Edited version of private advice

Authorisation Number: 1052262404515

Date of advice: 14 June 2024

Ruling

Subject: GST - supply of consulting service by non-resident to resident

Question 1

Are you required to be registered for GST?

Answer

Yes.

Question 2

Are you liable for GST on your supply of technical advisory services to Y where those services are performed in Australia?

Answer

Yes.

Question 3

Are you liable for GST on your supply of services to Y where those services are performed remotely in the foreign country?

Answer

Yes.

Relevant facts and circumstances

Individual X is a sole director and shareholder of XCO (you) an overseas incorporated company, which has a contract with Y (the Customer or Y) for the provision of Integration Advisory Services. You and Y are registered for GST.

Your business is 'Management consultancy activities other than financial management'. Individual X is an Officer and person with significant control over you.

Individual X's occupation is listed as a Management Consultant, and their nationality is a foreign nationality and Country of residence is a foreign country.

Individual X (who is listed as the labour resource in the contract) will be the person performing these services in Australia and their home country, spending a maximum amount of XXXX business days (or XXXX months including weekends) in Australia and a maximum of XXXX business days in their home country performing the services under the XXXX year contract.

Individual X will have their expenses whilst in Australia covered under the contract. This is outlined in the provisional expense report which includes accommodation and meals (per the expense summary for XXXX days - this includes weekends while in Australia for the XXXX days), airfares, airport transfers, visa, travel insurance.

It is stated in the contract that the location(s) where individual X will perform the services will be:

•         Y's premises at an address in Australia;

•         Either onsite or offsite as directed by Y; and/or

•         As directed within a particular region within Australia.

Under the contract and proposal (read as one), individual X will provide integration advisory services, working at the direction of the Contract Manager and/or Customer. Activities include, but are not limited to:

•         Review and give recommendations on the proposed approach for the establishment of a best for project "Project name", including membership, governance, something project delivery monitoring and issue resolution processes.

•         Coaching for key personnel in establishing and running of a certain thing.

•         Review and make recommendations on overarching interface, integration, testing and commissioning and other plans.

•         Review of solutions proposed for key systems and support in identification, prioritisation and controls of key integration risks and challenges, through the something environment.

•         Provide ongoing remote support from individual X's home country to oversee the establishment and operations of the 'something'. Additional scopes of work or deliverables will be directed by Y.

Individual X will be in a town in Australia to convene with the Integration Advisory Team every something month for a month. This is, where possible, to coincide with certain Reviews and Technical Assurance milestones e.g., configuration something. During each visit individual X would engage in specific tasks and focus areas, as agreed with Y. These tasks and focus areas would be geared towards improving programme performance and providing impartial advice with individual X bringing data driven insights.

Under the contract individual X is provided with Customer desktops, laptops, internet, printers and desk phone to use for work in the Customer's premises. The Customer also allows individual X to use the Customer's laptop at other places in Australia and at individual X's premises in the U.K.

It is unclear if you will have any work in the future in Australia for other clients and/or other work in the country you reside in. You are currently involved in an enquiry with a potential new client who is based in the country you reside it, and if successful the services under that engagement would be performed by individual X when in that country.

Revenue figures

The annual turnover for services to be performed in Australia by individual X under the current contract will be greater than AUD $XXX. The annual turnover from the services X will perform remotely from the overseas country under the current contract will also be over AUD $XXX.

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

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

A New Tax System (Goods and Services Tax) Act 1999 section 23-5

A New Tax System (Goods and Services Tax) Act 1999 section 23-15

A New Tax System (Goods and Services Tax) Act 1999 Division 188

Reasons for decisions

Question 1

Summary

You are required to be registered for GST because:

• you are carrying on an enterprise; and
• your supply of services to Y under the current contract is connected with Australia, for GST purposes; and
• you will generate revenue of over AUD $75,000 annually from the services

Detailed reasoning

Requirement to register

An entity is required to be registered for GST if it meets the requirements of section 23-5 of the GST Act, which states:

You are required to be registered if:

(a) you are *carrying on an *enterprise; and

(b) your *GST turnover meets the *registration turnover threshold.

(* Denotes a term defined in section 195-1 of the GST Act)

You are carrying on an enterprise.

In accordance with section 23-15 of the GST Act, the registration turnover threshold that applies to you is AUD $75,000.

In accordance with Division 188 of the GST Act, your GST turnover would meet the registration turnover threshold on a given day in a given month if:

•         the GST-exclusive gross revenue from sales connected with the indirect tax zone (Australia) for the 12 month period ending at the end of the given month is AUD $75,000 or more; or

•         your GST-exclusive gross revenue from sales connected with the Australia for the 12 month period beginning at the start of the given month is AUD $75,000 or more.

As only sales connected with Australia count towards GST turnover, we need to determine whether your supply of the consulting services is wholly or partly connected with Australia.

Supply connected with Australia

In accordance with paragraph 9-25(5)(a) of the GST Act a supply of something other than goods or real property is connected with Australia if the thing supplied is done in Australia.

In accordance with paragraph 9-25(5)(b) of the GST Act, a supply of something other than goods or real property is connected with Australia if the supply is made through an enterprise the supplier carries on in Australia.

In accordance with paragraph 9-25(5)(d) of the GST Act, a supply of something other than goods or real property is connected with Australia if the recipient of the supply is an 'Australian consumer'.

In accordance with subsection 9-25(7) of the GST Act, an entity is an Australian consumer of a supply made to the entity if:

(a) the entity is an Australian resident; and

(b) the entity is not registered for GST and/or the entity does not acquire the

thing supplied solely or partly for the purposes of an enterprise that the

entity carries on.

Paragraph 9-25(5)(c) of the GST Act is not relevant to supplies of services.

We shall now discuss the connected with Australia rule in paragraph 9-25(5)(b) further (a supply of an intangible made through an enterprise carried on in Australia is connected with Australia).

Enterprise carried on in Australia

Section 9-27 of the GST Act defines 'carrying on an enterprise in the indirect tax zone'. It states:

(1) An enterprise of an entity is carried on in the indirect tax zone if:

(a) the enterprise is *carried on by one or more individuals: and

(b) any of the following applies:

(i) the enterprise is *carried on through a fixed place in the indirect

tax zone;

(ii) the enterprise has been carried on through one or more places in

the indirect tax zone for more than 183 days in a 12 month period;

(iii) the entity intends to carry on the enterprise through one or more places in the indirect

tax zone for more than 183 days in a 12 month period.

(2) It does not matter whether:

(a) the entity has exclusive use of a place; or

(b) the entity owns, leases or has any other claim or interest in

the place.

(3) This subsection covers the following individuals:

(a) if the entity is an individual- that individual;

(b) an employee or *officer of the entity;

(c) an individual who is, or is employed by, an agent

that:

(i) has, and habitually exercises, authority to conclude

contracts on behalf of the entity; and

(ii) is not a broker, general commission agent or other

agent of independent status that is acting in the ordinary

course of carrying on business as such an agent.

The term 'fixed place' used in the GST Act is not defined. It is a factual matter as to whether a place is a fixed place.

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) provides guidance on the concept of a supply of an intangible made through an enterprise carried on in Australia (an Australian GST presence).

Paragraph 8 of GSTR 2019/1 states:

8. A supply of an intangible is connected with Australia under paragraph 9-25(5)(b) if the supplier:

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

•         makes the supply through that enterprise.

Law Companion Ruling LCR 2016/1 GST and carrying on an enterprise in the indirect tax zone (Australia) provides guidance on determining whether an entity carries on an enterprise in Australia, for GST purposes.

Paragraphs 37 to 39 of LCR 2016/1 provide guidance on the meaning of 'fixed place' for the purposes of section 9-27 of the GST Act. They state:

37. One of the factors that may determine whether an entity has a GST enterprise presence is whether the enterprise is carried on through a 'fixed place'. The term 'fixed place' is not defined in the GST Act. Given the context of the Tax and Superannuation Laws Amendment (2016 Measures No. 1) Bill 2016 (the Bill), it is interpreted consistently with the term 'fixed place' in the permanent establishment articles in Australia's tax treaties and the similar term used in the definition of 'permanent establishment' in subsection 6(1) of the ITAA 1936, as explained in TR 2002/5.

38. Applying that interpretation, the place must have an element of permanence, both geographic and temporal. The term 'fixed' requires a stable or continual connection between the enterprise and the place that is more than temporary or transitory in nature. However, the term 'fixed' does not imply 'everlasting or forever'.

39. Given the role of the 183 day rule, the importance of the 'fixed place' test is most relevant to circumstances where an enterprise operates from a 'fixed place' for 183 days or less. The OECD Commentary on the Model Tax Convention and ATO rulings mention that there can be circumstances in which a period of less than six months is sufficient to lead to the conclusion that temporal permanence exists. Where the period in Australia is less than six months, there may still be temporal permanence where the connection with Australia is very strong. For example, the enterprise returns to a particular location in Australia on an on-going and regular basis, but for a short period each time. In such cases of recurring activity, each period of time during which the place is used needs to be considered in combination with the number of times during which that place is used (which may extend over a number of years) year.

Paragraph 18 of GSTR 2019/1 states the following in regard to the 'supply made through an enterprise carried on in Australia' concept:

18. 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. 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:

•         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.

('Supply connected with the Australian GST presence' means that the supply is made through an enterprise carried on in Australia)

Application of law to your supply of consulting services

We shall now determine whether the supply of your services under the current contract is made through an enterprise you carry on in Australia.

We need to determine whether you carry on an enterprise in Australia and if so whether you make the supply of the services through that enterprise.

You are carrying on an enterprise.

You send your director, individual X, to Australia to provide the services that you supply to Y under the current contract. Individual X, being a director, is an office holder. Individual X will provide technical advisory services while in Australia.

Individual X will not conduct business activities in Australia at one or more places for more than 183 days in any given twelve-month period. Subparagraphs 9-27(1)(b)(ii) and 9-27(1)(b)(iii) of the GST Act do not apply.

Therefore, for the purpose of subparagraph 9-27(1)(b)(i), we shall now consider whether you will carry on your enterprise through a fixed place in Australia.

Example 2 in paragraphs 40 to 43 of LCR 2016/1 is an example where an entity carries on business activities in Australia, but not for six or more continuous months at any stage. The entity's employees returned to the same place in Australia to carry on the entity's enterprise Australia once a year over a period of 5 years. The employees spent four months each year in Australia working in the business. It is considered that the place in Australia at which the entity carried on its business activities was a fixed place in Australia. The example states:

Example 2 - Enterprise carried on in a fixed place

40. A non-resident enterprise has seasonal access to a ski resort in Australia over a five year period. The ski resort is used by the enterprise for four months each year to run a ski school.

41. As skiing is a seasonal sport, the enterprise employs instructors to be based at the ski resort in Australia for four months each year.

42. The recurring nature of the activities, where skiing lessons are provided during four months of each year for a five year period, at the same ski resort, supports both a geographic and temporal permanence.

43. Therefore, the non-resident's enterprise of providing skiing lessons is carried on through a fixed place in Australia.

The term 'fixed place' is not defined in the GST Act; however, it is interpreted consistently with the term 'fixed place' in the Income Tax Assessment Act 1936, as explained in Taxation Ruling TR 2002/5.

•         Geographic permanence exists in your case

o   As outlined in paragraph 29 of TR 2002/5:

29. A place at or through which a person carries on any business in the context of the definition of PE in subsection 6(1) must be geographically permanent. Any area, viewed commercially and as a whole, may, in relation to the business concerned, be a place...

o   In relation to the activities carried out in Australia there appears to be permanence in the location in which the activities will be carried out. This will be in respect of the office location at Y's premises in a town in Australia which will be the primary place where activities in Australia will be carried out under the current contract.

o   The current contract outlines three potential locations as part of the provision of services in Australia. In this regard we don't think this should detract from the argument that there is geographic permanence in relation to the business and activities undertaken in relation to the project while in Australia. This is because when viewed commercially as a whole in relation to the business you will be undertaking these activities in relation to the coherent geographical project area - effectively the project will consist of locations listed in the contract and is a necessary element of the service delivery under the contract.

o   Such a conclusion is not out of step with the 2017 OECD commentary on Article 5 which states:

­   at paragraph 22 - "...a single place of business will generally be considered to exist where, in light of the nature of the business, a particular location within which the activities are moved may be identified as constituting a coherent whole commercially and geographically with respect to that business..."

­   at paragraph 57 (when discussing the specific inclusion and deeming for construction projects) - "...The very nature of a construction or installation project may be such that the contractor's activity has to be relocated continuously or at least from time to time, as the project progresses... The activities performed at each particular spot are part of a single project, and that project must be regarded as a permanent establishment, as a whole, if it lasts more than twelve months...."

o   Given this, we conclude that there is geographical permanence to a place in Australia in respect of the business activities that you are undertaking in relation to the project.

•         Temporal permanence exists in your case

o   As outlined in paragraphs 30, 31, 33 and 34 of TR 2002/5:

30. The second criteria for a place at or through which a person carries on any business to exist for the purposes of the definition of PE in subsection 6(1) is temporal permanence, ie, the business presence must not be of a purely temporary nature. In other words, the business must operate at that place for a period of time. Again, this has to be judged in the context of the particular business and is a question of fact and degree.

31. Permanent in this context does not mean forever...

33. Whether temporal permanence exists is a matter of fact and degree. However, as a guide, if a business operates at or through a place continuously for six months or more that place will be temporally permanent.

34. Because each case is a question of fact and degree the six month guide is not a hard and fast rule. The circumstances may for example indicate that a period of less than six months is sufficient to lead to the conclusion that temporal permanence exists. Where the period in Australia is less than six months there may still be temporal permanence where the connection with Australia is very strong...

o   In this case individual X is required to be in Australia, undertaking the activities in relation to the current contract, for XXXX days (not including weekends). This effectively equates to XXXX months over the XXXX years of the contract - XXXX months a year. Applying purely the 6 month continuous rule would not automatically result in one reaching a conclusion that temporal permanence exists.

o   However, in the context of the business undertaken, we conclude that there is temporal permanence in relation to the business activities undertaken through the place in Australia. In this regard the majority of the contract is undertaken (and required to be performed) in Australia (based on the number of days), and in the context of the contract several of the contracted services arguably can only be undertaken in Australia.

o   In addition:

­   Individual X will be in the town in Australia to convene with the Integration Advisory Team every something month for a month.

­   This is, where possible, to coincide with certain Reviews and Technical Assurance milestones e.g., configuration something.

­   During each visit individual X would engage in specific tasks and focus areas, as agreed with Y. These tasks and focus areas would be geared towards improving programme performance and providing impartial advice with individual X bringing data driven insights.

Given the above the business carried out in Australia is a necessary element of satisfying the contract, particularly in relation to activities needing to be undertaken. The intermittent nature of attending the same place in Australia is linked to the nature of the project and the requirements to be satisfied in relation to the Reviews. Furthermore, this explains the intermittent nature of attending the same location for XXXX months over a XXXX year period, and while less than 6 months, is not detrimental to establishing a temporal permanence. This is also in light of the connection with Australia, which is very strong, given the activities are being undertaken in relation to a construction project for significant government funded Australian infrastructure.

o   In this regard it is noted that such a conclusion would not be out step with the 2017 OECD commentary on Article 5 (when discussing the general practice of accepting 6 months as temporal permanence - which does not appear to put a "continuous period" requirement on it unlike TR 2002/5) which states:

­   at paragraph 28 - "...A place of business may, however, constitute a permanent establishment even though it exists, in practice, only for a very short period of time because the nature of the business is such that it will only be carried on for that short period of time. It is sometimes difficult to determine whether this is the case...."

"...experience has shown that permanent establishments normally have not been considered to exist in situations where a business had been carried on in a country through a place of business that was maintained for less than six months (conversely, practice shows that there were many cases where a permanent establishment has been considered to exist where the place of business was maintained for a period longer than six months)..."

­   at paragraph 29 - "...One exception to this general practice has been where the activities were of a recurrent nature; in such cases, each period of time during which the place is used needs to be considered in combination with the number of times during which that place is used (which may extend over a number of years)...."

­   at paragraph 30 - "...Another exception to this general practice has been where activities constituted a business that was carried on exclusively in that country; in this situation, the business may have short duration because of its nature but since it is wholly carried on in that country, its connection with that country is stronger...."

Para 30 also provides the following example:

"...An individual resident of State R has learned that a television documentary will be shot in a remote village in State S where her parents still own a large house. The documentary will require the presence of a number of actors and technicians in that village during a period of four months. The individual contractually agrees with the producer of the documentary to provide catering services to the actors and technicians during the four-month period and, pursuant to that contract, she uses the house of her parents as a cafeteria that she operates as sole proprietor during that period. These are the only business activities that she has carried on and the enterprise is terminated after that period; the cafeteria will therefore be the only location where the business of that enterprise will be wholly carried on. In that case, it could be considered that the time requirement for a permanent establishment is met since the restaurant is operated during the whole existence of that particular business..."

o   Given this we conclude that there is temporal permanence to a place in Australia in respect of the business activities that are undertaken in relation to the project by you. Currently, the current contract is the whole business of your enterprise and the current sole income stream. Furthermore, it could be argued that each contract that you enter into in the future could be its own a separate stream of business (each contract) needs to be viewed separately as such (particularly if individual X continues to be the sole provider of the services).

Your enterprise carries on business wholly or partly through the fixed place. In this regard the OECD Commentary states, and as requoted in TR 2002/5:

"...This means usually that persons who, in one way or another, are dependent on the enterprise (personnel) conduct the business of the enterprise in the State in which the fixed place is situated..."

Your business is 'Management consultancy activities other than financial management'. Furthermore, the contract provides that you will provide Integration Advisory Services. The provision of those services will be provided to Y under the current contract. The majority of services listed in the contract to be undertaken are heavily geared towards being undertaken at a place in Australia

Hence, your supply of services performed in Australia and the foreign country will be made through an enterprise you carry on in Australia. Therefore, your supply of these services will be connected with Australia.

Conclusion

As the supply of the services under the current contract is connected with Australia and the value of these services is more than AUD $75,000 a year, you are required to be registered for GST.

Questions 2 and 3

GST is payable by you on your taxable supplies.

Section 9-5 of the 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) the supplier is *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.

You meet the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act. That is:

•         you will supply the services to be performed Australia and the foreign country under the current contract for consideration (paragraph 9-5(a)); and

•         you will supply these services in the course or furtherance of an enterprise that you carry on (paragraph 9-5(b)); and

•         the supply of these services will be connected with Australia (paragraph 9-5(c)); and

•         you are registered for GST and required to be registered for GST (paragraph 9-5(d)).

There are no provisions of the GST Act under which your supply of the services is GST-free or input taxed.

Therefore, as all of the requirements of section 9-5 of the GST Act are met, GST is payable on your supply of these services.

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