Edited version of your written advice

Authorisation Number: 1012853522906

Date of advice: 10 August 2015

Ruling

Subject: GST and the supply of capacity in an international telecommunication network

Is the supply by an Australian telecommunication supplier of a right to access capacity in an internet network to a non-resident company via a connection point located in Australia GST-free?

Answer

Yes

Relevant facts and circumstances

The entity is a telecommunication supplier that is registered for GST.

The entity is providing access to content on their internet to a non-resident entity via a connection point (data centre) located in Australia.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 9-25(5)(b).

A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-190(1)

A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-190(1) item 4

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1.

Reasons for decision

Summary

You are making a supply to a non-resident telecommunications entity through an enterprise that is carried on in the indirect tax zone and is therefore connected with the indirect tax zone by paragraph 9-25(5)(b) in the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

GSTD 2012/9 states that a supply of capacity in an international telecommunication network made by an Australian resident telecommunication supplier is a supply in relation to rights. A supply of rights is GST-free under item 4 in the table in subsection 38-190(1) (item 4) of GST Act provided the supply is to an entity that is not an Australian resident and is outside the indirect tax zone when the thing supplied is done.

As the thing supplied in this case is capacity in an international telecommunication network and it is made to a non-resident that is outside the indirect tax zone when the thing supplied is done, your supply is therefore GST-free.

Note:

From 1 July 2015, the term 'Australia' is replaced in nearly all instances within the GST, Luxury Car Tax, and Wine Equalisation Tax legislation with the term 'indirect tax zone' by the Treasury Legislation Amendment (Repeal Day) Act 2015 . The scope of the new term, however, remains the same as the now repealed definition of 'Australia' used in those Acts. This change was made for consistency of terminology across the tax legislation, with no change in policy or legal effect. For readability and other reasons, where the term 'Australia' is used in this document, it is referring to the 'indirect tax zone' as defined in subsection 195-1 of the GST Act.

Detailed reasoning

GST is payable on a taxable supply. Under section 9-5 of the GST Act 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 the indirect tax zone; and

d) you are registered or required to be registered for GST.

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

From the information you have provided, we are satisfied that the supply made by CTAU would be a taxable supply unless it was GST-free or input taxed.

GSTD 2012/9 provides the Commissioner's view in regard to the GST implications for a supply of the type made by you in this case. Goods and Services Tax Determination GSTD 2012/9 Goods and services tax: is the supply of a right to capacity in an international telecommunication network made by an Australian resident telecommunication supplier GST-free under item 4 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999? states relevantly:

3. The telecommunication supply covered by this Determination is the supply of capacity in an international telecommunication network. The network can include international leased lines, international private circuits, indefeasible rights of use and global networks. These may comprise of a fixed line between two or more points, a global circuit or capacity that may be made available through a satellite network.

4. In this Determination, a telecommunication supplier means a carrier or a carriage service provider as defined in the Telecommunications Act 1997 or an Internet service provider as defined in Schedule 5 to the Broadcasting Services Act 1992.

We are satisfied from the information and documentation you have provided that you are a telecommunication supplier and the relevant supply is of capacity in an international telecommunication network. The Commissioner's view as stated in GSTD 2012/9 is that the supply is GST-free under item 4. This is explained in the following paragraphs:

5. A supply of capacity in an international telecommunication network made by an Australian resident telecommunication supplier is a supply in relation to rights which is GST-free under item 4 in the table in subsection 38-190(1) (item 4) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)² provided that:

(a)  the rights are for use outside Australia; or

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

6. Item 4 deals with 'a supply that is made in relation to rights'. This term is explained in Goods and Services Tax Ruling GSTR 2003/8 Consistent with the views expressed at paragraph 64 of GSTR 2003/8, the Commissioner considers that the creation, grant, transfer, assignment or surrender of any right is a supply that is made in relation to rights for the purposes of item 4.

7. A supply of capacity in an international telecommunication network is discussed at paragraphs 98 to 100 of GSTR 2003/8. Consistent with the views expressed there, the Commissioner considers that the supply of capacity in an international telecommunication network is a supply of a right.

8. The supply by an Australian operator of a right to capacity in a network is GST-free under paragraph (b) of item 4 when it is supplied to a non-resident provided that they are not in Australia when the right is granted.

9. As the supply is covered by paragraph (b) of item 4 it is not necessary to consider whether the supply is a right which is for use outside Australia under paragraph (a) of item 4. Rights for use outside Australia are not discussed in this Determination.

10. Subsection 38-190(2) negates the GST-free status of a supply covered by item 4 if it is a supply of a right or option to acquire something the supply of which would be connected with Australia. As the supply of capacity is not a right or option to acquire something else, subsection 38-190(2) will not negate the GST-free status of the supply.

The meaning of 'when the thing supplied is done' is explained in paragraph 199 of Goods and Services Tax Ruling GSTR 2004/7 Goods and services tax: in the application of items 2 and 3 and paragraph (b) of item 4 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999:

• when is a 'non-resident' or other 'recipient' of a supply 'not in Australia when the thing supplied is done'?

• when is 'an entity that is not an Australian resident' 'outside Australia when the thing supplied is done'?

The GST-free status of your supply is conditional on the recipient of the supply being both a non-resident and outside the indirect tax zone when the thing supplied is done. The meaning of 'not in Australia' and 'outside Australia' (the indirect tax zone) is explained in paragraphs 105 and then 181 to 185 of GSTR 2004/7 as follows:

105. We consider that 'outside Australia' has the same meaning as 'not in Australia' in items 2 and 3. This is supported by the use of the terms in the legislation. The topic description for item 2 refers to 'Supply to non-resident outside Australia' while the words used in the third column to describe the supply are 'supply that is made to a non-resident who is not in Australia'. The discussion of the meaning of 'not in Australia' at paragraphs 181 to 185 is relevant, therefore, for the purposes of applying paragraph (b) of item 4.

…

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.

182. A strict literal interpretation of the 'not in Australia' requirement merely requires a presence of that entity in Australia when the thing supplied is done for that requirement not to be satisfied. A literal approach would mean, for example, that a supply made to a non-resident individual who happens to be in Australia on holidays when the thing supplied is done fails the not in Australia requirement even though his or her presence in Australia is completely unrelated to the supply.

183. A literal approach would also mean, for example, that a supply provided to the offshore branch of an Australian resident company would not be GST-free under item 3 due to the presence of the Australian resident company in Australia. Subsection 38-190(4) could not apply to treat the supply as made to a recipient that is not in Australia as paragraph 38-190(4)(b) requires the supply to be provided to another entity, which a branch is not. A literal approach, therefore, does not give effect to the policy intent to only tax supplies consumed in Australia.

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.

185. As noted at paragraph 105, we consider that the requirement in paragraph (b) of item 4 that a recipient of a supply is 'outside Australia' is the same as the requirement that a recipient of a supply is 'not in Australia'. Thus, a recipient of a supply is outside Australia if the recipient is not in Australia in relation to the supply.

As the thing supplied is capacity in an international telecommunication network which is regarded as a right and it is made to a non-resident that is outside the indirect tax zone when the thing supplied is done, your supply is therefore GST-free.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).