Edited version of your written advice

Authorisation Number: 1051446392479

Date of advice: 25 October 2018

Ruling

Subject: GST and supplies to a non-resident

Question 1

Will the importation of parts be treated as a non-taxable importation pursuant to subsection 42-5(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) such that no GST is payable when entity A imports the parts into Australia?

Answer

No, the importation of parts will not be treated as a non-taxable importation pursuant to subsection 42-5(1) of the GST Act when entity A imports the parts into Australia.

Question 2

In the event the Commissioner determines that the importation of parts is not a non-taxable importation, is entity A, acting as resident agent for an overseas entity B, entitled to claim an input tax credit under section 57-10 of the GST Act for the GST incurred on the taxable importation of parts on the basis that the requirements for creditable importation under section 15-5 of the GST Act should be satisfied by the entity B?.

Answer

Yes, entity A is entitled to an input tax credit for the GST paid on the taxable importation of the parts under section 57-10 of the GST Act when it is acting as a resident agent for entity B for the taxable importation of the parts into Australia as entity B is required to be registered for GST.

Question 3

Does entity A’s supply of services to entity C as described in paragraphs (a), (c), (d), (e), (f), (g) and (h) in Schedule A of the Agreement satisfy the GST-free requirements under item 2 in the table in subsection 38-190(1) of the GST Act (item 2)?

Answer

The supply of services listed at (a), (c), (e), (f), (g) and (h) (excluding (d)) in Schedule A of the Agreement is GST-free under item 2 as these services are made and provided to entity C and subsection 38-190(3) of the GST Act does not override that GST-free status.

The supply of services of providing technical assistance and training within Australia to the personnel of the Australian company Ausco or authorised contractors (paragraph (d) in Schedule A of the Agreement) are GST-free under item 2 as the contract to supply is made to entity C, but subsection 38-190(3) of the GST Act may negate GST-free status in limited circumstances:

● For services provided to personnel of Austco or authorised contractors subsection 38-190(3) will not negate GST status under item 2 whilst Ausco and authorised contractors remain GST registered

● For services provided to personnel of authorised contractors that are not GST registered subsection 38-190(3) will negate item 2 GST-free status In this instance the supply of services at (d) in Schedule A in the Agreement is a taxable supply under section 9-5 of the GST Act.

Relevant facts

Entity A is an Australian entity and is registered for GST. It is a subsidiary of an overseas company entity C.

Entity C is a non-resident entity and is not currently registered for GST in Australia. It does not have a presence or personnel located in Australia.

Entity B is an overseas company. In an agreement with an Australian company Austco, it agreed to supply goods and services to Austco in Australia.

Entity B has entered into an agreement with entity C for .the importation of the goods it owns into Australia, management of the imported goods and provision of services. Entity C has received authority to import the goods on behalf of entity B in Australia.

Entity C has entered into an Agreement with entity A where entity A has agreed to import the goods into Australia on behalf of entity B and will act as importer of record (“IOR”). Entity A is also expected to:

● Manage the pool of spare parts located in Australia.

● Co-ordinate the supply of technical assistance to entity B.

● Co-ordinate arrangements for the assessment and repair of parts that have been removed from goods.

Entity B retains legal ownership of the imported parts into Australia and the goods are for entity B’s use in meeting its commitments to Austco. Neither entity A nor entity C will retain ownership of the parts at any time in the process.

Entity A will not perform the installation of the goods in Australia. It will not enter into any contractual arrangements with any entity other than entity C. All services performed by entity A will be rendered under the agreement entered into with entity C and are listed in Schedule A in the Agreement.

Entity A will invoice entity C for the cost incurred for the services rendered in Australia. Entity C will charge these costs to entity B. Entity B is expected to charge these costs back to Austco.

For the services at (d) in Schedule A of the Agreement, the technical assistance will involve providing support necessary to train and support Austco’s personnel and/or its contractors .Entity A will not be performing any physical work on goods situated in Australia.

In relation to the importation of parts, entity B is supplying the parts to Austco and other end recipients in Australia. Entity A, as agent, for entity B imports the parts into Australia. The value of the imported parts into Australia by entity B (through entity A) will be greater than the GST registration threshold in a calendar year and as such their projected annual turnover will meet the GST registration threshold.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 15-5

A New Tax System (Goods and Services Tax) Act 1999 section 42-5

A New Tax System (Goods and Services Tax) Act 1999 section 57-10

Reasons for decisions

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.

Detailed reasoning

Question 1

An importation is a non-taxable importation if it is an importation of a kind set out in Division 42 of the GST Act.

Under subsection 42-5(1) of the GST Act an importation of goods is a non-taxable importation if the goods are covered by item 4, 10,11, 15, 18, 21, 21, 21A, 23, 24, 24, 25, 26 or 27 in Schedule 4 to the Customs Tariff Act 1995 (Schedule 4)

Item 10 in Schedule 4 is about goods that are owned by government in a foreign country, for the official use of that government, and are not to be used for the purposes of trade.

From the information given, subsection 42-5(1) of the GST Act does not apply when entity A imports the parts into Australia since:

• neither entity A nor entity B will use the imported parts for their official use; and

• the imported parts are for the purposes of trade since entity B will sell them to Austco and other end recipients in Australia.

Question 2

Under subsection 57-10(1) of the GST Act, if a non-resident makes a creditable acquisition or creditable importation through a resident agent:

● the resident agent is entitled to the input tax credit on the acquisition or importation; and

● the non-resident is not entitled to the input tax credit on the acquisition or importation

A resident agent is not entitled to an input tax credit under section 57-10 of the GST Act merely because it is liable to pay the GST under section 57-5 on a taxable importation of goods. A credit entitlement exists only if the non-resident (entity B) satisfies the requirements of section 15-5 of the GST Act.

Under section 15-5 of the GST Act you (entity B) make a creditable importation if:

a) you import goods solely or partly for a creditable purpose; and

b) the importation is a taxable importation; and

c) you are registered or required to be registered.

If a creditable importation is made through a resident agent, the agent needs to be able to demonstrate that there is an agency relationship, and that the requirements for a creditable importation are met (that is the non-resident must import the goods into Australia for a creditable purpose, the importation must be a taxable importation and the non-resident must be registered or required to be registered for GST).

A credible importation is made through the resident agent where the resident agent has the authority to clear the goods through Customs on behalf of the non-resident, and the resident agent is entered as ‘owner’ on the import declaration.

From the information given, entity B has made a creditable importation under section 15-5 of the GST Act since:

● it is supplying the parts to Austco and other end recipients in Australia while carrying on its enterprise and therefore it is importing the goods for a creditable purpose;

● the importation of the goods through its resident agent is a taxable importation; and

● it is required to register for GST since its annual turnover for the sales of the parts in Australia will be above the GST registration threshold of A$75,000.

Accordingly, entity A is entitled to claim an input tax credit for the taxable importation of the parts in Australia under subsection 57-10(1) of the GST Act since entity B has made a creditable importation under section 15-5 of the GST Act when entity A is acting as a resident agent for entity B for the importation of the parts into Australia.

Question 3

GST is payable on a taxable supply. A supply is a taxable supply under section 9-5 of the GST Act where:

a) the supply is made for consideration; and

b) the supply is made in the course 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.

From the facts given, entity A’s supply of services to entity C satisfies paragraphs 9-5(a) to 9-5(d) of the GST Act as:

a) it makes the supply for consideration; and

b) the supply is made in the course of a business that it carries on in Australia; and

c) the supply of services is connected with Australia as the supply is made through a business that it carries on in Australia; and

d) it is registered for GST.

However, the supply of services is not a taxable supply to the extent that it is GST-free or input taxed.

Entity A’s supply of services is not input taxed under the GST Act. Next is to consider the GST-free provision.

GST-free supply

Under the Agreement with entity Ct, entity A is responsible for the importation of the parts shipped to Australia and is also expected to supply the services detailed at (a) and (c) to (h) in Schedule A in the Agreement.

Relevant to the supply of the above services made to entity C is item 2 in the table in subsection 38-190(1) of the GST Act (item 2).

Under item 2 a supply of things other than goods or real property that is made to a non-resident who is not in Australia when the thing supplied is done is GST-free if:

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 needs to be satisfied for the supply to be GST-free.

Paragraph (a) of item 2

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.

Goods and Services Tax Ruling GSTR 2003/7 provides guidance on when a supply is a supply of work physically performed on goods and when a supply is directly connected with real property.

From the facts given, entity A’s supply of all of the above services to entity C satisfies paragraph (a) of item 2 as:

● its supply is made to a non-resident that is not located in Australia at the time of the supply; and

● its supply of services is neither a supply of work physically performed on goods situated in Australia when done nor a supply directly connected with real property situated in Australia.

In this instance entity A’s supply of services is GST-free to the extent it is not negated by subsection 38-190(3) of the GST Act.

There is no need to consider paragraph (b) as paragraph (a) is satisfied.

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.

Subsection 38-190(3) of the GST Act is relevant to the services listed at (d) in Schedule A of the Agreement (which is about providing technical assistance and training to Austco’s personnel and authorised contractors where applicable).

We will now consider subsection 38-190(3) of the GST Act for the services listed at (d) in Schedule A.

Paragraphs (a) and (b) in subsection 38-190(3) of the GST Act

Paragraphs (a) and (b) in subsection 38-190(3) of the GST Act are satisfied as entity A’s supply of services is made under an agreement with the non-resident entity C and under the agreement entity A is required to provide the services listed at (d) in Schedule A to Austco’s personnel and Austco’s contactors (where applicable) in Australia.

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

Requirement (i)

The term ‘Australian based business recipient’ describes the relationship that a recipient has with a particular supply. An entity is an ‘Australian-based business recipient’ of a supply that is made to it if:

a) the entity is registered for GST;

b) an enterprise of an entity is carried on in Australia; and

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

Where Austco’s contractors that are carrying on their business activities in Australia are registered for GST, requirement (i) applies to the supply made by entity A to entity C and provided to these contractors in Australia entities. In this instance subsection 38-190(3) of the GST Act does not negate the GST-free status of the supply under item 2.

Accordingly, the supply of services that is provided to Austco’s GST registered contractors carrying on their business activities in Australia is GST-free under item 2.

Entity A will need to obtain evidence that Austco’s contractors are registered for GST before treating its supplies of services that are provided to these contractors GST-free under item 2.

Where Austco’s contractors are not registered for GST, requirement (i) does not apply. In this instance subsection 38-190(3) of the GST Act will negate the GST-free status of the supply under item 2. The supply is a taxable supply under section 9-5 of the GST Act.

Requirement (ii)

An employee or officer is provided with a supply in their capacity as an employee or officer if the supply was provided to them in the performance of their duties or as part of their remuneration.

Where the supply of services is provided to Austco’s personnel or to the contractor’s personnel (Australian entities) and these Australian entities are registered for GST requirement (ii) applies to the supply of services made by entity A to the personnel of these Australian entities. Subsection 38-190(3) of the GST Act will not negate the GST –free status of the supply. The supply is GST-free under item 2.

Entity A will need to obtain evidence that the Australian entities are registered for GST before treating its supplies of services that are provided to these Australian entities GST-free under item 2.

Requirement (iii)

Requirement (iii) requires that the acquisition is solely for a creditable purpose and is not a non-deductible expense.

An acquisition is solely for a creditable purpose where the thing is acquired solely for business purposes and the acquisition does not relate to making supplies that would be input taxed.

Division 69 of the GST Act is about non-deductible expenses and lists supplies that are generally not creditable acquisitions for non-resident employers for example entertainment expenses such as dinners, cocktail parties, tickets for sightseeing tours.

From the information provided entity C will not have any employee in Australia in relation to the supply. Requirement (iii) is not relevant.

Summary

The supply of services listed at (a), (c) and (e) to (h) in Schedule A of the Agreement is GST-free under item 2 as these services are made and provided to Entity C.

The supply of services of providing technical assistance and training within Australia to Austco’s personnel or authorised contractors (paragraph (d) in Schedule A of the Agreement) are GST-free under item 2 as contract to supply is made to entity C but subsection 38-190(3) of the GST Act may negate GST-free status in limited circumstances:

● For services provided to personnel of Austco or authorised depot vendors subsection 38-190(3) will not negate GST status under item 2 whilst Austco and authorised contractors remain GST registered.

● For services provided to personnel of authorised contractors that are not GST registered subsection 38-190(3) of the GST Act will negate item 2 GST-free status In this instance the supply of services at (d) in Schedule A in the Agreement is a taxable supply under section 9-5 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).