Edited version of your private ruling

Authorisation number : 1012571296301

Ruling

Subject: Whether the supply made under a Sponsorship Agreement is a composite supply which is GST-free pursuant to item 4 in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Question 1

Is the supply made by A to B under the Sponsorship Agreement for the Event (Agreement) a composite supply?

Answer

Yes, the supply made by A to B under the Agreement is a composite supply.

Question 2

Is the supply made by A to B under the Agreement a GST-free supply pursuant to paragraph (b) of item 4 in subsection 38-190(1) of the GST Act?

Answer

Yes, the supply made by A to B under the Agreement is a GST-free supply pursuant to paragraph (b) of item 4 in subsection 38-190(1) of the GST Act.

Relevant facts and circumstances

The Parties:

A is the promoter and organiser of the Event which is held annually.

B is a company organised under the laws of an overseas country and carries on business manufacturing and distributing a product.

B has a subsidiary company in Australia, C, which is not a party to the Agreement but provides products for the Event and is responsible for displays at the Event in order for B to comply with B's obligations under the Agreement

The Agreement:

A and B entered into the Agreement late in the recent year.

The Agreement sets out the Sponsor Rights and Benefits and states that, in consideration of payment of the Sponsorship Fee by B, A grants to B for the Term the following Rights and Benefits:

product exclusivity whereby A will not grant any sponsorship rights or benefits in respect of the Event to any manufacturer, marketer, distributor or retailer of a Competing Product;

the right to be recognised as the Major Sponsor of the Event, including the right to use certain Designations;

non-exclusive usage entitlements to the Event Logos and Event Imagery; and

the Rights and Benefits set out in Schedule 1 to the Agreement.

Part A of Schedule 1 to the Agreement lists in more detail the Rights granted to B in relation to the Event, i.e. product exclusivity, the right to use the Designations, the right to use the Event Logos and Event Imagery.

Part B of Schedule 1 lists the Benefits received by B, i.e.

Premier Signage rights and benefits;

Precinct Signage rights and benefits;

Event Presence, e.g. the right to display B's products in prominent positions during each Event, to conduct Promotional Activities at the Event, to use specified locations to display product information and to have a representative make a short speech at trophy presentations;

'Money can't buy' experiences;

Official Program benefits;

Digital Media Rights;

Ticketing;

Hospitality;

Car Parking and Transport;

The Agreement also specifies the Sponsorship Fee and Value In Kind Product to be paid and provided by B to A.

Submissions in the ruling request:

It was submitted that the supply made by A under the Agreement is a composite supply which consists of one dominant part (the supply of sponsorship rights to B) and that any other benefits supplied to B are ancillary to the dominant supply of sponsorship rights. The ruling request referred to the definition of 'composite supply' in paragraph 17 of Goods and Services Tax Ruling GSTR 2001/8 (i.e. a supply that contains a dominant part and includes something that is integral, ancillary or incidental to that part) and the factors listed in paragraph 59 of GSTR 2001/8 for determining whether a part of a supply is integral, ancillary or incidental. It was submitted that the Sponsorship Fee and value in kind paid and provided by B is consideration for the supply of the right to be sponsor of the Event and that additional benefits received by B under the Agreement (e.g. tickets, hospitality and parking) are incidental or ancillary.

In relation to paragraph (b) of item 4 in subsection 38-190(1) of the GST Act it was submitted that the supply of sponsorship rights was 'done' for GST purposes when the Agreement was executed. It was further submitted that B is not an 'Australian resident' and is 'outside Australia' for the purposes of paragraph (b) of item 4 because B is incorporated outside Australia and does not carry on business in Australia. Referring to paragraph 319 of Goods and Services Tax Ruling GSTR 2004/7, it was submitted that the fact that a subsidiary of B (i.e. C) carries on business in Australia does not mean that B carries on business in Australia.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999, subsection 38-190(1).

Reasons for decision

Question 1

Summary

The supply made by A to B is a composite supply because one part of the supply is the dominant part (i.e. the supply of the exclusive right to be recognised as the Major Sponsor of the Event) to which the other parts of the supply are integral, ancillary or incidental.

Detailed reasoning

Taxable and GST-free supplies:

Subsection 7-1(1) of the GST Act states that GST is payable on taxable supplies.

Section 9-5 of the GST Act states that an entity makes a taxable supply if the supply is made for consideration, made in the course or furtherance of an enterprise carried on by the entity, is connected with Australia, and the entity is registered for GST or required to be so registered. However such a supply is not a taxable supply to the extent that it is GST-free. Subsection 9-30(1) of the GST Act states that a supply is GST-free if it is GST-free under Division 38 of the GST Act or under a provision of any other Act or is a supply of a right to receive such a supply.

Mixed supply or composite supply:

Goods and Services Tax Ruling GSTR 2001/8 states:

10. It may be necessary to characterise what is supplied to determine whether it wholly or partly meets the requirements of section 9-5 or a provision that makes it non-taxable.

11. Where you make a supply that is identifiable as having more than one part and each part is taxable, you do not need to apportion the consideration for the supply. This is because GST is payable on the whole supply. Similarly, if all of the parts of a supply are identifiable as being non-taxable, GST is not payable on any part of the supply.

12. However, where you make a supply that is a combination of separately identifiable taxable and non-taxable parts, you need to identify the taxable part of the supply. Then you can apportion the consideration for the supply and work out the GST payable on the taxable part of the supply.

GSTR 2001/8 uses the terms 'mixed supply' and 'composite supply' which are not used in the GST Act. GSTR 2001/8 states that a mixed supply is a supply that must be separated or unbundled because it contains separately identifiable taxable and non-taxable parts that need to be individually recognised (Para 16). A composite supply is a supply that contains a dominant part and includes something that is integral, ancillary or incidental to that dominant part. GSTR 2001/8 treats a composite supply as a supply of a single thing (Para 17) and states that a composite supply is either taxable or non-taxable and may also be a part of a larger mixed supply (Para 18).

Method for differentiating between a mixed supply and a composite supply:

GSTR 2001/8 states:

Where a transaction comprises a bundle of features and acts, it may be necessary to characterise what is supplied to determine whether a particular provision applies in whole or in part. The characterisation should be undertaken in a manner that is consistent with the object of the particular statutory provision in issue. For example, if a provision specifically requires different treatment of two components of a transaction, this will mean that the two components must necessarily be separately recognised. However, that does not mean that the two components need to be separately recognised for all purposes of the GST Act.

19A. An identification of the essential character of what is supplied may inform whether (and to which extent) a particular transaction falls within the terms of a specific statutory provision. You must consider all of the circumstances of the transaction to ascertain its essential character.

19B. Having regard to the essential character and with regard to the statutory provision in issue, you can then determine whether the transaction is a mixed supply because it has separately identifiable parts that the GST Act treats as taxable and non-taxable, or whether it is a composite supply because one part of the supply should be regarded as being the dominant part, with the other parts being integral, ancillary or incidental to that dominant part.

(The underlined words in paragraph 19 and paragraphs 19A and 19B were inserted into GSTR 2001/8 on 15 May 2013 by paragraphs 4 and 5 of Goods and Services Tax Ruling GSTR 2001/8A5 -Addendum to take into account the High Court decision in Commissioner of Taxation v Qantas Airways Ltd [2012] HCA 41 (Qantas Airways). The Addendum applies both before and after its date of issue.)

Characterisation of the supply in a manner consistent with the object of the particular statutory provision in issue:

As noted above, GSTR 2001/8 states that where a transaction comprises a bundle of features it may be necessary to characterise what is supplied and that that characterisation should be undertaken in a manner consistent with the object of the statutory provision in issue (Para 19).

The statutory provision relied on in the ruling request is paragraph (b) of item 4 in subsection 38-190(1) of the GST Act which applies to:

a supply that is made in relation to rights if

…

(b)the supply is to an entity that is not an Australian resident and is outside Australia when the thing supplied is done.

Goods and Services Tax Ruling GSTR 2003/8 discusses the types of supplies which are capable of being covered by item 4 and states that a supply is a 'supply made in relation to rights' if it fits within any of three Categories: Category 1 is a supply identified in paragraph 9-10(2)(e) of the GST Act (i.e. the creation, grant, transfer, assignment or surrender of a right). In relation to Category 1 GSTR 2003/8 states (Para 27C):

While many transactions involve rights being supplied, a supply will only fit within Category 1 if the essential character or substance of the supply, or of a separately identifiable part of the supply, is one of rights. Category 1 does not cover a supply if the supply of rights is merely integral, ancillary or incidental to another dominant part of the supply where the supply is characterised by the dominant part.

The Explanation section of GSTR 2003/8 states that where a transaction comprises a bundle of features and acts you must consider all of the circumstances to ascertain its essential character and that Category 1 only covers a supply if (Para 65):

 the essential character or substance of the supply, or the dominant part of a composite supply, is one of rights; or

 the essential character of a separately identifiable part of the supply is one of rights.

The Explanation section of GSTR 2003/8 contains an example of a supply involving the grant or creation of a right which nevertheless does not fall within Category 1, i.e. an agreement for the sale of goods which includes a right to the title to the goods being created. As the supply of the right to title to the goods is integral, ancillary or incidental to the dominant part of the supply, the supply is a supply of goods and not a supply that is made in relation to rights (Para 71). A second example involves a franchising agreement (Para 72):

…under a franchising arrangement there may be supplies of rights to use a name and to market certain products, as well as supplies of marketing and administrative services. In this case, the supply is a supply of separately identifiable parts. The rights may be covered by item 4 or other items in the table in subsection 38-190(1). The supply of the services is only covered by item 4 if it falls within Category 3 which is outlined at paragraphs 75 to 79 of this Ruling. If it is not covered by item 4, the supply may nevertheless be covered by another item in the table in subsection 38-190(1).

Category 2 in GSTR 2003/8 is a supply of a thing which comprises a bundle of rights that derive their value exclusively from those rights (e.g. supplies of shares).

Category 3 in GSTR 2003/8 is a supply of services directly connected with rights (e.g. supplies of brokerage services in connection with shares) (Paras 27-29). GSTR 2003/8 states (Para 76):

The Commissioner considers that the context and the broad policy to tax domestic consumption expenditure both suggest that a reasonably close relationship must exist between a service and a right for the service to be covered by item 4. If this were not the case, and a more remote connection were sufficient, services supplied between Australian residents that would ordinarily be thought of as being consumed in Australia could, because of the remote connection, be rendered GST-free. Additionally, if a more remote connection were sufficient, there would be a disparity between services that are connected with tangible property (which would only be GST-free if they are directly connected with that property) and services connected with intangible property (which may be GST-free on the basis of the more remote connection).

GSTR 2003/8 states that a service will be directly connected with rights if the service facilitates a dealing in or exercise of the rights or the service affects (or its purpose is to affect) or protects the nature or value (including indemnity against loss) of the rights (Para 77). Thus legal services related to preparing a contract for sale of copyright and brokerage services in relation to the sale of shares are directly connected with rights and fall within item 4 in subsection 38-190(1) but legal services related to establishing the entity to hold the copyright and advice about the tax implications of buying or selling shares do not.

Characterising what is supplied under the Agreement in a manner that is consistent with the object of item 4 in subsection 38-190(1), we consider that many of the Rights and Benefits supplied pursuant to the Agreement fall within Category 1 as described in GSTR 2003/8, i.e. the essential character or substance of the supply is one of rights. We consider that the rights granted by A to B to be recognised as the Major Sponsor of the Event, product exclusivity, rights to use certain Designations, Event Logos and Event Imagery, and many of the Rights and Benefits in the Schedule to the Agreement 1 fall within Category 1.

The position is less clear in relation to supplies made pursuant to the Schedule to the Agreement which may be characterised as supplies of services (e.g. ticketing, hospitality and parking). GSTR 2003/8 indicates that the supply of a service must be directly connected with a right in order for the supply of that service to be covered by item 4 in subsection 38-190(1). The supplies made pursuant to the Agreement which may be characterised as services do not fall neatly within the examples provided in GSTR 2003/8, but the argument can be made, per paragraph 77 of GSTR 2003/8, that those Benefits either facilitate the exercise of the other Rights and Benefits which fall within Category 1 or affect or protect the nature or value of those other Rights and Benefits and therefore fall within Category 3. Consequently we consider that characterising what is supplied under the Agreement as a composite supply may be consistent with the object of item 4 in subsection 38-190(1) of the GST Act.

Essential character of what is supplied:

As noted above, paragraph 19A of GSTR 2001/8 states that an identification of the essential character of what is supplied may inform whether (and to what extent) a transaction falls within the terms of a particular statutory provision.

Paragraph 19A was inserted into GSTR 2001/8 following the High Court's decision in Qantas Airways. In Qantas Airways the majority of the High Court rejected submissions made on behalf of Qantas that, based on Travelex Ltd v FCT (2010) 241 CLR 510, Saga Holidays Ltd v Commissioner of Taxation (2006) 156 FCR 256 and TAB Ltd v Commissioner of Taxation (2005) 223 ALR 309, the essential character of the relevant supply made by Qantas was a supply of air travel, that no air travel was supplied by Qantas where a prospective passenger booked and paid for a flight but failed to take that flight, and that for the purposes of the general provisions in Division 9 of the GST Act (and paragraph 9-5(a) in particular) Qantas did not 'make the supply for consideration'. The majority of the High Court stated (Para 21):

The specific provisions of the GST Act with which this case was concerned were insufficiently appreciated in submission by Qantas.

However, the majority of the High Court did not suggest that the decisions in Travelex, Saga Holidays, and TAB were incorrect. Instead the majority of the High Court noted that each of those decisions turned upon particular (rather than general) provisions of the GST Act (Para 22).

The present case requires the ATO to determine whether a supply meets the requirements of a particular provision of the GST Act (i.e. paragraph (b) of item 4 in subsection 38-190(1)). We therefore consider that the approaches adopted in Travelex, Saga Holidays, and TAB apply, particularly the approach adopted in Saga Holidays where the Full Federal Court determined whether the accommodation component of the supply of a package tour was a composite supply. Following the High Court decision in Qantas Airways GSTR 2001/8A5-Addendum also inserted paragraph 40A into GSTR 2001/8:

An identification of the essential character of what is supplied may inform whether a particular transaction falls within the terms of a specific statutory provision, and whether it does so wholly or only to some extent. You must consider all of the circumstances of the transaction to ascertain its essential character. However, that does not mean that an economic substance over legal form approach is endorsed for working out the essential character of what is supplied.

In Saga Holidays the taxpayer supplied a tour package which was paid for in the United Kingdom and included travel insurance, return economy flights to Australia, transportation within the United Kingdom and Australia, a tour guide within Australia, various excursions to be conducted in Australia and, relevantly, accommodation at specified hotels in Australia.

In the Full Federal Court Stone J held that the accommodation component of the contract between Saga and the tourist could be accurately described as including 'a contractual right exercisable ... in relation to land' within the meaning of paragraph (c) of the definition of 'real property" in section 195-1 of the GST Act (Para 38). Stone J referred to the submission made on behalf of Saga that the contract between Saga and the tourist did not involve the supply of real property because the accommodation component of the contract was comprised of a number of components in addition to the right to occupy a room, e.g. the use of furniture and facilities within each room, cleaning and linen service, access to common areas and facilities of the hotels such as pools and gymnasiums and various other hotel services such as porterage and concierge (Para 41). Stone J referred to the judgment of Hoffmann J in Beynon and Partners v Commissioner of Customs and Excise [2005] 1 WLR 86 which focused on the 'social and economic reality' of the transaction and stated that the accommodation component was a single supply which is properly characterised as a supply of real property (Para 43). Stone J later confirmed this view (Para 55):

In this regard Saga again raised the issue of whether only part of the accommodation component constituted 'real property' and that services and facilities relating to the cleaning of the room and the use of other parts of the hotel need to be distinguished for the purposes of this calculation. I have already expressed my view (see [41]-[42] above) that the accommodation component is a single supply of real property including all of these elements.

In Beynon and Partners the House of Lords held that the personal administration of a drug (e.g. a vaccine) by a NHS doctor to a patient was a single exempt supply of medical services to which the taxable supply of goods (i.e. the drug) was merely ancillary. Hoffman J referred to Card Protection Plan v Customs and Excise Commissioners [1999] All ER (EC) 339 which held that a supply which 'from an economic viewpoint' comprises a single service should not be artificially split into separate services, that what matters is 'the essential features of the transaction', and that a service must be regarded as ancillary to a principal service if it does not constitute for customers an aim in itself, but a better means of enjoying the principal service supplied. Hoffmann LJ concluded (Para 31):

In my opinion the level of generality which corresponds with economic and social reality is to regard the transactions as the patient's visit to the doctor for treatment and not to split it into smaller units. If one takes this view, then in my opinion the correct classification is that which the NHS has always taken of the personal administration of drugs to…patients, namely that there is a single supply of services.

The Explanation section of GSTR 2001/8 refers to the 'social and economic reality' of the supply test applied by Stone J in Saga Holidays and cites Stone J's finding that the accommodation component which included a number of components in addition to the right to occupy a room was nevertheless a single supply of real property as an example of a composite supply (Para 44A).

Applying the analysis used in Beynon and approved by Stone J in Saga Holidays to the present case, we consider that the essential character of what is supplied by A pursuant to the Agreement is an exclusive right to be recognised as the Major Sponsor of the Event.

Having regard to the essential character and the statutory provision in issue, is the supply a mixed supply or a composite supply?

As noted above, paragraph 19B of GSTR 2001/8 states:

19B. Having regard to the essential character and with regard to the statutory provision in issue, you can then determine whether the transaction is a mixed supply because it has separately identifiable parts that the GST Act treats as taxable and non-taxable, or whether it is a composite supply because one part of the supply should be regarded as being the dominant part, with the other parts being integral, ancillary or incidental to that dominant part.

GSTR 2001/8 further states that the distinction between things that are separately identifiable and things that are integral, ancillary or incidental is a question of fact and degree and that a commonsense approach should be adopted in deciding whether a supply consists of more than one part. GSTR 2001/8 provides the following guidance for determining whether a supply has any parts that are integral, ancillary or incidental:

58. You will need to consider all of the facts to determine whether the supply that you make has any parts that are integral, ancillary or incidental.

59. No single factor (by itself) will provide the sole test you use to determine whether a part of a supply is integral, ancillary or incidental to the dominant part of the supply. Having regard to all the circumstances, and taking a commonsense and practical approach, indicators that a part may be integral, ancillary or incidental include where:

you would reasonably conclude that it is a means of better enjoying the dominant thing supplied, rather than constituting for customers an aim in itself; or

it represents a marginal proportion of the total value of the package compared to the dominant part; or

it is necessary or contributes to the supply as a whole, but cannot be identified as the dominant part of the supply; or

it contributes to the proper performance of the contract to supply the dominant part.

59A. The factors listed in paragraph 59 of this Ruling are not necessarily the only ones that may be taken into account in properly characterising a supply. In any given case there may be other particular circumstances that are relevant. It may also be necessary to weigh up those factors which may point to part of a supply being integral, ancillary or incidental against the relative significance of the parts in the supply and therefore consider whether the parts should be recognised as separate parts. It is a question of fact and degree whether a supply is mixed or composite.

60. As a means of minimising compliance costs, you may treat something (or things taken together) as being integral, ancillary or incidental if the consideration that would be apportioned to it (if it were part of a mixed supply) does not exceed the lesser of:

  $3.00; or

  20% of the consideration of the total supply.

61. You may use this approach to treat a supply as a composite supply, although it might otherwise be considered as a mixed supply. However, if the consideration for a part exceeds the lesser of $3.00 or 20% of the consideration for the total supply, it does not necessarily mean that the part is not integral, ancillary or incidental.

As stated above, we consider that the essential character of what is supplied by A pursuant to the Agreement an exclusive right to be recognised as the Major Sponsor of the Event. We consider that the non-exclusive usage entitlements in respect of Event Logo and Event Imagery contribute to the proper performance of the contract to supply the right to be recognised as the Major Sponsor because those usage entitlements contribute to the recognition of B as the Major Sponsor.

The Rights listed in the Schedule to the Agreement (i.e. product exclusivity, exclusive designations as Major Sponsor, non-exclusive designations and logo usage) merely contribute to the proper performance of the contract to supply the exclusive right to be recognised as the only Major Sponsor of the Event and are therefore ancillary or incidental to the right granted to be the Major Sponsor.

The Benefits listed in the Schedule (i.e. Premier Signage, Precinct Signage and Event Presence) also contribute to the proper performance of the contract to supply the exclusive right to be recognised as the Major Sponsor of the Event by announcing that fact to anyone who watches the Event either in person or via television or other media. The same reasoning applies to some of the other Benefits (e.g. Official Program benefits and Digital Media rights).

Other Benefits listed in the Schedule to the Agreement involve A supplying services rather than rights (i.e. 'Money can't buy' experiences, Ticketing, Hospitality, Car Parking and Transport). Goods and Services Tax Ruling GSTR 2003/7 states that the dominant supply in relation to a ticket to obtain entry into a sporting event is the presentation of the event (Para 103) and that provision of parking may be characterised as the supply of a service (Para 104).

As noted above, in GSTR 2003/8 the ATO accepts that that the supply of a service is covered by item 4 in subsection 38-190(1) if it is directly connected with a right. Applying the factors listed in paragraph 58 of GSTR 2001/8, we consider that these other Benefits contribute to the proper performance of the contract to supply the dominant part (i.e. the exclusive right to be recognised as the Major Sponsor).

For the reasons set out above we consider that the supply made by A to B is a composite supply because one part of the supply should be regarded as being the dominant part (i.e. the supply of the exclusive right to be recognised as the Major Sponsor of the Event) to which the other parts of the supply are integral, ancillary or incidental.

Subsection 38-190(2):

Subsection 38-190(2) of the GST Act states that a supply covered by items 1 to 5 in subsection 38-190(1) is not GST-free if it the supply of a right or option to acquire something the supply of which would be connected with Australia and would not be GST free.

GSTR 2003/8 states:

143. Subsection 38-190(2) is designed to ensure that the supply of a right or option is not GST-free if the right or option can be redeemed for the supply of something else, the supply of which would be a taxable supply. A supply to which subsection 38-190(2) applies is not GST-free even if item 4 or another item in the table in subsection 38190(1) would otherwise apply.

and provides the following example:

149. An Australian company grants an option to acquire equipment in Australia to a non-resident company that is not in Australia when the grant occurs. There are within the one contract both the creation of the contractual right to acquire the equipment and the entry into the contractual obligation to supply the equipment (if the option is exercised). The supply of the option is the substance of the supply. Subsection 38-190(2) ensures that the supply of the right to acquire the equipment is excluded from GST-free status under any of the items in the table in subsection 38-190(1), as the supply of the equipment would be connected with Australia and would not be GST-free.

In the present case the ATO accepts that the supply made by A under the Agreement is a composite supply, the dominant part of which is the right to be recognised as the Major Sponsor of the Event, and that the supply of the Benefits listed in clauses (d), (h), (i), (j), and (n) in Part B of Schedule 1 to the Agreement are integral, ancillary or incidental. Consequently A does not make a supply of a right to ticketing or a right to hospitality etc. pursuant to the Agreement and therefore does not make a 'supply of a right or option to acquire something, the supply of which would be connected with Australia' as required by subsection 38-190(2). We therefore consider that subsection 38-190(2) does not apply.

Question 2

Summary

The supply made by A to B pursuant to the Agreement is a composite supply, the dominant part of which is the exclusive right to be recognised as the Major Sponsor of the Event, and is 'a supply that is made in relation to rights' for the purposes of item 4 in subsection 38-190(1) of the GST Act. Based on the advice in the ruling request that B is not Australian resident for the purposes of the ITAA, we accept that B is not an Australian resident for the purposes of paragraph (b) of item 4. We also consider that B is not in Australia in relation to the supply made by A to B pursuant to the Agreement when the thing supplied is done.

Detailed reasoning

Paragraph (b) of item 4 in subsection 38-190(1):

Paragraph (b) of item 4 in subsection 38-190(1) of the GST Act refers to a supply that is made in relation to rights where that supply is to an entity that is not an Australian resident and is outside Australia when the thing supplied is done.

A supply that is made in relation to rights:

For the reasons set out in Question 1 we consider that the supply made by A to B pursuant to the Agreement is a composite supply, the dominant part of which is the exclusive right to be recognised as the Major Sponsor of the Event. We consider that that supply falls within Category 1 as described in GSTR 2003/8, i.e. a supply identified in paragraph 9-10(2)(e) of the GST Act (which includes the grant of a right) and is 'a supply that is made in relation to rights' for the purposes of item 4 in subsection 38-190(1) of the GST Act.

Not an Australian resident:

Section 195-1 of the GST Act states that 'Australian resident' means a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA). The Agreement states that B is a company organised under the laws of an overseas country. Section 6 of the ITAA includes a definition of 'resident of Australia' which deals separately with a person other than a company and a company. A company is a 'resident of Australia' if the company is incorporated in Australia, or, not being incorporated in Australia, 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.

It was stated in the ruling request that B is not Australian resident for the purposes of the ITAA.

On that basis, we accept that B is not an Australian resident for the purposes of paragraph (b) of item 4.

Not in Australia:

Goods and Services Tax Ruling GSTR 2004/7 states:

181. The requirement that a supply is made to a non-resident (item 2), or recipient (item 3), who is 'not in Australia' 'when the thing supplied is done' is in effect a proxy test for determining where the supply to that entity is consumed. The presumption is that if the non-resident or other recipient of the supply is 'not in Australia' when the thing supplied is done, the supply of that thing is for consumption outside Australia and is GST-free, provided the other requirements of the item are met.

…

184. As the Australian location of the entity to which the supply is made at the relevant time is a proxy test for identifying when consumption occurs in Australia, we consider that the expression 'not in Australia' should be interpreted in the context of the supply in question. The expression 'not in Australia' requires, in our view, that the non-resident or other recipient is not in Australia in relation to the supply . This means that a non-resident or other recipient of a supply may satisfy the 'not in Australia' requirement if that entity is in Australia but not in relation to the supply. We examine this more fully when considering the application of items 2 and 3 and paragraph (b) of item 4 to specific entity types in Part III.

In relation to when a non-resident company is in Australia for the purposes of paragraph (b) of item 4, Part III of GSTR 2004/7 states that a company's presence can only be established through the presence of its representatives (such as a single employee or a branch (Para 230) and that the presence of a non-resident company in Australia through its representatives on a basis that is a proxy for determining the place of consumption requires application of principles used to determine whether courts have jurisdiction over a foreign company:

239. At common law, a foreign company is amenable to the jurisdiction of an Australian court if the company carries on business within the court's jurisdiction through its own office or through an agent acting on behalf of the company and that office or agent has a fixed and definite place within the jurisdiction and the business has continued for a sufficiently substantial period of time. A presence of this kind, in our view, would be a fair and reasonable proxy test for determining the place of consumption of a supply made to a non-resident company.

…

241. We consider, therefore, that a non-resident company is in Australia for the purposes of item 2 and paragraph (b) of item 4 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:

at or through a fixed and definite place of its own for a sufficiently substantial period of time; or

through an agent at a fixed and definite place for a sufficiently substantial period of time.

In the ruling request A's adviser stated that B does not carry on business in Australia through a fixed or definite place of B's own. Reference was made to paragraph 319 of GSTR 2004/7 which states that the mere presence in Australia of an Australian subsidiary of a non-resident company does not mean that the non-resident company is carrying on business in Australia. Based on the statement in the ruling request we accept that B does not carry on business in Australia at or through a place of it own.

In relation to whether B carries on business in Australia through an agent, A's adviser stated in the ruling request:

C is not party to the Agreement and we understand that it does not act as agent for B in Australia; and

C's role is to provide products and be responsible for on-site displays and activations in order for B to comply with its obligations in the Agreement.

We note that a clause of the Agreement which deals with assignment, sub-contracting and agency, states that B may in each year appoint an agency and/or subcontractors to administer and conduct its activation at the applicable Event and carry out promotional activities. Presumably C undertakes responsibility for on-site displays and activations at the Event either as a sub-contractor or agent appointed by B pursuant to that clause of the Agreement. We therefore consider that, notwithstanding the advice in the ruling request, that there is an issue as to whether B is in Australia for the purposes of paragraph (b) of item 4 as a result of carrying on business or its activities through an agent at a fixed and definite place for a sufficiently substantial period of time in terms of paragraph 241 of GSTR 2004/7 (above).

GSTR 2004/7 refers to Dunlop Pneumatic Tyre Company Limited v Actien-Gesellschaft fur Motor und Motorfahrzeugbau Vorm, Cudell & Co [1902] 1 KB 342 (Dunlop) where the defendant hired premises at the Crystal Palace for nine days in order to exhibit and promote sales of the defendant's goods. It was held that the defendant was carrying on business in the United Kingdom. GSTR 2004/7 states:

276. In cases like Dunlop , that is where the carrying on of the business is at a transitory place such as an exhibition hall or market stand, closer scrutiny is needed in respect of the other requirements - fixed and definite place (see paragraphs 257 to 264) and sufficiently substantial period of time (see paragraphs 265 to 268).

In Dunlop the non-resident company was found to have carried on a substantial part of its business in the United Kingdom, albeit for a short period. GSTR 2004/7 sets out the relevant portion of the judgment ([1902] 1 KB at p. 348):

275. In Dunlop the defendant hired premises at the Crystal Palace for the purposes of exhibition and to push sales of their goods. It was argued that the defendant could not be said to have carried on business in the UK because they did not carry on the whole of their business in the UK. It was held that:

It is clearly not necessary that a company should carry on the whole of its business in this country. A substantial part of the defendants' business was the selling of their manufactures, and that was during the show carried on here. Customers had during that period an opportunity of inspecting the defendants' wares, and prices were quoted, and orders accepted for them by the defendants. Nothing more could have been done with regard to the sale of the defendants' wares at their place of business abroad

In Dunlop prices were quoted and orders accepted at the hired premises at the Crystal Palace. In the present case the Agreement states that B's business comprises manufacturing and distributing a product and sets out B's rights to undertake promotional activities and to display product information at the Event. However both rights are subject to the restriction that B must not distribute any products at the Event without A's prior written approval. We therefore consider that the present case is distinguishable from Dunlop and that it is unlikely that C's activities at each Event would result in B carrying on business or activities in Australia through an agent.

We also doubt that the fixed and definite place requirement referred to in paragraph 241 of GSTR 2004/7 is satisfied. GSTR 2004/7 states that 'fixed' connotes a degree of permanence in the same location, that a place may be fixed even if it exists for a short time, but 'fixed place' excludes a place that is purely temporary (Para 261). We doubt that the product displays and display footprints within the venue for the Event which, subject to redevelopment works and Event operational requirements, are the disposal of B for the duration of each Event have a sufficient degree of permanence to constitute a fixed and definite place.

For the reasons set out above we accept that B is not in Australia in relation to the supply made by A to B pursuant to the Agreement.

When the thing supplied is done:

Paragraph (b) of item 4 in subsection 38-190(1) requires that the relevant supply is to an entity that is outside Australia 'when the thing supplied is done'. Part IV of GSTR 2004/7 states that there is a requirement to apportion a supply (i.e. part taxable part GST-free) 'where the non-resident or other recipient of a supply is in Australia in relation to the supply for part of the time when the thing supplied is done' (Para 439).

GSTR 2004/7 states that, consistent with the views expressed in Goods and Services Tax Ruling GSTR 2000/31, if the supply is the creation, grant, transfer, assignment or surrender of a right, the thing supplied is done at the time the right is created, granted, transferred, assigned or surrendered (Para 198).

The Agreement states that the Term of the Agreement shall be X number of Events commencing from the 'Commencement Date' and 'Commencement date' is defined in clause 1.1 as the date the Agreement is executed by both parties. The copy of the Agreement supplied with the ruling request appears to have been executed on behalf of A late in the recent year. We assume that a counterpart was executed on behalf of B on or about the same date. On the basis of that assumption, we consider that the supply by A to B of an exclusive right to be recognised as the Major Sponsor of the Event was done late in the recent year. For the reasons already set out above we consider that B was not in Australia at that time.

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