Edited version of your written advice

Authorisation Number: 1013085652756

Date of advice: 6 September 2016

Ruling

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

Question 1

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

Answer 1

Yes, the supply of your consultancy services to the non-resident entity is GST-free under section 38-190 of the GST Act.

Question 2

If your supply of consultancy services is not a taxable supply, are you entitled to a refund of the excess GST, when you treated your supply of consultancy services to the non-resident entity as a taxable supply?

Answer 2

We have provided general advice as requested in our telephone conversation.

Written general guidance provides you with general principles of the operation of the law. Written general guidance does not interpret the law or apply it to your factual situation. The decision as to how those principles apply to your circumstances remains with you.

Please refer to reasons for decisions issue 2.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are an Australian company registered for GST.

You provide consultancy services to a non-resident entity. The consulting services comprise of the provision of:

• financial research and advice on potential equity investment opportunities in Australia;

• information on the current and projected economic conditions in Australia; and

• financial research and advice on shares in Australia.

Your consultancy services do not extend to you transferring (or facilitating the transfer) of securities to the non-resident entity.

You do not provide financial research and advice with respect to specific real property to the non-resident entity.

The non-resident entity is not registered or required to be registered for GST in Australia.

The non-resident entity trades in financial products. Its overseas subsidiaries also provide financial advice to its clients in other countries. However, none of its clients are physically located in either Australia or are residents of Australia for tax purposes.

You have the same ultimate shareholder as the non-resident entity. Hence, the non-resident entity is related to you.

The ultimate shareholder and director of the non-resident entity are located overseas and are not Australian residents for tax purposes.

The non-resident entity does not carry on its business in Australia and its central management and control is not located in Australia.

The non-resident entity does not have any representatives in Australia in relation to your supply of consultancy services.

You do not have an agreement with the non-resident entity to provide your consultancy services to another entity in Australia.

You do not deal or contract with any client of the non-resident entity and its overseas subsidiaries. You do not interact with clients of the non-resident entity.

You do not have express or implied authority to negotiate, enter into, or conclude contracts or accept orders; execute agreements or otherwise make binding commitments in the name of or on behalf of the non-resident entity and its overseas subsidiaries.

You have charged and remitted GST in respect to the consultancy services provided to the non-resident entity.

You have provided a copy of tax invoices issued by you for the consultancy services issued to the non-resident entity.

You advise that subject to the Commissioner accepting our submission in this Application that if the consultancy services made by you is GST-free:

• You will reimburse the non-resident entity an amount of 'overpaid' GST remitted to the ATO in respect of the consultancy services; and

• Subsequent to making the above reimbursement, you will lodge a request with the ATO to amend your Business Activity Statements.

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 Subsection 38-190(1)

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

A New Tax System (Goods and Services Tax) Act 1999 section 142

Section 105-65 of Schedule 1 of the Taxation Administration Act 1953

Reasons for decisions

Issue 1

Taxable supply

GST is payable on a taxable supply. You make a taxable supply if all the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) are satisfied as follows:

(a) you make the supply for consideration;

(b) the supply is made in the course or furtherance 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.

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

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

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

Based on the facts provided, the supply of your consultancy services to the non-resident entity satisfies paragraphs 9-5(a) to 9-5(d) of the GST Act as follows:

(a) you make a supply of consultancy services in return for consideration;

(b) the supply is made in the course of your business;

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

(d) you are registered for GST in Australia.

However, the supply of your consultancy services to the non-resident entity is not taxable to the extent that it is GST-free or input taxed.

The supply of your consultancy services 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 your consultancy services to the non-resident entity is item 2 in the table in subsection 38-190(1) of the GST Act (Item 2).

Under Item 2 a supply of things (other than goods or real property) is GST-free where 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 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 requirements of either paragraph (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 (that is, when the services are performed/provided).

Non-resident not in Australia in relation to the supply

For the supply of your consultancy 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, performed/provided).

From the facts provided the supply of your consultancy services are made and provided to the non-resident entity. You advise that the non-resident entity is not in Australia in relation to your supply of the services, nor do they have any other representatives acting on their behalf in Australia in relation to those services. Accordingly, it is considered that the non-resident entity is 'not in Australia' in relation to the supply of your consultancy services 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.

Paragraph 44 of Goods and Services Tax Ruling GSTR 2003/7 provides guidance on when supplies of things are not directly connected with goods or real property, 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. Supplies of this kind include marketing, advertising or similar intermediary services, and services of merely arranging supplies between two other parties.

From the facts provided, you provide consultancy services to the non-resident entity in return for consideration. The consultancy services to the non-resident entity include financial research and advice on potential equity investment opportunities in Australia; information on the current and projected economic conditions in Australia; and financial research and advice on shares in Australia.

On the basis of these facts, the supply of your consultancy services 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. Accordingly, the supply of your consultancy services to the non-resident entity satisfies the requirement of paragraph (a) of Item 2.

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 your consultancy services to the non-resident entity will also satisfy paragraph (b) of Item 2.

Limitations

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 provided, the supply of your consultancy services is not provided, and there is no agreement(s) with the non-resident entity to provide these services to another entity in Australia. Accordingly, subsection 38-190(3) of the GST Act does not exclude the supply of your consultancy services from being GST-free under Item 2.

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

Question 2

The following information is provided to assist you:

Refund for tax periods from 1 July 2012 to 31 May 2014

Section 105-65 of Schedule 1 of the Taxation Administration Act 1953 (TAA) applies to the tax periods that start before 31 May 2014.

Section 105-65 of TAA states that the Commissioner need not give you a refund if all of the following conditions are satisfied:

• there was an overpayment of GST;

• a supply or arrangement was treated as a taxable supply when it was not a taxable supply or was taxable to a lesser extent; and

• either the recipient or the entity that is treated as a recipient has not been reimbursed a corresponding amount of the overpaid GST and/or the recipient of the supply is registered or required to be registered for GST.

The supply of your consultancy services to the non-resident entity is GST-free and therefore not subject to GST. Therefore, for the purposes of section 105-65, you have overpaid an amount of GST because a supply was treated as taxable when it is not a taxable supply. Specifically, you remitted GST in relation to the supply of consultancy services to the non-resident entity which represents an overpayment of GST. You stated that you have not reimbursed the overpaid GST to the non-resident entity. Therefore, section 105-65 of TAA may apply to restrict the refund of the overpaid GST.

However, your intention is to reimburse the non-resident entity. As the non-resident entity, the recipient of the consultancy services, is not registered or required to be registered for GST, once the non-resident entity has been appropriately reimbursed, section 105-65 will not apply. Paragraph 115A of MT 2010/1 states that taxpayers can consider that the Commissioner will be satisfied that the recipient has been appropriately reimbursed where:

• the recipient can be specifically identified;

• the amount of the reimbursement corresponds exactly to the amount of the GST overcharged to the recipient and the method of reimbursement ensures this is achieved;

• the reimbursement is in money, or if made through a journal entry, to the extent that the journal entry offsets the recipient's pre-existing liability to the taxpayer; and

• the reimbursement or journal entry has actually been made, and is not merely planned to be made.

Refund for tax periods on or after 31 May 2014

Division 142 of the GST Act applies to tax periods that start on or after 31 May 2014.

The object of Division 142 of the GST Act is to ensure that excess GST is not refunded if this would give an entity a windfall gain. Generally, Division 142 of the GST Act operates so that a supplier is not entitled to a refund of an amount of excess GST where the supplier has passed on the GST to another entity (the recipient), and has not reimbursed that other entity for the passed-on GST.

In this case it is necessary to determine whether there is an amount of excess GST.

Paragraph 12 of Goods and Services Tax Ruling GSTR 2015/1 Goods and services tax: the meaning of the terms 'passed on' and 'reimburse' for the purposes of Division 142 of the GST Act provides:

'Excess GST' is an amount of GST that has been taken into account in an entity's assessed net amount and is in excess of what was payable by the entity in the relevant tax period prior to taking into account or applying the provisions of Division 142.

Paragraphs 23 to 33 of GSTR 2015/1 provide the view of the Commissioner as to when excess GST has been passed on.

Paragraph 23 of GSTR 2015/1 states that whether the excess GST has been passed on is a question of fact and must be determined on a case by case basis taking into account the particular circumstances of each case. However, section 142-25, and the policy and scheme of the GST Act more generally, give rise to an expectation that the excess GST will be passed on in most cases.

Expectation that excess GST has been passed on

Paragraphs 24 to 27 of GSTR 2015/1 explain the GST Act envisages that the supplier 'passes on' the GST to the recipient of the supply and this simply reflects the design of the GST as an indirect tax which is generally expected to be passed on to the customer when a supply is treated as a taxable supply. If excess GST is included on a tax invoice, this is prima facie evidence that the excess GST has been passed on. While there is a general expectation that, in ordinary circumstances, excess GST has been passed on, the particular facts and circumstances of an individual case may demonstrate that excess GST has not in fact been passed on.

A supplier claiming a refund, because it considers that the excess GST has not been passed on will need to clearly substantiate the grounds on which it claims the refund. In any dispute, the taxpayer would have the onus of proving that its circumstances are outside the ordinary and that it did not pass on the excess GST. See Paragraph 27 of GSTR 2015/1.

Matters relevant to determining whether GST has been passed on

In paragraph 28 of GSTR 2015/1 the Commissioner considers that the matters relevant to whether GST has been passed on include:

• the manner in which the excess GST arose

• the supplier's pricing policy and practice

• the documentary evidence surrounding the transaction, and

• any other relevant circumstances

The question of passing on is one of fact and not of fairness - considerations of fairness may be relevant in deciding whether the Commissioner exercises the discretion under subsection 142-15(1), but are not relevant to whether excess GST has been passed on.

The manner in which the excess GST arose

The manner in which an amount of excess GST arises is relevant in considering whether or not the excess GST was passed on. GSTR 2015/1 at paragraph 31 considers four common circumstances:

• incorrectly treating something which is not a supply as a taxable supply

• miscalculating a GST liability under the GST law

• incorrectly reporting an amount of GST on a GST return, and

• incorrectly treating a GST-free or input taxed supply as a taxable supply (including incorrectly apportioning the taxable and non-taxable components of a mixed supply).

In your case we consider that it is clear from the information provided that the excess GST has been passed on, by you, to the non-resident entity. This is evidenced by the issuing of tax invoices, inclusive of GST, by you to the non-resident entity for the supply of consultancy services.

Section 142-10 of the GST Act

Paragraph 17 of GSTR 2015/1 describes when section 142-10 of the GST applies:

17. If the excess GST has been passed on to the recipient, section 142-10 applies to treat the excess GST as always having been payable, and payable on a taxable supply, until the excess GST has been reimbursed to the recipient. Once section 142-10 ceases to apply, the supplier can claim a refund of the excess GST.

As there is excess GST and it has been passed on by you, under section 142-10 of the GST Act the excess GST is treated as having always been payable on a taxable supply until you reimburse the excess GST to your recipients.

Paragraph 69 to 71 of GSTR 2015/1 provides guidance on what the Commissioner considers to be reimbursement for the purposes of division 142 of the GST Act.

Paragraph 70 of GSTR 2015/1 states:

70. For the purposes of section 142-10, a supplier has reimbursed the recipient for the passed-on excess GST where:

• reimbursement takes the form of a payment in money, the setting off of mutual liabilities, or the issuing of a voucher,27 the recipient must be able to choose the form in which reimbursement is made

• the amount of the reimbursement corresponds to the amount of excess GST passed on to the recipient and the method of reimbursement ensures this is achieved, and

• the reimbursement or journal entry under an agreement to set-off the liabilities between the parties has actually been made, and is not merely planned to be made.

Once section 142-10 of the GST Act ceases to apply because you have reimbursed the excess GST to the recipient, you can claim a refund of the excess GST by making a decreasing adjustment which is attributable to the tax period in which the reimbursement is made to the recipient.

All public rulings and/or publications referred to in this ruling are available at our website at www.ato.gov.au.

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