Edited version of your private ruling

Authorisation Number: 1012474680390

Ruling

Subject: GST and international services

Question 1

Can you issue the invoice in foreign currency?

Answer

Yes.

Question 2

Is the payment of sponsorship money from the overseas sponsor consideration for a taxable supply?

Answer

No

Relevant facts and circumstances

You run education events. You are registered for GST.

Partners sponsor the events to enable you to keep costs down.

You have recently received a sponsorship from XYZ Ltd (XYZ). The sponsorship money is for an exclusive sponsorship package to the Awards Event to be held during a conference in Australia this year.

You provided a copy of Contract No. XXX between XYZ and ABC, your overseas-based associate.

You also provided a copy of XYZ's resolution which provides that the Contract is for sponsorship and exhibition space with you. The justification for the execution of the contract provides that:

· It will provide XYZ with presence and promotional opportunities at several international conferences, to promote XYZ's business.

· Your events provide the unique opportunity for XYZ staff to meet with this target audience to achieve its primary business goal.

An Attachment of the Contract is your proposal dated Month, 20XX, which contains the following information in relation to the sponsorship package:

The Awards Event is the only way to speak before the entire audience.

Enjoy exclusive sponsorship opportunities for the Awards Event held during the conference, your benefits include:

· a booth at the trade show

· complimentary delegate registrations

· logo and banner presence at the Awards Event

· X-minute address to delegates at the Awards Event

· logo on electronic invitation to the Awards Event

· banner advertisement on your conference website

· insertion of company's products/promotional material in the conference satchel.

XYZ is an entity based in overseas and you are of the opinion that it is not carrying on a business in Australia either on its own or through an agent. Also, it is not registered or required to be registered for GST.

Delegates from overseas representing XYZ may be present at the Awards Event and will fly into Australia for the purpose of attending the event.

You advised that XYZ would like to be invoiced in foreign currency and does not want GST to be applied to the sponsorship money as it cannot claim the GST credit.

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 9-10.

A New Tax System (Goods and Services Tax) Act 1999 Section 9-15.

A New Tax System (Goods and Services Tax) Act 1999 Section 9-85.

A New Tax System (Goods and Services Tax) Act 1999 Section 29-70

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 195-1.

Reasons for decision

Question 1

Summary

It is a business decision whether you should issue your invoice or tax invoice in Australian dollars or foreign currency.

Detailed reasoning

An 'invoice' is defined in section 195-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) to mean 'a document notifying an obligation to make a payment'.

The effect of an invoice is to allow an entity to attribute the GST payable and input tax credits to the correct tax period.

The amount of GST on a taxable supply is 10% of the value of the taxable supply.

Subsection 9-85(1) of the GST Act provides that the value of a taxable supply is to be expressed in Australian currency for the purposes of the GST Act. Subsection 9-85(2) allows the Commissioner to determine the manner in which consideration in a foreign currency is to be converted into Australian currency to work out the value of the taxable supply.

Accordingly, for the purposes of the GST Act, the GST payable on your taxable supplies should always be expressed in Australian currency when you account for your GST payable and complete your activity statements.

However, there are many situations where entities make or receive supplies where the consideration is expressed in a foreign currency. Goods and Services Tax Ruling GSTR 2001/2 provides guidance on how to convert amounts of consideration that are expressed in foreign currency into Australian currency for GST purposes.

Accordingly, it is a business decision whether you should issue your invoice or tax invoice in Australian dollars or in foreign currency.

Question 2

Summary

The payment of sponsorship money from XYZ to you is not consideration for a taxable supply. It is consideration for a GST-free supply. Hence, GST is not payable.

Detailed reasoning

Section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you must pay the GST payable on any taxable supply that you make.

You make a taxable supply if the supply meets all of the requirements of section 9-5 of the GST Act. 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.

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

One of the requirements of a taxable supply is that you make the supply for consideration (paragraph 9-5(a) of the GST Act).

The term 'supply' is defined in section 9-10 of the GST Act as 'any form of supply whatsoever' and includes:

· a supply of goods

· a supply of services

· the creation, grant, transfer, assignment or surrender of any right, and

an entry into, or release from an obligation:

· to do anything

· to refrain from an act, or

· to tolerate an act or situation.

However, the definition of supply excludes a supply of money unless the money is provided as consideration for a supply that is a supply of money.

The term 'consideration' is defined in section 9-15 of the GST Act and extends beyond payments to include such things as acts and forbearances. That is, a payment will be consideration for a supply if the payment is 'in connection with', 'in response to' or 'for the inducement' of the supply.

However, it is not sufficient that there just be a 'supply' and 'consideration'. To satisfy the first requirement of section 9-5 of the GST Act, the supply must be made for consideration. This means that there must be a necessary relationship between the supply and the consideration.

The GST treatment of financial assistance depends primarily on whether the financial assistance represents consideration that has the relevant connection with the supply.

Goods and Services Tax Ruling GSTR 2012/2 explains the Commissioner's views on when a financial assistance payment is consideration for a supply.

Paragraph 15 of GSTR 2012/2 provides that for a financial assistance payment to be consideration for a supply there must be a sufficient nexus between the financial assistance payment made by the payer and a supply made by the payee. A financial assistance payment is consideration for a supply if the payment is 'in connection with', 'in response to' or 'for the inducement of' a supply.

In some arrangements the payer obtains a material benefit in return for the financial assistance payment.

Paragraph 32 of GSTR 2012/2 provides that where, in return for a financial assistance payment, the payee promotes the payer's business through promotional material, programs or uniforms or advertises the business at events and in the media, the payment will have a sufficient nexus with the supply of the promotion and advertising. That nexus is established where the payment is in connection with, in response to, or for the inducement of the promotion/advertising.

In this case, the sponsorship package is for the Awards Event to be held in Australia. The package includes:

· a booth at the trade show

· complimentary delegate registrations

· logo and banner presence at the Awards Event

· X-minute address to delegates at the Awards Event

· logo on electronic invitation to the Awards Event

· banner advertisement on your conference website

· insertion of company's products/promotional material in the conference satchel.

In accepting the terms of the sponsorship, there is a supply of promotion/advertising services with the sponsorship money being consideration for that supply. Hence, your supply of promotion/advertising services meets the requirement of paragraph 9-5(a) of the GST Act.

The requirements of paragraphs 9-5(b) and 9-5(d) of the GST Act are also met as:

· you supply the promotion/advertising services in the course or furtherance of an enterprise that you carry on and

· you are registered for GST.

As you are providing your services to an entity outside Australia, 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.

From the information provided, the promotion/advertising services are done in Australia. Hence, the supply is connected with Australia under paragraph 9-25(5)(a) of the GST Act.

Furthermore, the supply is connected with Australia under paragraph 9-25(5)(b) of the GST Act as the supply is made through the enterprise that you carry on in Australia.

Hence, you are making supplies that are connected with Australia and paragraph 9-5(c) of the GST Act is satisfied.

The supply of the promotion/advertising services 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.

GST-free

Paragraph 9-30(1)(a) of the GST Act provides that a supply is GST-free if it is GST-free under Division 38 of the GST Act or under a provision of another Act.

Section 38-190 of the GST Act provides that certain supplies of things other than goods or real property, for consumption outside of Australia are GST-free. As the supply of promotion/advertising services to XYZ is neither a supply of goods nor a supply of real property, section 38-190 of the GST Act is relevant for consideration.

Item 2 in the table in subsection 38-190(1) of the GST Act (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.

Non-resident

Section 195-1 of the GST Act provides that for GST purposes 'non-resident' means an entity that is not an Australian resident and 'Australian resident' means a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936).

Accordingly, a supply that is made to an entity is a supply to a non-resident for GST purposes if the entity is not a resident of Australia for income tax purposes.

Subsection 6(1) of ITAA 1936 provides that a company is a resident of Australia for income tax purposes if:

· the company is incorporated in Australia, or

· if not incorporated in Australia, it carries on business in Australia and has either its central management and control in Australia, or its voting power controlled by shareholders who are residents of Australia.

A company is defined in section 195-1 of the GST Act as:

· a body corporate or

· any other unincorporated association or body of persons

but does not include a partnership or a non-entity joint venture.

On the information provided, XYZ is not incorporated in Australia. Furthermore, XYZ is not a resident of Australia for income tax purposes. Therefore, XYZ is a non-resident for GST purposes.

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.

If a non-resident company has no fixed and definite place of its own in Australia, it may still carry on business in Australia through an agent from some fixed and definite place. The key issue in this kind of situation is whether the non-resident company is itself carrying on business in Australia through a duly appointed agent, or whether the business being conducted is the agent's own business, the non-resident company merely being one of its customers.

You have advised that XYZ conducts its business overseas and does not have a place of its own in Australia. Furthermore, you organise the event in Australia and XYZ is just one of your sponsors. Delegates of XYZ may attend the event. In this case, it is necessary to determine whether XYZ is in Australia in relation to your supply of promotion/advertising services when you provide the services to its delegates in Australia.

Paragraph 347 of GSTR 2004/7 provides guidance on 'in relation to supply'. It states:

347. Even if a company is in Australia, it may not be in Australia in relation to the supply and so can still satisfy the 'not in Australia' requirement in item 2 or item 3 or paragraph (b) of item 4. The following principles, which explain when a company is in Australia in relation to the supply, apply to all companies whether they are incorporated in Australia or outside Australia and whether they are residents of Australia or non-residents. Companies, unlike individuals, may have a presence in more than one location. A resident company that has a presence in Australia as well as offshore, may be regarded as not in Australia in relation to a particular supply that is provided to its offshore presence.

The example given in paragraphs 491 to 493 of GSTR 2004/7 is considered most relevant to this situation, which states:

Example 35 - employees of a non-resident company trained in Australia

491. Training Oz Style is an Australian company. Asia Tech is a Singapore based company. Asia Tech contracts with Training Oz Style to provide computer training in Australia for five employees of Asia Tech. Asia Tech does not carry on business in Australia at a branch office or through an agent.

492. Asia Tech is not in Australia. The fact that five employees visit Australia to receive training does not mean that Asia Tech is in Australia.

493. However, the supply of training made to Asia Tech is provided to another entity in Australia, the employees, and subsection 38-190(3) applies to that supply. The supply of computer training is therefore not GST-free under item 2.

In this case, you supply the promotion/advertising services to XYZ. The delegates of XYZ attend the event in Australia and the involvement of the delegates is limited to attending the event. Therefore, based on the above example, we consider that XYZ is not in Australia in relation to your supply of promotion/advertising services. As such, XYZ will meet the 'not in Australia' requirement for the purposes of Item 2.

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

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

For the purposes of paragraph (a) of item 2, the supply must be analysed to determine whether it is properly characterised as a supply of work physically performed on goods or is directly connected with real property situated in Australia.

Goods an 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.

Paragraph 21 of GSTR 2003/7 states:

21. Under items 1, 2 and 3 it is only where the connection between the supply and the goods or real property is a direct one that the location of goods or real property is regarded as the place where consumption occurs. The addition of the adverb 'directly' to the phrase 'connected with' implies a more emphatic connection between the supply and goods or real property. The inference is that the supply is so closely aligned with goods or real property that it is appropriate to treat the location of the goods or real property as the place where consumption occurs.

Paragraph 23 of GSTR 2003/7 provides that the goods or real property must be particular goods or real property for this very close connection to exist. A supply that is connected with goods or real property in general, rather than with particular goods or real property, does not have a sufficiently close connection with goods or real property for that connection to be a direct one.

Paragraph 33 of GSTR 2003/7 provides examples of situations where the Commissioner considers that a close link or association between the supply and particular goods or real property exists. An example given is where the direct object of the supply is the goods or real property in the sense that the supply changes or affects the goods or real property in a physical way. Examples of supplies that fall in this category are listed in paragraphs 37 and 38 of GSTR 2003/7. A common example of a supply of this kind is a supply of a service that is physically performed on particular goods or real property such as the repair of goods or building. Other examples of supplies of this kind include the installation, alteration, repair, cleaning, restoration or modification of goods.

From the information that you have provided, the nature of your supply to XYZ is the provision of services. The supply of promotion/advertising services is neither a supply of work physically performed on goods situated in Australia nor a supply directly connected with real property situated in Australia. Therefore, the supply of promotion/advertising services to XYZ is a supply covered under paragraph (a) of item 2.

Although there is no need to consider if the requirements of paragraph (b) of item 2 are met, those requirements are also satisfied because, based on the information you provided, XYZ acquires your promotion/advertising services in the course of its enterprise and is neither registered nor required to be registered for GST.

The scope of item 2 is limited by subsection 38-190(3) of the GST Act.

Subsection 38-190(3)

Subsection 38-190(3) of the GST Act states that a supply covered by item 2 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.

Goods and Services Tax Ruling GSTR 2005/6 explains the operation of subsection 38-190(3) of the GST Act. This ruling provides that subsection 38-190(3) of the GST Act only applies if there is a supply of something, being a supply that is made to a non-resident and is 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 of the supply is to one entity (the non-resident) and the actual flow of the supply is to another entity in Australia.

The intent of this provision is to impose a further location test when a supply is provided, or required to be provided, to another entity. If that other entity is in Australia, subsection 38-190(3) of the GST Act operates to negate the GST-free status that would otherwise apply under item 2.

If the nature of the supply is such that the supply is only provided to an entity that is not in Australia, subsection 38-190(3) does not apply. This outcome is not altered even if another entity in Australia benefits from a supply made to a non-resident and provided to another entity that is not in Australia.

Paragraph 571 of GSTR 2005/6 provides that depending on the exact nature of a supply of advertising services covered by item 2, subsection 38-190(3) may or may not negate the GST-free status of the supply.

Examples are provided which look at the facts and circumstances of the supply to determine whether a supply is provided to another entity in Australia when the thing supplied is done. Example 32 in paragraphs 573 to 578 of GSTR 2005/6 is relevant to your situation, and it states:

Example 32 - supply of advertising services made and provided to a non-resident parent company

573. An Australian advertising agency, Aus Ad Co, wins a contract to supply advertising services to an Egyptian company, Nile Co. The services are to develop and prepare advertising material for the products sold by the Nile Co group world-wide including products sold by the Australian subsidiary of Nile Co, Aust Co. Nile Co does not carry on business in Australia either through a place of business of its own or its subsidiary or any other agent acting on behalf of the company.

574. The advertising service supplied by Aus Ad Co is the development of an advertising campaign and the preparation of print, television and radio advertisements including those for the Australian market. Aus Ad Co only deals with Nile Co in relation to the development and preparation of the advertising campaign for the Australian brand of products. Nile Co exercises full control over the conduct of the advertising services and Aus Ad Co only talks to and works with the marketing staff of Nile Co in developing the campaign and the advertising material. The Australian subsidiary is not involved with the supply. Aus Ad Co delivers the advertising 'copy' (that is, the product) directly to the media in Australia.

Item 2

575. The supply of advertising services is made by Aus Ad Co to Nile Co, 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)

576. The supply of advertising services by Aus Ad Co to Nile 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

577. What is being supplied is an advertising campaign for the world-wide products of the Nile group. Having regard to the facts and circumstances of the supply including the way the supply is carried out - see paragraph 574, it follows that the supply of advertising services is made and provided to Nile Co. The nature of the supply is such that the supply is not provided to another entity, even though other entities in the Nile group, in particular, Aust Co, benefit from the advertising campaign run by Nile Co. The actual flow of the advertising service is to Nile Co, not Aust Co.

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

In your case, the supply of promotion/advertising services is under an agreement entered into with a non-resident. Paragraph 38-190(3)(a) of the GST Act is therefore satisfied.

What is being supplied is a service of promoting/advertising the business of XYZ. The nature of the service is such that the supply is provided to XYZ. While delegates of XYZ may be in attendance at the event, these delegates are not provided with the service of promotion/advertising, this is provided to XYZ.

Hence, subsection 38-190(3) of the GST Act does not negate the GST-free status of the supply covered by item 2. Accordingly, the supply of promotion/advertising services to XYZ is GST-free.

As such, the sponsorship money from XYZ is not consideration for a taxable supply. Therefore, GST is not payable.

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

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