Edited version of your private ruling

Authorisation Number: 1012437891846

Ruling

Subject: GST and services provided to a non-resident company

Question 1

Is EA making a GST-free supply as set out in item 2 of the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) in relation to the supply of services to EU?

Answer

Yes.

Relevant facts and circumstances

1. EA and EU are both registered for Australian GST.

2. Both entities are ultimately owned by EK but they are not grouped for GST purposes.

3. EA operates from a number of sites around Australia. The supplies covered by this ruling request are made from within Australia.

4. The supplies, which are made pursuant to the Memorandum of Agreement (Memorandum) between EA and EU's predecessor, ES require EA to:

(a) Provide qualified EA employees to provide software support to EU's customers and distributors;

(b) Provide computers to support the EA employees;

(c) Provide any other resources necessary to support the EA employees; and

(d) Perform any accounting and administrative duties for the Australian offices.

5. EU supplies to its customers a range of products which are sold from overseas.

6. Under the relevant Double Tax Convention, EU is a resident overseas and is not a resident of Australia. EU does not have separate offices in Australia from which EU conducts business.

7. EA employees may visit nearby overseas locations with a view to identifying customers.

8. EA charges EU for the services. These services are generally provided by one of three EA employees.

9. EA's charges to EU comprise:

(a) the fully absorbed cost of the employee's time spent plus an appropriate margin; plus

(b) any commissions due to the employees based on the requests for a quotation which turn into overseas sales.

10. The roles of the three EA employees can be described as sales and customer support.

11. The activities of EA (and consequently its employees) are limited as follows:

(a) EA is permitted to search for and locate customer contacts and approach potential customers;

(b) EA is not authorised to (and does not) issue quotations for the EU products;

(c) EA cannot negotiate or conclude any contract, accept or fill orders for, or pack or distribute goods for EU.

12. EA refers potential customers to EU It is EU which decides whether a quote will be issued and the terms and conditions attaching to the quote.

13. Mr X, an overseas based employee of EU, acts as the official point of contact for EA.

14. The Memorandum states that the services to be provided include, but are not limited to:

(a) Technically qualified EA employees are to provide first tier support to EU's customers and distributors at a Customer Support Facility [CSF] located in Australia;

(b) Provision of computers and other tools as agreed to support the EA employees described in paragraph (a);

(c) Provision of such other resources (including employees/contractors) as necessary to support the EA employee(s) assigned to the CSF in accordance with agreed parameters; and

(d) Performance of other accounting and administrative duties in

support of the CSF.

15. You state in your request that the services provided by EA are predominately devoted to marketing of EU's products. Importantly EA does not provide:

(a) Reports or information in relation to EU's products to any other entity including any of EU's customers in Australia;

(b) Any form of substantial training for EU's products (any formal training is conducted overseas by EU);

(c) Extensive customer support.

16. You also state that EA provides only limited customer support.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999, section 38-190

Reasons for decision

Summary

EA is making a GST-free supply as set out in item 2 in the table in subsection 38-190(1) of the GST Act (Item 2) in relation to the supply of services to EU.

Detailed reasoning

Section 38-190 of the GST Act deals with supplies of things, other than goods or real property, for consumption outside Australia. EA in this instance has agreed to supply 'marketing and sales support services' which are appropriately considered under section 38-190 of the GST Act.

Item 2 of subsection 38-190(1) of the GST Act (Item 2) confers GST-free status on supplies of things, other than goods or real property, where the recipient is a non-resident and not in Australia when the supply is made:

38-190 Supplies of things, other than goods or real property, for consumption outside Australia

(1)The third column of this table sets out supplies that are GST-free (except to the extent that they are supplies of goods or *real property):

Supplies of things, other than goods or real property, for consumption outside Australia
Item	Topic	These supplies are GST-free (except to the extent that they are supplies of goods or *real property)...
1	…	…
2	Supply to *non-resident outside Australia.	a supply that is made to a *non-resident who 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.

EA supplies services rather than a supply of work physically performed on goods in Australia or a supply directly connected with real property situated in Australia. EU is a non-resident for GST purposes. If EU is not in Australia when EA makes its supply, Item 2 will apply.

Goods and Services Tax Ruling GSTR 2004/7 sets out the Commissioner's policy for ascertaining whether a non-resident or other recipient of a supply is 'not in Australia when the thing supplied is done'. At paragraph 37 GSTR 2004/7 states:

37. 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.

You advised that EU does not own, lease or occupy any premises in Australia at or through which EU conducts its business. Secondly, regarding an agent, you advised that neither EA, nor EA's employees have the authority to bind EU or to assume obligations on EU's behalf. Further EA and EA's employees cannot make sales on EU's behalf. The Memorandum effectively limits EA's authority and specifically excludes the granting of authority to:

(i). negotiate or conclude any contract in the name of [EU],

(ii). accept or fill orders on behalf of [EU], or

(iii). pack or distribute goods on behalf of [EU].

The Commissioner's view, as espoused in GSTR 2004/7 is that if an Australian agent does not have the power to bind a non-resident company without seeking the company's approval before binding the company it is more likely that the company is not 'in Australia' by means of the agent. In the circumstances outlined in your submission we accept that EU is not in Australia in relation to EU's acquisition of EA's supply to EU either through EU's own presence or through EU's dealings with EA.

Subsection 38-190(3) of the GST Act limits the application of Item 2:

(3) Without limiting subsection (2) or (2A), a supply covered by item 2 in that table is not GST-free if:

(a) it is a supply under an agreement entered into, whether directly or indirectly, with a *non-resident; and

(b) the supply is provided, or the agreement requires it to be provided, to another entity in Australia.

Subparagraph 38-190(3)(a) is satisfied because the supply of services is made by EA to EU pursuant to the Memorandum. For subparagraph 38-190(3)(b) of the GST Act to be satisfied, the supply of services made by EA to EU must be provided to another entity that is in Australia. Goods and Services Tax Ruling GSTR 2005/6 provides guidance on the Commissioner's interpretation of subsection 38-190(3). Paragraph 79 of GSTR 2005/6 states:

79. In situations where the contractual flow of a supply is to an entity (other than an individual), and it is necessary to determine whether the actual flow of the supply is to another entity (other than an individual), we consider that a strong indicator that the supply is provided to another entity is that the contracting entity has no further interaction with, or participation in, the provision of the supply beyond contracting and paying for the supply. However, the application of subsection 38-190(3) is still dependent upon on all the facts and circumstances of the supply. (Refer to Examples 5 (paragraphs 314 to 322) and 33 (paragraphs 580 to 587), Parts II and VI respectively of the Explanation section of this Ruling.

When supplying the services to EA, EU will necessarily liaise with EU's Australian customers. The Memorandum outlines the services to be supplied by EA and states:

Services include, but are not limited to:

(2) technically qualified EA employees to provide first tier support to [EU] customers and distributors at the Customer Support Facility [CSF] …. located in Australia; ….

In your submission you stated that, in relation to the after-sales and training support services, EA's role is actually limited to:

· managing and administering the office from which EA's employees work;

· providing limited assistance to EU to train EU's customers;

· following up with EU's customers to ensure they receive adequate training;

· providing product demonstration support to key sales opportunities; and

· serving as a point of contact for sales enquiries.

No formal training courses are held in Australia but are only conducted overseas by EU employees.

Notwithstanding the expansive array of services contemplated by the Memorandum, based on your submission we consider these tasks are supplies of support and facilitation services that are made and provided to EU so EU can better deal with EU's customers in Australia and nearby countries. It can be argued that EU's Australian customers obtain information and other benefits from EA's supplies. However those supplies are not provided by EA to EU's customers in Australia. These circumstances seem best reflected in Example 34 in Goods and Services Tax Ruling GSTR 2005/6:

Example 34 - supply of a telephone booking service made and provided to a non-resident

589. Trans-Europe Railways Co is a non-resident company which operates passenger rail in Europe. Trans-Europe engages an Australian company, Aus Bookings Co, to operate a telephone bookings centre in Australia. Aus Bookings Co operates a successful telephone bookings centre for other foreign transport operators. Customers call Aus Bookings Co to enquire about time tables, make reservations and buy tickets. Aus Bookings Co passes on the relevant information and money to Trans-Europe.

590. Trans-Europe does not carry on business in Australia either through a place of business of its own or through an agent at a fixed and definite place.

Item 2

591. The supply of booking services by Aus Bookings Co is made to Trans-Europe a non-resident company that is not in Australia when the services are performed. The supply satisfies the requirements of item 2 and is, therefore, a supply covered by item 2.

Subsection 38-190(3)

592. The supply of booking services by Aus Bookings Co to Trans-Europe Railway Co is a supply under an agreement entered into with a non-resident. Paragraph 38-190(3)(a) is therefore satisfied.

Provided to another entity

593. What is being supplied is a service of operating a telephone bookings/enquiry service - the receiving of telephone calls, the giving of train timetable and other information and the taking of telephone bookings and payments for Trans-Europe. The nature of the service is such that the supply is provided to Trans Europe. While the customers get information and other benefits, such as their travel booked, by calling Aus Bookings Co, the customers are not provided with the service of operating a bookings and enquiries service. This is provided to Trans-Europe.

594. Subsection 38-190(3) does not negate the GST-free status of the supply covered by item 2.

Accordingly, subsection 38-190(3) of the GST Act will not negate the GST-free status conferred on EA's supplies by Item 2. Therefore the supply of services made by EA to EU will be GST-free under Item 2.

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