Edited version of your written advice

Authorisation Number: 1051293323493

Date of advice: 11 October 2017

Ruling

Subject: GST and supply of services to non-resident

Question 1

Is the supply of services you make under the Service Agreement you have with the non-resident company a GST-free supply under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Advice

Under the Service Agreement you make a supply of services to the non-resident company and provide the services to Australian and overseas companies.

Services provided to overseas companies

When you are providing your services to overseas companies located outside Australia under the Service Agreement, your supply of services is GST-free under paragraph (a) of item 2 in the table in subsection 38-190(1) of the GST Act.

Services provided to Australian companies

The GST status of the supply of services made to the non-resident company and provided to Australian companies will be dependent on whether the non-resident company is required to be registered for GST or not.

Non-resident company is not required to be registered for GST

Where you are providing your services to Australian companies in Australia and the non-resident company is not required to be registered for GST, your supply of services under the Service Agreement is GST-free under paragraph (b) of item 2 in the table in subsection 38-190(1) of the GST Act.

Non-resident company is required to be registered for GST

Where you are providing your services to Australian companies in Australia and the non-resident company is required to be registered for GST, your supply of services under the Service Agreement is a mixed supply of taxable and GST-free supplies. You will need to apportion the consideration received for the mixed supply.

When you supply your assembly and commissioning of the goods (including technical advice at the time this supply is done), your supply is a taxable supply under section 9-5 of the GST Act. Also when you repair the goods that are not under warranty, your supply is a taxable supply under section 9-5 of the GST Act.

However, when you repair the goods that are under warranty for the Australian companies, your supply is GST-free under section 38-191 of the GST Act.

Further when you supply technical advice which is not part of your assembly and commissioning of the goods or perform an audit of the goods, both supplies are GST-free under paragraph (a) of item 2 in the table in subsection 38-190(1) of the GST Act.

Relevant facts

You carry on your business activity in Australia and are registered for the goods and services tax (GST).

You have entered into a Service Agreement with a non-resident company, a company incorporated outside Australia. The non-resident company has customers located in Australia which need certain services relating to the products they have sold and you agreed to provide your services to the non-resident company’s customers that are located in and outside Australia in the Service Agreement.

The non-resident company is in the business of manufacturing goods and does not operate in Australia. It sells the goods worldwide including Australia. It imports the goods into Australia when making sales to Australian businesses and currently it is not registered for GST. The non-resident company would have an annual turnover above $A75,000 for its sales of goods and supply of services and spare parts to Australian customers. The Australian businesses instead of the non-resident company may also be the importer of the goods that are brought to Australia.

The Australian businesses are registered for GST and their acquisition of your services in Australia is for their business purposes.

You provide the following services to Australian and non-resident companies under the Service Agreement:

● The goods sold require assembly and commissioning and you carry out the installation and commissioning at the customer’s premises unless the customer specifies their own arrangement. Your role is to assemble and ensure the goods are working.

● You provide training and technical advice to the customer and this service is related to the use of the purchased equipment. The technical advice can also include advice on servicing or repairing the goods.

● You carry on repairs and maintenance for the goods that are under warranty. You are also required to carry out repairs on the goods that are no longer under warranty and the non-resident company will charge the company for this service.

● You do an audit of the goods for the customer in order to determine if preventative maintenance is required and make recommendation to the customer in respect of the goods. You do a full inspection of the goods and provide the customer with a report of your findings.

For companies located outside Australia you will travel to the overseas business premises to carry out the repair/maintenance of the goods.

Under appendix 2 in the Service Agreement, you will receive a service and compensation as listed.

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 23-5

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

A New Tax System (Goods and Services Tax) Act 1999 section 38-191

A New Tax System (Goods and Services Tax) Act 1999 Division 188

Reasons for decision

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 or furtherance of an enterprise that the supplier carries on; and

c. the supply is connected with Australia; and

d. the supplier is 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.

All of the above must be satisfied for your supply of services to be a taxable supply.

From the information given, your supply of services satisfies paragraphs (a) to (d) of section 9-5 of the GST Act as:

a) you make your supply for consideration (the service fee and other compensation listed in appendix 2 in the Service Agreement); and

b) the supply is made in the course of a business that you carry on; and

c) your supply is connected with Australia as it is made through a business 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 GST-free or input taxed.

There is no provision under the GST Act that makes your supply of services input taxed.

GST-free supply

Relevant to your supply of services under the Service Agreement is section 38-191 and item 2 in the table in subsection 38-190(1) of the GST Act (item 2).

Section 38-191 of the GST Act

Section 38-191 of the GST Act is about supplies relating to the repair etc of goods under warranty and this section starts from 1 October 2016. This section states:

1) A supply of anything other than goods or *real property is GST-free if:

a) The *recipient is a *non-resident who:

i. Is not in the indirect tax zone when the thing supplied is done; and

ii. Acquires the thing in *carrying on the recipient’s *enterprise, but is not *registered or *required to be registered and

b) The supply is constituted by the repair, renovation, modification or treatment of goods; and

c) The repair, renovation, modification or treatment is done in order to meet the recipient’s obligations under a warranty relating to the goods and

d) Either:

i. *consideration for the warranty was included in the consideration for the supply of the goods; or

ii. The supply of the warranty was a separate *taxable supply to the supply of the goods.

2) A supply of goods is GST-free if:

a) It is made in the curse of a supply that is GST-free under subsection (1)) and to the same *recipient; and

b) Either:

i. The goods are attached to, or become part of, the goods to which the warranty relates; or

ii. The goods become unusable or worthless as a direct result of being used to repair, renovate, modify or treat the goods to which the warranty relates.

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

When you repair or carry out maintenance on the goods that are under warranty your supply of repair or maintenance services is GST-free under subsection 38-191(1) of the GST Act.

Further if there is a supply of goods made when you perform the repairs or maintenance on the goods that are under warranty, the supply of these goods is GST-free under subsection 38-191(2) of the GST Act.

However, where the repairs or maintenance to the goods is for goods that are no longer under warranty, your supply of repair or maintenance services and any goods supplied during the repairs or maintenance is not GST-free under section 38-191 of the GST Act. It will be relevant to consider item 2 in this circumstance.

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 that 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 paragraphs in item 2 needs to be satisfied.

However, 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.

An entity is an ‘Australian based business recipient’ of a supply that is made to if:

a) the entity is registered for GST;

b) the entity carries on its enterprise in Australia; and

c) the acquisition of the thing supplied is not solely of a private or domestic nature.

We will now apply item 2 to your supply of services.

Precondition of item 2 – non-resident is 'not in Australia'

The requirement that the non-resident in item 2 is not ‘in Australia’ when the thing supplied is done is a requirement that the non-resident is not in Australia in relation to the supply when the thing supplied is done.

Goods and Services Tax Ruling GSTR 2004/7 provides guidance on when a non-resident is 'not in Australia' for the purposes of item 2. The ruling is available at ato.gov.au

We consider that a non-resident company is in Australia for the purposes of item 2 if that company carries on its business (or in the case of a company that does not carry on its business, carries on its activities) in Australia :

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

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

A non-resident company is in Australia in relation to a supply if:

● the supply is for the purposes of the Australian presence of the company; or

● the presence of the company in Australia is involved in the supply unless the only involvement is minor.

The non-resident company is a company incorporated outside Australia and does not operate in Australia. In this instance the non-resident company satisfies the requirement of ‘not in Australia in relation to your supply’ for the purposes of item 2.

The next step is to consider the paragraphs in item 2.

Paragraph (a) of item 2

Goods and Services Tax Ruling GSTR 2003/7 provides guidance in regard to when a supply is a supply of work physically performed on goods situated in Australia when the work is done, or is a supply directly connected with real property situated in Australia.

Under item 2 it is only where the connection between the supply and the goods or real property is a direct one that the location of goods or real property is regarded as the place where consumption occurs. The supply is so closely aligned with goods or real property that it is appropriate to treat the location of the goods or real property as the place where consumption occurs.

The range of supplies that are directly connected with goods includes supplies of work physically performed on goods. That is a supply of work physically performed on goods is always directly connected with goods. However, not all supplies directly connected with goods are also supplies of work physically performed on goods.

A supply of work physically performed on goods requires a much close connection with the goods; it requires a physical intervention with the goods. A supply is a supply of work physically performed on goods when something is done deliberately to the goods to change them or to otherwise affect them in some physical way. The repair of goods is an example of work that is physically performed on goods.

In many cases it is self-evident that a supply is a supply of work physically performed on goods. However, sometimes a supply must be analysed to determine whether it is properly characterised as a supply of work physically performed on goods. If the supply includes work physically performed on goods but that work is ancillary to some other dominant part of the supply that is not work physically performed on goods, then that supply is not characterised as a supply of work physically performed on goods. This depends on the particular facts of each supply.

For example, a supply of a report on the results of testing and analysing samples of goods is characterised as a supply of information or advice if the dominant part of the supply is the analysis of data to enable a professional opinion to be provided. The supply is not characterised as a supply of work physically performed on goods. The testing and analysis of samples of goods enables the information to be compiled and is ancillary to the supply of that information.

Supply provided to overseas companies

Assembly, commissioning and repair of goods not under warranty

When you assemble and commission the goods purchased by non-resident companies or repair the goods that are not under warranty for the non-resident companies, your supply is a supply of work physically performed on goods. However, as the work is done outside Australia your supply of assembly, commissioning and repair services is GST-free under paragraph (a) of item 2 in this circumstance.

Technical advice

Your supply of technical advice to overseas companies at the time you assemble and commission the goods overseas or later after the overseas company has used the goods is GST-free under paragraph (a) of item 2.

Audit of goods

Your supply of audit services to the overseas company located outside Australia is GST-free under paragraph (a) of item 2.

Supply provided to Australian companies

Assembly, commissioning and repair of goods not under warranty

When you supply your assembly, commissioning and repair services to Australian companies in Australia, your supply does not satisfy the requirements in paragraph (a) as your supply is a supply of work physically performed on goods located in Australia. The supply is subject to GST if paragraph (b) of item 2 is not satisfied.

Technical advice to Australian customers

When you supply technical advice (such as how to use the goods) at the time you assemble and commission the goods, we consider the advice is integral to the assembly and commissioning of the goods. In this instance the technical advice forms part of the assembly and commissioning of the goods and will be subject to GST where it is supplied to Australian companies and paragraph (b) of item 2 is not satisfied.

However, when you supply technical advice later after the company has started using the goods, your supply of technical advice satisfies paragraph (a) of item 2.

The supply is GST-free to the extent that subsection 38-190(3) of the GST Act does not apply.

From the facts given the Australian companies are registered for GST and acquire your technical services for business purposes. In this instance subsection 38-190(3) of the GST Act does not negate the GST-free status of your technical advice when made later. Your supply of technical advice in this case is GST-free under paragraph (a) of item 2.

Audit of goods

Your supply of audit services to the Australian company in Australia is GST-free under paragraph (a) of item 2 as when you do the audit, you are providing information to the company since the auditing enables you to compile information about the state of the goods for the company. Your supply of audit services therefore satisfies paragraph (a) of item 2.

Subsection 38-190(3) of the GST Act does not apply since the Australian company is registered for GST and acquires your supply for business purposes. Your supply of auditing services is GST-free under paragraph (a) of item 2.

Paragraph (b) of item 2

Under paragraph (b) of item 2, a supply is GST-free if the non-resident entity acquires its services in acquiring on its business, and is neither registered nor required to be registered for GST.

The supplier must be satisfied, on reasonable grounds that the non-resident is not required to be registered for GST before they can treat their supply as GST-free under paragraph (b) of item 2.

Where the supplier is not in a position to be aware of these circumstances, enquiries should be made of the non-resident. The Commissioner accepts that the supplier has reasonable grounds to be satisfied, if the non-resident has provided a signed written statement, declaring that they are not required to be registered. This is only accepted where the supplier has no reasons to believe the statement is not accurate.

The non-resident company will be required to be registered for GST where its GST annual turnover for supplies that are connected with Australia is $A75,000 or more.

Supply of goods and spare parts

When goods are brought to Australia, there are two distinct supplies being made – a supply of goods by the supplier and an importation of goods into Australia.

A supply of goods that are brought to Australia is connected with Australia where the supplier imports the goods in Australia. Further where the goods are made available to the company in Australia, the supply is connected with Australia.

A supplier imports goods into Australia when they are registered as the ‘owner’ of the goods in the import declaration that needs to be completed and submitted to the Department of Immigration and Border Protection (DIBP) when the goods are entered into Australia. GST has to be paid by the owner before the goods are released by DIBP.

Where the non-resident company imports the goods that are brought to Australia (that is, it is the owner of the goods in the import declaration) the supply of goods made by the non-resident company is connected with Australia. Further if the non-resident company imports the spare parts or makes the spare parts available to the Australian company in Australia, the supply of the spare parts is connected with Australia. The non-resident company will include all supplies of goods that are connected with Australia when calculating its annual turnover

Where the non-resident company does not import the goods and spare parts or does not make them available to the Australian company in Australia, the supply of the goods and spare parts is not connected with Australia. In this case the sale of the goods and spare parts that are not connected with Australia are not included when the non-resident company calculates its GST turnover.

Where the annual turnover for supplies that are connected with Australia is more than $75,000 the non-resident company is required to be registered for GST. In this instance paragraph (b) of item 2 is not satisfied.

Supply of services

Where the supply of services made by the non-resident company to Australian companies is done in Australia, the supply of services is not connected with Australia under item 1 in the table in subsection 9-26(1) of the GST Act where:

● the Australian companies are registered for GST and acquire the services for business purposes; and

● the non-resident company makes the supplies through a business that it carries on outside Australia.

In this instance the turnover of these supplies of services are not included when the non-resident company calculates its GST turnover to determine whether it is required to be registered for GST.

Summary

Where the non-resident company makes supplies that are connected with Australia and the turnover of these supplies is more than $75,000, the non-resident company will be required to be registered for GST. Paragraph (b) of item 2 is not satisfied.

In the instance where the turnover for supplies that are connected with Australia is less than $75,000 the non-resident company is not required to be registered for GST. Paragraph (b) of item 2 is satisfied and all supply of services provided to the Australian companies will be GST-free under paragraph (b) of item 2.

Summary

Services provided to overseas companies

Your supply of services made to the non-resident company and provided to overseas companies located outside Australia is GST-free under paragraph (a) of item 2.

Services provided to Australian companies

Your supply of services made to the non-resident company and provided to Australian companies in Australia is GST-free under paragraph (b) of item 2 where the non-resident company is not required to be registered for GST.

Your supply of services made to the non-resident company and provided to Australian companies in Australia is a mixed supply of taxable and GST-free supplies where the non-resident company is required to be registered for GST. You will need to apportion the consideration received for the mixed supply.

When you supply your assembly and commissioning of the goods (including technical advice at the time this supply is done), your supply is a taxable supply under section 9-5 of the GST Act. Also when you repair the goods that are not under warranty your supply is also a taxable supply under section 9-5 of the GST Act.

However, where you repair the goods that are under warranty for the Australian companies, your supply is GST-free under section 38-191 of the GST Act.

Further when you supply technical advice which is not part of your assembly and commissioning of the goods or perform an audit of the goods, your supply for these two services is GST-free under paragraph (a) of item 2.

Goods and services Tax Ruing GSTR 2001/8 may be of assistance to you in apportioning the mixed supply and is available at ato.gov.au

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