Edited version of your private ruling

Authorisation Number: 1012546488604

Ruling

Subject: Goods and service tax (GST) and legal services provided to a non-resident

Question

Is GST payable on your supply of the legal services?

Answer

GST is payable on your supply of the legal services to a partial extent.

Relevant facts and circumstances

You are a professional.

Your business is based in Australia.

You are registered for GST.

Another firm engaged you to provide services and instructed you on the services to be performed. The other firm is liable to pay you for these services. You invoiced the other firm for your services.

The other firm is based in Australia.

The work you performed in this case was in regards to a non-resident who was making a claim for damages. The injuries were suffered by the claimant in Australia. The proceedings were issued by an Australian court.

The parties to the specific action were certain entities.

The provided a description of the work you did.

Your charges included an amount for travel to the overseas country and travel to Australia.

The claimant attended an Australian court.

Relevant legislative provisions

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

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

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

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

A New Tax System (Goods and Services Tax) Act 1999 section 9-70

A New Tax System (Goods and Services Tax) Act 1999 subsection 9-75(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(4)

Reasons for decision

Summary

Your supply of services is partly a GST-free supply under item 3 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). That provision deals with supplies that are consumed overseas.

GST is payable on your supplies of the services to some extent because:

· you supplied the services for consideration

· you made the supplies in the course or furtherance of the enterprise that you carry on

· the supplies were connected with Australia

· you are registered for GST, and

· part of your supply was not GST-free or input taxed.

Detailed reasoning

GST is payable by you on your taxable supplies.

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)

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

· you supplied services for consideration

· you supplied these services in the course or furtherance of an enterprise that you carry on, and

· you are registered for GST.

Connected with Australia

In accordance with subsection 9-25(5) of the GST Act, a supply of something 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.

Your supply of services was connected with Australia because you supplied these services through an enterprise that you carry on in Australia. Additionally, you performed these services partly in Australia. Therefore, you meet the requirement of paragraph 9-5(c) of the GST Act.

There are no provisions in the GST Act under which your supply of the services is input taxed.

Therefore, what remains to be determined is whether your supply of the services is GST-free.

Supplies of services consumed overseas

Item 3 in the table in subsection 38-190(1) of the GST Act (item 3) provides that a supply of something other than goods or real property is GST-free if:

(a) the supply is made to a recipient who is not in Australia when the thing supplied is done, and

(b) the effective use or enjoyment of which takes place outside Australia; other than a supply of work physically performed on goods situated in Australia when the thing supplied is done, or a supply directly connected with real property situated in Australia.

Subsection 38-190(4) of the GST Act states:

A supply is taken, for the purposes of item 3 in that table, to be a supply made to a *recipient who is not in Australia if:

(a) it is a supply made under an agreement entered into, whether directly or indirectly, with an

*Australian resident; and

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

Australia.

Item 3 is relevant to your situation because you supplied something other than goods or real property.

Paragraphs 59 to 62 of Goods and Services Tax Ruling GSTR 2005/6 provide guidance on the meaning of 'provided to another entity'. They state:

The meaning of 'provided to another entity'

59. The word 'provided' is used in subsection 38-190(3) to contrast with the term 'made' in item 2. In the context of section 38-190, the contrasting words indicate that if a non-resident contracts for a supply to be provided to another entity, the place of consumption should be determined with regard to the entity to which the supply is provided, not the entity to which the supply is made.

60. The example in the Explanatory Memorandum accompanying the Bill⁹ that introduced subsection 38-190(3) illustrates this. In that example, non-resident parents contract for the supply of education services to be provided to their children in Australia. The contractual flow of the services is to the parents, while the actual flow of the services is to the children. The supply is made to the parents (non-residents) and provided to another entity, each child, in Australia.

61. Thus the expression 'provided to another entity' means, in our view, that in the performance of a service (or in the doing of some thing), the actual flow of that supply is, in whole or part, to an entity that is not the non-resident entity with which the supplier made the agreement for the supply. The contractual flow is to one entity (the non-resident recipient) and the actual flow of the supply is to another entity.

62. For example, if a supply of entertainment services is made to a non-resident company and in the performance of that service the employees are the entities that are entertained, the actual flow of that service is to another entity, each employee (see above where the meaning of 'another entity' is discussed). The supply is made to the non-resident company (the employer) and provided to another entity (each employee).

Paragraph 94 of GSTR 2005/6 discusses the situation where a supply is provided to a non-resident individual who is not physically in Australia when the thing supplied is done. It states:

94. If a supply is provided (or is required to be provided) to a non-resident individual who is not physically in Australia when the thing supplied is done, the supply is not provided to that individual in Australia. Paragraph 38-190(3)(b) is not satisfied and therefore subsection 38-190(3) does not negate the GST-free status of the supply.

Paragraph 96 of GSTR 2005/6 discusses the situation where a supply is provided to a non-resident individual who is physically in Australia when the thing supplied is done. It states:

96. If a supply is provided (or is required to be provided) to a non-resident individual who is physically in Australia when the thing supplied is done and that individual's presence in Australia is integral to, as distinct from being merely coincidental with, the provision of the supply, we consider that the supply is provided to that individual in Australia. The requirement in paragraph 38-190(3)(b) is satisfied and subsection 38-190(3) (assuming the other requirements of the provision are satisfied) negates the GST-free status of the supply.

Paragraph 107 of GSTR 2005/6 provides guidance on determining whether an individual's presence at a particular location is integral to the provision of a supply. It states:

107. Determining whether an individual's presence at a particular location is integral to the provision of the supply requires an examination of the facts and circumstances of the supply. However, some indicators that an individual's presence at a particular location is integral to the provision of the supply, and is not merely coincidental, include:

· the need for the supply arises from the individual's presence at that location; or

· the presence of the individual at that location is integral to the performance, receipt or delivery of the supply.

Example 45 in GSTR 2005/6 involves a situation where an entity contracts a legal professional to seek compensation on behalf of a third party non-resident individual and the third party is in Australia for part of the time when the services are performed. In those respects, the example involves the same situation as in your case. Paragraphs 693 to 702 state:

Example 45 -a supply is provided to a non-resident individual in Australia for part of the time when the legal services are performed

693. William, an English tourist, is injured while on holidays in Australia. While in Australia recovering from his injuries, William's parents, who are non-residents, engaged Simon, a solicitor, to seek compensation on behalf of William.

694. The case took three months to finalise. During the first month (April 2005) while William was in Australia he met with Simon and discussed his case. Simon also commenced action on behalf of William. William continued his holiday returning home to England at the end of the first month (April 2005). Subsequently, William travelled to Australia to attend a mediation conference on 20 June 2005. William met with Simon prior to and after the conference. The matter was settled as a result of the conference.

695. Simon's hourly rate is $200 (plus GST (if any)) and he bills clients on a monthly basis for work done during the month. He accounts for GST quarterly and on a cash basis.

696. Simon receives the following payments for his services to William:

Explanation

Item 2

697. The supply of legal services is made to non-residents who are 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)

698. The supply of legal services by Simon to the parents is a supply under an agreement entered into with a non-resident. Paragraph 38-190(3)(a) is therefore satisfied.

(i) Provided to another entity

699. What is being supplied is a service of seeking, on behalf of William, compensation. The nature of the service is such that the supply is provided to William (as required).

(ii) Provided to that other entity in Australia

700. The supply is GST-free under item 2 to the extent that the supply is not provided to William in Australia (that is, subsection 38-190(3) does not negate the GST-free status).

701. As Simon accounts for GST on a cash basis, GST payable on the supply of legal services is attributable to a tax period to the extent that the consideration is received in that tax period. Therefore the consideration received in a quarterly tax period for the supply of the legal services must be apportioned on a reasonable basis to the extent that the supply is provided to William in Australia during that quarterly tax period.

Quarterly tax period ended 30 June 2005

702. The need for the legal services arises from William's presence in Australia. William is provided with legal services while in Australia in April 2005. The part of the supply performed during this time is therefore the taxable part of the supply. However, the supply is not provided to William in Australia to the extent that William is not physically located in Australia (that is, May 2005). Therefore the supply performed in the quarterly tax period ending 30 June 2005 is partly taxable and partly GST-free.

Effective use or enjoyment

Paragraphs 42 to 46 of Goods and Services Tax Ruling GSTR 2007/2 provide guidance to determine where effective use and enjoyment takes place. They state:

42. Thus in determining where a supply is used or enjoyed it is first necessary to establish the entity to which the supply is provided (the providee entity). The providee entity is also the recipient if the supply is not provided to some other entity. However, if the supply is provided to some other entity that other entity is the providee entity.

45. In our view, a supply is for consumption, and thus used or enjoyed, outside Australia if there is provision of the supply to the providee entity outside Australia.

46. On the other hand, effective use or enjoyment of a supply does not take place outside Australia, if there is provision of the supply to the providee entity in Australia.

You supplied services to a recipient who was in Australia when the thing supplied was done - the other firm. The other firm was the recipient of your supply because it contracted you to perform the services.

You supplied services under an agreement you entered into with an Australian resident - the other firm. Therefore, the requirement of paragraph 39-190(4)(a) of the GST Act is satisfied.

Although you supplied the services to the other firm, you provided the supply of these services to another entity - the claimant, as the services were performed to assist the claimant in obtaining compensation. This view is supported by example 45 of GSTR 2005/6.

The services you provided while the claimant was not physically in Australia were provided to an entity outside Australia because the providee is a non-resident individual who was physically outside Australia when you provided these services. The conference you and the claimant attended in the overseas country is an example of such services. This view is supported by example 45 of GSTR 2005/6. Hence, the requirement of paragraph 38-190(4)(b) of the GST Act is satisfied, and effective use and enjoyment of your services took place outside Australia, to the extent that your services were provided while the claimant was not physically in Australia. Your supplies of these services meet all of the requirements of subsection 38-190(4) of the GST Act. Hence, you are treated as having supplied these services to a recipient who was not in Australia when the thing supplied was done for the purposes of item 3. Your services did not involve a supply of work physically performed on goods situated in Australia when the work was done and the services were not directly related to real property located in Australia. Therefore, your supply of services while the claimant was not physically in Australia is GST-free under item 3. Hence, your supply of the services is not taxable to some extent.

Your on-charge of the cost of travelling to the overseas country to meet with the claimant and your return airfare and any charge for your associated travel time is part of the consideration for the GST-free part of your supply.

The claimant is a non-resident individual who was physically in Australia during part of the period over which you provided the services. The need for the supply arose from their presence in Australia. That is, the claimant needed the lservices as a result of an injury suffered while in Australia. Hence, the claimant's presence in Australia while you provided some of your services was integral to the provision of these services. Therefore, the services you provided while the claimant was physically in Australia were provided to an entity in Australia. An example of such services is representing the claimant at a court hearing attended by the claimant. This view is supported by example 45 of GSTR 2005/6. Hence, the services you provided while the claimant was physically in Australia were not provided to an entity outside Australia when the thing supplied was done. Therefore, the requirement of paragraph 38-190(4)(b) of the GST Act is not met. Hence, your supply of these services is not treated for the purposes of item 3 as having been made to a recipient who was not in Australia because not all of the requirements of subsection 38-190(4) of the GST Act are met. Therefore, you did not make a GST-free supply of these services under item 3. There are no provisions of the GST Act under which your supply of these services is GST-free. Hence, as all of the requirements of section 9-5 of the GST Act are met, you made a taxable supply to some extent.

In accordance with Goods and Services Tax Ruling GSTR 2001/8, you have made a mixed supply of services, because your supply of these services is partly GST-free and partly taxable. You need to apportion the total charge between the GST-free and taxable services and calculate GST at 1/11^th of the charge for the taxable services.

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