Edited version of your written advice

Authorisation Number: 1051321681053

Date of advice: 9 March 2018

Ruling

Subject: GST treatment of goods exported from Australia

Question 1

Are the supplies to be made by ABC Australia P/L to ABC NR Co under the proposed arrangement, GST-free export supplies under item 1 of the table in subsection 38-185(1) of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act)?

Answer 1

For goods originally sold prior to 1 November 2017 (scenario 1)

No.

There is no GST-free export supply to be made by ABC Australia P/L to ABC NR Co. The return of the goods is not a supply of goods. The goods are returned to ABC NR Co who made the original sale, via ABC Australia P/L. ABC Australia P/L are not making a separate supply, they are only acting as an intermediary to facilitate the return of the goods to ABC NR Co.

For goods originally sold after 1 November 2017 (scenario 2)

No.

Under the proposed arrangement there is no GST-free export supply to be made by ABC Australia P/L Australia to ABC NR Co as it would be a return of goods that was originally supplied outside Australia to ABC Australia P/L. As the original supply is not taxable for GST purposes, then there are no GST implications for the return of the goods to ABC NR Co.

Question 2

Would the decision for Q1 change should ABC NR Co cease to be registered for GST in Australia?

Answer 2

No.

Question 3

To the extent that item 1 of the table in subsection 38-185(1) of the GST Act does not apply to supplies made by ABC Australia P/L to ABC NR Co under the proposed arrangement, please confirm that those supplies are out-of-scope for GST purposes?

Answer 3

For goods originally sold prior to 1 November 2017 (scenario 1)

ABC Australia P/L are not making a separate supply, they are only acting as an intermediary to facilitate the return of the goods to ABC NR Co. There are no GST consequences for ABC Australia P/L in regard to this return of goods.

For goods originally sold after 1 November 2017 (scenario 2)

Yes.

As the original supply from ABC NR Co to ABC Australia P/L was not taxable for GST purposes, then are no GST implications for the returning of the goods to ABC NR Co.

Note: The ‘indirect tax zone’ is the area that Australia’s GST applies to. In this Private ruling, the ‘indirect tax zone’ is referred to as ‘Australia’.

Relevant facts and circumstances

● ABC Australia P/L and ABC NR Co are part of a global group, which distributes network equipment and provides network connection services worldwide;

● Due to a restructure of the Australian business:

● ABC Australia P/L operates as the licensed distributor of network equipment in Australia; and

● ABC Australia P/L acts as both the importer and exporter of record (for Australian customs purposes) for all the global group’s goods imported into and exported from Australia;

● Relevantly, from time to time, ABC Australia P/L is required to export goods from Australia as part of its sales returns process. In this regard, ABC Australia P/L is considering adopting a returns process, whereby:

● ABC Australia P/L will supply goods to ABC NR Co under either Free On Board (FOB) Incoterms or Free Carrier (FCA) or Free Alongside Ship (FAS) Incoterms (where the named place of delivery for the FCA and FSA Incoterms is an international port/airport and the goods are delivered to the operator of a ship or aircraft for international carriage);

● ABC NR Co will issue an intercompany credit note to ABC Australia P/L in respect of the goods;

● ABC NR Co will take possession of the goods in Australia and arrange for the transportation of the goods back to the offshore contract manufacturer. ABC NR Co will provide evidence that it has arranged international carriage (e.g. by providing an airway bill or bill of lading);

● ABC Australia P/L will be listed as the exporter of record for customs purposes and lodge an export declaration for the goods. ABC NR Co will be listed as the consignee for the relevant goods; and

● For completeness, the goods to be exported by ABC Australia P/L under the proposed arrangements may have been previously sold to Australian customers by ABC NR Co or ABC Australia P/L.

● ABC Australia P/L and ABC NR Co are registered for GST in Australia; however the entities are not grouped for GST purposes.

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, Subsection 38-185(1)

Reasons for decision

Taxable supply

You make a taxable supply where you satisfy the requirements of section 9-5 of the GST Act, which 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

(c) the supply is *connected with Australia; 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.

It is important to note that it must first be established that the requirements of a taxable supply are met before a supply can be determined to be GST-free or otherwise. Under the ‘proposed arrangement’ there is a need to establish that the arrangements do result in a taxable supply occurring.

Specifically the use of the terms ‘sales return process’ can imply an adjustment event rather than a supply. Also ‘intercompany credit note’ can indicate no consideration provided.

Further, GSTR 2002/6 Goods and Services Tax: Exports of goods, items 1 to 4A of the table in subsection 38-185(1) of the A New Tax System (Goods and Services Tax) Act 1999 states at paragraph 91:

91. Section 38-185 does not apply to the movement of goods within the same entity. For example, where an Australian branch of a non-resident company moves goods from the Australian branch to the non-resident head office, there is no supply of goods. A company cannot make supplies to itself. Goods can be exported without there being a supply of those goods. However, section 38-185 only operates where there is a supply of goods.

We also consider that the return of goods to a supplier is normally treated as a cancellation of the original supply which usually results in an adjustment event. The fact sheet GST and product recalls | Australian Taxation Office states:

When a customer returns recalled goods to the retailer who sold the goods it is considered to be a cancellation of the original sale. As the retailer will have paid us GST on the sale and the customer will have claimed a GST credit, both parties will have to make adjustments.

A retailer who refunds the customer's money will be entitled to a GST credit for the GST component of those goods that was included in a previous activity statement. Generally, the credit is reflected in their next activity statement as a decreasing adjustment. They may be required to issue an adjustment note to the customer.

The act of sending the goods overseas back to ABC NR Co by ABC Australia P/L in both scenarios 1 and 2 is in regard to a ‘sales return process’ rather than a supply of goods and therefore item 1 of the table in subsection 38-185(1) of the GST Act cannot apply. The requirements of 9-5(a) to (d) must be satisfied before any GST-free provisions can apply.

Question 2

Under the proposed scenario ABC Australia P/L will take procession of the goods from ABC NR Co outside Australia and make a taxable importation of the goods into Australia.

The supply of goods to be made to ABC Australia P/L by ABC NR Co under the proposed arrangements would not be taxable supplies. The supply is not connected with Australia under section 9-25 as the goods are not delivered, made available or brought to Australia by the supplier and none of the other provisions of section 9-25 are applicable. As the supply does not satisfy the requirements of paragraph 9-5(c) it is therefore is not a taxable supply.

The supply is not connected to Australia regardless of whether ABC NR Co is registered for GST or not. The GST registration status of ABC NR Co does not affect the decision in Question 1.

Question 3

For goods originally sold prior to 1 November 2017 (scenario 1)

In scenario 1, ABC NR Co, as the owner of the goods, made a taxable importation of the goods into Australia. ABC NR Co then made a domestic supply of the goods to an Australian customer (which would be taxable for GST purposes). In the event of a return, under the proposed arrangement, the customer will return the goods domestically to ABC Australia P/L who would forward the goods back to ABC NR Co.

ABC Australia P/L are not making a separate supply, they are only acting as an intermediary to facilitate the return of the goods to ABC NR Co. ABC Australia P/L were not involved in the original supply of goods to the Australian customer. Therefore, there are no GST consequences for ABC Australia P/L’s role in forwarding the goods to ABC NR Co.

For goods originally sold after 1 November 2017 (scenario 2)

In scenario 2 as explained in question 2, ABC NR Co would make a supply of the goods to ABC Australia P/L that would not be a taxable supply as it is not connected with Australia. ABC Australia P/L, as the owner of the goods, would make a taxable importation of the goods into Australia. ABC Australia P/L would make a domestic supply of the goods to an Australian customer (which would be taxable for GST purposes). In the event of a return, the customer will return the goods to ABC Australia P/L. ABC Australia P/L then returns the goods to ABC NR Co.

As the original supply from ABC NR Co to ABC Australia P/L was not taxable for GST purposes, then are no GST implications for the returning of the goods to ABC NR Co.

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