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Edited version of your written advice
Authorisation Number: 1013139643601
Date of advice: 19 December 2016
Ruling
Subject: GST and supply of marketing services to a non-resident
Question
Is the supply of marketing services made by the Australian company to the non-resident company a GST-free supply under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Advice
Yes. The supply of marketing services made by the Australian company to the non-resident company is a GST-free supply under item 2 in the table in subsection 38-190(1) of the GST Act.
Relevant facts
You are an Australian company and registered for GST.
You have a Licence Agreement with a non-resident company (licensor) in which the licensor has agreed to grant you a licence to market and sell subscription to its product pursuant to the terms in the Agreement. You receive a marketing fee for your supply.
You only do the marketing of the subscription for the product to individuals and companies located in Australia. Potential subscribers will enter into contract with the non-resident company to subscribe for the product.
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
Reasons for decision
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) the supplier makes the supply for consideration; and
b) the supply is made in the course of an enterprise that the supplies carries on; and
c) the supply is connected with Australia; and
d) the supplier is registered for GST.
However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.
You must satisfy all of the above for your supply to be a taxable supply and to be liable for GST.
From the information given you satisfy the requirements in paragraphs 9-5(a) to (d) of the GST Act when you supply your marketing services as:
a) you make your supply for consideration;
b) you make the supply in the course of an enterprise that you carry on in Australia;
c) your supply is connected with Australia as the marketing services are done in Australia and made through a business that you carry on in Australia; and
d) you are registered for GST.
However, your supply of marketing services 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 of marketing services input taxed.
GST-free supply
Relevant to your supply of marketing services to the non-resident company 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
(a) 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.
Paragraph (a) of item 2
Paragraph (a) of item 2 requires that 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.
Based on the information received, your supply of marketing services satisfies paragraph (a) of item 2 since:
● your supply is made to a non-resident company that is not in Australia in relation to your supply; and
● your 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.
Your supply of marketing services is GST-free to the extent that it is not negated by subsection 38-190(3) of the GST Act.
There is no need to consider paragraph (b) of item 2 since paragraph (a) of item 2 is satisfied.
Limitations of item 2
Subsection 38-190(3) of the GST Act before 1 October 2016
Subsection 38-190(3) of the GST Act provided 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.
Current subsection 38-190(3) of the GST Act
An amendment was made to subsection 38-190(3) of the GST Act recently. From 1 October 2016, the amended 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; and
c) for a supply other than an input taxed supply - none of the following applies:
i. the other entity would be an Australian-based business recipient of the supply, if the supply had been made to it;
ii. the other entity is an individual who is provided with the supply as an employee or officer of an entity that would be an Australian-based business recipient of the supply, if the supply had been made to it; or
iii. the other entity is an individual who is provided with the supply as an employee or officer of the recipient, and the recipient's acquisition of the thing is solely for a creditable purpose and is not a non-deductible expense.
Based on the information received, subsection 38-190(3) of the GST Act is not applicable as the marketing services are provided to the non-resident company and not to the potential subscribers. The potential subscribers are being supplied with information about subscribing for the product.
Summary
Your supply of marketing services to the non-resident company is GST-free under item 2.
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