Edited version of private advice

Authorisation Number: 1051693361873

Date of advice: 3 June 2020

Ruling

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

Question

Is the supply of consulting services made by the Australian company to the non-resident company a GST-free supply under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) under the contract in place between the Australian company and the non-resident company?

Answer

Yes,the supply of consulting services made by Australian company to the non-resident company and provided to GST registered Australian businesses in Australia under the contract in place between the Australian company and the non-resident 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. You carry on your business in Australia and are registered for GST.

You entered into a contract with a-non-resident company that is incorporated and located outside Australia. You are paid based on the commercial terms agreed in the contract. We have received a copy of the contract.

Under your contract with the non-resident company you supply consulting services for the post-merger integration of two businesses in Australia.

Your director currently performs the consulting services under the contract you have in place with the non-resident company. The consulting services comprise the management and co-ordination of teams who attend to administrative, corporate and regulatory matters which arise as a result of the global amalgamation of the group of companies.

Your director manages the whole project in the Australian and provides direction to the Australian business and other external personnel who provide necessary services. The director directly deals with the personnel of the Australian business. The external personnel to whom direction are provided are generally professionals such as lawyers and other types of advisers located in Australia and whose services may also be necessary for the amalgamation process. You assume that these external parties are registered for GST due to the nature of their work.

Your director also has discussions with businesses located outside Australia as part of the global amalgamation process of the project.

Your director performs the services in Australia at sites mutually agreed between you, the non-resident and the business involved in the project. Under this contract, for reasons of more effective collaboration it has been agreed to be a mix of onsite work at the office of the Australian businesses in Australia and remote support from your office.

The two Australian businesses are registered for GST. As the two businesses are amalgamated, most contact personnel are located in the same premises and are taken to work for one company. You director has contact with necessary personnel from both former businesses as required for the various processes which have to be carried out between the two companies and these may be legal, accounting, corporate or administrative.

The private ruling is only for the supplies made by you to the non-resident company and provided to the Australian businesses and other entities located in Australia.

The non-resident company does not carry on any business in 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 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:

1. the supplier makes the supply for consideration; and
2. the supply is made in the course or furtherance of an enterprise that the supplier carries on; and
3. the supply is connected with Australia; and
4. 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 consulting services to the non-resident company to be a taxable supply.

From the information given, your supply of consulting 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 consulting 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 consulting services input taxed.

GST-free supply

Relevant to your supply of consulting 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 the non-resident 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 facts given, your supply of consulting services satisfy paragraph (a) of item 2 as:

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

·         your supply of consulting 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.

However, paragraph (a) of item 2 is limited 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.

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 your supply of consulting services is made under a contract with the non-resident company and under the contract you are required to provide the supply to Australian businesses who are located in Australia.

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

Requirements (i) and (ii)

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:

              i.        the entity is registered for GST; and

             ii.        an enterprise of an entity is carried on in Australia; and

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

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.

You advised that the Australian businesses to whom you provide your services are GST registered Australian businesses. In this case, requirement (i) applies to your supply of consulting services you make to the non-resident company and provide to these Australian GST registered businesses (including their employees) in Australia. In this instance subsection 38-190(3) of the GST Act does not negate the GST-free status of your supply of consulting services under item 2.

Accordingly, the supply of consulting services that is made to the non-resident company and provided to the GST registered Australian businesses (including their employees) is GST-free under item 2.

You will need to obtain evidence that the Australian businesses are registered for GST before treating your supply of consulting services that is made to the non-resident company and provided to the Australian businesses as a GST-free supply under item 2. For example you can obtain the ABN and a statement from the Australian business that they are registered for GST.

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 the non-resident company does not have any employee in Australia in relation to the supply. Requirement (iii) is not relevant.

Summary

Your supply of consulting services made to the non-resident company and provided to the GST registered Australian businesses in Australia is GST-free under item 2.

You will need to obtain evidence that the Australian businesses are registered for GST before treating your supply of consulting services made to the non-resident company and provided to the Australian businesses as a GST-free supply under item 2.

Note:

Where the Australian business is not registered for GST, requirements (i) and (ii) in paragraph 38-190(3) of the GST Act do 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 of the consulting services that is provided to the unregistered GST business is a taxable supply under section 9-5 of the GST Act.

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