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Ruling

Subject: GST and supply of goods

Question 1

Is the supply of goods connected with Australia where a non-resident entity (NR) supplies the goods from a place outside Australia to a place of consignment in Australia under the Delivered at Place (DAP) Incoterms?

Answer

No, the supply of goods is not connected with Australia where NR supplies the goods from a place outside Australia to a place of consignment in Australia under the DAP Incoterms.

Relevant facts and circumstances

NR is a global supplier of promotions management, packaging services and analytics and supply chain services. NR is not registered for the goods and services tax (GST).

NR has received a request from a resident customer (X) to supply and deliver goods from a place outside Australia to the customer located in Australia. The goods will be supplied under DAP terms, to a place of consignment in Australia, being the premises nominated by X.

Ownership of the goods is transferred to X at the place of consignment. NR does not install or assemble the goods in Australia.

NR has provided a copy of the Purchase Contract (the contract) between themselves and their Australian Customer (X). The contract states that NR agrees to arrange all freight and include all aspects of the shipping including documentation, freight charges and mode of transport (Clause 6 of Part 1 of the Contract) for each delivery. The contract also confirms that pricing for goods will be based on DAP terms and that unless otherwise agreed, X will pay all required duties (Clause 8 of Part 1 of the Contract).

Under the 2010 Incoterm rules (effective 1 January 2011) DAP means the seller bears the cost, risk and responsibility for goods until made available to the buyer at a named place of destination. The seller clears goods for export not import. DAP has replaced the Incoterms DAF and DDU.

NR advised that under the Incoterm DAP:

NR as supplier of the goods is required to:

· deliver the goods by placing them at the disposal of the buyer on the arriving means of transport for unloading at the agreed place of consignment;

· contract and pay for all costs of transport up to the agreed place of consignment; and

· bear all risks of loss or damage to the goods until they have been delivered to the agreed place of consignment.

The buyer of the goods is required to:

· carry out all customs formalities to import the goods and pay for the cost of doing so, including duties, taxes and other charges payable; and

· pay all costs of unloading the goods when taking delivery at the agreed place of consignment.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 subsection 9-25(3)

Reasons for decision

Characterisation of supply

The goods and services tax (GST) is structured around the concept of supply. It is the character of the supply that determines its GST treatment.

Delivery services are often associated with the supply of goods. Where you supply goods delivered to an address specified by your customers, the facts will determine whether the goods and delivery are separate supplies, separately identifiable parts of a mixed supply, or a composite supply of delivered goods.

Accordingly, it is necessary to analyse the character of the supply to determine how GST applies to NR's supply of goods that includes delivery to a place in Australia. In order to classify NR's supply to the non-resident customer it is necessary to determine whether the delivery forms a part of the supply of the goods or whether it is a separately identifiable part of the supply of the goods.

Goods and Services Tax Determination GSTD 2002/3 (available at www.ato.gov.au) provides guidance in determining whether a delivery is associated to a supply of goods or not. Paragraphs 2 and 4 in GSTD 2002/3 state the following:

2. You may make supplies of goods and delivery, or arranging delivery, under separate contractual arrangements. Alternatively, you may supply goods and a separate service of delivery under one contract where the goods and the delivery service are separately identifiable parts of a mixed supply. We consider that delivery is a separately identifiable part of a mixed supply where it is significant and could realistically be made as a separate supply. A delivery service is significant where it is an aim in itself. That is, your customers have a genuine choice under the contract about whether you deliver their goods. Such a choice is indicated where:

· your customers are not obliged to use your delivery service; and

· you provide reasonable access, at no extra charge, to customers who choose to make their own arrangements to collect the goods.

A delivery service may be a significant part of a mixed supply even if no separate amount is charged for the delivery.

4. You supply delivered goods where the delivery is integral, ancillary or incidental to the supply of the goods. This will be a composite supply. In these cases, you contract to supply delivered goods only, and not a delivery service in addition to the goods. The delivery is necessary for the customer to enjoy the goods, It is not an end in itself, but merely contributes to the proper performance of the contract to supply the goods. That is to fulfil the contract for the supply of the goods, the supplier has to deliver them and remain responsible for them until they are delivered. Identifying a separate charge for delivery does not, by itself, mean that the delivery is a significant part of the supply.

From the facts given, NR will make a supply of goods to X, by delivering the goods to a place in Australia under the DAP Incoterm. This means under this arrangement, NR arranges to deliver the goods to the agreed place in Australia and is responsible for the goods until they are delivered to this place (place of consignment).

In this instance, we consider that NR will make a supply of delivered goods to the resident customer (X) and the delivery merely contributes to the proper performance of the contract to supply the goods to X. The delivery is integral to the supply of the goods as NR has to deliver the goods and remain responsible for them until they are delivered in order to fulfil the contract under the DAP Incoterm.

The next step is to determine the GST status of NR's supply of delivered goods.

GST status of delivered goods

GST is payable on a taxable supply. Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), a supply is a taxable supply if:

· you make the supply for consideration; and

· the supply is made in the course or furtherance of an enterprise that you carry on; and

· the supply is connected with Australia; and

· 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.

All the requirements in section 9-5 of the GST Act must be satisfied for a supply to be a taxable supply.

Connected with Australia

The connection with Australia is one of the elements required to be satisfied before a supply is a taxable supply.

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

From the facts given, the goods will be brought to Australia since they are located outside Australia and delivered to a place in Australia. Relevant to the supply of goods made by NR is subsection 9-25(3) of the GST Act.

Under subsection 9-25(3) of the GST Act, a supply of goods that involves the goods being brought to Australia is connected with Australia if the supplier either:

· imports the goods into Australia; or

· installs or assembles the goods in Australia.

Goods and Services Tax Ruling GSTR 2000/31 provides guidance on when a supply is connected with Australia. In regard to goods being brought to Australia, the following information has been extracted from GSTR 2000/31:

52. A supply of goods is connected with Australia if the supply involves those goods being brought to Australia and the supplier either imports the goods into Australia (paragraph 9-25(3)(a)) or installs or assembles the goods in Australia (paragraph 9-25(3)(b)). The import of the goods into Australia or the installation or assembly of the goods in Australia is a supply of goods to Australia.

54. Paragraph 9-25(3)(a) does not apply to a supply of goods that involves goods being brought to Australia where the recipient imports the goods into Australia.

Example 12 - goods imported into Australia by supplier

140. US Co, a US company sells a tractor to Tract co, an Australian Earthmoving operator, on a DDP basis. US Co has to import the tractor into Australia. The supply made by US Co to Tract Co is a supply connected with Australia as the tractor (goods) is brought to Australia and it is US Co (the supplier) that imports it into Australia.

141. If a supply of goods involves the goods being delivered, or made available, to the recipient outside of Australia and the recipient subsequently imports the goods into Australia, the supply is not connected with Australia. The supply is not a taxable supply under section 9-5. However, the importation is a taxable importation and the recipient is liable to pay GST on the taxable importation.

Example 13 - goods imported into Australia by recipient

142. If in Example 12 US Co sells the tractor to Tract Co on an FOB basis, the tractor is imported into Australia by the recipient and the supply of the tractor is not connected with Australia under paragraph 9-25(3)(a). As the tractor is not delivered, or made available, in Australia to Tract Co, the supply of the tractor is not connected with Australia under section 9-25. However, the supply is a taxable importation made by Tract Co and Tract Co is liable to pay GST on the taxable importation.

Goods and Services Tax Ruling GSTR 2003/15 explains the meaning of the word 'import' for the purposes of the GST Act. The following information has been extracted from GSTR 2003/15:

29. Goods are typically imported into Australia when they are brought to Australia to be unloaded here. 'Imported' in this context has its ordinary meaning.

30. Imported goods are entered for home consumption, within the meaning of the Customs Act, by an 'owner', as defined in that Act, entering imported goods for home consumption. The imported goods are entered by lodging an import entry in the name of the 'owner'.

31. If you, as 'owner', lodge an import entry in your name, you either imported goods for home consumption within the meaning of the Customs Act and you are liable to pay GST on that importation if the importation is a taxable importation.

32. Typically, the 'owner' that enters imported goods is the legal owner of the goods, or the importer, exporter, consignee, or other person with an interest in, or control of, the goods. While the 'owner' can lodge the entry for home consumption itself, it is more likely that a licensed customs broker is engaged to prepare the entry on behalf of the 'owner'. In either case, the entry is made in the name of the 'owner' and, if it is a taxable importation, it is the owner that makes the taxable importation and is liable for GST. The customs broker does not make the taxable importation and is not liable for the GST on the taxable importation.

33. The definition of 'owner' in the Customs Act also includes an agent. If an agent enters goods for home consumption under an authority granted by the principal, it is the principal, not the agent that makes the taxable importation. The principal is liable to pay the GST on a taxable importation made through an agent.

35. Where an agent enters goods on behalf of a principal, the name of the agent appears on the entry form (unless the agent engages a customs broker and the goods are entered in the name of the principal). As the entity that appears as 'owner' on the entry form is ordinarily the entity that makes the taxable importation and is liable to pay the GST, it is important to be able to demonstrate the existence of an agency relationship where goods are entered in the name of an agent. Verifying the existence of an agency relationship is important for both liability and input tax credit purposes.

From the information received, the goods supplied by NR will be brought to Australia however NR will neither import the goods when they arrive in Australia nor install or assemble the goods in Australia. Accordingly, the supply of these goods will not be connected with Australia as the requirements in subsection 9-25(3) of the GST Act are not satisfied.

GST will therefore not be applicable to the supply of the goods as all the requirements in section 9-5 of the GST Act will not be satisfied.

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