Edited version of administratively binding advice

Authorisation Number: 1012563764929

Advice

Subject: GST and supply of goods

Question

Are the supplies of the specified goods by X to Australian customers taxable supplies under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Advice

No.

Relevant facts and circumstances

X is a non-resident company for Australian tax purposes and is based in an overseas country. The business operations of X take place overseas. X is not registered or required to be registered for Australian GST. X has no presence in Australia.

X is a subsidiary of Y. Y is based in Australia and a resident of Australia for income tax purposes.

X will contract with Australian customers in respect of the sale of specified goods that will be directly imported by Australian customers.

Goods ordered from overseas suppliers that are relevant to X will be imported into the overseas country and will be stored in X's warehouse in the overseas country. X will take title in the goods imported into the overseas country and the associated inventory risk.

Y will act as agent for X. Y will advertise the specified goods on its website and Australian customers will place orders constituting offers for purchase of the specified goods. When an Australian customer places an order for purchase of the specified goods through the Y's website, the order details will be passed on to X by Y. The order will be fulfilled by X, not Y in relation to the specific goods. This will be reflected in the Terms and Conditions of Y which will provide for confirmation of the supplier at the time that the customer's order is accepted and communicated.

The specified goods will then be imported by Australian customers directly from outside Australia, namely, from X in the overseas country. The Australian customer will be the importer of the specified goods.

A copy of the Online Terms and Conditions under which X will supply the specified goods to Australian customers was submitted to us.

Under the proposed agreement when a customer goes online into the direct import area of X and purchases goods, these goods will be consigned by X and assigned/addressed to the Australian customer and delivered to the customs delivery point in the overseas country by a freight forwarder. From the delivery point the Australian customer has the responsibility of bringing the goods into home consumption.

The Online Terms and Conditions provide that if the customer's order for the specified goods arrives in Australia and the customs value is greater than the low value import threshold, the customer may be required to lodge a customs import declaration and pay the relevant taxes. Further, the Australian customer who orders the specified goods online from X will be responsible and will import these goods into Australia from the overseas country.

Y's submission:

The supplies of the specified goods to Australian customers will not be connected with Australia as it is the Australian customers that will import the goods into Australia. Consequently, the supplies of the specified goods are not taxable supplies for the purposes of section 9-5 of the GST Act.

Relevant legislative provisions

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

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(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 9-25(3)

Reasons for decision

Question

Are the supplies of the specified goods by X to Australian customers taxable supplies under section 9-5 of GST Act?

Summary

The supplies made by X to Australian customers are not taxable supplies under section 9-5 GST Act.

Detailed reasoning

Section 7-1 the GST Act provides that GST is payable on taxable supplies and taxable importations.

A supply is taxable supply if it 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 the supply is connected with Australia (paragraph 9-5(c) of the GST Act).

Section 9-25 of the GST Act defines, among other things, when a supply of goods is connected with Australia. Subsections 9-25(1) and 9-25(3) of the GST Act are relevant for consideration. These subsections state:

Supplies of goods wholly within Australia

(1) A supply of goods is connected with Australia if the goods are delivered, or made available, in Australia to the *recipient of the supply.

…

Supplies of goods to Australia

(3) A supply of goods that involves the goods being brought to Australia is connected with Australia if the supplier either:

(a) imports the goods into Australia; or

(b) installs or assembles the goods in Australia.

Goods and Services Tax Ruling GSTR 2000/31 (GSTR 2000/31) explains when a supply is connected with Australia.

Paragraph 49 of GSTR 2000/31 discusses when a supply of goods is not considered to be wholly within Australia for the purposes of subsection 9-25(1) of the GST Act. This paragraph states:

49. Where the recipient imports the goods into Australia, the supply of goods is not connected with Australia under subsection 9-25(1) because the goods are not delivered, or made available, in Australia to the recipient of the supply.

Paragraph 116 of GSTR 2000/31 gives context to how broadly subsection 9-25(1) is to be applied due to the role of the heading:

116. The heading to this subsection, 'Supplies of goods wholly within Australia', forms part of the GST Act pursuant to subsection 182-1(1) and points to the operation of subsection 9-25(1) being limited to the supply of goods wholly within Australia. This limitation is also supported by the Explanatory Memorandum accompanying the GST Act which shows, diagrammatically, the supply and receipt of goods wholly within Australia.

Paragraph 122 of GSTR 2000/31 gives additional context to subsection 9-25(1) of the GST Act due to the role of subsections 9-25(2) and 9-25(3) of the GST Act:

122. Subsection 9-25(1) does not apply to goods where the supply is a supply of goods from Australia or to Australia. Supplies of this kind are covered by subsections 9-25(2) and (3) respectively (refer paragraphs 126 and 131 respectively).

In summary paragraph 129 reiterates the conclusions formed under the ATO view at paragraph 49 being:

129. A supply of goods that involves the recipient importing the goods into Australia is not connected with Australia under subsection 9-25(1) as the goods are not delivered, or made available, in Australia to the recipient of the supply. Also, the supply of goods is not connected with Australia under paragraph 9-25(3)(a) because the supplier does not import the goods. However, the recipient importer will make a taxable importation.

Under the proposed agreement when a customer goes online into the direct import area of X and purchases goods, these goods will be consigned by X and assigned/addressed to the Australian customer and delivered to the customs delivery point in the overseas country by a freight forwarder. From the delivery point the Australian customer has the responsibility of bringing the goods into home consumption.

Under the proposed agreement it is the customer that imports the goods into Australia. As such, the supply is not wholly within Australia due to the recipient being the importer. Accordingly the supply of the specified goods by X to the Australian customers is not connected with Australia under subsection 9-25(1) of the GST Act given that the recipient is the importer.

In relation to 'supplies of goods to Australia' for the purposes of subsection 9-25(3) of the GST Act, paragraph 54 of GSTR 2000/31 states:

54. Paragraph 9-25(3)(a) does not apply to a supply of goods that involves goods being brought to Australia where the recipient imports the goods into Australia.

Further, paragraphs 72 and 73 of GSTR 2003/15 state:

72. For supplies of goods to Australia, paragraph 9-25(3)(a) provides that the supply is connected with Australia if the supplier imports the goods. A supplier imports goods where the supplier causes the goods to be brought to Australia to apply them to its own purposes and completes the customs formalities.

73. This is the case where a supplier causes the goods to be brought to Australia and enters the goods for home consumption, or for warehousing or transhipment (within in the meaning of the Customs Act). However, a supplier does not import goods where the customs formalities for the importation of the goods are completed by the entity that acquires the goods from the supplier.

The Online Terms and Conditions provide that if the customer's order for the specified goods arrives in Australia and the customs value is greater than the low value import threshold, the customer may be required to lodge a customs import declaration and pay the relevant taxes. Further it was submitted that the Australian customer who orders the specified goods online from X will be responsible and will import these goods into Australia from the overseas country. As such, it is X's customer that will import the goods into Australia and will be the entity who enters the goods for home consumption (where required). The supply of the specified goods by X to Australian customers therefore is not connected with Australia under subsection 9-25(3) of the GST Act as neither paragraph 9-25(3)(a) nor paragraph 9-25(3)(b) of the GST Act are met.

Further, the supply of the specified goods by X to Australian customers under the proposed arrangement is not connected with Australia under any other provision of the GST Act or a provision of another Act. Therefore, the supply is not a taxable supply as it does not meet all the requirements of section 9-5 of the GST Act.

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