1013042045602 | Legal database

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Edited version of your written advice

Authorisation Number: 1013042045602

Date of advice: 27 June 2016

Ruling

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

Question

Is the supply of procurement agent services by an Australian company to the non-resident entity GST-free under section 38-190 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, the supply of procurement agent services made by you to the non-resident entity outside Australia is GST-free under section 38-190 of the GST Act.

Relevant facts and circumstances

You are an Australian company which is registered for GST.

You were appointed by the non-resident entity to act as a procurement agent (Agent) on the non-resident's behalf and manage procurement processes such as administrating tenders, seeking quotes, negotiations, signing and execution contracts for goods, work and services and payment payments to suppliers.

Under the Agreement, as an Agent, you are required to provide public authorities overseas with a full procurement service that shall include the procurement of all goods, works, supply services, and professional and intellectual services.

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 9-25

A New Tax System (Goods and Services Tax) Act 1999, Section 38-190

A New Tax System (Goods and Services Tax) Act 1999, Subsection 38-190(3)

Taxation Administration Act 1953, section 105-65 of Schedule 1

Reasons for decision

Issue

GST is payable on a taxable supply. Section 9-5 of the A New Tax System (Goods and Service Tax) Act 1999 (GST Act) states:

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

(d) you are *registered or *required to be registered.

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

(*denotes a defined term in section 195-1 of the GST Act)

The supply of procurement services by you to the non-resident entity will be taxable if all the requirements in section 9-5 of the GST Act are satisfied.

From the facts given, the supply of procurement agent services by you to the non-resident entity satisfies paragraphs 9-5(a) to (d) of the GST Act, as follows:

(a) you make a supply of services in return for consideration by way of payments;

(b) you make the supply in the course of your business;

(c) the services are performed/provided in Australia or made through an enterprise that you carry on in Australia (and therefore the supply is connected with Australia); and

(d) you are registered for GST in Australia.

However, section 9-5 of the GST Act also provides that the supply is not taxable to the extent that it is GST-free or input taxed.

The supply of procurement agent services by you to the non-resident entity does not satisfy the input taxed provisions under the GST Act. The GST-free provisions are taken into consideration.

GST-free

Section 38-190 of the GST Act lists supplies of things other than goods or real property, for consumption outside Australia that are GST-free. Of relevance to the supply of procurement agent services by you 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 the non-resident is not in Australia when the thing supplied is done and:

(a) the supply is neither the 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.

Accordingly, where the provisions of either (a) or (b) above are met, the supply will be GST-free if the non-resident is not in Australia when the thing supplied is done.

Non-resident not in Australia in relation to the supply

For the supply of your 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 performed/provided.

Goods and Services Tax Ruling GSTR 2004/7 discusses when an entity is not in Australia when the thing supplied is done. Paragraph 37 of GSTR 2004/7 provides that a non-resident company is in Australia if that company carries on business (or in the case of company that does not carry on business, carries on its activities) in Australia through:

(a) a fixed and definite place of its own for a sufficiently substantial period of time; or

(b) an agent at a fixed and definite place for a sufficiently substantial period of time.

In addition, if a non-resident company is determined to be in Australia on the basis of the above test, it is necessary to determine if the company is in Australia in relation to the supply, when the supply is done (that is, provided/performed).

From the facts provided, you supply the procurement agent services to the non-resident entity, a non-resident entity based in overseas. You advise that the non-resident entity does not carry on business or activities at or through a fixed and definite place of its own for a sufficiently substantial period of time in Australia. Furthermore, the non-resident entity does not have any representatives acting on its behalf in Australia in relation to your procurement agent services to the non-resident entity and you deal directly with the non-resident entity that is overseas. Therefore, it is considered that the non-resident entity is 'not in Australia' for the purposes of Item 2.

Paragraphs (a) and/or (b) of Item 2

Where a non-resident entity is not in Australia in relation to the supply when the thing supplied is done, it is necessary to determine if the other requirements in either paragraph (a) or (b) of Item 2 are satisfied.

Under paragraph (a) of Item 2, a supply of a thing that is made to a non-resident who is not in Australia when the thing supplied is done is GST-free if the supply is neither a supply of work physically performed on goods situated in Australia nor directly connected with real property situated in Australia when the work is done.

From the facts given, you advised that the supply of procurement agent services by you to the non-resident entity is neither a supply of work physically performed on goods situated in Australia nor a supply directly connected with real property situated in Australia.

Further, paragraph 44 of Goods and Services Tax Ruling GSTR 2003/7 establishes that the supply of procurement agent services is not directly connected with goods or real property. This is because we consider that a direct connection does not exist where the supply does not relate to particular goods or real property or only indirectly relates to such goods or real property.

Therefore, the supply of procurement agent services by you to the non-resident entity satisfies paragraph (a) of Item 2 and is GST-free.

In addition, where the non-resident entity acquires your services in carrying on its enterprise (business), and is neither registered nor required to be registered for GST in Australia, the supply of services by you to the non-resident entity will also be GST-free under paragraph (b) of Item 2.

Please note that you are able to ascertain the GST registration status of an entity that you deal with by checking the Australian Business Register at www.abr.gov.au.

Limitations

Finally, having met the requirements of Item 2, it is also necessary to consider subsection 38-190(3) of the GST Act.

Subsection 38-190(3) of the GST Act states:

Without limiting subsection (2), 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.

From the facts given, the supply of procurement agent services by you to the non-resident entity is not provided, and you do not have any agreements with the non-resident entity to provide the procurement, to any other entity in Australia. Therefore, subsection 38-190(3) of the GST Act does not exclude this supply from being GST-free under Item 2.

It is noted that the limitations by subsection 38-190(2) of the GST Act is not applicable (as you are not supplying a right or option), and subsection 38-190(2A) of the GST Act is not applicable (as the procurement agent services by you to the non-resident entity is not related to the making of input taxed supplies of real property).

In summary, the supply of procurement agent services by you to the non-resident entity is GST-free under Item 2 and no GST payable on this supply.

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