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Ruling

Subject: GST and supplies connected with Australia

Question 1

Is your supply of domain name registration services (Services) to either a third party Australian reseller or to an Australian Customer/Registrant a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No.

Relevant facts and circumstances

You are located overseas and are registered for GST. You act as a 'Registrar' of domain names for third parties (Registrants or Customers). A Registrar is effectively a type of middle man or manager for domain names between the Registrant/Customer and the country code top level domain Registry. The registration and maintenance of domain names must be done through an accredited Registrar. Registrars are the only entities which have direct access to the Registry for the purposes of registering a new domain name, renewing an existing domain name, or making changes to a domain name record.

The Registry is made up of two operating areas:

X, the industry regulatory body in Australia; and

Y, the manager and operator of the domain name registry system.

The Services provided by you as an accredited Registrar include:

applying to the Registry to register a domain name on behalf of a Registrant; and

providing all associated services to such Registrants, including services relating to the maintenance, delegation, transfer, modification, renewal and cancellation of a domain name or domain name licence.

The contracts for the supply of your Services to Australian Customers/Registrants are negotiated and concluded entirely either via the internet or through telephone sales with personnel located entirely outside of Australia. You have no presence in Australia and do not carry on business in Australia. Your activities are performed outside Australia and no services are provided to customers through a server located in Australia. For each domain name registration Service provided by you to your Customer, you receive a Service Fee. The Service Fee is based on the number of domain names registered for the customer. The Service Fee does not relate to the supply by you of any licence to the Registrant.

X, and not you, has the final decision on whether to grant the domain name licence to the Registrant. If the domain name licence is approved, X will Issue the domain name licence directly to the Registrant.

In some instances, you supply some Services to a third party reseller (Reseller), rather than directly to the Customer/Registrant. Whilst only accredited Registrars have direct access to the Registry, accredited Registrars such as you are authorised to appoint Resellers who are able to provide domain registration services to Customers/Registrants through an interface with their accredited Registrar.

Identical to your supply of Services directly to Customers/Registrants, you negotiate the contract with the Resellers from outside of Australia, and contracts with Australian Resellers are negotiated and concluded completely outside of Australia. Services to the Resellers are not provided by you through a server located in Australia. You make the supply of Services to the Reseller, who then make a separate supply of the same services to the Customer/Registrant in its own capacity (that is, other than as an agent of yours), subject to pricing set by the Reseller and subject to your price ceilings.

The Reseller's services to its Customers are made through its own website. The contractual agreement for this supply of services is between the Reseller and the Reseller's Customer. The Reseller's Customer, in many situations, is not aware it is purchasing services which are performed by you pursuant to a separate agreement between you and the Reseller. Further there is no contractual relationship between you and the Resellers Customer.

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 9-25

Reasons for decision

Summary

Your supply the Services to either a third party Australian Reseller or to an Australian Customer/Registrant is not connected with Australia and is therefore not a taxable supply under section 9-5 of the GST Act.

Detailed reasoning

Section 9-5 of the GST Act provides that you make a taxable supply, if amongst other things, the supply is connected with Australia. Section 9-25 of the GST Act defines when supplies are connected with Australia:

Supplies of goods wholly within Australia

(1) A supply of goods is connected with Australia if the goods are delivered, or made available, in Australia to the *recipient of the supply.

Supplies of goods from Australia

(2) A supply of goods that involves the goods being removed from Australia is connected with Australia.

Supplies of goods to Australia

(3) A supply of goods that involves the goods being brought to Australia is connected with Australia if the supplier either:

(a) imports the goods into Australia; or

(b) installs or assembles the goods in Australia.

Supplies of real property

(4) A supply of *real property is connected with Australia if the real property, or the land to which the real property relates, is in Australia.

Supplies of anything else

(5) A supply of anything other than goods or *real property is connected with Australia if:

(a) the thing is done in Australia; or

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

(c) all of the following apply:

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

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

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

Example: A holiday package for Australia that is supplied overseas might be connected with Australia under paragraph (5)(c).

When enterprises are carried on in Australia

(6) An *enterprise is carried on in Australia if the enterprise is carried on through:

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

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

In order to ascertain whether the Services meet the requirements of section 9-25 of the GST Act, it is necessary to classify what it is that you supply. A clause of your Domain Name Registration Agreement defines X and the Registrars' relationship to potential Customers:

In this agreement, X means the domain name administrator.

The Registrar acts as agent for X for the purposes but only as necessary, to enable X to receive the benefit of rights conferred to it under this agreement. X is an intended third party beneficiary of this agreement.

We consider that you are holding itself out to your Customers to be an agent of X. We consider that this relationship allows X and Y to administer and supply domain names through the offices of the chosen agent, (you). Your supply is therefore that of the provision of services that effectively allow the Customer to deal with X and Y. You also provide associated services to Customers that assist them in interacting with X and Y on an ongoing basis. You are considered to be a facilitator for the issue and maintenance of domain names.

The alternate view is that you are the actual issuer of domain names. The GST outcome of this type of supply, when made by a non-resident entity that is not in Australia, is that it is a non-taxable supply as the supply is not connected with Australia. Given the conclusion reached below, we do not consider it necessary to pursue this discussion.

You also make the same supplies it makes to Customers to third party Resellers in a business to business rather than principal to agent relationship. A clause of your Reseller Agreement provides:

That subject to the terms and conditions of this Agreement, you grant the reseller a non-exclusive, non-transferable license to resell the services worldwide. Your reseller account is non-transferable and cannot be sold separately or in conjunction with the sale of an existing site or business. The reseller is prohibited from selling the customers to other businesses. The services available for resale may not include all of the services that you offer for sale. The services that the reseller chooses to resell are subject to the corresponding product level agreement, as well as the terms and agreements located on the website.

You are considered to be a supplier of services and therefore should be tested against the provisions of subsection 9-25(5) of the GST Act, i.e. its supply of the Services will be connected with Australia if:

· the Services are done in Australia; or

· the Services are supplied through an enterprise that you carry on in Australia; or

· if the first two tests (above) don't apply but all the following apply:

· the Services are the supply of a right or option to acquire another thing;

· the supply of that other thing would be connected with Australia.

You have submitted that your supply is done outside of Australia. Pertinently you advise telephone sales staff are located outside Australia and your computer servers are also located outside Australia. Further, you advise that all contracts are negotiated and concluded outside Australia.

We agree with your contention that the Services are not done in Australia.

You have stated that you have no presence in Australia, not even a general agent and that you do not carry on business in Australia. As mentioned above staff and computer servers are not located in Australia.

Therefore we agree with your contention that the Services are not supplied through an enterprise that you carry on in Australia.

Finally, the last test in subsection 9-25(5) of the GST Act deals with rights; your supply is that of services, this test is inappropriate.

We conclude that your supply of the Services is not connected with Australia.

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