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Authorisation Number: 1012335749032

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Ruling

Subject: GST and international services

Question 1

Are you required to be registered for GST?

Answer

Yes.

Question 2

Is the supply of consultancy services to the non-resident company GST-free?

Answer

Yes.

Relevant facts

You have provided consultancy services to an overseas-based company.

You, as the consultant, entered into a Consultancy Agreement with Entity X where you commit to support and assist Entity X in the organisation of its commercial agency set-up in Australia. The Consultancy Agreement provides the following:

· The tasks that you would undertake under the Consultancy Agreement include:

o Support to the implementation of the new agency to be put in place.

o Define and formulate any recommendation in respect of and develop any action likely to facilitate the installation of the new agency and to promote the smooth transition between past and new agency set-up.

o Provide any support to both Entity X and the new agent to promote the marketing and sales of the products in Australia.

· The consultancy fees payable in consideration for the services are fixed and paid pursuant to rates fixed in the Consultancy Agreement. The consultancy fees depend on the success of sales contracts concluded between Entity X and its customers in Australia and the receipt by Entity X of payment from the customers.

· The Consultancy Agreement is in force from 1 July 20XX for a period of X years.

You have previously entered into an agency agreement with Entity X where you were granted exclusive agency for the contracted products in Australia. You assigned all your rights and obligations under the agency agreement to a related entity.

Entity X is a manufacturer of specialty goods and sells and exports these products to various countries. It is a company incorporated according to the laws of a foreign country and whose principal office is in that country. It is not a resident of Australia for income tax purposes and is not registered with the Australian Securities and Investments Commission (ASIC). It does not have a permanent establishment in Australia and does not carry on its business in Australia at or through a fixed and definite place of its own or through an agent. It is not registered for GST in Australia.

You do not have the authority to enter into legal relations with other entities in Australia on behalf of Entity X. You are not its general mercantile agent and do not negotiate any contracts for it.

Any advice and information is provided to Entity X in the foreign country and on occasion to its offices in other countries.

You have virtually no interaction with Entity X in Australia, apart from an occasional short visit to Australia by Entity X representatives.

You are not currently registered for GST.

Providing consultancy services to Entity X is your only enterprise.

You provided copies of detailed profit and loss account which show that the income received for any given year is in excess of $75,000.

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 9-20.

A New Tax System (Goods and Services Tax) Act 1999 Section 23-5.

A New Tax System (Goods and Services Tax) Act 1999 Section 25-1.

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).

A New Tax System (Goods and Services Tax) Act 1999 Section 188-10.

A New Tax System (Goods and Services Tax) Act 1999 Section 188-15.

A New Tax System (Goods and Services Tax) Act 1999 Section 188-20.

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1.

Reasons for decision

Question 1

Section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) outlines who is required to be registered for GST and it states:

You are required to be registered under this Act if:

(a) you are *carrying on an *enterprise; and

(b) your *GST turnover meets the *registration turnover threshold.

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

The registration turnover threshold is $75,000 or $150,000 for non-profit organisations.

'Enterprise' is defined in the GST Act to include, among other things, activities or series of activities done in the form of a business.

In your case, you are carrying on an enterprise of providing consultancy services. Therefore, you meet the requirements of paragraph 23-5(a) of the GST Act.

You are required to be registered for GST if you also satisfy the requirements of paragraph 23-5(b) of the GST Act, that is, if your GST turnover meets the registration turnover threshold of $75,000.

Your GST turnover meets the registration turnover threshold if either:

· your current GST turnover is $75,000 or more (excluding GST) and the Commissioner is not satisfied that your projected GST turnover is below $75,000, or

· your projected GST turnover is $75,000 or more (excluding GST).

Your 'current GST turnover' at a time during a particular month is the value of all the supplies that you make, or are likely to make in that month, plus all the supplies that you have made in the previous 11 months. Your 'projected GST turnover' at a time during a particular month is the value of all the supplies that you have made, or are likely to make in that month, plus all the supplies that you are likely to make in the next 11 months.

When calculating your current and projected GST turnovers, certain supplies are excluded including supplies that are not connected with Australia.

As you are providing consultancy services to a non-resident entity, we need to determine if you are making supplies that are connected with Australia.

Subsection 9-25(5) of the GST Act provides that a supply of anything other than goods or real property is connected with Australia if, among others:

(a) the thing is done in Australia or

(b) the supplier makes the supply through an enterprise that the supplier carries on in Australia.

Goods and Services Tax Ruling GSTR 2000/31 explains when a supply is connected with Australia.

Paragraph 65 of GSTR 2000/31 provides that if the thing being supplied is a service, the supply of that service is typically done where the service is performed. If the service is performed in Australia, the service is done in Australia and the supply of that service is connected with Australia. This is the case even if the recipient of the supply is outside Australia.

In your case, your consultancy services are done in Australia. Hence, the supply is connected with Australia.

Accordingly, the consultancy fee that you receive from Entity X is included in working out your current and projected GST turnovers regardless of whether the supply of your consultancy services is GST-free or not.

The Consultancy Agreement and the profit and loss account indicate that your consultancy fees are greater than $75,000. Hence, as your current and projected GST turnovers are more than $75,000, you are required to register for GST.

You should note that under section 25-1 of the GST Act you are required to apply for GST registration within 21 days after becoming required to be registered.

The publication GST for small business, which is available from our website www.ato.gov.au, explains what you must do to meet your GST obligations.

Question 2

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

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.

Your supply of consultancy services to Entity X satisfies the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act. This is because:

(a) the supply is made for consideration

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

(c) the supply is connected with Australia as the services are done in Australia and

(d) as outlined in question 1 above, you are required to be registered for GST.

The supply as outlined in the Consultancy Agreement is not input taxed under any provision of the GST Act or any other Act. It remains to be determined if the supply is GST-free.

Subsection 38-190(1) of the GST Act specifies the circumstances where the supply of things other than goods or real property, for consumption outside Australia, is GST-free.

Of particular relevance to your supply is 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 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 for GST.

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.

You advised that Entity X is a company existing under the laws of a foreign country whose principal office is in that country, and that Entity X is not a resident of Australia for income tax purposes.

The meaning of 'not in Australia'

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

The requirement that the non-resident in item 2 is not in Australia when the thing supplied is done is a requirement that the non-resident is not in Australia in relation to the supply when the thing supplied is done.

At paragraph 37 of GSTR 2004/7, we established a test where 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.

Further, a non-resident company is in Australia in relation to the supply if:

· the supply is solely or partly for the purposes of the Australian presence, or

· the presence of the company is involved in the supply, unless the only involvement is minor.

You advised that Entity X does not have any business of its own in Australia nor carry on business through an agent in Australia. Although Entity X representatives have visited Australia for short periods, Entity X, either through its employees, representatives or agents, is not in Australia when you provide your services. Further, all communications in relation to your supply are made directly to Entity X in the foreign country and on occasion to its offices in other countries.

Based on the information provided, we consider that Entity X is not in Australia in relation to your supply when such supplies are made.

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

Paragraph (a) and/or (b) of item 2

The requirement in paragraph (a) of item 2 is met if the thing supplied is neither work physically performed on goods situated in Australia when the work is done, nor directly connected with real property situated in Australia.

Goods and 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.

Paragraphs 68 and 69 of GSTR 2003/7state:

68 … If the supply includes work physically performed on goods but that work is ancillary to some other dominant part of the supply that is not work physically performed on goods, then that supply is not characterised as a supply of work physically performed on goods. This depends on the particular facts of each supply.

69. For example, a supply of a report on the results of testing and analysing samples of goods is characterised as a supply of information or advice if the dominant part of the supply is the analysis of data to enable a professional opinion to be provided. The supply is not characterised as a supply of work physically performed on goods. The testing and analysis of samples of goods enables the information to be compiled and is ancillary to the supply of that information.

From the information provided, we consider that the requirements in paragraph (a) of item 2 are satisfied because the dominant part of your supply to Entity X is a supply of information or advice. This supply is neither a supply of work physically performed on goods nor a supply directly connected with real property in Australia.

Accordingly, the supply satisfies the requirements of paragraph (a) of item 2.

As the requirements of paragraph (a) of item 2 are satisfied, there is no need to consider if the requirements of paragraph (b) of item 2 are met.

Exclusion

The scope of item 2 is limited by subsection 38-190(3) of the GST Act which provides that a supply covered by item 2 is not GST-free if:

· it is a supply under an agreement entered into, whether directly or indirectly with a non-resident, and

· 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 provides the ATO view on the operation of subsection 38-190(3) of the GST Act. The ruling explains that subsection 38-190(3) only applies if there is a supply of something, being a supply that is made to a non-resident and 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 is to one entity (the non-resident entity) and the actual flow of the supply is to another entity.

From the information provided, subsection 38-190(3) of the GST Act is not applicable to your supply to Entity X as you are not required under the Consultancy Agreement to provide the supply to another entity in Australia. Hence, the contractual and actual flow of the supply is to Entity X.

Therefore, subsection 38-190(3) of the GST Act does not exclude your supply from being GST-free under item 2.

Accordingly, your supply to Entity X as outlined in the Consultancy Agreement is GST-free. Hence, GST is not payable on this supply.

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