Edited version of private ruling

Authorisation Number: 1011590757339

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Ruling

Subject: GST legal and other services to non-resident entities with an Australian agent

Question 1

Would you (an Australian company) and/or a non-resident entity ('NRE') and/or other non-resident companies ('NRCos') satisfy the requirements of the GST-free provisions under items 2 and/or 3 in the table of subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) in relation to the legal services and other services provided, where you are acting as an agent in Australia?

Answer 1

As the relationship and agreements between you and NRE, and you and other NRCos can vary, and also the types of services and advice acquired by you on their behalf can vary, the applications of items 2 and 3 in the table of subsection 38-190(1) of the GST Act are summarised as follow:

Where a supplier makes a supply to NRE and NRCos, the supply may be partly taxable and partly GST-free depending on whether or not each entity satisfies Items 2 or 3. This needs to be determined on a case-by-case basis by the supplier(s) of the services and advice.

Question 2

If the answer is 'no' to question (1) above and the supply made to NRE and/or the NRCos and/or you (or you on their behalf) is a taxable supply, are you (as their agent) entitled to claim input tax credits in relation to the legal services (and other services)?

Answer 2

No. Where the supplies do not satisfy Items 2 and 3 in question (1) above, and are taxable supplies made to NRE and/or the NRCos, you (as their Australian resident agent) are not entitled to claim input tax credits under section 11-5 of the GST Act because you (as the agent) are not the entity that makes the acquisitions. Further, you are not entitled to claim input tax credits under Division 57 of the GST Act because NRE and/or the NRCos are neither registered nor required to be registered for GST, and therefore are not making creditable acquisitions (through you).

Relevant facts and circumstances

You (and Australian company) are a subsidiary of various overseas companies.

You represent particular overseas entities (collectively referred to in the private ruling request as 'NRE').

NRE underwrites liability insurance overseas for worldwide risks including Australia. The relevant policies are issued overseas. Relevant entities that form a part of NRE are overseas tax residents.

You operate an Australian office. The office has several staff and the operations and overheads of your office are funded by one of the entity (of NRE).

You do not underwrite insurance risks, but operates as an extension of NRE's claims handling function.

You are not permitted to enter into any underwriting agreements.

In consideration for the provision of your services, NRE pays you a fee calculated at the cost of providing the services plus an agreed percentage.

Claims payments and defence costs payments are funded directly by an entity of NRE and other relevant insurers according to their proportionate exposure as underwritten. You receive no monies to fund such payments. NRE pays legal costs directly.

The principal activities undertaken by you are 'claims administration services', which include:

Liaising with insurance brokers, insureds, loss adjusters, solicitors, co-insurers, re-insurers and captive insurers in regard to the processing and handling of notifications and claims under NRE's policies. NRE's policies may be written 100% or proportional with other

co-insurers who may be domiciled in Australia or offshore. The questions in this ruling relates to non-resident insurers only.

You then authorise the brokers to instruct nominated solicitors and/or loss adjusters. These appointments are made on behalf of NRE, and any other co-insurers if appropriate. Correspondence and advice from these appointed solicitors and loss adjusters are directed to you for NRE and/or other co-insurers (that is, NRCos) by brokers acting as agent or intermediary.

You review and use the advice as part of the process of handling claims.

Appointment of solicitors and/or loss adjusters to advise on indemnity under NRE's policies.

Consultation with NRE and/or other co-insurers on claims involving questions of policy coverage as and when appropriate.

Preparation of loss reports either independently or in conjunction with brokers.

Auditing claim files held by brokers and/or insureds for NRE and/or other co-insurers.

Provision of general advice and guidance to brokers and/or insured or other co-insurers when required.

Advising NRE of general developments affecting risks underwritten in Australia.

Provision of instructions to brokers, adjusters and solicitors for settlement of claims under NRE's policies.

In some cases other co-insurers may have authorised you to handle and/or settle claims on their behalf for specified limits. Other co-insurers may pay a claims handling fee to you. In this case, you act as representative of NRE and/or co-insurers to authorise the settlement. Payment of claims is made by NRE or the co-insurers directly. You review and use legal advice as part of the process of handling claims. The advice is also forwarded to the

· co-insurers to assist them in making a decision on the handling of a claim. You and the

· co-insurers generally reach consensus on how to settle claims.

You also provide similar claims administration services to independent parties (Australian and offshore) who are not direct co-insurers with NRE. In these cases, Australian solicitors are instructed by the offshore insurer. The solicitors send their advice and account to the insurer. The insurer uses the advice to assist in instructing you on how to handle claims and in some cases may forward the advice to you.

For the purposes of this ruling, the other non-resident insurers (or co-insurers) are referred to as 'NRCos'.

In your private ruling request, the following information and comments were also provided in your analysis:

It was submitted that there is an agency relationship between you and NRE.

The Australian premises were leased to enable you to carry on NRE's business in Australia.

NRE pays you an amount equivalent to the cost (plus a mark up) of the Australian premises and staff.

NRE pays you for other costs such as corporate expenses, flights and accommodation.

NRE makes monthly payments to cover outgoings and costs as detailed in the preceding paragraphs. Some of the payments are fixed to the extent that they relate to fixed costs such as rent. Other payments will vary depending on the level of costs incurred by you during a particular period.

You have a fair degree of autonomy and control over your day to day operations. However, NRE determines guidelines for the settlement of claims such as the claims handling charter and a reserving philosophy.

All of your staff and accommodation is reserved for the conducting of NRE's business.

You display your own name at your premises and on your stationery. However, variations of names relating to NRE are used from time to time. For example, these names appear in the email signatures of your staff members.

You do transact some business on your own behalf in the circumstances where you act for NRE and a co-insurer(s), and where you act for independent parties only (without NRE), but these represent a relatively small part of your business.

You do not conclude contracts with customers. You do have the power to settle a claim on behalf of and bind NRE. You also have the power to undertake activities involving third parties, such as the power to appoint solicitors.

You must follow broad parameters before settling a claim and binding NRE but you are not required to obtain approval specifically from NRE before settling a claim. Similarly, you must follow broad parameters when engaging third party service providers but you are not required to obtain approval from NRE before engaging specific third party service providers.

You acquire advice on indemnity under policies where (a) NRE is the sole insurer; (b) NRE is a

co-insurer with another unrelated non-resident insurer (NRCos); and (c) there is NRCo(s) only (and NRE is not a co-insurer).

Where NRE is the sole insurer, you regularly engage solicitors to provide advice on indemnity under NRE's policies. You are the agent of NRE. Any legal fees are billed by Australian legal firms (and other service providers) to you (for NRE).

You may also instruct solicitors in relation to policies where NRE is one of many co-insurers (the other co-insurers being non-residents who have no presence in Australia either through a branch or a subsidiary).

Further, you may act as a claims handler in relation to policies where NRE is not an insurer. In this circumstance, the Australian solicitors are instructed by the offshore insurer. The solicitors send their advice and account to the insurer. The insurer uses the advice to assist in instructing you on how to handle claims and in some cases may forward the advice to you.

Further, the following additional information was provided:

You advise that there is no written agreement(s) in relation to: (a) the agency relationship/services, and (b) supply of claim administration services by you to NRE and/or NRCos. Hence, no written agreements have been provided.

You provided sample copies of NRE's policies. The policies cover the 'type' being for comprehensive general insurance. The policies also cover (amongst other things) the insurer's liability.

You state that you engage the Australian legal firms and other service providers as an agent on behalf of NRE and/or the NRCos.

You provide the instructions to the Australian legal firms and other service providers.

The Australian legal firms and other service providers invoice you. You however have stated that the services are acquired by you as agent on behalf of NRE.

The type of legal services provided varies on a case-by-case basis. The services include advice, and generally do not include court representation for a non-resident insurer as the need to appear in court is rare.

Legal and other services and advice are provided to you directly, but copies can also be provided to representatives of the non-resident insurers at their foreign location.

You do not conclude contracts with customers in relation to entering into the underwriting agreements. However, you do have the authority to settle claims and engage the Australian legal firms and other service providers (on behalf of NRE) in relation to settling claims.

Neither NRE nor any other NRCos for which you act are registered or required to be registered for GST.

You do not have any Division 153 of the GST Act arrangements with NRE and the NRCos.

You have advised that there are different GST treatments by the suppliers of the legal and other services and advice to you on behalf of NRE and/or the NRCos.

Reasons for decisions:

Question 1

We first need to determine who the Australian law firms and other service providers are supplying their services to, before determining the GST status of the supply.

Who is the recipient of the supply?

You advise that there is no written agreement(s) in relation to the agency relationship/services and supply of claim administration services made by you to NRE and/or the NRCos. However, you advise that you engage and acquire the services of the Australian legal firms and other service providers as an agent on behalf of NRE and/or the NRCos. Further, you state that the appointments are made on behalf of, and correspondences and advice from these appointments are directed to you for, NRE and/or the other NRCos.

As stated under paragraph 15 of Goods and Services Tax Ruling GSTR 2000/37:

15. When an agent uses his or her authority to act for a principal, then any act done on behalf of that principal is an act of the principal...

In addition, paragraphs 234 and 236 of Goods and Services Tax Ruling GSTR 2005/6 state:

234. A non-resident principal may make an acquisition of a service or other thing through an agent. The agent is authorised to undertake the acquisition on behalf of the principal, thereby binding the principal to the legal effects of the transaction.

236. In these circumstances, the supply of the service is made to the non-resident. (In the case of a non-resident entity, other than an individual, the presence of an agent in Australia can sometimes result in the non-resident entity failing the requirement in item 2 that the non-resident is not in Australia.)

Thus, when a principal makes a relevant transaction (that is, taxable supply or creditable acquisition) through an agent, the word 'make' and its derivatives, such as 'made', are used in the GST Act, inter alia, to connect the thing being transacted in the course of an entity's enterprise with the paying or receiving of consideration. When an agent is authorised to undertake a transaction on behalf of the principal, thereby binding the principal to the legal effects of the transaction, then the transaction is made by the principal through the agent.

As there are no written agreements provided, and based on the fact that you engage and acquire the services of the Australian legal firms and other service providers as an agent on behalf of NRE and/or other NRCos, the transactions are made to the principal(s) being NRE and/or the NRCos, and they are the recipient(s) of the supply of these services, through you (as their agent). It is taken that the Australian legal firms and other service providers have entered into an agreement(s) indirectly with NRE and/or the NRCos (through you acting as an agent), and the supply is made to them.

We now need to determine whether the supply made to NRE and/or the NRCos (with you acting as an agent) satisfies the GST-free provisions.

GST-free supply

Section 38-190 of the GST Act specifies the circumstances where the supply of things other than goods or real property for consumption outside Australia is GST-free. Of relevance to the supply of services to NRE and/or the NRCos are items 2 and 3 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Under item 2 in the table in subsection 38-190(1) of the GST Act (Item 2), a supply is GST-free where it is:

· a supply that is made to a *non-resident who is not in Australia when the thing supplied is done; and

· 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

· the *non-resident acquires the thing in *carrying on the non-residents *enterprise, but is not "registered or "required to be registered.

Under item 3 in the table in subsection 38-190(1) of the GST Act (Item 3), a supply is GST-free where it is:

a supply:

· that is made to a *recipient who is not in Australia when the thing supplied is done; and

· the effective use or enjoyment of which takes place outside Australia;

· other than a supply of work physically performed on goods situated in Australia when the thing supplied is done, or a supply directly connected with *real property situated in Australia.

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

Item 2 is applicable to supplies made to non-resident recipients. Item 3 is applicable irrespective of the residency of the recipient.

Precondition - Recipient who is not in Australia in relation to the supply

For the supply to be GST-free under Items 2 & 3 there is a precondition that the recipient must not be in Australia in relation to the supply when it is done.

Goods and Services Tax Ruling GSTR 2004/7 discusses when an entity is not in Australia when the thing supplied is done. Paragraph 37 of GSTR 2004/7 provides that a non-resident company is in Australia if that company carries on business (or in the case of company that does not carry on business, carries on its activities) in Australia through:

· a fixed and definite place of its own for a sufficiently substantial period of time; or

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

From the facts provided, you advise that you engage and acquire the services on behalf of: (a) NRE only; (b) NRE and a NRCo(s); and (c) a NRCo(s) only. You advise that entities that form part of NRE are overseas residents, and that these entities (that form part of NRE) are not carrying on their own business in Australia. You also advise that the NRCos, being non-residents, have no presence in Australia either through a branch or subsidiary. We need to consider whether NRE (and NRCos) carries on business (or activities) in Australia through you as an agent at a fixed and definite place for a sufficiently substantial period of time.

Carries on its business through an agent in Australia - NRE

Paragraph 250 of GSTR 2004/7 states:

We consider that if a non-resident company carries on business at or through a fixed and definite place of its own in Australia and it had carried on, or intends to carry on, its business from such premises by its servants or agents for a sufficiently substantial period of time, that company is in Australia.

Further, paragraphs 277 and 278 of GSTR 2004/7 provides that if a non-resident company has no fixed and definite place of its own in Australia, it may still carry on business in Australia through an agent from some fixed and definite place. The key issue in this kind of situation is whether the

non-resident company is itself carrying on business in Australia through a duly appointed agent, or whether the business being conducted is the agent's own business, the non-resident company merely being one of its customers.

In relation to a non-resident company with a subsidiary in Australia, paragraphs 319 and 320 of GSTR 2004/7 state:

If a non-resident company has a subsidiary in Australia, the mere presence of that subsidiary does not mean that the non-resident company is carrying on a business in Australia. The fact that the non-resident company owns or controls a majority shareholding in a subsidiary does not make that company present in Australia.

However, if the subsidiary in acting as agent of the non-resident parent company and carrying on the business of the non-resident company in Australia at some fixed place of business for a sufficiently substantial period of time, the non-resident company is 'in Australia'.

Paragraph 281 of GSTR 2004/7 lists various factors to assist in determining whether a

non-resident company can properly be regarded as carrying on business in Australia through an agent:

Was the fixed place of business from which the agent operates originally acquired for the purposes of enabling the agent to carry on the business of the non-resident company?

You represent NRE, and although you do not underwrite insurance risks, you operate as an extension of NRE's claims handling function. The claims handling is a significant part of an insurance business, and you have the authority to settle claims. You also state that the Australian premises were leased to enable you to carry on NRE's business in Australia. This indicates that NRE is carrying on its business in Australia (through you).

Does the non-resident company directly reimburse the agent for the cost of accommodation or staff at the fixed place of business?

You operate the Australian office which has several staff. The operations and overheads of your office are funded by NRE. This indicates that NRE is carrying on its business in Australia (through you).

Does the non-resident company make other contributions to the financing of the business carried on by the agent?

You advise that in consideration of the provision of your services, NRE pays you a fee calculated as the cost of providing the services plus an agreed percentage. Further, NRE pays you for other costs such as corporate expenses, flights and accommodation. NRE makes monthly payments to cover outgoings and costs. Some of the payments are fixed to the extent that they relate to fixed costs such as rent. Other payments will vary depending on the level of costs incurred by you during a particular period. These types of reimbursements and costs indicate agency of dependent, rather than independent, status.

Is the agent remunerated by reference to transactions, for example, by commission, or by fixed regular payments or in some other way? Commission can be an indicator that the agent is carrying on its own business and not that of the non-resident. However, it is not determinative.

As stated above, you advise that in consideration of the provision of your services, NRE pays you a fee calculated at the cost of providing the services plus an agreed percentage. However, you are also paid other various costs as stated above. The costs plus a fixed percentage is not considered a commission, and hence do not indicate that you are carrying on your own business, rather than NRE.

What degree of control does the non-resident company exercise over the running of the business conducted by the agent?

You advise that you have a fair degree of autonomy and control over your day-to-day operations. However, you operate as an extension of NRE's claims handling function, and NRE determines guidelines for the settlement of claims such as the claims handling charter and a reserving philosophy. NRE appears to have significant degree of control over the business conducted by you, which would indicate that they are carrying on their business in Australia through you.

Does the agent reserve part of the agent's staff or accommodation for the conducting of business related to the non-resident company?

You advise that all of your staff and accommodation is reserved for the conducting of NRE's business, which indicates that NRE is carrying on its business in Australia through you. We acknowledge that you do undertake some of your own business for other parties, but this represents a relatively small part of your business.

Does the agent display the name of the non-resident company at the agent's premises or on stationery and, if so, does it indicate that the agent is an agent of the non-resident company?

You advise that you display your own name at your premises and on your stationery. However, variations of NRE's names are used from time to time. For example, these names appear in the email signatures of your staff members. You also state that the Australian legal firms (and other service providers) invoice you (on behalf of NRE). Where you display the name(s) of NRE (or entities which form part of NRE), and indicate that you are an agent of NRE, this would indicate that NRE is carrying on their business in Australia through you.

What business, if any, does the agent transact as principal exclusively on the agent's own behalf?

You advise that you do transact some business on your own behalf in the circumstances where you act for NRE and a co-insurer(s), and where you act for independent parties only (without NRE), but these represent a relatively small part of your business.

Does the agent make contracts with customers or other third parties in the name of the non-resident company or otherwise in such a manner so as to bind it?

You advise that you do not conclude contracts with customers in relation to entering into the underwriting agreements. However, you do have the power to settle a claim on behalf of and bind NRE. In the context of an insurance business, the settling of claims is of similar significance/importance as underwriting risks. You also have the power to undertake activities involving third parties, such as the power to appoint solicitors and other service providers. You advise that you engage these service providers as an agent for NRCo and/or other insurers. This indicates that you have the authority to bind NRE to these transactions and that they are carrying on their business in Australia through you.

If the agent does make contracts so as to bind the non-resident company, does the agent require specific authority in advance before binding that foreign company to contractual obligations?

Paragraph 283 of GSTR 2004/7 provides that if an agent has the power to make contracts on behalf of the non-resident company without seeking the company's approval before binding the non-resident to contractual obligations, this is a factor of great importance in establishing that the agent is carrying on the non-resident company's business.

You advise that you must follow broad parameters before settling a claim and binding NRE but you are not required to obtain approval specifically from NRE before settling a claim. Similarly, you must follow broad parameters when engaging third party service providers but are not required to obtain approval from NRE before engaging specific third party service providers. This indicates that you have the authority to bind NRE to these transactions and that they are carrying on their business in Australia through you.

To summarise, the factors outlined at paragraph 281 of GSTR 2004/7 applied above to your circumstances support the conclusion that the activities you undertake are the business of NRE.

Further it is noted that at paragraph 311 of GSTR 2004/7, if the business of a non-resident company does not involve making contracts for sales, leases or similar, we consider that a

non-resident company is in Australia if the agent carries on a material part of the non-resident's business. From the facts provided, you advise that you operate as an extension of NRE's claims handling functions. In the context of an insurance business, the settling of claims is of similar significance/importance as underwriting risks. This would represent a material part of NRE's business, and indicates that they are carrying on their business in Australia through you.

The above factors strongly indicate that NRE is carrying on its business in Australia through an agent (that is, you) in Australia. Further, you are carrying on the business at a fixed and definite place for a sufficiently substantial period of time (being at the Australian office) in Australia. Accordingly, NRE is in Australia for the purposes of Items 2 and 3.

In Australia in relation to the supply

In addition, if a non-resident company is determined to be in Australia on the basis of the above test, it is necessary to determine if the company is in Australia in relation to the supply, when the supply is done (that is, provided/performed).

For the purposes of Items 2 and 3 the pre-condition that the recipient is not in Australia at the relevant time, requires that the recipient is not in Australia in relation to the supply.

Paragraphs 41 and 65 of GSTR 2004/7 provide 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, for example, its Australian branch, representative office or agent if it is a non-resident company or the Australian head office if it is an Australian incorporated company. 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.

Examples of tasks that are of a simple administrative nature are listed in paragraph 352 of GSTR 2004/7, which include payments of the supplier's invoice on behalf of the company, passing on or on forwarding emails and information, being a point of telephone contact to pass on messages, being a mailing address or delivery contact on behalf of the company, or being a point of contact for a visiting representative of the company.

The facts provided demonstrate that NRE is carrying on its business in Australia through an agent (that is, you) in Australia, at a fixed and definite place for a sufficiently substantial period of time (being at the Australian office). You advise that in performing your claims administration services, this would include liaising with third parties (such as the Australian legal firms and other relevant parties), and appointing and instructing nominated solicitors and/or other service providers. These appointments are made on behalf of NRE, and any other insurers if appropriate. The correspondences and advice from these appointed service providers are provided to you directly, but copies can also be provided to representatives of the non-resident insurers at their foreign location. You receive, review and use the advice as part of the process of handling claims.

As the types of legal and other services and advice acquired may vary on a case-by-case basis, in the circumstance where legal services and any other services or advice are acquired by NRE for your purposes (being the Australian presence), NRE is in Australia in relation to the supply.

Further, even if the services and advice are not acquired for your purposes, on the basis of the facts above, you (as the agent/representative) are involved in the supply of the services made by the third parties (such as Australian legal firms and other service providers), and your interactions with these third parties, and in particular your involvement in the transactions, are not administrative tasks of a minor nature. You receive, review and use the advice as part of your process in handling claims, rather than just on forwarding the advice to NRE (and/or the NRCos).

Therefore, in this circumstance it is considered that NRE is in Australia in relation to the supply made by the Australian legal firms and/or the other service providers, when you act as agent on their behalf in Australia. Accordingly, the precondition to Items 2 and 3 are not satisfied. The supply is not GST-free under Item 2. However, subsection 38-190(4) of the GST Act must be taken into consideration in relation to Item 3 (which is discussed later).

Carries on its business through an agent in Australia - NRCos

We note that the relationship between you and NRCos may differ from your relationship with NRE. You would need to analysis each relationship to determine if you are an agent carrying on a business of the NRCos in Australia, as discussed above.

Where it is objectively determined that a NRCo(s) is in Australia in relation to the supply, the precondition to Items 2 and 3 are not satisfied. The supply is not GST-free under Item 2, however subsection 38-190(4) of the GST Act must be taken into consideration in relation to Item 3 (which is discussed later).

Where it is objectively determined that a NRCo(s) is not in Australia, subsection 38-190(3) of the GST Act may still negate the GST-free status that would otherwise apply to an Item 2 supply (discussed later).

Item 2 and subsection 38-190(3) of the GST Act

In relation to a supply of legal and other services and advice made to NRE through you (as agent on their behalf), as the precondition that the non-resident must not be in Australia in relation to the supply when it is performed/provided is not satisfied, it is not necessary to consider whether paragraphs (a) and/or (b) of Item 2 are satisfied. In this circumstance, the supply is not GST-free under Item 2.

However, for completeness and where a supplier objectively determines that a NRCo(s) is not in Australia in relation to the supply, we will address paragraphs (a) and (b) of Item 2.

Paragraph (a) of Item 2

Under paragraph (a) of Item 2, a supply of a thing that is made to a non-resident who is not in Australia when the thing supplied is done is GST-free if the supply is neither a supply of work physically performed on goods situated in Australia nor directly connected with real property situated in Australia when the work is done.

The supplies of services and advice by solicitors and loss adjustors relating to insurance claims handling are neither a supply of work physically performed on goods situated in Australia, nor directly connected with real property situated in Australia. Therefore, in this circumstance paragraph (a) of Item 2 is satisfied.

We note that the types of legal and other services and advice acquired may vary, and to determine whether the supplies of these services and advice are directly connected with real property situated in Australia, you may need to determine this on a case-by-case basis. That is, fundamental to establishing whether there is a direct connection between a supply and particular real property is determining what the supply is for. Without knowing what legal services are for, it cannot be said what they are connected with. For example, legal services in acting for a purchaser or vendor in the conveyance of land are directly connected with that real property. However, legal services in establishing a trust that will subsequently hold real property are not directly connected with the underlying real property. For further information, please refer to Goods and Services Tax Ruling 2003/7.

Paragraph (b) of Item 2

Under paragraph (b) of the Item 2, a supply is GST-free if the non-resident acquires the services in carrying on its business, and is neither registered nor required to be registered for GST.

The supplier must be satisfied, on reasonable grounds that the non-resident is not required to be registered for GST before they can treat their supply as GST-free under paragraph (b) of Item 2. Where the supplier is not in a position to be aware of these circumstances, enquiries should be made of the non-resident. The Commissioner accepts that the supplier has reasonable grounds to be satisfied, if the non-resident has provide a signed written statement, declaring that they are not required to be registered. This is only accepted where the supplier has no reasons to believe the statement is not accurate.

From the facts provided, you advise that neither NRE nor any NRCos for which you act are registered or required to be registered for GST. Therefore, the requirements of paragraph (b) of Item 2 are satisfied.

Limitation - Subsection 38-190(3) of the GST Act

There is no need to apply subsection 38-190(3) of the GST Act in relation to when you act as agent for NRE as the supply does not satisfy Item 2.

However, the following applies to when you act for a NRCo(s) where you have determined that the NRCo(s) is not in Australia (as discussed above).

Where it has been determined that the precondition and the requirements of either paragraph (a) or (b) of Item 2 is satisfied, it is necessary to consider subsection 38-190(3) of the GST Act which states:

Without limiting subsection (2), a supply covered by item 2 in that table is not

GST-free if:

· it is a supply under an agreement entered into, whether directly or indirectly, with a *non-resident; and

· the supply is provided, or the agreement requires it to be provided, to another entity in Australia.

Goods and Services Tax Ruling GSTR 2005/6 provides guidance on the application of subsection 38-190(3) of the GST Act.

The term 'provided' is used in subsection 38-190(3) of the GST Act to contrast with the term 'made' in Item 2.

A supply is made to a recipient and provided to another entity if in the performance of the service (or in the doing of some thing) the actual flow of that supply is to an entity that is not the recipient entity with which the supplier made the agreement for the supply. That is, while the contractual flow of the supply is to the recipient entity, the actual flow of the supply is to another entity.

Thus, if services are provided to another entity in Australia in agreement with a non-resident it will not be GST-free pursuant to subsection 38-190(3) of the GST Act.

In relation to paragraph 38-190(3)(a) of the GST Act, based on the fact that you advise that you engage and acquire the services of the Australian legal firms and other service providers as an agent on behalf of the other insurers where appropriate, the transactions are made to the principal(s) being the other insurer(s), and they are the recipient(s) of the supply of these services, through you (as their agent). It is taken that the Australian legal firms and other service providers have entered into an agreement(s) indirectly with the other insurers (with you acting as an agent), and the supply is made to them.

Accordingly, paragraph 38-190(3)(a) of the GST Act is satisfied because the supply is made under an agreement entered into indirectly with a non-resident (being the NRCos). We note that NRE would also satisfy this requirement, if it had been relevant.

We now consider paragraph 38-190(3)(b) of the GST Act.

The exact nature of a supply in any given situation depends on the facts and circumstances of the supply and the agreement made between the parties. The focal point in working out whether a supply is provided to another entity is the facts and circumstances of the doing of the thing supplied. By the supplier examining what it is required to do and in what circumstances, the supplier is able to objectively determine to whom the supply is provided.

From the facts provided, you advise that in performing your claims handling function/administration services, this would include liaising with third parties (such as the Australian legal firms and other relevant parties), and appointing and instructing nominated solicitors and/or other service providers. These appointments are made on behalf of NRE, and any NRCos if appropriate. Correspondence and advice from these appointments are provided to you directly, but copies can also be provided to representatives of the non-resident insurers. However, you receive, review and use the advice as part of the process of handling claims.

On the basis of these facts, it is considered that the services are provided to you in order for you to perform your claims handling function/administration services, and paragraph 38-190(3)(b) of the GST Act is satisfied.

Therefore, subsection 38-190(3) of the GST Act will apply to negate the GST-free status of the supply, when you act for the NRCos who are not in Australia, and you engage the services of Australian legal firms and other service providers, for which the services are provided to you (another entity in Australia) in order for you to perform your claims handling function/administration services. In this circumstance, the supply would not be GST-free under Item 2.

However, we note that the types of legal and other services can vary, and that in certain instances, it is inherent in the nature of the supply that the supply is provided to a particular entity. That is, due the nature of certain services, a supply is made and provided to the non-resident insurers through you (as agent). For examples, see paragraphs 471 to 481 of GSTR 2005/6. In such circumstance, subsection 38-190(3) of the GST will not apply to negate the supply from being GST-free. This needs to be determined on a case-by-case basis by the supplier(s) of the services and based on the agreements between the parties.

Item 3 and subsection 38-190(4) of the GST Act

We now consider if the supply is GST-free under Item 3. Item 3 is stated above under the heading 'GST-free supply'. For the supply to be GST-free, it must satisfy both paragraphs (a) and (b) of Item 3, and the supply is neither work physically performed on goods, nor directly connected with real property, in Australia.

GSTR 2004/7 and Goods and Services Tax Ruling GSTR 2007/2 provide guidance on the application of Item 3.

Paragraph (a) of Item 3 and subsection 38-190(4)

For NRE (or where appropriate NRCos that carry on business in Australia through you as their agent)

The requirement in paragraph (a) of Item 3 refers to the recipient of the supply. The recipient of the supply is the entity to which the supply is made.

As discussed above, the precondition that the recipient must not be in Australia in relation to the supply when it is done, is not satisfied as NRE (or where appropriate NRCos) carries on its business in Australia through you as their agent in Australia. Therefore, the requirement in paragraph (a) of Item 3 is not satisfied.

Where a supply is made to a recipient who fails the not in Australia requirement in paragraph (a) of Item 3, it is necessary to consider whether subsection 38-190(4) of the GST Act applies.

Subsection 38-190(4) extends the scope of Item 3. The subsection provides that a supply to a recipient who is in Australia in relation to the supply is taken for the purposes of Item 3, to be a supply made to a recipient who is not in Australia if:

· the supply is made under an agreement entered into, whether directly or indirectly, with an Australian resident; and

· the supply is provided, or the agreement requires it to be provided, to another entity outside Australia.

GSTR 2004/7, GSTR 2005/6 and GSTR 2007/2 provide guidance on the application of subsection 38-190(4) of the GST Act.

Similarly to subsection 38-190(3) of the GST Act discussed above, the term 'provided' is used to contrast with the term 'made'. Paragraphs 52 to 54 of GSTR 2007/2 state:

52. A supply may be made and provided to the same entity, or may be made to one entity but be provided to another entity (or entities). Such circumstances are provided for in the legislation by subsections 38-190(3) and (4)…

53. The entity to which the supply is made is the recipient. The supplier may provide the supply to that recipient entity (in which case the recipient is also the providee) or may provide the supply to another entity (in which case the other entity is the providee).

54. A supply is provided to another entity if, in the performance of a service (or in the doing of some thing), the actual flow of that supply is to an entity that is not the recipient. The contractual flow is to the recipient and the actual flow of the supply is to another entity and thus the other entity is the providee.

From the facts provided, you engaged the services of the Australian legal firms and other service providers as an agent for NRE and/or NRCos (the principal(s)). When an agent is authorised to undertake a transaction on behalf of the principal, thereby binding the principal to the legal effects of the transaction, the transaction is made by the principal through the agent. Hence, the supply is made under an agreement entered into indirectly with the non-resident principal (who is the recipient entity) through you, and not with you. Accordingly, paragraph 38-190(4)(a) of the GST Act is not satisfied and the supply is not GST-free under Item 3, when NRE (or where appropriate NRCos) carries on its business in Australia through you as their agent in Australia.

Further, paragraph 38-190(4)(b) of the GST Act is not satisfied as a supply made under an agreement with a non-resident (such as NRE) and provided to itself outside Australia, is not to 'another entity' outside Australia.

For NRCos not carrying on business through you (as agent) in Australia

In this circumstance, the requirement of paragraph (a) of Item 3 is satisfied as the supply is made to a recipient (being the NRCos) who is not in Australia when the thing is supplied.

However, we also need to consider if the effective use of enjoyment of the supply takes place outside Australia.

Paragraph (b) of Item 3

Paragraph (b) of Item 3 requires the place of effective use or enjoyment of a supply to be determined (that is, whether the place is outside Australia). We take a two step approach to work out whether effective use or enjoyment of a supply takes place outside Australia. First, we determine the entity to which the supply is provided (the providee entity). We then determine whether provision of the supply to the providee entity is outside Australia.

A supply that is made to a recipient entity may be provided to another entity. If a supply is made to a recipient and provided to another entity, the entity that actually uses or enjoys the supply is that other entity. According to paragraph 41 in GSTR 2007/2, a supply is made to a recipient and provided to another entity if in the performance of the service (or in the doing of some thing) the actual flow of that supply is to an entity that is not the recipient entity with which the supplier made the agreement for the supply. That is while the contractual flow of the supply is to the recipient entity, the actual flow of the supply is to another entity.

Thus, to determine the effective use or enjoyment of the supply, it is necessary to inquire as to the entity that has the actual use or enjoyment of the supply.

In this circumstance, on the basis of the facts provided, you receive the correspondences and advice directly, and review and use the advice as part of the process of providing your claims handling function/administration services. You appear to have the actual use or enjoyment of the supply. While the non-resident insurer(s) is the recipient(s) of the supply under the agreement(s), it is considered that the services and advice are provided to you in order for you to perform your claim handling functions/services (see discussion on paragraph 38-190(3)(b) of the GST Act above), and you are the providee entity of the supply.

The next step is to determine whether the effective use or enjoyment of the supply takes place outside Australia.

Effective use or enjoyment of a supply only takes place outside Australia if there is provision of the supply to the providee entity outside Australia.

In this circumstance, you (as the providee entity) are in Australia. Accordingly, the use or enjoyment of the services and advice takes place in Australia as you are located in Australia at the time of the supply.

Therefore, the supplies of the legal and other services and advice to the non-resident insurers that are provided to you in Australia do not satisfy the requirement of paragraph (b) of Item 3. In this circumstance, the supplies are not GST-free under Item 3.

However, we note that the mere fact that the supply is made through an agent acting for the non-resident in Australia does not mean that the supply is provided to another entity. The types of legal and other services and advice can vary, and due the nature of certain services, there may be instances where it is inherent that a supply is made and provided to NRE and/or the NRCos outside Australia through you (as agent). In such circumstance, paragraph (b) of Item 3 would be satisfied, and the supply is GST-free. This needs to be determined on a case-by-case basis by the supplier(s) of the services and the agreements between the parties.

In relation to whether the supply is work physically performed on goods, or directly connected with real property, in Australia, refer to the discussion under the heading 'Paragraph (a) of Item 2' above.

Another entity benefits from the supply

If the nature of the supply is such that the supply is provided to an entity outside Australia and thus effective use or enjoyment of the supply takes place outside Australia, this outcome is not altered even if another entity in Australia benefits from the supply.

Similarly, if a supply is provided to an entity in Australia, and another entity outside Australia benefits from that supply this does not alter the outcome that the supply is provided to an entity in Australia and thus effective use or enjoyment of the supply does not take place outside Australia.

Later use of the advice

You also advise that you may act as a claims hander in relation to policies where NRE is not an insurer, and that the Australian legal firms and other service providers are instructed by the NRCos, and the advice and account is sent to the NRCos. The NRCos use the advice to assist in instructing you on how to handle claims or in some cases may forward the advice to you.

We are unable to provide specific advice on the GST status in relation to a supply made between a supplier and the other insurer(s), for which the other insurer receives the advice, and uses it to instruct you because you are not a party to that transaction(s). The GST-status will depend on the facts and circumstances of the supplier(s) and the other insurer(s) which may vary on a case-by-case basis.

We do note that for the later use of a supply, that is, a supply is provided to another entity outside Australia, and that supply is later used in Australia, that later use does not alter the fact that the supply is not provided to that entity in Australia for the purposes of applying subsection 38-190(3) of the GST Act (to negate the GST-free status on a supply). For further information, refer to paragraphs 130 to 133 of GSTR 2005/6.

Apportionment

Where a supplier makes a supply of services and advice to NRE and a non-resident co-insurer(s) (NRCos), the supply may be partly taxable and partly GST-free depending on whether or not each party satisfies Items 2 or 3 as discussed above.

Summary - Question 1

For a summary of the applications of Items 2 and 3, please refer to the table in the decision of issue 1.

Question 2

Subsection 7-1(2) of the GST Act provides that the entitlement to input tax credits (ITC) arise on creditable acquisitions. An entity will be entitled to an ITC for any creditable acquisition that it makes.

As discussed above (see heading 'who is the recipient of the supply'), when a principal makes a relevant transaction through an agent, the transaction is made by the principal (through the agent), not by the agent. You are therefore not entitled to claim the input tax credits under the general rules under section 11-5 of the GST Act (stated below).

Division 57 of the GST Act provides a special rule which effectively makes resident agents acting for non-residents responsible for the GST consequences of what the non-residents do through their resident agents.

Section 57-10 of the GST Act provides that if a non-resident makes a creditable acquisition through a resident agent, the resident agent is entitled to the GST credits on the acquisition, and not the non-resident.

You are an Australian resident. You state that under your business arrangements with NRE and NRCos, you will be an agent for NRE and/or the NRCos. In relation to the relevant acquisitions, we need to determine whether the non-resident (or you as agent on their behalf) makes creditable acquisitions and whether the supplies are taxable.

Creditable acquisition and taxable supply

Under section 11-5 of the GST Act, an entity makes a creditable acquisition if:

· the entity acquires anything solely or partly for a creditable purpose,

· the supply of the thing made to the entity is a taxable supply,

· the entity provides, or is liable to provide, consideration for the supply, and

· the entity is registered or required to be registered.

All the requirements of section 11-5 of the GST Act must be satisfied before an entity can claim input tax credits. These requirements are outlined as follow:

Acquired for creditable purpose

Section 11-15 of the GST Act provides that an entity acquires a thing for a creditable purpose to the extent that it acquires the thing in carrying on its enterprise. However, an entity does not acquire a thing for a creditable purpose to the extent that the acquisition relates to making input taxed supplies or is of a private or domestic nature.

From the facts provided, NRE and the NRCos acquired the services of Australian legal firms and other service providers through you as their agent in relation to advice on settlement of insurance claims, the acquisitions of these services in Australia in relation to general insurance are for a creditable purpose, and paragraph 11-5(a) of the GST Act is satisfied.

Is the supply to NRE (and other NRCos) through you a taxable supply?

GST is payable on a taxable supply. Under section 9-5 of the GST Act, an entity makes a taxable supply if:

· the entity makes the supply for consideration; and

· the supply is made in the course or furtherance of an enterprise that it carries on; and

· the supply is connected with Australia; and

· the entity 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.

Accordingly, the suppliers (Australian legal firms and other service providers) will have to satisfy all the requirements of section 9-5 of the GST Act for their supply to be taxable.

A supplier will satisfy the requirements of paragraph 9-5(a) to (d) of the GST Act if they make a supply to NRE and/or the NRCos through you for consideration in the course of their business activities; the supply will be connected with Australia under section 9-25 of the GST Act when the services are performed/provided in Australia or provided through the supplier's enterprise in Australia; and if the supplier is registered, or required to be registered for GST; and the supply is neither GST-free nor input taxed.

Whether a supply of legal and other services and advice made to NRE and the NRCos through you (as their agent) satisfies the GST-free provisions under Items 2 and 3 have been discussed in Issue 1 above. A supply that does not satisfy Items 2 or 3 (or any other GST-free or input taxed provisions) would be a taxable supply, where a supplier satisfies all the other requirements of section 9-5 of the GST Act stated above.

Consideration for the acquisition

Under subsection 9-15(1) of the GST Act, consideration includes any payment in connection with, in response to, or for the inducement of a supply of anything.

Based on the facts given, NRE and the NRCos or you on their behalf will provide or be liable to provide payments (or other consideration) for the acquisitions of the services and advice. Thus, paragraph 11-5(c) of the GST Act is satisfied.

GST registration

Under section 23-5 of the GST Act, an entity is required to be registered for GST if it is carrying on an enterprise, and its GST turnover is at, or above, the registration turnover threshold of $75,000. However, an entity with a GST turnover of less than $75,000 can choose to register of GST.

Further, in accordance with subsection 57-20(1) of the GST Act, a resident agent who is acting as agent for a non-resident is required to be registered if the non-resident is registered or required to be registered.

From the facts provided, you state that NRE and the NRCos for which you act are neither registered nor required to be registered for GST. Therefore, paragraph 11-5(d) of the GST Act is not satisfied.

Summary - Question 2

As NRE and the NRCos do not satisfy all the requirements of a creditable acquisition under section 11-5 of the GST Act, you as their agent will not satisfy section 57-10 of the GST Act and therefore are not entitled to claim input tax credits in relation to these acquisitions.

Additional Information

Acquisitions made in your own right

In the circumstance where you acquire the services and advice in your own right, the GST implications are summarised as follow:

Item 2 is not applicable to the supply of services and advice made to you (an Australian resident).

Item 3 is not applicable to the supply of services and advice made to you, unless you have demonstrated that the supply is made under an agreement with the supplier(s) to provide the services and advice to another entity (being NRE and the NRCos) outside Australia, and that the effective use or enjoyment of the services and advice is outside Australia. This depends of the type of services and advice provided, and is determined on a case-by-case basis.

Division 57 of the GST Act is not applicable to the supply of services made to you in your own right and not as an agent.

You may be entitled to input tax credits in relation to acquisitions you make in your own right in order for you to perform your claims handling function/administration services under section 11-5 of the GST Act, where you have satisfied all the requirements of a creditable acquisition.

Supplies made to a non-resident entity

In relation to your supply of agency services to a non-resident entity, the supply in the course of your own business (of supplying 'agency services') may be GST-free (where the requirements of Item 2 or 3 are satisfied). Refer to paragraphs 374 to 379 of GSTR 2004/7 for further information.

All public rulings and publications referred to in this ruling is available on the ATO website.