Edited version of your written advice

Authorisation Number: 1051313696357

Date of advice: 28 November 2017

Ruling

Subject: GST and supply to a non-resident

Question

Is the supply by Entity A to the Customer, a non-resident, of services done in the indirect tax zone (Australia), GST-free under subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, the supply by Entity A to the Customer, a non-resident, of services done in Australia, is GST-free under item 2 in the table in subsection 38-190(1) of the GST Act.

Relevant facts and circumstances

Entity A entered into an agreement with a non-resident company (the Customer) to supply services. The supply involved a service that produced a product which was then on sold by the Customer to overseas recipients. Rights to the product were provided by another entity, GST registered, in Australia, free of charge by the Customer.

The service was performed in Australia and the product supplied to the Customer. The Customer does not carry on an enterprise in Australia, nor is it required to be registered for GST in Australia.

GST was charged on the supply to the Customer by Entity A and this charge has been queried by the Customer.

The Customer was not in the indirect tax zone at the time that the supply was made and the supply is neither a supply of work physically performed on goods situated in the indirect tax zone when the work is done nor a supply directly connected with real property situated in the indirect tax zone.

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

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.

From the information given you satisfy all requirements in paragraphs 9-5(a) to 9-5(d) of the GST Act when you supplied your services as:

(a) you made your supply for consideration;

(b) you made the supply in the course of an enterprise that you carry on in Australia;

(c) your supply was connected with Australia as the supply was 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 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 however consideration needs to be given to the GST-free provisions.

Relevant to your supply of 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

(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 needed to be satisfied for the supply of services to be GST-free under Item 2.

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 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.

Under paragraph 37 in GSTR 2004/7, we consider that a non-resident company is in Australia if that company carries on business (or in the case of a company that does not carry on 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.

We consider that it would be reasonable for a supplier to conclude that a non-resident company is in Australia if:

● the company is registered with the Australian Securities and Investment Commission (ASIC); or

● the company has a permanent establishment in Australia for income tax purposes.

Suppliers should be aware that even if a company is not registered with ASIC, it may still be in Australia on an application of the test at paragraph 37 in GSTR 2004/7. Similarly, even if a company does not have a permanent establishment in Australia for income tax purposes, it may still be in Australia on application of the test to its particular circumstances.

The representative of a company may take on a variety of forms and capacities. For example, a company may be represented by anyone from a single employee to a branch of the company. It is therefore necessary, to identity the type of presence by a representative of a non-resident company in Australia that makes a company in Australia.

To work out whether a company is in Australia in relation to the supply, it is necessary to examine the role the presence of the company in Australia plays in relation to the supply.

Clearly if the supply to a company is solely or partly for the purposes of the Australian presence, for example its Australian branch, representative office or agent if it is a non-resident company or the Australian head office if it is an Australian incorporated company, the company is in Australia in relation to the supply. There is a connection between the supply and the presence in Australia that is not a minor connection.

If the supply is not for the purposes of the Australian presence, but that Australian presence is involved in the supply, the company is in Australia in relation to the supply, unless the only involvement is minor.

If the involvement of the Australian presence is limited to the carrying out of simple administrative tasks on behalf of the company, as a matter of administrative convenience, that involvement is minor. The connection between the supply and the presence is so minor in nature that it is reasonable to conclude that the presence of the company in Australia is not in relation to the supply.

From the facts given, the non-resident company is incorporated outside of Australia so not in Australia and is therefore a non-resident of Australia. The non-resident company is not carrying on business or activities at a fixed and definite place of its own in Australia. The requirement for the non-resident not to be 'in Australia in relation to the supply' is therefore satisfied.

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.

Your supply of broadcast services satisfy paragraph (a) of Item 2 as the your supply is neither a supply of work physically performed on goods situated in Australia when the work was done, nor a supply directly connected with real property situated in Australia.

There is no need to consider paragraph (b) of item 2 since paragraph (a) of item 2 is satisfied. However, your supply of services is GST-free to the extent that it is not negated by subsection 38-190(3) of the GST Act.

This provision provides that where a supply is covered by Item 2 it is not GST-free if:

(a) it is a supply under an agreement entered into, and

(b) the supply is provided, or the agreement requires to be provided, to another entity in the 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)…

In this circumstance, the supply will not be negated by section 38-190(3) of the GST Act as it is a different supply in that you made a supply of services to the Customer which produced the product and the Customer made a supply of a right to another entity in Australia to use the product. Accordingly subsection 38-190(3) of the GST Act is not applicable to your supply. Hence, your supply of services to the Customer was GST-free under paragraph (a) of Item 2.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).