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Edited version of your private ruling

Authorisation Number: 1012345742125

Ruling

Subject: GST and supplies connected with Australia

Question

Is the sale of goods located in a bonded tank in Australia a taxable supply under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) where the supplier has brought the goods to Australia but does not complete any of the Customs formalities (i.e. is not named as 'owner' on the N20 or N30 Import Declarations)?

Answer

No.

Relevant facts

The Applicant is a global supplier of specialty products.

The Applicant supplies the Products of overseas origin to Entity A.

The Applicant and Entity A entered into a Supply Agreement (Agreement) which states that the Applicant shall 'sell and deliver or make available for delivery' and Entity A shall 'purchase, take delivery of and pay for' Products in the quantities, at the prices, and in accordance with the terms and conditions of the Agreement. The Agreement also states:

The Applicant provided copies of Import Declaration N20 (Declaration into a Warehouse) (N20) prepared by the customs broker which show Entity A as the 'Owner' of Products loaded overseas and discharged in Australia into a warehouses described as 'Entity A Terminals Bond' or 'Site B Bond'.

The Applicant stated in the ruling request that title to the Products passes to Entity A while the Products are in the bonded storage tanks and before the Products are entered for home consumption.

The Applicant advised that, at the time the Import Declaration N30 (Import Declaration out of Warehouse) (N30) is lodged by Entity A, title to the Products has already passed to Entity A, that the N30 lists Entity A as the Owner of the Products, and that Entity A pays the applicable customs duty and GST levied on importation. The Applicant does not enter any of the Products for home consumption either under Import Declarations N10 or N30, nor is the Applicant named as the 'Owner' of the Products for Customs purposes.

The Applicant is registered for GST and has treated the sale of the Products to Entity A as taxable supplies.

In support of the ruling request the Applicant referred to paragraphs 71 to 73 in Goods and Services Tax Ruling GSTR 2003/15:

and submitted that as all Customs formalities are completed by Entity A and not by the Applicant, supplies of the Products by the Applicant to Entity A are not connected with Australia and the Applicant is not obliged to account for GST in respect of those supplies.

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.

A New Tax System (Goods and Services Tax) Act 1999 Subsection 9-25(1).

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

A New Tax System (Goods and Services Tax) Act 1999 Section 13-5.

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

Reasons for decision

Summary:

The supply of the Products by the Applicant to Entity A pursuant to the Agreement is not connected with Australia pursuant to subsection 9-25(3) of the GST Act. Nor is that supply connected with Australia pursuant to subsection 9-25(1) of the GST Act.

Detailed reasoning:

Taxable supply:

An entity is liable to pay the GST on any taxable supply that that entity makes.

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) sets out the requirements for a taxable supply:

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

All of the requirements of section 9-5 of the GST Act must be satisfied for the sale of the Products by the Applicant to be a taxable supply.

The Applicant is registered for GST and the sale of the Products to Entity A is made for consideration and in the course of an enterprise carried on by the Applicant. Therefore the Applicant satisfies the requirements of paragraphs 9-5(a), 9-5(b) and 9-5(d) of the GST Act. Furthermore, the sale of the Products in the circumstances described is neither GST-free nor input taxed.

It remains to be determined whether the supply of the Products by the Applicant is connected with Australia under paragraph 9-5(c) of the GST Act.

Supplies connected with Australia

Section 9-25 of the GST Act sets out the circumstances in which a supply is connected with Australia. In this case, of relevance are subsections 9-25(1) and 9-25(3) of the GST Act, which state:

Supplies of goods wholly within Australia

Goods and Services Tax Ruling GSTR 2000/31 explains when a supply is connected with Australia under section 9-25 of the GST Act and Goods and Services Tax Ruling GSTR 2003/15 explains the operation of provisions of the GST Act which apply to the importation of goods into Australia.

Subsection 9-25(3) of the GST Act:

The ruling request addressed subsection 9-25(3) of the GST Act and included a submission that as the Applicant does not complete any Customs formalities, the supply of the Products is not connected with Australia.

Paragraphs 52 to 56 in the 'Ruling' section of GSTR 2000/31 discuss a supply of goods to which subsection 9-25(3) applies:

Paragraph 52 of GSTR 2000/31 refers to paragraphs 71 to 74 (already set out above) and paragraphs 221 and 222 of GSTR 2003/15:

The 'Explanation' section of GSTR 2000/31 contains a number of Examples where section 9-25(3) is or is not satisfied, including Example 13 where subsection 9-25(3) is not satisfied because the goods are imported by the recipient of the supply:

Paragraph 147 of GSTR 2003/15 states that an entity completes the customs formalities where that entity's name appears on the import entry as 'owner' and that this occurs where the entity completes the entry itself, or engages a customs broker.

In the Applicant's case, the Agreement provides that all Product sold to Entity A under the Agreement is sold on a bonded, non-customs cleared basis and it is Entity A's sole obligation and responsibility (at its own cost and risk) to complete all necessary Customs formalities and other regulatory requirements and pay all Australian duties, fees, and taxes in respect of and after discharge of the Product into tanks at Entity A's nominated Storage Terminal.

Although we have not seen any of the relevant N30s, the Applicant stated in the ruling request that the Applicant is not named as Owner on either the N20 or N30 and the copies of N20s completed by Expeditors International and provided to us refer to Entity A as Owner of the Products.

We therefore accept that the Applicant does not 'import the goods' for the purposes of subsection 9-25(3). Nor does the Applicant install or assemble the goods in Australia.

Consequently the supply of the Products by the Applicant to Entity A is not connected with Australia pursuant to subsection 9-25(3) of the GST Act.

Subsection 9-25(1) of the GST Act

Subsection 9-25(1) appears beneath the heading 'Supplies of goods wholly within Australia' and states that a supply of goods is connected with Australia if the goods are delivered or made available in Australia to the recipient of the supply.

Paragraphs 45 to 47 in the 'Ruling' section of GSTR 2000/31 state:

In the 'Explanation' section of GSTR 2000/31 paragraph 116 refers to the heading 'Supplies of goods wholly within Australia' which appears above subsection 9-25(1) of the GST Act and states that that heading forms part of the GST Act:

Paragraphs 117 to 120 of GSTR 2000/31 explain how goods are 'delivered' or 'made available' to the recipient of the relevant supply for the purposes of subsection 9-25(1):

The 'Delivery Procedures' and 'Offtake' provisions in the Agreement indicate that the Applicant makes the Products physically available, in Australia, for collection by Entity A:

As noted above, paragraph 47 of GSTR 2000/31 states that goods which are delivered or made available in Australia to the recipient may be goods that the supplier has imported and refers to the example at paragraph 124 of GSTR 2000/31:

Example 7 states that a supply of goods that have been imported is nevertheless a supply that is 'wholly within Australia' if those goods are delivered to the recipient in Australia. Given the emphasis in GSTR 2000/31 on where the goods are physically delivered or made available, there appears to be no distinction between Example 7 (where the supplier imports the goods and then physically delivers the goods to the recipient in Australia) and the present case (where the supplier physically makes the goods available to the recipient in Australia and the recipient then lodges the N30 and pays the customs duty and GST levied on importation).

However paragraph 49 in the 'Ruling' section of GSTR 2000/31 suggests that subsection 9-25(1) cannot apply to a supply where the recipient of the supply enters the goods for home consumption:

Paragraph 129 in the 'Explanation' section of GSTR 2000/31 repeats the proposition stated in paragraph 49 and paragraph 130 provides an example:

On the one hand, paragraph 49 suggests that subsection 9-25(1) cannot apply to a case where the recipient of a supply of goods imports the goods into Australia. On the other hand, the underlined words in paragraph 129 (above) indicate that paragraph 49 simply acknowledges that if the recipient of a supply of goods imports the goods into Australia, the goods must have been delivered or made available to the recipient outside Australia, in which case subsection 9-25(1) does not apply. The second view is illustrated in Example 8 where the seat covers must have been delivered or made available to Joe (or Joe's agent) Italy as Joe imports the seat covers to Australia and clears them through Customs and the Australian supplier of the seat covers (Seat Co) never handles the seat covers.

The second view is also supported by the discussion of the application of subsection 9-25(1) and 9-25(3) in two Examples in the Explanation section of GSTR 2000/31 which involve the supply of goods to Australia on different Inco terms:

Paragraph 251 in GSTR 2000/31 explains FOB terms:

The FOB terms in Example 13 mean that the recipient of the supply enters the goods for home consumption in Australia.

Notwithstanding that Example 13 involves a supply of goods that are imported into Australia, GSTR 2000/31 considers the application of both subsection 9-25(3) and subsection 9-25(1). In relation to subsection 9-25(1), paragraph 141 and Example 13 indicate that the tractor is not delivered or made available, in Australia, to the recipient of the supply because, under the FOB terms, the supplier (US Co) delivers the tractor to the recipient outside of Australia (i.e. delivers the tractor to the ship in the United States). However, the discussion in paragraph 141 and Example 13 concerning the non-application of subsection 9-25(1) does not apply to the supply of Products by the Applicant to Entity A because clause 5 of the Agreement obliges the Applicant to deliver the Products, in Australia, to the recipient of the supply (Entity A).

Reference to ATO Technical Projects:

Given the uncertainty concerning paragraph 49 in GSTR 2000/31, the ruling request was escalated to the ATO's Technical Projects section.

Technical Projects found that the fact that Entity A completed the N20 and N30 was determinative and referred to the discussion in Goods and Services Tax Ruling GSTR 2003/15 concerning which entity imports goods for the purpose of Division 15 of the GST Act (which contemplates only one importer) where both the supplier and recipient can be said to have caused the goods to be brought to Australia. GSTR 2003/15 states that, in the context of Division 15, importation is not achieved merely by landing the goods in Australia but also requires completion of Customs formalities (Para 137) and that where the parties agree to FOB, CIF or DDU Inco terms, the buyer is responsible for customs entry formalities.

Technical Projects considered that in the present case the terms in clause W of the Agreement, where Products are sold on a bonded, non-customs cleared basis and it is Entity A's sole obligation and responsibility (at its own cost and risk) to complete all necessary Customs formalities and other regulatory requirements and pay all Australian duties, fees, and taxes in respect of and after discharge of the Product into storage containers at Entity A's nominated Storage Terminal, are similar to DDU terms (described in GSTR 2003/15 as where the parties intend for the seller to deliver goods to the buyer's premises, but for the buyer to pay the GST to Customs on the entry (Paragraph 145, footnote 66)). Technical Projects referred to Example 6 in GSTR 2003/15, particularly Paragraph 182:

Applying the reasoning in paragraph 182 of GSTR 2003/15 (i.e. where the recipient of the supply (Mining Co) enters the goods for home consumption) to the present case, Technical Projects decided that subsection 9-25(1) does not apply to make the supply of the Products to Entity A connected with Australia because the Products are not in Australia when the arrangement for the supply is made and the Agreement requires Entity A to complete the process of importing the Products into Australia.

Australian Customs and Border Protection Service's website:

The Australian Customs and Border Protection Service's website states that a supply of goods held in bond in Australia is connected with Australia pursuant to subsection 9-25(1) of the GST Act:

Technical Projects considers that this advice concerns a case where the supplier completes the N20 to enter the goods into bond and is therefore distinguishable from the present case where Entity A completes both the N20 and N30.

All GST rulings and publications referred to above are available at the ATO website www.ato.gov.au


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