Edited version of private advice

Authorisation Number: 1051828350446

Date of advice: 11 May 2021

Ruling

Subject: Supply of services to a non-resident entity

Question 1

Is your supply of services made to the non-resident subject to GST where those services are performed by your employees who work directly with the non-resident and provided to the non-resident's clients in Australia?

Answer

Your supply of services made to the non-resident is a GST-free supply under item 2 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) where the services performed by your employees are provided to clients of the non-resident that are registered for GST. You must hold evidence that these clients are registered for GST.

Where the non-resident's clients in Australia are not registered for GST your supply of services to the non-resident is a taxable supply under section 9-5 of the GST Act by virtue of subsection 38-190(3) of the GST Act.

Question 2

Will your supply of human resource support, administration of payroll and superannuation (human resources services) made to the non-resident be subject to GST where the services are for the purposes of the non-resident's Australian subsidiary?

Answer

Yes. Your supply of human resources services made to the non-resident will be a taxable supply under section 9-5 of the GST Act when the services are for the purposes of the non-resident's Australian subsidiary.

This ruling applies for the following period:

1 November 20XX - 30 June 20XX

Relevant facts and circumstances

You are an Australian entity that is registered for GST.

The non-resident entity is a company based outside Australia.

The non-resident does not have a commercial presence or entity in Australia but is currently in the process of setting up an Australian subsidiary.

You are engaged by a non-resident company to:

•         source interim staff based in Australia for the non-resident while the non-resident is setting up its subsidiary company in Australia;

•         provide HR support to the non-resident's Australian based employees when the Australian subsidiary is established; and

•         provide administration service (payroll and superannuation) to the non-resident's Australian based employees when the Australian subsidiary is established.

A copy of the Proposal Summary that was provided to us summarises the implementation and process for the provision of the services as follows:

1.    You shall provide interim employment services for its Australian employees on behalf of the non-resident until such time that the non-resident establishes its own Australian entity.

2.    You will issue employment offers and contracts to the non-resident's Australian employees as stipulated by the non-resident.

3.    You will administer payroll and superannuation for all the non-resident's Australian employees.

4.    You will charge the non-resident a fee covering the employees' salary plus 30% margin.

5.    You will provide ongoing HR services to the non-resident's Australian employees for the duration of the agreement.

6.    It is acknowledged that the non-resident will provide the day to day supervisory and task definitions to the employees. You will ensure terms and work arrangements provided by the non-resident are localised as much as possible.

7.    All candidates and new employees will be informed that once the non-resident has formalised its own arrangements in Australia their contract with you will be formally terminated and a new employment contract will be issued by the non-resident's future entity.

8.    Based on previous conversations and correspondence, you will provide services on a monthly retainer of A$xxxx plus GST (invoiced monthly in advance) for the provision of additional services as above.

9.    You will provide all receipts and invoices relating to costs incurred on behalf of the non-resident.

10.  All remaining funds (after reconciliations) will be offset against any monies owed to you by the non-resident or against the retainer as outlined above.

11.  All costs incurred by you on behalf of the non-resident for agreed outgoings to be paid in advance.

You offered employment to three individuals under a contract which provides that:

•         the individuals are employed in the short term by you;

•         they will report to a representative of the non-resident or to another nominated person; and

•         their employment will transfer to the non-resident's Australian subsidiary once it has been established.

The representative of the non-resident from whom your employees will take instructions directly is based in outside Australia. Instructions are provided on the telephone or via video conference. The representative has not been in Australia for more than 183 days.

When you recruited three employees on an interim basis to work under the instruction of the non-resident, it was understood that they will be working for the non-resident's clients in Australia. You are not aware of the clients' GST registration status.

The duties of the employee engaged by you to work under the instruction of the non-resident are in Schedule 2 in the employment engagement between you and the employee. Schedule 2 provides the following:

•         manage multiple projects to successfully onboard new retailers on to the online marketplace platforms, or to scale up and optimise existing retailers

•         analyse customers' current systems to understand current capabilities

•         conduct scoping meetings and run workshops with customers, often involving cross-functional teams in customers of different sizes and sectors

•         supervise our internal e-commerce Project Administrators, providing support to them in driving project milestones towards timely and successful onboarding

•         where appropriate identify new areas of e-commerce opportunity beyond customers' current thinking

•         provide support to our e-commerce team in bringing onboarding projects to completion often through working with cross functional teams in customers of varying size and in various sectors

•         work with multiple sellers simultaneously each for a period of weeks, demonstrating a sense of urgency and ownership to drive each project to completion

•         other duties which in the employer's opinion you are capable of performing.

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 decisions

Summary

Your supply of services made to the non-resident is a GST-free supply under item 2 in the table in subsection 38-190(1) of the GST Act where the non-resident's clients to whom your employees are providing the services are registered for GST. You must hold evidence the non-resident's clients are registered for GST before treating the supply as a GST-free supply.

Where the non-resident's clients are not registered for GST, your supply of services made to the non-resident is a taxable supply under section 9-5 of the GST Act.

Your supply human resource support, administration of payroll and superannuation (human resource services) to be made to the non-resident will be subject to GST as the supply will be a taxable supply under section 9-5 of the GST Act when the services are for the purposes of the non-resident's Australian subsidiary.

Detailed reasoning

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

GST is payable on a taxable supply.

Section 9-5 of the A New Tax System (Goods and Services tax) Act 1999 (GST Act) states:

You make a taxable supply if:

(a)  you make the supply for *consideration; and

(b)  the supply is made in the course or furtherance of an *enterprise that you *carry on; and

(c)   the supply is *connected with the indirect tax zone; and

(d)  you are *registered, or *required to be registered.

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

(* denotes a term defined under section 195-1 of the GST Act)

Your supply of services made to the non-resident meets the requirements in paragraphs 9-5(a) to 9-5(d) of the GST Act because:

(a)  the supply is made for consideration;

(b)  the supply is made in the course of an enterprise that you carry on;

(c)   the supply is connected with the indirect tax zone as it is made your enterprise carried on in Australia; and

(d)  you are registered for GST.

Therefore, your supply of services made to the non-resident is a taxable supply unless it is GST-free or input taxed.

There is no provision in the GST Act under which the supply of the services would be input taxed; thus, what remains to be determined is whether the supply is GST-free.

Item 2 in the table in subsection 38-190(1) of the GST Act (item 2) provides that a supply of anything, other than goods or real property, 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.

However, in accordance with subsection 38-190(3) of the GST Act, a supply covered by item 2 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.

Precondition of item 2

The precondition of item 2 is that the non-resident is not in Australia in relation to the supply. Goods and Services Tax Ruling GSTR 2004/7 provides guidance in determining whether a particular entity is in Australia for the purpose of item 2.

Paragraph 241 of GSTR 2004/7 contains our view that a non-resident company is in Australia for the purpose of item 2 if that company carries on business (or in the case of a company that does not carry on business, carries on its activities) in Australia:

a.    at or through a fixed and definite place of its own for a sufficiently substantial period of time; or

b.    through an agent at a fixed and definite place for a sufficiently substantial period of time.

The non-resident does not have a commercial presence in Australia and its Australian entity has not been established at the time the supply of services is done. Currently, the non-resident does not have any employees in Australia as the individuals who were offered employment by you are effectively your employees until their employment contracts are terminated. The representative of the non-resident who will give instructions directly to your employees is based outside Australia and will provide the instructions on the telephone and via video conference. Based on the information provided, we consider that the non-resident is not in Australia for the purpose of item 2.

Paragraph (a) of item 2

Paragraph (a) of item 2 requires that the supply is neither a supply of work performed on goods located in Australia nor a supply that is directly connected with property in Australia.

Your supply of services to the non-resident is neither a supply of work performed on goods located in Australia nor a supply that is directly connected with property in Australia. As such, paragraph (a) of item 2 is satisfied and it is no longer necessary to determine if paragraph (b) is satisfied. Therefore, the supply is GST-free under item 2 unless subsection 38-190(3) of the GST Act applies.

Subsection 38-190(3)

When you engaged the employees to work under the direction of the non-resident's representative located outside Australia, it was understood that your employees will work for the non-resident's clients in Australia.

Where the non-resident's client is registered for GST, subsection 38-190(3) of the GST Act would not apply and in such case, the supply remains GST-free under item 2. You must hold evidence that the Australian client is registered for GST before treating your supply as GST-free under item 2. For example, you can obtain the ABN of the client and a statement from the client that it is registered for GST.

Where the non-resident's client is not registered for GST, subsection 38-190(3) of the GST Act would apply to the supply that you made to the non-resident. The supply is a taxable supply under section 9-5 of the GST Act.

Question 2

Your supply of human resource support, administration of payroll and superannuation (human resource services) to be made to the non-resident and provided to the employees of the non-resident's Australian subsidiary will satisfy paragraphs 9-5(a) to 9-5(d) of the GST Act as:

a.    the supply will be for consideration; and

b.    the supply will be made in the course of your enterprise; and

c.     the supply will be connected with Australia; and

d.    you are registered for GST.

The supply will be a taxable supply unless it is GST-free or input taxed.

There is no provision in the GST Act under which your supply of human resource services will be input taxed. Therefore, what remains to be determined is whether the supply will be GST-free.

The precondition of item 2 is that the non-resident is not in Australia in relation to the supply.

When the non-resident's Australian subsidiary has been established, the non-resident will have a presence in Australia. Paragraph 41 of GSTR 2004/7 provides that a non-resident company is in Australia in relation to the supply if the supply is solely or partly for the purposes of the Australian presence. If the supply is not for the purposes of the Australian presence but that Australian presence is involved in the supply, the company is in Australia in relation to the supply, except where the only involvement is minor.

You will provide human resource services to the employees of the non-resident's Australian subsidiary; therefore, the supply is for the purposes of the non-resident's Australian subsidiary since the Australian subsidiary is liable to provide these services to its employees. The involvement of the Australian subsidiary in relation to your supply would not be minor as you will have to be in constant contact with the Australian subsidiary when supplying the human resource services. In this instance, the non-resident will be in Australia for the purposes of item 2; and thus, the precondition of item 2 is not met. Item 2 does not apply to your supply in this instance.

Your supply of human resource services made to the non-resident and provided to the non-resident's Australian subsidiary will be a taxable supply under section 9-5 of the GST Act and will be subject to GST.

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