Edited version of your private ruling

Authorisation Number: 1012556716599

Ruling

Subject: GST and supply of consultancy services to a non-resident entity

Question

Is a supply of consultancy services by an Australian entity (you) to a non-resident entity GST-free under section 38-190 of the A New Tax System (Goods and Service Tax) Act 1999 (GST Act)?

Answer

Yes, your supply of consultancy services to the non-resident entity is GST-free under section

38-190 of the GST Act.

Relevant facts and circumstances

You are a sole trader who is registered for goods and services tax (GST) in Australia.

You have entered into a contract with a non-resident entity to supply consultancy services providing support to entities outside Australia.

The Non-resident entity has an agreement with an Australian entity to provide consultancy services. The non-resident has in turn subcontracted you to provide these consultancy services.

The non-resident entity is an overseas company which is not registered for GST in Australia.

The work is conducted in overseas countries, thus it is provided outside Australia.

You write the reports and send them to the non-resident. The non-resident then sends the reports to the Australian entity in Australia. The Australian entity then forwards the reports to their posts in the respective countries outside Australia.

The non-resident entity does not have a permanent establishment in Australia. The Australian entity does not carry on its own business in Australia or carry on its business through a representative (such as an employee, agent, branch office or other subsidiary) in Australia in relation to your consultancy services, when your services are performed.

You do not deal and/or interact with the Australian entity in Australia in relation to your supply of consultancy services to the non-resident entity

The Australian entity sent you some information when the project was started. After that you have very little or no contact with the Australian entity in Australia.

You do not have any agreement with the non-resident entity to provide your consultancy services to the Australian entity in Australia or any other entity in Australia.

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 38-190(1)

A New Tax System (Goods and Services Tax) Act 1999, Subsection 38-190(3)

Reasons for decision

GST is payable on a taxable supply. Section 9-5 of the GST Act states: 

You make a taxable supply if:

(a) you make the supply for *consideration; and

(a) the supply is made in the course or furtherance of an *enterprise that you *carry on; and

(b) the supply is *connected with Australia; and

(c) 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 defined term in section 195-1 of the GST Act)

The supply of services by you to the non-resident entity will be taxable if all the requirements in section 9-5 of the GST Act are satisfied.

From the facts given, your supply of consultancy services to the non-resident entity satisfies paragraphs 9-5(a) to (d) of the GST Act, as follows:

(a) you make a supply of services in return for consideration by way of payments;

(b) you make the supply in the course of your business;

(c) the services are performed/provided in Australia or made through an enterprise that you carry on in Australia (and therefore the supply is connected with Australia); and

(d) you are registered for GST in Australia.

However, section 9-5 of the GST Act also provides that the supply is not taxable to the extent that it is GST-free or input taxed.

The supply of consultancy services by you to the non-resident entity does not satisfy the input taxed provisions under the GST Act. The GST-free provisions must now be considered.

GST-free

Section 38-190 of the GST Act lists supplies of things other than goods or real property, for consumption outside Australia that are GST-free. Of relevance to the supply of consultancy services by you to the non-resident entity is item 2 in the table in subsection 38-190(1) of the GST Act (Item 2).

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 the 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.

Accordingly, where the provisions of either (a) or (b) above are met, the supply will be GST-free if the non-resident is not in Australia when the thing supplied is done.

Non-resident not in Australia in relation to the supply

For the supply of your services to be GST-free under Item 2, there is a precondition that the non-resident must not be in Australia in relation to the supply when it is performed/provided.

Goods and Services Tax Ruling GSTR 2004/7 discusses when an entity is not in Australia when the thing supplied is done. Paragraph 37 of GSTR 2004/7 provides that a non-resident company is in Australia if that company carries on business (or in the case of company that does not carry on business, carries on its activities) in Australia through: 

(a) a fixed and definite place of its own for a sufficiently substantial period of time; or

(b) an agent at a fixed and definite place for a sufficiently substantial period of time.

In addition, if a non-resident company is determined to be in Australia on the basis of the above test, it is necessary to determine if the company is in Australia in relation to the supply, when the supply is done (that is, provided/performed).

 From the facts given, you supply the consultancy services to the non-resident entity based overseas. You advise that the non-resident entity does not carry on business or activities at or through a fixed and definite place of its own for a sufficiently substantial period of time in Australia. Furthermore, the non-resident entity does not have any representatives acting on its behalf in Australia in relation to your consultancy services to the non-resident entity and you deal directly with the non-resident entity who is overseas. Therefore, it is considered that the non-resident entity is 'not in Australia' for the purposes of Item 2.

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

Where a non-resident entity is not in Australia in relation to the supply when the thing supplied is done, it is necessary to determine if the other requirements in either paragraph (a) or (b) of Item 2 are satisfied.

Under paragraph (a) of Item 2, a supply of a thing that is made to a non-resident who is not in Australia when the thing supplied is done is GST-free if the supply is neither a supply of work physically performed on goods situated in Australia nor directly connected with real property situated in Australia when the work is done.

From the facts given, you advised that the supply of consultancy services by you to the non-resident entity is neither a supply of work physically performed on goods situated in Australia nor a supply directly connected with real property situated in Australia.

Further, paragraph 44 of Goods and Services Tax Ruling GSTR 2003/7 establishes that the supply of consultancy services is not directly connected with goods or real property. This is because we consider that a direct connection does not exist where the supply does not relate to particular goods or real property or only indirectly relates to such goods or real property.

Therefore, the supply of consultancy services by you to the non-resident entity satisfies paragraph (a) of Item 2 and is GST-free.

In addition, where the non-resident entity acquires your services in carrying on its enterprise (business), and is neither registered nor required to be registered for GST in Australia, the supply of services by you to the non-resident entity will also be GST-free under paragraph (b) of Item 2.

Please note that you are able to ascertain the GST registration status of an entity that you deal with by checking the Australian Business Register at www.abr.gov.au.

Limitations

Finally, having met the requirements of Item 2, it is also necessary to consider subsection 38-190(3) of the GST Act.

Subsection 38-190(3) of the GST Act states:

Without limiting subsection (2), 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.

Subsection 38-190(3) negates the GST-free status of a supply covered by item 2. It only applies if there is a supply of something, being a supply that is made to a non-resident and covered by Item 2, and that same supply is provided, or is required to be provided, to another entity in Australia.

Goods and Services Tax Ruling GSTR 2005/6 provides guidance in relation to the scope of subsection 38-190(3) and its application to supplies of things (other than goods or real property) made to non-residents that are GST-free under Item 2.

Paragraphs 54 and 61 of GSTR 2005/6 provide guidance in relation to the expression 'provided to another entity'. Generally a supply is made to whoever you are contractually liable to perform the services for, in this instance your supply is made to the non-resident entity. However, a supply is provided to whoever obtains the actual services.

A supply is made to a recipient and provided to another entity if in the performance of a service (or in the doing of something) the actual flow of that supply is to an entity that is not the recipient entity with which the supplier made the agreement for the supply. That is, while the contractual flow of the supply is to the recipient entity, the actual flow of the supply is to another entity.

From the facts provided, you have an agreement with the non-resident entity to provide your consultancy services to Australian entity's posts that are outside Australia. The actual flow of your consultancy services is to Australian entity's posts that are outside Australia.

Furthermore, you stated that you have no dealings/interactions with the Australian entity in Australia in relation to your supply of consultancy services to the non-resident entity and you do not provide the consultancy services to the Australian entity in Australia. In this situation, we consider that you are not providing your consultancy services to another entity in Australia. As your supply of services is made to the non-resident entity and provided to the Australian entity's posts that are outside Australia, subsection 38-190(3) of the GST Act does not exclude the supply of your consultancy services from being GST-free under Item 2.

To summarise, as stated above, the supply of your consultancy services to the non-resident entity satisfies all the requirements of Item 2. In addition, the supply is not excluded from being GST-free by subsection 38-190(3) of the GST Act. Therefore, based on the information provided, the supply of your consultancy services to the non-resident entity is GST-free.

For your information Goods and Services Tax Rulings GSTR 2004/7 and 2005/6 are available on the Tax Office website at www.ato.gov.au.

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