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Ruling

Subject: GST and supply of agency services to a non-resident

Question

Is your supply of agency services to an offshore company (the offshore company) GST-free?

Answer

Yes.

Relevant facts and circumstances

You are a resident of Australia and registered for GST.

The offshore company is the parent company with head quarters in an overseas country. The offshore company holds a contract to provide specified type of support services (the specified services) to an offshore entity (the third party) in Australia.

You entered into an agency agreement with the offshore company on a specified date for a term of X years.

The agency agreement sets out the scope of the services that you are required to provide and the rights and obligations of the parties. Under the agency agreement:

You are required to provide the third party the specified services as per the contract entered into between the offshore company and the third party.

You are required to provide the offshore company the specified services to enable the offshore company to comprehensively address the requirements of the third party and serve as a one-stop service provider.

In providing your services to the third party on behalf of the offshore company, you are required to abide by the offshore company's international standards in providing such services.

The offshore company is required to reimburse you for any and all costs and expenses incurred in providing the specified services, including administrative and other operating costs related to the specified services.

You are carrying on the offshore company's enterprise in Australia. You will provide the specified services to the third party on the offshore company's behalf. As the contract with the third party was awarded to the offshore company, you will need to invoice the third party on the offshore company's invoice header. The third party will be required to issue their payments to the offshore company. Cheques must be made payable to the offshore company.

The offshore company supplies the specified services to the third party through you as their agent. The offshore company makes acquisitions through you as their agent from the suppliers in Australia to be able to fulfil its obligations under the contract with the third party.

As a resident agent, you will pay GST and claim input tax credits pursuant to Division 57 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) for the supplies and acquisitions that the offshore company makes through you.

You will raise invoices to the offshore company based on cost of sales incurred plus a fixed agency fee to cover operating costs.

The offshore company is not registered for GST.

The offshore company was not incorporated in Australia, it is not registered with Australian Securities and Investments Commission (ASIC), and is not a resident of Australia for income tax purposes.

The value of the supplies that the offshore company makes to the third party through you is over $X per annum.

You do not provide and your agreement with the offshore company does not require you to provide your agency services to another entity in Australia.

You also provide this type of services (that is, the specified services) to other entities as principal on your own behalf. The agency agreement is the only agreement that you have entered into under which you provide the specified services on behalf of another entity.

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 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

Summary

The supply of your agency services to the offshore company is GST-free under subsection

38-190(1) of the GST Act.

Detailed reasoning

Taxable supply

Section 9-40 of the GST Act provides that you must pay the GST payable on any taxable supply that you make.

You make a taxable supply if the supply meets all of 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.

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

Your supply of agency services to the offshore company meets the requirements paragraphs

9-5(a) to 9-5(d) of the GST Act as:

· you supply your agency services for consideration

· you supply the agency services in the course or furtherance of an enterprise that you carry on

· the supply is connected with Australia as the services are provided in Australia, and

· you are registered for GST.

The supply of your agency 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

Paragraph 9-30(1)(a) of the GST Act provides that a supply is GST-free if it is GST-free under Division 38 of the GST Act or under a provision of another Act.

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 agency services to the offshore company 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:

· 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

· 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

Section 195-1 of the GST Act provides that for GST purposes 'non-resident' means an entity that is not an Australian resident and 'Australian resident' means a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936).

Accordingly, a supply that is made to an entity is a supply to a non-resident for GST purposes if the entity is not a resident of Australia for income tax purposes.

Subsection 6(1) of ITAA 1936 provides that a company is a resident of Australia for income tax purposes 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 that the offshore company was not incorporated in Australia and is not a resident of Australia for income tax purposes. Therefore, the offshore company is a non-resident for GST purposes.

Not in Australia

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 explains when a non-resident company is considered to be in Australia. It states:

37. 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 advised that you are carrying on the offshore company's business in Australia. Therefore, the offshore company is carrying on its business through you as their agent at a fixed and definite place for a sufficiently substantial period of time. As such, the offshore company is considered to be in Australia.

For the supply of your agency services to the offshore company to be GST-free under Item 2, there is a requirement that the non-resident must not be in Australia in relation to the supply when the supply is performed/provided. Therefore, whilst the offshore company is considered to be in Australia, it needs to be determined whether the offshore company is in Australia in relation to the supply of your agency 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.

…

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 offshore company is not in Australia in relation to the agency services that you supply to it. Therefore, the offshore company is not in Australia in relation to the agency 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 that you have provided, the nature of your supply to the offshore company is the provision of agency services. The supply of your agency 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 agency services to the offshore company 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 when a 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.

In your case, paragraph 38-190(3)(a) of the GST Act is satisfied as the supply of your agency 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 and your agreement with the offshore company does not require you to provide your agency services to another entity in Australia. You are providing and the agreement requires you to provide your agency services to the offshore company.

Accordingly, the actual flow of the supply is also to the offshore company. 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 services to the offshore company from being GST-free under Item 2. The supply of your agency services to the offshore company is GST-free under Item 2.

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