Edited version of your written advice

Authorisation Number: 1051466083542

Date of advice: 12 December 2018

Ruling

Subject: GST and supply pf services to overseas companies

Question 1

Have you made a supply to your subsidiary companies located outside Australia under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when invoicing them for the costs you have allocated to them?

Answer

Yes, you have made a supply of management and marketing services to your subsidiary companies located outside Australia under section 9-10 of the GST Act when invoicing them for the costs you have allocated to them.

Question 2

If the answer to question 1 is yes, have you made a GST-free supply to your subsidiary companies located outside Australia under the GST Act?

Answer

Yes, you have made a GST-free supply of management and marketing services to your subsidiary companies located outside Australia 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 GST.

Your business activity is the writing, production, sound recording and final distribution of an online product. The online product is an online video sharing subscription and customers will purchase a subscription for the product.

Due to the global expansion subsidiary companies were incorporated outside Australia. These subsidiary companies and you are considered part of a global group (Group).

These subsidiary companies routinely sell your online products to customers located outside Australia. The subsidiary companies receive the income from the sale of the online products and their expenses are confined to employment of sales representatives and occupancy costs. A local manager is employed to oversee the operation of the subsidiary company but has little input to the decision and cost allocations of the Group.

The Managing Director has central management and control of all companies from decisions to the daily operation to determining and implementing of business strategy for the group.

The Global Operations Manager is responsible for:

● the implementation of the online product delivery and the daily operation of the global business units;

● Implementation and management of employment and company policies;

● Responsible for setting the tone for a company's image, management and operations.

The full costs of writing, producing, sound recording, and online product delivery is incurred by you, as well as the cost of central management and control of the company is paid for by you. In order to recover the portion of these costs that relate to the activities of the overseas operations a charge is made by you and is calculated taking into consideration the estimated portion of costs of the overseas segment compared to the Australian operations.

You invoice the subsidiary companies for a management fee which predominantly covers management costs, travel costs, marketing cost and production costs. The calculation of the costs is based on a percentage of revenue of the total group.

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 9-10

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.

Question 1

Section 9-10 of the GST Act provides the meaning of ‘supply’ and states:

9-10 Meaning of supply

(1) A supply is any form of supply whatsoever.

(2) Without limiting subsection (1), supply includes any of these:

(a) a supply of goods;

(b) a supply of services;

(c) a provision of advice or information;

(d) a grant, assignment or surrender of real property;

(e) a creation, grant, transfer, assignment or surrender of any right;

(f) a financial supply;

(g) an entry into, or release from, an obligation:

i. to do anything;

ii. to refrain from an act;

iii. to tolerate an act or situation;

(h) any combination of any 2 or more of the matters referred to in paragraphs (a) to (g).

(3) It does not matter whether it is lawful to do, to refrain from doing or to tolerate the act or situation constituting the supply.

(3A) For the avoidance of doubt, the delivery of:

(a) livestock for slaughtering or processing into food; or

(b) game for processing into food;

under an arrangement under which the entity making the delivery only relinquishes title after food has been produced, is the supply of the livestock or game (regardless of when the entity relinquishes title). The supply does not take place on or after the subsequent relinquishment of title.

(4) However, supply does not include:

a) a supply of money unless the money is provided as consideration for a supply that is a supply of money or digital currency; or

b) a supply of digital currency unless the digital currency is provided as consideration for a supply that is a supply of digital currency or money.

From the information given you invoice your subsidiaries a management fee and the fee is to cover costs predominantly management costs, travel costs, marketing cost and production costs incurred for these subsidiaries. This indicates that you have made a supply of management and marketing services (the travel and production costs being incidental to the management and marketing services) to the subsidiaries and the invoiced fee is consideration for the supply of these services.

Accordingly, you have made a supply of management and marketing services under subsection 9-10(2) of the GST Act to your subsidiaries.

Question 2

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 supplier makes the supply in the course or furtherance of an enterprise 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 of management and marketing services to be a taxable supply.

From the information given, your supply of management and marketing 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 management and marketing 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 marketing and marketing services input taxed.

GST-free supply

Relevant to your supply of management and marketing 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.

Paragraph (a) of item 2

From the fact given, your supply of management and marketing services satisfy paragraph (a) of item 2 as:

● your supply is made to the subsidiaries who are non-resident companies located outside Australia; and

● your supply of management and marketing 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 management and marketing 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 management and marketing services are you are not required to provide your supply to another entity in Australia.

Your supply of management and marketing services is therefore GST-free under 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).