Edited version of private advice

Authorisation Number: 1051839421589

Date of advice: 18 May 2021

Ruling

Subject: Whether the supply is outside of the indirect tax zone?

Question

Whether Entity is required to account for GST for supplies made to its Australian clients under section 9-5 of the A New Tax System (Goods and Services Act) 1999 (GST Act)?

Answer

No.

Relevant facts and circumstances

Entity is incorporated overseas and carries on an offshore enterprise.

Entity is registered for GST.

Entity makes supplies to Australian businesses who are GST registered and acquired the supplies in the carrying of their business (that is, they are not Australian consumers).

The supply includes a combination of services and advice.

The supply is not input taxed or GST-free.

The information technology hardware used to make the supplies are all developed, maintained and located overseas.

The staff involved in making the supplies are located overseas.

The executives and decision-makers in respect of the supplies (including concluding of the contracts) are also located overseas.

Entity has a branch that is an Australian GST presence as per Goods and Services Tax Ruling GSTR 2019/1: supply of anything other than goods or real property connected with the indirect tax zone (Australia).

The Australian GST presence provides marketing and business development services under the direction of Entity. As a branch, the Australian GST presence does not book or record the supplies.

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 9-25

Reasons for decision

GST is payable on any taxable supplies that you make. Section 9-5 outlines the requirements of a taxable supply under that section:

(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.

Paragraph 9-5(c) requires that the supplies are connected to the indirect tax zone (ITZ) which means Australia but excludes certain external territories and offshore areas.[1]

Section 9-25 defines circumstances when supplies are connected to the ITZ. Subsection 9-25(5) outlines the circumstances when supplies anything other than goods and property (intangible supplies) are connected to the ITZ. Paragraphs 9-25(5)(a) and (b) outline circumstances that are relevant to the supplies made by Entity.[2]

Paragraph 9-25(5)(a) provides that an intangible supply is connected to the ITZ if the 'thing' being supplied is 'done' in Australia. Goods and Services Tax Ruling GSTR 2019/1: supply of anything other than goods or real property connected with the indirect tax zone (Australia) explains that it is important to characterise the thing being supplied. The ruling explains when a supply of services, advice, information and rights is done in the ITZ.

If the 'thing' being supplied is a service, the service is typically done where it is performed. If the service is performed in Australia, the service is done in Australia and the supply of that service satisfies paragraph 9-25(5)(a) even if the recipient of the supply is outside Australia.[3]

If the 'thing" supplied is the provision of advice, the subject of the supply is the information constituting the advice. The information constituting the advice is done where the work necessary to produce it takes place. This is where the advice is prepared, produced or created. The means, processes or systems by which that supply is delivered to the client are not component parts of the 'thing' supplied. The supply of that advice is connected with Australia if the advice or information is prepared, produced or created in Australia.[4]

Paragraph 9-25(5)(b) outlines the other relevant circumstance where there is connection to the ITZ in Entity's case. It provides that a supply of anything other than goods or real property is connected with the ITZ if "the supplier makes the supply through an enterprise that the supplier carries on in the indirect tax zone". We refer to the concept of carrying on an enterprise in the ITZ as an "Australian GST presence" in GSTR 2019/1.

GSTR 2019/1 explains that there are no specific criteria which must be satisfied to determine whether a particular supply is connected with an Australian GST presence. Each case is to be determined on an overall assessment of the individual facts and circumstances of the supply. Paragraph18 of the ruling lists number of factors to indicate the requisite connection with an Australian GST presence. It provides that if one or more of the following factors are established in any particular case it would be a strong indicator that the supply is connected with an Australian GST presence. The factors include:

•         where the relevant individuals of the Australian GST presence

-        exercise an authority to sign, negotiate, conclude or accept contracts and purchase orders for the supply;

-        make important decisions leading to the making of the supply or performance of the supply

-        perform the activities that facilitate the making of the supply

-        use equipment and/or infrastructure in performing or making the supply

-        if the supply is a service, the service is performed or delivered by the Australian GST presence

-        if the supply is the grant, creation, assignment, transfer, surrender or licence of a right, that supply is facilitated by the relevant individuals of the Australian GST presence.

•         in relation to the supply, the Australian GST presence has its own accounts, and revenue for the supply is booked or recorded in those accounts.[5]

Application to the facts

For the supply to be taxable under section 9-5, Entity must satisfy all the requirements under section 9-5. The supply by Entity clearly satisfies paragraphs 9-5(a), (b) and (d). Entity carries on an enterprise and makes supplies for consideration and is registered for GST. In addition, the supply is not an input taxed or GST-free supply.

Therefore, the supply by Entity is taxable under section 9-5 if it is connected to the ITZ under paragraph 9-5(c). Subsection 9-25(5) defines when a supply is connected to the ITZ. Paragraphs 9-25(5)(a) and (b) outline circumstances that are relevant to the supply made by Entity.

Paragraph 9-25(5)(a)- is the thing done in the ITZ?

Paragraph 9-25(5)(a) provides that the supply is connected to the ITZ if "the thing is done" in the ITZ. The supply is a supply of combination of services and advice.

Our view is that a supply of a service is a thing done in the ITZ if the supply is performed in the ITZ. In relation to provision of advice, where "the thing is done is" where the advice is prepared, produced or created. The processes or systems by which that supply is delivered to the client are not component parts of the 'thing' supplied.

Entity's information technology hardware used to make the supplies are all located in overseas. The staff involved in delivering the service or advice are based overseas. The decision-makers of the Entity in respect of the supplies including concluding contracts are also based overseas. The services provided by the Australian GST presence which include marketing and business development services are merely incidental and are not component parts of the supply. In light of this, we consider that the supply of the service and any advice is performed and produced overseas. Consequently, we do not consider there is a requisite connection to the ITZ under paragraph 9-25(5)(a).

Paragraph 9-25(5)(b)- supply made through an Australian GST presence?

Paragraph 9-25(5)(b) provides that a supply is connected to the ITZ if the supplier carries on an enterprise in the ITZ (that is, an Australian GST presence) and the supply is made through that Australian GST presence.

Entity has an Australian GST presence under section 9-27. The Australian GST presence's activities include marketing services and business development that are part of the bigger enterprise that Entity carries on overseas. For paragraph 9-25(5)(b) to apply, Entity must have made the supply through the enterprise carried on by Australian GST presence.

In reviewing the factors in paragraph 18 in GSTR 2019/1 that indicate when a supply is made through an Australian GST presence, we consider that the following are not satisfied by Entity's Australian GST presence:

•           exercise an authority to sign, negotiate, conclude or accept contracts and purchase orders for the supply;

•           makes important decisions leading to the making of the supply or performance of the supply;

•           uses equipment and/or infrastructure in performing or making the supply;

•           perform or deliver the supply; and

•           record or book the supplies in their accounts.

All these factors are satisfied by Entity and occurs outside of the ITZ:

•      The staff involved in making the supply are located overseas.

•      The information technology hardware used to make the supply are developed, maintained and located overseas.

•      The decision makers relating to concluding the contracts and making the supplies are made overseas.

•      The Australian GST presence is a branch and not a separate legal entity, and therefore the supplies are accounted for and booked by Entity.

However, Entity's Australian GST presence does facilitate the making of supplies through its marketing and business development activities. These activities are incidental and do not form components parts of the supply.

In weighing all the facts and circumstances, we do not consider that Entity's Australian GST presence has sufficient involvement in the making of the supply for the supply to be characterised as being made "through" their enterprise. The supply is exclusively conducted overseas with some ancillary services provided in the ITZ. As a consequence, paragraph 9-25(5)(b) is not satisfied as the supply is not made through an enterprise carried on in the ITZ.

Conclusion

As the supply is not connected to the ITZ under paragraph 9-5(c), it does not meet all the requirements of a taxable supply under section 9-5. GST is not payable by Entity.

[1] See section 195-1 of the GST Act.

[2] Paragraphs 37 to 39 of GSTR 20019/1.

[3] See paragraphs 37 to 39 of GSTR 20019/1.

[4] See paragraphs 46-48 of GSTR 20019/1.

[5] See paragraph 18 of GSTR 2019/1.

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).