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Authorisation Number: 1012393271766

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Ruling

Subject: Goods and services tax (GST) and licences to deliver training

Question

Is GST payable on the licence fee you charge Australian customers?

Answer

No.

Relevant facts and circumstances

You are registered for GST.

You are an overseas company that is based overseas.

You have no office in Australia.

You are a provider of online training resources aimed at the further professional development of people in certain professions.

You licence the use of these resources to various entities. You charge a single fee to your customer, which is a licence fee for allowing your customer to deliver the training program you have developed.

You send the licence agreement to your customer in Australia for signing, then the agreement is sent back to you and you sign it in your country.

All your material is online and it is tutored by certain sorts of people.

You train the initial cohort of tutors, who then cascade their training. Your training of the initial cohort of tutors is covered by the licence fee and represents a small percentage of the licence fee.

You monitor things from your country and provide second level support with any technical problems from your country. These services are covered by the licence fee.

You send employees to Australia once or twice a year to meet people, but you otherwise do not have employees in Australia. Your employees train the initial cohort of tutors while they (your employees) are in Australia.

Relevant legislative provisions

A New Tax System (Goods and Service Tax) Act 1999 subsection 7-1(1)

A New Tax System (Goods and Service Tax) Act 1999 section 9-5

A New Tax System (Goods and Service Tax) Act 1999 subsection 9-25(5)

A New Tax System (Goods and Service Tax) Act 1999 subsection 9-25(6)

A New Tax System (Goods and Service Tax) Act 1999 section 9-40

Reasons for decision

Summary

GST is not payable on the licence fee you charge Australian customers because it is consideration for a supply of a licence and this supply is not connected with Australia.

Detailed reasoning

GST is payable by you where you make a taxable supply.

You make a taxable supply where you satisfy the requirements of section 9-5 of the GST Act, which 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)

Paragraphs 17, 18 and 59 of Goods and Services Tax GSTR 2001/8 discuss composite supplies.

Paragraphs 17 and 18 of GSTR 2001/8 state:

17. In this Ruling, the term 'composite supply' is used to describe a supply that contains a dominant part and includes something that is integral, ancillary or incidental to that part. You treat a composite supply as a supply of a single thing. Paragraphs 55 to 63 explain what are integral, ancillary or incidental parts.

18. A composite supply is either taxable or non-taxable. It may also be a part of a larger mixed supply.

Paragraph 59 of GSTR 2001/8 states:

59. No single factor (by itself) will provide the sole test you use to determine whether a part of a supply is integral, ancillary or incidental to the dominant part of the supply. Having regard to all the circumstances, and taking a commonsense and practical approach, indicators that a part may be integral, ancillary or incidental include where:

· you would reasonably conclude that it is a means of better enjoying the dominant thing supplied, rather than constituting for customers an aim in itself; or

· it represents a marginal proportion of the total value of the package compared to the dominant part; or

· it is necessary or contributes to the supply as a whole, but cannot be identified as the dominant part of the supply; or

· it contributes to the proper performance of the contract to supply the dominant part.

You make a supply of a licence to deliver the training program you have developed.

The dominant part of your supply is the supply of the licence.
The services you provide under the licence agreement such as training the initial cohort of tutors are integral, ancillary or incidental to the dominant part, because

· it would reasonably be concluded that they are a means of better enjoying the dominant thing supplied, rather than constituting for customers an aim in itself

· these services would represent a marginal proportion of the total value of the package compared to the dominant part

· these services are necessary and contribute to the supply as a whole, but cannot be identified as the dominant part of the supply, and

· these services contribute to the proper performance of the contract to supply the dominant part.

Therefore, you are making a composite supply of a licence.

You satisfy the requirements of paragraphs 9-5(a), 9-5(b) and 9-5(d) of the GST Act. This is because:

· you supply the licence for consideration

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

· you are registered for GST.

There are no provisions in the GST Act under which your supplies of the licences are GST-free or input taxed.

Therefore, what remains to be determined is whether your supplies of the licences are connected with Australia.

Subsection 9-25(5) of the GST Act states:

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.

Subsection 9-25(6) of the GST Act provides that an enterprise is carried on in Australia if the enterprise is carried on through a permanent establishment in Australia.

Your supply of the licence is a supply of a right. This supply is not a supply of goods or real property.

Paragraphs 74 to 76 of GSTR 2000/31 provide the ATO view on determining whether the thing supplied is done in Australia where the thing supplied is a right. They state:

74. If the supply is the creation, grant, transfer, assignment or surrender of a right, the creation of that right in another, the granting, transfer or assignment of that right to another, or the surrender of that right, is done where the right is created in that other person, granted, transferred or assigned to that other person or surrendered respectively.

75. The act that creates that right in another or grants, transfers or assigns that right to another, or surrenders the right, will depend on the facts of each individual case.

76. If, for example, a right is granted under an agreement to another to use certain intellectual property, the granting of that right to another is done where the agreement is made. If the agreement is made in Australia, the supply of that right is connected with Australia. If the agreement is made outside Australia, the supply is not connected with Australia under paragraph 9-25(5)(a). However, even if the agreement is made outside Australia the supply is connected with Australia under paragraph 9-25(5)(b) if the supplier makes the supply through an enterprise that the supplier carries on in Australia (refer paragraphs 78 to 89 below).

The final signature for a licence agreement is made in your country. This final signature results in the contract being entered into and therefore the final signature is the act that grants the right. Therefore, the licence agreement is made outside Australia. Hence, the thing you supply (the right/licence) is not done in Australia.

Additionally, you do not supply the licence through an enterprise that you carry on in Australia as you do not supply the licence through a permanent establishment you have in Australia.

Paragraph 9-25(5)(c) of the GST Act is not relevant to your situation.

Therefore, your supply of a licence is not connected with Australia. Hence, the requirement of paragraph 9-5(c) of the GST Act is not satisfied.

As not all of the requirements of section 9-5 of the GST Act are satisfied, you do not make a taxable supply in return for the licence fee. Hence, GST is not payable on the licence fee.

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