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Edited version of your written advice
Authorisation Number: 1012994200723
Date of advice: 7 April 2016
Ruling
Subject: GST and supply of services to a non-resident entity
Question
Is goods and services tax (GST) payable on the commission received by the Australian entity from the non-resident entity for the supply of services relating to the sale of goods made by the non-resident entity to its Australian customer?
Advice
Yes, GST is payable on the commission received by the Australian entity from the non-resident entity for the supply of services relating to the sale of goods made by the non-resident entity to its Australian customer as the supply of services is a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).
Relevant fact
You are an Australian resident and registered for GST.
You have entered into an Agreement with a non-resident entity. Under the Agreement you are to provide your services to the Australian customer of the non-resident entity in regard to the goods sold to the Australian customer by the non-resident entity. As compensation for your services you receive a commission from the non-resident entity.
The services to be performed are not work performed on goods or directly connected with real property in Australia.
The non-resident entity is registered for GST.
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
A New Tax System (Goods and Services Tax) Act 1999 section 195-1
Detailed Reasoning
Note: Where the term 'Australia' is used in this document, it is referring to the 'indirect tax zone' as defined in section 195-1 of the GST Act.
GST is payable on a taxable supply. A supply is a taxable supply under section 9-5 of the GST Act if:
(a) you make the supply for consideration;
(b) the supply is made in the course of an enterprise that you carry on;
(c) the supply is connected with the indirect tax zone (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.
Your supply of services to the non-resident entity satisfies paragraphs 9-5(a) to 9-5(d) of the GST Act as:
(a) you make the supply for consideration; and
(b) your supply is made in the course of an enterprise that you carry on in Australia; and
(c) your supply is connected with Australia as the supply is done through an enterprise that you carry on in Australia; and
(d) you are registered for GST.
However, your supply of services is not a taxable supply to the extent that it is a GST-free or input taxed supply.
There is no provision under the GST Act that makes your supply of services an input taxed supply.
GST-free supply
Relevant to your supply of services that you make to the non-resident entity 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.
Only one of the above paragraphs needs to be satisfied for the supply to be GST-free
From the information provided, when you supply your services to the non-resident entity 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 supply of services 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.
Your supply of services is GST-free under paragraph (a) of item 2 to the extent that it is not negated by subsection 38-190(3) of the GST Act
Paragraph (b) of item 2 is not satisfied as the non-resident is registered for GST.
Limitations of item 2 - subsection 38-190(3) of the GST Act
Subsection 38-190(3) of the GST Act provides that, without limiting subsection 38-190(2) or (2A), a supply covered by item 2 in that table 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.
Goods and Services Tax Ruling GSTR 2005/6 provides guidance on the application of paragraph (b) in subsection 38-190(3) of the GST Act. Paragraphs 59, 61 and 62 state:
59. The word 'provided' is used in subsection 38-190(3) to contrast with the term 'made' in item 2. In the context of section 38-190, the contrasting words indicate that if a non-resident contracts for a supply to be provided to another entity, the place of consumption should be determined with regard to the entity to which the supply is provided, not the entity to which the supply is made.
61. Thus 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.
62. For example if a supply of entertainment services is made to a non-resident company and in the performance of that service the employees are the entities that are entertained, the actual flow of that service is to another entity, each employee. The supply is made to the non-resident company (the employer) and provided to another entity (each employee).
Thus the focal point in working out whether a supply is provided to another entity is the facts and circumstances of the doing of the thing supplied. By the supplier examining what it is required to do and in what circumstances, the supplier is able to objectively determine to whom the supply is provided.
From the information received, subsection 38-190(3) of the GST Act is applicable as under your agreement with the non-resident entity you are required to provide your services to the Australian customer in Australia. Accordingly, your supply is not GST-free under item 2(a) by virtue of subsection 38-190(3) of the GST Act.
Summary
Your supply of services to the non-resident entity is a taxable supply under section 9-5 of the GST Act.
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