Edited version of private advice

Authorisation Number: 1051689480047

Date of advice: 1 June 2020

Ruling

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

Question

Is the supply of services made by the Australian company (AusCo)to the non-resident company (NRCo) a GST-free supply under section 38-190 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) under the Agreement it currently has in place with NRCo?

Answer

Yes, the supplyof services made by AusCoto NRCo is a GST-free supply under paragraph (a) of item 2 in the table in subsection 38-190(1) of the GST Act.

Note: AusCo is required to register for GST as its annual turnover is above the GST registration threshold of AU$75,000.

Relevant facts

AusCo is an Australian company and currently is not registered for GST. The annual income that AusCo receives is above AU$75,000 GST exclusive.

AusCo has entered into a Service Provider Service Agreement (Agreement) with a related company NRCo. We have received a copy of the Agreement.

NRCo is a company established outside Australia. It is a foreign company with central management and control outside Australia and this has not changed. The directors meet quarterly outside Australia to conduct the management of the foreign business.

NRCo is currently undertaking work for an Australian client.

AusCo is to supply operational oversight and management services in the schedule of page 1 of the Agreement with NRCo. The services that AusCo would provide to NRCo would be administration, clerical management and research and AusCo would supply the information as required.

The administrative, clerical, research and management services performed by AusCo's staff are for the purpose of providing accurate information to NRCo. These services are not provided to anyone in Australia.

AusCo is required to do research and investigation in order to prepare its reports. Its staff undertakes research in Australia and provides the information to NRCo. They gather information, proof read reports and then remit them overseas where NRCo's team then submits it to the client.

The information gathered by the staff is sent electronically to NRCo's team via digital communications. AusCo does not communicate with NRCo's Australian client.

The receivers of the information prepared by AusCo are NRCo's staff located outside Australia.

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 23-5

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.

Detailed reasoning

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 supplier 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 the supply is GST-free or input taxed.

From the information given AusCo satisfies paragraphs (a) to (d) in section 9-5 of the GST Act as:

a)     AusCo makes the supply of services for consideration; and

b)     AusCo makes the supply in the course of an enterprise that it carries on; and

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

d)     Under section 23-5 of the GST Act you are required to register for GST where you are carrying on a business and your annual turnover (current or projected) reaches the GST registration threshold of AU$75,000.

Your turnover is your total business income for all sales that are connected with Australia and you need to register within 21 days when you are required to be registered for GST.

From the facts given, AusCo is required to register for GST as its annual turnover for its supply of services is above the GST registration threshold of AU$75,000.

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

The supply of services is not input taxed under the GST law. Next is to consider the GST-free provision under the GST law.

GST-free supply

Relevant to the supply of services made by AusCo to NRCo is item 2 in the table in subsection 38-190(1) of the GST Act (item 2).

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 Australia when the thing supplied 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.

Based on the information received, Paragraph (a) of item 2 is satisfied as:

·        NRCo is a foreign company who is not in Australia at the time the supply of services is performed; and

·        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.

The supply of services is GST-free under paragraph (a) of item 2 to the extent that the supply is not negated by 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.

All of the requirements in this subsection have to be satisfied for the GST-free supply under item 2 to be negated from being GST-free.

The receivers of the information prepared by AusCo are NRCo's staff located outside Australia. In this instance subsection 38-190(3) of the GST Act does not apply to the supply made by AusCo to NRCo and provided to NRCo's staff located outside Australia.

The supply of services made by AusCo to NRCo and provided to the staff of NRCo is GST-free under paragraph (a) of item 2.

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