraph 418 of GSTR 2004/7 provides that the principles outlined in paragraphs 347 to 379, which explain when a company is in Australia in relation to the supply, also apply to determine whether a corporate limited partnership is in Australia in relation to the supply.

Paragraph 349 of GSTR 2004/7 states:

349. Clearly if the supply to a company is solely or partly for the purposes of the Australian presence, for example its Australian branch, representative office or agent if it is a non-resident company, or the Australian head office if it is an Australian incorporated company, the company is in Australia in relation to the supply. There is a connection between the supply and the presence in Australia that is not a minor connection.

The overseas entity is a non-resident and, as explained earlier, is in Australia as it is carrying on a business in Australia through you as their agent.

The supply of the staff to the overseas entity is so that the overseas entity can carry on its leasing business through you in Australia pursuant to the Management Agreement. Therefore, the supply is for the purposes of the overseas entity's Australian presence. Consequently, the overseas entity is in Australia in relation to the supply.

Accordingly, the supply is not GST-free under Item 2. The supply is not GST-free under any other provisions of the GST Act or a provision of another Act. The supply is a taxable supply as it meets all the requirements of section 9-5 of the GST Act.

Therefore, the reimbursements that you receive in respect of the provision of the staff is consideration for a taxable supply. You are liable to pay GST equal to 1/11 of the reimbursement received.

Other cost recoveries

Paragraphs 48 and 49 of GSTR 2000/37 deal with disbursements and state:

Agency relationship and disbursements

48. Agents may incur expenses on a client matter both as an agent of the client and as a principal in the ordinary course of providing their services to the client. For example, in most cases, even though agreements between solicitors and clients may not use the term agent or agency, it is clear that the clients have authorised the solicitors to act on their behalf in the particular matter. When the solicitor acts as an agent for the client, the general law of agency applies so that the solicitor is 'standing in the shoes' of the client.

49. If a disbursement is made by a solicitor and incurred in the solicitor's capacity as a paying agent for a particular client, then no GST is payable by the solicitor on the subsequent reimbursement by the client. This is because the goods or services to which the disbursement relates are supplied to the client, not to the solicitor, by a third party. Also, the reimbursement forms no part of the consideration payable by the client for the supply of services by the solicitor.

However, if goods or services are supplied to the solicitor to enable the solicitor to perform services supplied to the client, GST is payable by the solicitor on any reimbursement by the client of expenses incurred on those goods or services, whether the reimbursement is separately itemised or included as part of the solicitor's overall fee. This is because the reimbursement is part of the consideration payable by the client for services supplied by the solicitor.

As explained earlier, where you make an acquisition as an agent on behalf of the overseas entity, the goods and services are supplied to the overseas entity. The reimbursements do not form part of the consideration for the supply of your services. Division 57 will apply in respect of claiming input tax credits where the overseas entity makes a creditable acquisition through you as their agent.

However, where you make an acquisition as a principal to enable you to perform your services to the overseas entity, then the reimbursements are consideration for supplies that you make to the overseas entity. In these situations, you need to determine the nature of the supply that you make to the overseas entity. For example, you need to determine whether the supply is a supply of goods, services or real property, whether the supply is a supply of work physically performed on goods situated in Australia and so on, and then consider the GST implications of each supply.

For further information on agency refer to GSTR 2000/37 which is available on our website.

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