Edited version of your written advice

Authorisation Number: 1051417176843

Date of advice: 17 August 2018

Ruling

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

Question 1

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

Advice

From the information given the Australian company is making a supply of services. The supply of services made by the Australian company to the overseas 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 the goods and services tax (GST). You offer services to Australian clients. You do not make supplies to overseas clients.

You have an agreement with an overseas company that makes supplies similar to yours and under the agreement you will receive an annual fee from the overseas company for your supplies to the overseas company.

Your supply to the overseas company for the annual fee is for QA, training material and letting the overseas company to use your name, license and reputation for their marketing.

For the QA work, your registered consultants check the file notes, application forms, client service contracts to confirm that the correct advice was provided to the client and the correct process was followed.

An overseas client will enter into an agreement directly with the overseas company. The client of the overseas company will pay the fees in a central account in Australia You release the entire fees paid by the client to the overseas company after you have done the QA 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:

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 to be a taxable supply.

Characterisation of your supply

From the information given, the annual fee is for reviewing the work done by the overseas company (QA work) followed by the release of the fees paid by the overseas clients to the overseas company, supply of training materials and letting the overseas company to use your name, license and reputation for their marketing.

In this instance we consider your dominant supply to the overseas company is the QA work whereas the release of the fees to the overseas company after the QA is done is an administrative arrangement between you and the overseas company since the contract for the service is between the overseas company and the overseas client. The supply of the training materials and letting the overseas company to use your name, licence and reputation for their marketing is incidental to the dominant supply as it contributes to the proper performance of the contract to supply the dominant supply and also it contributes to the supply as a whole but cannot be identified as the dominant part of the supply.

Accordingly there is a composite supply of one thing which is the supply of QA work and the release of the fees. This supply is characterised as a supply of services for GST purposes.

The next step is to consider the GST status of your services.

Supply of services

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; 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 legal 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:

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.

From the facts given, your supply of services satisfy paragraph (a) of item 2 as:

● your supply of services is made to a non-resident company that is not in Australia in relation to your supply when the supply is done; and

● your 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 services is GST-free under paragraph (a) of item 2 to the extent that it is not negated by subsection 38-190(3) of the GST Act.

As paragraph (a) is satisfied there is no need to consider paragraph (b) of item 2.

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:

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.

From the facts given, subsection 38-190(3) of the GST Act does not apply to your supply of services as you are not required to provide your supply of services to another entity in Australia.

Your supply of services is made and provided to the overseas company and therefore GST-free under item 2.

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