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Edited version of private advice
Authorisation Number: 1012626340650
Ruling
Subject: Goods and services tax (GST) and consulting services
Question 1
Is GST payable on your supply of consulting services to company A?
Answer
No.
Question 2
Will GST be payable on your supply of consulting services to the two new companies?
Answer
No.
Relevant facts and circumstances
You are registered for GST.
You operate a consulting business in Australia.
You charge fees for your services.
Your director previously worked for company A, a non-resident company that is based solely overseas.
Company A has a subsidiary company, which operates in Australia.
Your director's last position was managing director of marketing of two overseas based trading subsidiaries of company A (company B and company C). These two subsidiaries sell assets that are sourced from Australia and a particular overseas country respectively and operated by company A's subsidiaries.
All sales from company A's subsidiary's Australian operations are performed and managed by company B. You are not involved in this business.
Where you provide advice to company A, you provide it to their overseas office.
Company A engages you and pays you to negotiate on behalf of company D's transactions. These transactions are sourced or produced overseas.
Your contract with company A may be replaced with contracts with two new companies. These new companies would be non-resident companies based overseas only. You would supply the same type of services under similar arrangements and circumstances to these companies as your currently supply to company A.
Where you provide advice to the new companies, you would provide it to their overseas offices.
Where you supply negotiation services to one of the two new companies, this would involve negotiating transactions on behalf of a different company to either of the two new companies. The company that you negotiate on behalf of would be a non-resident company that is based overseas only. The transactions would be sourced or produced overseas.
You would search for potential new projects that the new companies could invest in. You would search for overseas projects for the new companies, but you would not search for Australian projects.
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 section 9-5
A New Tax System (Goods and Services Tax) Act 1999 section 38-190
Reasons for decisions
Summary
GST is not payable on your supplies of the services because your customers are not in Australia in relation to your supplies of these services and you do not provide the services to third parties in Australia.
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 A New Tax System (Goods and Services Tax) Act 1999 (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) to 9-5(d) of the GST Act because:
• you are supplying consulting services for consideration; and
• you supply the consulting services in the course or furtherance of an enterprise that you carry on; and
• your supplies are connected with Australia; and
• you are registered for GST.
There are no provisions in the GST Act under which your supplies of the consulting services are input taxed. Therefore, what remains to be determined is whether your supplies of the services are GST-free.
Item 2
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, to a non-resident who is not in Australia when the thing supplied is done is GST-free if:
(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 for GST.
However, subsection 39-190(3) of the GST Act provides 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.
As you are supplying services and not goods or real property, it is appropriate to consider item 2.
Goods and Services Tax Ruling GSTR 2004/7 provides the Australian Taxation Office view on the meaning of 'not in Australia' for the purposes of item 2 and item 3.
Paragraph 31 of GSTR 2004/7 states:
31. The requirement that the non-resident in item 2, or the recipient in item 3, is not in Australia when the thing supplied is done is a requirement, in our view, that the non-resident or recipient is not in Australia in relation to the supply when the thing supplied is done.
Paragraph 37 of GSTR 2004/7 explains when a non-resident company is in Australia. It states:
37. 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.
Paragraph 41 of GSTR 2004/7 explains when a non-resident company is in Australia in relation to a supply. It states:
41. A non-resident company is in Australia in relation to the supply if the supply is solely or partly for the purposes of the Australian presence, for example, its Australian branch. If the supply is not for the purposes of the Australian presence but that Australian presence is involved in the supply, the company is in Australia in relation to the supply, except where the only involvement is minor.
In accordance with paragraph 61 of Goods and Services Tax Ruling GSTR 2005/6, 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.
Paragraph 113 of GSTR 2005/6 provides guidance in determining whether a supply is provided to an 'another entity' in Australia. It states:
113. Unlike individuals, a company, partnership, corporate limited partnership or trust can be both in and outside Australia at the same time. If a company, partnership, corporate limited partnership or trust does not have a presence in Australia the supply is not provided to that entity in Australia.
Your supplies of the services in question, to company A or either of the two new companies, are supplies of something other than goods or real property. You make these supplies to non-residents. These non-residents are companies that do not have a presence in Australia. Therefore, they are not in Australia in relation to your supplies.
Your supplies are not supplies of work physically performed on goods situated in Australia when the work is done and they are not directly connected with real property situated in Australia.
You enter into agreements with non-residents to make supplies. Some of these services (the negotiation services) are provided to 'another entity'. However, these third parties are companies that do not have a presence in Australia. Hence, your supplies are not provided to third parties in Australia.
Therefore, your supplies are GST-free under item 2. Hence, these supplies are not taxable. Therefore, GST is not payable on these supplies.
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