Disclaimer
This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your written advice

Authorisation Number: 1051354910001

Date of advice: 27 March 2018

Ruling

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

Question

Is the supply of services made by the Australian company to the overseas company GST-free under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Advice

No, the supply of services made by the Australian company to the overseas company is not a GST-free supply by virtue of subsection 38-190(3) of the GST Act. The supply of services is a taxable supply under section 9-5 of the GST Act.

Relevant facts

You are an Australian company that carries on your business activity in Australia and are registered for GST.

You have entered into an Agreement with an overseas company. The Agreement relates to your provision of manpower for a project in Australia. The overseas company does not carry on any business activity in Australia.

Under the order from the overseas company, you will deploy a site support officer for the Project for a period. The officer will supervise the erection and precommissioning works of a Plant in Australia.

The owner of the Plant is a non-resident and has hired a non-resident entity to manage the whole construction process and operation. The non-resident entity does not occupy a specific place in Australia while working on the project. There are temporary offices attached to the plant for use by all contractors. The non-resident entity has engaged subcontractors to perform the work and they are not employees of the non-resident entity.

You have a staff deployed for the project and the staff takes direction from an officer/employee of the non-resident entity who has been seconded to Australia for a few weeks at a time. Your staff only interacts with the representatives of the non-resident entity while performing the work.

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

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:

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 the overseas company 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:

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 is item 2 in the table in subsection 38-190(1) of 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 that is not in Australia when the thing supplied is done, and:

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.

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:

Law Companion Ruling LCR 2016/1 provides guidance when an enterprise is carried on in Australia for the purposes of section 9-27 of the GST Act.

Under section 9-27 of the GST Act, an entity has a GST enterprise presence if the enterprise is carried by one or more specified individuals that are in Australia, and:

The individuals who can carry on an enterprise are:

The first requirement for an enterprise to be carried on in Australia is that one or more individuals are in Australia. The location of an entity’s employees, officers or agents is an important consideration for section 9-27 of the GST Act. A non-resident entity that locates its employees, officers or agents outside Australia does not have a GST enterprise presence.

Where one or more relevant individuals are in Australia in carrying on an enterprise of the entity paragraph 9-27(1)(a) of the GST Act is satisfied.

From the facts given, the owner of the Plant has hired a non-resident entity to manage the whole construction process and operation. You have a staff deployed for the project and the staff takes direction from the employee/officer of the non-resident entity who has been seconded to Australia for a few weeks at a time. Your staff only interacts with representatives of the non-resident entity while performing their work.

In this instance, the overseas company is not carrying on an enterprise in Australia as they do not have staff located in Australia to manage the whole construction process and operation. It is the non-resident entity that has employees/officers in Australia and therefore will be the one carrying on an enterprise in Australia.

Accordingly, the precondition of item 2 is satisfied since the overseas company does not carry on its business activity in Australia and is not in Australia in relation to your supply. The next step is to consider the paragraphs in item 2.

Only one of the paragraphs in item 2 needs to be satisfied.

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.

Paragraph 20 in GSTR 2003/7 provides that where a supply has a direct connection with goods or real property, or is a supply of work physically performed on goods, the location of goods or real property is the basis upon which the GST treatment is determined under paragraph (a) of item 2. If the real property is located in Australia, the supply of a thing is not GST-free under paragraph (a) of item 2. The place of consumption is, in effect, determined by the location of the goods or real property.

We consider that the expression ‘directly connected with’ contemplates a very close link or association between the supply and particular goods or real property. We consider that such a close link or association between the supply and particular goods or real property exists where, for example, the direct object of the supply is the goods or real property in the sense that:

A common example of where a supply changes or affects the goods or real property in a physical way is a supply of a service that is physically performed on particular goods or real property such as the repair of goods or a building. Other examples of this kind include the construction, alteration, demolition repair or maintenance of a building or other structural improvement.

From the facts given, your staff will be deployed to supervise the erection and pre-commission works of the Plant that is being constructed at a specific property located in Australia. In this instance we consider the services provided by your staff will have a direct connection with real property in Australia and may be a supply of work physically performed on goods when supervising and precommisioning the works of the Plant.

Paragraph (a) of item 2 is not satisfied. The next step is to consider paragraph (b) 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 carrying 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 neither registered nor 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 and the acquisition is for business purposes. This is only accepted where the supplier has no reasons to believe the statement.

The overseas company acquires your supply for business purposes. Where the overseas company is neither registered nor required to be registered for GST, paragraph (b) of item 2 is satisfied. The supply is GST-free to the extent that it is not negated by subsection 38-190(3) of the GST Act

Subsection 38-190(3) of the GST Act

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:

Paragraph 38-190(3)(b)) of the GST Act

Goods and Services Tax Ruling GSTR 2005/6 provides guidance on the application of paragraph (b) in subsection 38-190(3) of the GST Act. Paragraphs 59 and 61 in GSTR 2005/6 state:

Your staff takes direction from the officer of the non-resident entity who has been seconded to Australia for a few weeks at a time and interacts only with the representatives of the non-resident entity when performing the work. Paragraph (b) in subsection 38-190(3) of the GST Act is satisfied as your staff is required to provide their services to the representatives of the non-resident entity in Australia when performing the work under the contract with the overseas company.

Paragraph 38-190(3)(c) of the GST Act.

An Australian based business recipient is a GST registered entity that carries on its enterprise in Australia and the acquisition of the thing is not solely of a private domestic nature.

From the facts given, the non-resident owner and non-resident entity are not registered for GST and therefore are not Australian based business recipient. Requirements (i) and (ii) in paragraph 38-190(3)( c) of the GST Act do not apply. The representatives to whom your staff interacts and takes direction from are employees/officers of the non-resident entity and not of the overseas company. Requirement (iii) in paragraph 38-190(3)(c) of the GST Act does not apply .

As none of the requirements in paragraph 38-190(3)(c) of the GST Act applies to your supply, subsection 38-190(3) of the GST Act therefore negates the GST-free status of your supply under item 2.

Summary

Your supply of services to the overseas company is a taxable supply under section 9-5 of the GST Act by virtue of subsection 38-190(3) of the GST Act.


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).