Edited version of private advice

Authorisation Number: 1052120853278

Date of advice: 14 June 2023

Ruling

Subject: 'Connected with Australia' and inbound intangible supplies

Question 1

Is your supply of cybersecurity services to Australian-based business recipients a taxable supply under section 9-5 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No, your supply of cybersecurity services is not a taxable supply as it is not 'connected with Australia'.

This ruling applies for the following period

Not applicable

Relevant facts and circumstances

You are a non-resident company incorporated overseas.

You provide cybersecurity services (referred to as Solutions in its Licencing Agreements) by way of a licence to its customers.

You provide cybersecurity services to GST-registered businesses who carry on their enterprises in Australia. You have stated that they are Australian-based business recipients.

You do not supply services to Australian customers that are not registered for GST in Australia (i.e. Australian consumers).

There are 8 individuals currently in Australia who work in your sales team, marketing team and support/technical services team.

The individuals working for you in Australia do not have the authority to conclude contracts on behalf of you. Any contracts with Australian clients are concluded by your employees located in the US.

Other than the 8 individuals outlined above, you do not have any other individuals, employees or agents in Australia.

The number of individuals working for you in Australia may increase in the future, however the function and roles of any additional individuals will not differ from the roles described above.

You do not have any premises or other presence in Australia. The 8 individuals work from their homes.

You do not have any servers or equipment in Australia.

You expect part of your supply of cybersecurity services to be done from outside Australia.

You do not have an Australian Business Number (ABN) and have never been registered for GST in Australia.

You have provided us with excerpts of your contract with Australian-based business clients.

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 9-26

A New Tax System (Goods and Services Tax) Act 1999 section 9-27

Reasons for decision

Question 1

Taxable supplies

Section 9-5 of the GST Act states that you make a taxable supply if:

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

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

(c)   the supply is *connected with Australia; 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 defined term in section 195-1 of the GST Act)

A supply is a taxable supply if all the requirements of section 9-5 of the GST Act are satisfied.

Based on the facts provided, you will satisfy the requirements in paragraphs 9-5(a) and (b) of the GST Act as you make the supply of licensed Cybersecurity services for consideration and the supply is made in the course of an enterprise that you carry on.

Connected with Australia

Under subsection 9-25(5) of the GST Act, a supply of services is connected with Australia if:

(a)  the thing is done in the indirect tax zone; or

(b)  the supplier makes the supply through an *enterprise that the supplier *carries on in the indirect tax zone; or

(c)   all of the following apply:

                      i.        neither paragraph (a) or (b) applies in respect of the thing;

                     ii.        the thing is a right or option to acquire another thing;

                    iii.        the supply of the other thing would be connected with the indirect tax zone; or

(d)  the *recipient of the supply is an *Australian consumer.

You only need to satisfy one of the paragraphs in subsection 9-25(5) of the GST Act for the supply to be connected with Australia.

The thing is done in the indirect tax zone (paragraph 9-25(5)(a) of the GST Act)

Goods and Services Tax Ruling GSTR 2019/1, Goods and services tax: supply of anything other than goods or real property connected with the indirect tax zone (Australia) (GSTR 2019/1) provides more information on when a supply is connected with Australia.

Paragraph 35 of GSTR 2019/1 states:

35. The term 'done' is not defined in the GST Act and takes its ordinary meaning. Where a thing is 'done' depends on the nature of the thing being supplied. Depending on what is supplied, 'done' can mean various things including performed, executed, completed or finished.

Further, paragraphs 37 to 39 state:

37. 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)(1) even if the recipient of the supply is outside Australia.

38. Sometimes a service may involve both work being done and creating a product for the recipient. This does not alter that the 'thing' is the performance of a service.

39. For example, an architect is engaged to prepare and provide a plan for the recipient. The plan is the product resulting from the services provided by the architect. The service is done where the work is done- that is, where the plan is prepared or drawn. This is the case even if the contract is to deliver a completed plan. If the plan is prepared in Australia, the service is performed in Australia and the supply is connected with Australia. The delivery of the plan does not determine where the service is done. The product of that service, the plan, is not a separate supply from the supply of the service.

From the facts provided, you supply licensed cybersecurity services to Australian-based business recipients. Part of the supply is done from outside of Australia and part of the supply is done by the individuals in Australia who are contracted to provide other services such as sales, marketing and technical support in relation to the supply of cybersecurity services by you.

If a substantial amount of the supply of cybersecurity services are done by the individuals working for you in Australia, then the supply may be connected with Australia under paragraph 9-25(5)(b) of the GST Act, provided it is considered that the supply is made through the individuals in Australia.

Paragraph 30 of GSTR 2019/1 provides that it is not necessary to determine if paragraph 9-25(5)(a) applies if other provisions are easier to satisfy. This is likely to be the case where the recipient is either:

•         an Australian consumer - this is because if the recipient is an Australian consumer the supplies are connected under paragraph 9-25(5)(d), or

•         an Australian-based business recipient - this is because if the recipient is an Australian-based business recipient the supply is disconnected under table items 1 and 2 of section 9-26.

Under section 9-26 of the GST Act, the supply of anything other than goods or real property by a non-resident would not be connected with Australia even if the thing is done in Australia provided the requirements in the provision are satisfied.

Item 1 in the table in Subsection 9-26(1) of the GST Act provides that a supply is not connected with Australia if:

(a)  the supplier is a *non-resident; and

(b)  the supplier does not make the supply through an *enterprise that the supplier *carries on in the indirect tax zone; and

(c)   the supply of anything other than goods or real property if:

(a)         the thing is done in Australia; and

(b)         the recipient is an Australian-based business recipient of the supply.

Section 9-26(2) of the GST Act provides that an entity is an Australian-based business recipient of a supply

made to the entity if:

a) the entity is registered for GST; and

b) an enterprise of the entity is carried on in the indirect tax zone; and

c) the entity's acquisition of the thing supplied is not solely of a private or domestic nature.

You are a non-resident supplier and you do not make the supply through an enterprise that you carry on in the indirect tax zone (as explained below).

The supply of licensed cybersecurity services is an inbound intangible supply as it is not a supply of goods or real property. You have stated that the purchasers are Australian-based business recipients and therefore item 1 in the table in subsection 9-26(1) is satisfied. Accordingly, your supply of licensed cybersecurity services to Australian-based business recipients will not be connected with Australia.

However, if your supply of licensed cybersecurity services to Australian-based business recipients is not done in the indirect tax zone under paragraph 9-25(5)(a), we will still need to consider if the supplier makes the supply through an enterprise that they carry on in Australia under paragraph 9-25(5)(b) of the GST Act.

Enterprise that the supplier carries on in the indirect tax zone (paragraph 9-25(5)(b) of the GST Act)

A supply of an intangible is connected with Australia under paragraph 9-25(b) if the supplier:

•         carries on an enterprise in Australia within the meaning given by section 9-27, and

•         makes a supply through that enterprise.

Law Companion Ruling LCR 2016/1, GST and carrying on an enterprise in the indirect tax zone (Australia) (LCR 2016/1) explains when a supplier carries on an enterprise in Australia, within the meaning of section 9-27. In GSTR 2019/1 the concept on an 'enterprise of an entity that is carried on in Australia is referred to as the entity's Australian GST presence.

Paragraph 11-14 of GSTR 2019/1 states:

11. Under section 9-27, an enterprise of an entity has an Australian GST presence if that enterprise is carried on by one or more specific individuals who are in Australia and:

•         the enterprise is carried on through a fixed place in Australia

•         the enterprise has been carried on through one or more places in Australia for more than 183 days in a 12-month period, or

•         the entity intends to carry on the enterprise through one or more places in Australia for more than 183 days in a 12-month period.

12. To satisfy section 9-27, the enterprise of an entity must be carried on by one or more individuals identified in subsection 9-27(3) (relevant individuals). These are:

•         if the entity is an individual - that individual

•         an employee or officer of the entity, or

•         a dependent agent, or an employee of the dependent agent, of the entity.

13. The term 'officer' is defined to have the meaning contained in the Corporations Act 2001 and includes the directors, secretaries and other decision makers of the company. For example, a director acting in accordance with their directors' duties under the Corporations Act 2001, will satisfy the requirement of an individual carrying on an enterprise in Australia under section 9-27. Similarly, a person who is exercising the central management and control of an entity in Australia will be carrying on an enterprise in Australia.

14. For a supply to satisfy paragraph 9-25(5)(b), the supply must also be made 'through' an Australian GST presence. There needs to be a connection between the Australian GST presence and the supply. A supply may be connected with an entity's enterprise carried on in more than one jurisdiction. This means that a supply that is connected with an entity's Australian GST presence can still satisfy paragraph 9-25(5)(b), even if the supply can also be said to be connected with the entity's place of business in another country.

You have stated that you do not have a fixed place in Australia and that the individuals performing work for you all work from home. Your situation is reflected by paragraph 27 of GSTR 2019/1 (example 5). The individual's house in Australia is not recognised as your place of business, nor is it accessible for you. You do not have an Australian GST presence and the transaction that the individuals perform for you are made through your enterprise in the USA.

Furthermore, the 8 individuals performing work for you are defined in the contract to not be your 'employees'. These individuals either work in sales and marketing or in support and technical. They do not have the authority to conclude contracts on behalf of you. All contracts with Australian clients are concluded by employees overseas. The supply of licensed cybersecurity services is partly performed by your employees overseas and the individuals who have been contracted to work for you in Australia. Based on this information, you are not considered to have a permanent establishment in Australia. As you do not have a permanent establishment in Australia, the supply of licensed cybersecurity services by you to Australian-based business recipients is not connected with Australia under paragraph 9-25(5)(b) of the GST Act.

As explained above, your supply of cybersecurity services is not connected with Australia and therefore the supply does not satisfy the requirements under section 9-5 of the GST Act.

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