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Edited version of your written advice
Authorisation Number: 1012817061124
Ruling
Subject: GST and taxable supply
Question 1
Is the supply of advertising services by you, a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) where the supply is provided to an entity in Australia, but the invoice is addressed to a non-resident entity?
Answer
Yes. The supply of advertising services by you is a taxable supply under section 9-5 of the GST Act where the supply is provided to an entity in Australia, but the invoice is addressed to a non-resident entity?
Relevant facts and circumstances
You are registered for GST.
You supply advertising services.
You engaged in two contracts with an agency in Australia (the agency).
They agency's clients are Australian clients.
The initial meetings and negotiations were held at an Australian address.
The advertising you delivered ran within Australia and promoted products and or services that were available within Australia.
When you invoiced the agency at their Australian address, they requested that you invoice their non-resident branch instead. The agency claims they do not pay any GST on business they conduct in Australia because of this set up.
They agency has requested that you supply the invoices without GST applied and have not paid for your services to date.
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, subsection 38-190(1)
Reasons for decision
Summary
The supply of advertising services by you is a taxable supply under section 9-5 of the GST Act where the supply is provided to an entity in Australia, but the invoice is addressed to a non-resident entity.
Detailed reasoning
GST is payable on a taxable supply. Section 9-5 of the GST Act provides that 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 for GST.
However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.
When you supply the advertising services, this supply satisfies paragraphs 9-5(a) to 9-5(d) of the GST Act as:
(a) you made the supply for consideration; and
(b) you made the supply in the course of enterprise; and
(c) the supply is connected with Australia as you carry on your enterprise in Australia; and
(d) you are registered for GST.
However, your supply is not a taxable supply to the extent that it is GST-free or input taxed. There is no provision under the GST Act that makes your supply input taxed.
GST-free
The advertising services you supply are neither a supply of goods nor real property. As such, the GST status of this supply is appropriately considered under section 38-190 of the GST Act, which makes certain supplies of things other than goods or real property, for consumption outside Australia GST-free. Of relevance to your supply 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 the non-resident 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 a supply to be within the scope of item 2, the supply must be made to a non-resident that is not in Australia when the thing is done. The expression 'not in Australia' requires that the non-resident is not in Australia in relation to the supply when the thing supplied is done. Where the thing supplied is a service, the supply of the service is typically done where the service is performed.
A non-resident is defined in section 195-1 of the GST Act to mean an entity that is not an Australian resident for income tax purposes. The non-resident company is considered a non-resident for the purposes of Item 2.
For a supply of services to be GST-free under Item 2, there is a precondition that the non-resident must not be in Australia in relation to the supply when it is provided.
Goods and Services Tax Ruling GSTR 2004/7 (GSTR 2004/7) discusses when an entity is not in Australia when the thing supplied is done.
Paragraph 37 of GSTR 2004/7 states that 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.
Even if a non-resident company is in Australia, it may not be in relation to the supply and so can still satisfy the 'not in Australia' requirement. To work out whether a company is in Australia in relation to the supply it is necessary to examine the role the presence of the company in Australia plays in relation to the supply.
According to paragraph 41 of GSTR 2004/7, a non-resident company is in Australia in relation to a supply if:
• the supply is for the purpose of the Australian presence of the company, for example, its Australian branch; or
• the presence of the company in Australia is involved in the supply unless the only involvement is minor.
From the information received, the non-resident company is in Australia in relation to the supply of advertising solutions and media services as:
• The non-resident company carries on business in Australia at a fixed and definite place of its own at an Australian location (Australian office). The Australia office has been operating at this address for a substantial period of time.
• The presence of the Australian branch is involved in the supply as the initial meetings and negotiations have been held at the Australian office.
• You deal directly with an employee of the Australian branch.
• The Insertion Orders were addressed the employee of the Australian branch.
• Your initial invoices were addressed to the Australian office.
• You have minimal contact with the non-resident company. The only contact you have had with the non-resident company is in relation to billing.
• The agency has requested you resend the invoice address to their non-resident branch.
Therefore, your supply of advertising services to the non-resident company is not GST-free under Item 2 as the non-resident company is in Australia in relation to the supply. Your supply will be a taxable supply and you will be liable for GST on that supply.
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