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Edited version of your written advice
Authorisation Number: 1012710004501
Ruling
Subject: GST and services
Question 1
Is your (DD) supply of the Services a GST-free supply under item 2 of subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)(Item 2)?
Answer
Yes.
Relevant facts and circumstances
AA is a global business firm. It is comprised of two entities, being BB and CC (both based overseas).
DD Australia is an Australian entity. It is a member of BB, and forms a part of the global firm. DD is not a member of CC.
AA has been engaged by a multinational client (Client) to provide services on a global basis. The Client is based in overseas in the same country as CC. However, the Client has subsidiary companies in many other countries, including Australia. The global engagement is between the Client and CC.
CC outsources Australian matters to DD. DD will invoice the cost of its services to CC. CC will in tum invoice the Client for those services.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act section 38-190
A New Tax System (Goods and Services Tax) Act section 9-5
A New Tax System (Goods and Services Tax) Act section 9-25
Reasons for decision
Summary
DD's supply of the Services is a GST-free supply under Item 2.
Detailed reasoning
Under section 9-5 of the GST Act, a supply is taxable if:
• you make the supply for consideration
• the supply is made in the course or furtherance of an enterprise that you carry on
• the supply is connected with Australia, and
• you are registered or required to be registered for GST.
However, the supply is not taxable to the extent that it is GST-free or input taxed.
As you are making the supply through the enterprise that you carry on in Australia, the supply is connected with Australia under subsection 9-25(5) of the GST Act. As the supply also meets the other requirements of section 9-5 of the GST Act, it is a taxable supply except to the extent that is GST-free. There are no provisions in the GST Act by which it could be input taxed.
Under section 38-190 of the GST Act, certain supplies of things other than goods or real property, for consumption outside of Australia, are GST-free. As you are supplying legal services, not goods or real property, it is appropriate to consider section 38-190 of the GST Act in relation to this supply.
Item 2 provides that a supply that is made to a non-resident, who is not in Australia when the thing supplied is done, is GST-free where:
• 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
• 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.
The Client is not in Australia when the services are supplied. The supply is not a supply of work physically performed on goods situated in Australia, nor a supply directly connected with real property situated in Australia. Therefore, the supply satisfies the requirements of Item 2.
However, Item 2 is limited by subsection 38-190(3) of the GST Act which provides that a supply covered by Item 2 is not GST-free if:
• it is a supply under an agreement entered into, whether directly or indirectly, with a non-resident, and
• the supply is provided, or the agreement requires it to be provided, to another entity in Australia.
In the circumstances outlined you are contracted to and receive instruction from the Client, who you consider to be the 'driving mind'. The thing that is the subject of the services is held by the Client rather than a local subsidiary.
While not an exact fit, this is similar to the situation outlined in example 23 in the Goods and Services Tax Ruling GSTR 2005/6:
504. A non-resident US company that is a distributor of soft drinks contracts for the supply of advertising air time on a national television network in Australia. The soft drinks are available from supermarket chains throughout Australia. The non-resident US company does not carry on business in Australia either through a place of business of its own or through an agent acting on its behalf.
Item 2
505. The supply of air time by the Australian television network is made to the non-resident company that is 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)
506. The supply of air time by the Australian television network to the non-resident US company is a supply under an agreement entered into with a non-resident. Paragraph 38-190(3)(a) is therefore satisfied.
Provided to another entity
507. What is being supplied is air time on an Australian television network advertising the US distributor's products in Australia generally. The nature of the supply of air time is such that the supply is provided to the US company. While Australian retailers potentially benefit from the supply of advertising air time through increased sales, this does not alter the nature of the supply and the fact that the supply, as properly described, is not provided to another entity.
508. Subsection 38-190(3) does not negate the GST-free status of the supply of advertising services covered by item 2.
509. The advertising example illustrates that, for the purposes of applying subsection 38-190(3), the focus is on the nature of the supply and the actual flow of that supply. It is not about tracing benefits. The next example also illustrates this.
In DD's case, unlike the example above, the local subsidiary is actually linked to matters. This link, given its genesis, is considered benign in as much as it does not alter the nature of the supply to the Client nor does it make the supply become a supply that is provided to another entity in Australia.
Therefore, you are not providing your supply to an entity in Australia and subsection 38-190(3) of the GST Act does not exclude your supply from being GST-free under Item 2. As such, you are making a GST-free supply under Item 2, when you supply services to the Client.
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