Edited version of your written advice

Authorisation Number: 1012799231520

Ruling

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

Question

Are goods and services tax (GST) payable on the reimbursed money that you receive from the non-resident entity NR under the verbal agreement for you to provide its services to NR?

Advice

No, GST is not payable on the reimbursed money that you receive from the non-resident entity NR under the verbal agreement for you to provide your services to NR because the reimbursed money is consideration for a supply that is GST-free under item 2 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Relevant facts

You are a company incorporated in Australia and registered for GST.

You have a verbal agreement with an overseas company NR to be the intermediary for NR in the acquisition of business and supply support services to NR's customers within Australia and other countries if necessary. In return, you are reimbursed by NR for business expenses necessarily expended in fulfilling the obligations under the agreement.

The non-resident company NR is not registered with ASIC and does not have a fixed and definite place in Australia. It is considered that NR is a non-resident for income tax and GST purposes.

NR designs and manufactures products. These products are sold by NR to Australian companies and overseas companies (the customer) who then onsell the products to other companies. All contracts, invoicing, delivery, warranty and debt collection is between NR and the customer.

All orders by the customers are made directly to NR. NR's products are delivered to the customers in containers via sea shipment. Warranty for the products is covered 100% by NR. Repairs to any of NR's products are done by the customers.

You employ staff to perform the following tasks for NR:

• To receive complaints and/or notices of defects from customers and pass them to NR.

Your employee is informed of any complaints from the customers that purchase the products being produced and supplied by NR Your employee will investigate the complaint and/or review the suspected faulty product. You will then establish the action required either by NR's customer or NR's production located overseas. This action is organised and carried out by NR.

If it is established that it is the customer's responsibility for a faulty product, NR will send details to the customer explaining why it has been found to be the customer's responsibility for the faulty product.

• To assist NR in handling and resolving NR's customer issues such as installation and functionality of NR's products;

You do not provide any training to the customer on how to install and/or use the product. NR supplies operator manuals to the customer and services manuals for repairing the product. You also do not provide installation or maintenance on the products. This is done by the customer or a contractor organised by you and NR.

Once you and NR, with input from the customer, have agreed on what action is required to resolve the issue raised by the customer, you will coordinate the action required which could mean 100% inspection of the product in question that is still at the customer's warehouse. This will be performed by your employee. If changes are required at production level, the staff member will be in contact with NR to confirm a breakpoint of the change.

• To liaise and facilitate communication (sometimes due to language barriers) with potential customers and create business for OS.

• To liaise and facilitate communication (sometimes due to language barriers) with existing customers on specification of products they require OS to supply.

When new products are being developed between NR and its customers, you will assist with testing the sample product prior to the start of production.

Your employees do visit the customers on a regular basis. An employee does QA inspection testing for NR and visits for new product developments. Your employee does QA inspection on behalf of NR to eliminate faulty items. The customer owns the product when the QA inspection testing is done. Interaction you have with the customer is testing, inspecting and liaising between NR and the customer.

QA inspection is part of the sale contract of the products that NR has with the customer. The customer will request the QA inspection and the cost for the QA inspection is covered by NR. The QA inspection is done on every shipment/delivery and where there is a faulty item it will be replaced. QA inspection on each shipment is designed to find any faulty items prior to delivery in Australia. The report for the QA inspection is given to NR and the customer.

You will follow up any inquiries made to NR from potential customers worldwide as well as Australia but will also contact customers that supply the products in these regions on behalf of NR. This is mainly due to language barriers. You have staff that can liaise in different languages.

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

Reasons for decision

GST is payable on a taxable supply. You make a taxable supply under section 9-5 of the GST Act 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 for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

All of the above requirements must be satisfied for a supply to be a taxable supply under section 9-5 of the GST Act.

From the information received, you satisfy paragraphs 9-5(a) to 9-5(d) of the GST Act when you supply your services to NR as:

a) you make the supply for consideration; and

b) the supply is made in the course of the business that you carry on; and

c) the supply is connected with Australia as the services are done in Australia; and

d) you are registered for GST.

However, the supply of services is not a taxable supply to the extent that it is either input taxed or GST-free.

Input taxed

There is no provision under the GST Act that makes your supply of services input taxed.

GST-free

Relevant to the supply of services 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 it is a supply that is made to a non-resident, who is not in Australia when the thing supplied is done, and:

(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.

Paragraph (a) of item 2

From the information provided, when you supply your services to NR the requirements in paragraph (a) of item 2 are satisfied as:

• The supply of services is made to a non-resident who is not in Australia when the thing supplied is done; and

• The services that are made to the non-resident include testing and inspecting services. In regard to the testing and inspecting services, the issue of the report is the result of the testing and inspection of the products. In this instance when you issue a report you are supplying information; the testing and inspection of the products enabled the information to be compiled and is ancillary to the information being given in the report. Accordingly, the services including testing and inspection are 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.

As the requirements of paragraph (a) of item 2 are satisfied, there is no need to consider if the requirement of paragraph (b) of item 2 is met. However, item 2 is limited by subsection 38-190(3) of the GST Act.

Limitations of item 2 - subsection 38-190(3) of the GST Act

If the supply covered by item 2 is under an agreement entered into, whether directly or indirectly, with a non-resident entity and that supply is provided or the agreement requires that it to be provided to another entity in Australia, subsection 38-190(3) of the GST Act negates the GST-free status of that supply.

From the information received, you liaise with the customers when supplying your services to NR. For example you contact the customer for information in order to be able to resolve a complaint or review a suspected faulty inspection. You will go to the customer's premises to test and inspect either new products or products that were shipped to the customer. You also inform customer and potential customers of new product developments. You do not install the products or provide maintenance for the products. You also do not assist or provide training to the customer on how to install and/or use the product.

In this instance, subsection 38-190(3) of the GST Act is not applicable because it is NR that is in receipt of the services made by you and not the customers when you are in contact with the customers. You are in contact with the customers in order to be able to supply and provide your services to NR.

Summary

Based on the information received, the supply of services made by you to NR is GST-free under item 2. GST is therefore not payable on the reimbursed money that you receive from NR.

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