Edited version of private ruling

Authorisation Number: 1011690209270

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Ruling

Subject: GST and international supplies

Questions

Is the supply made by the Australian company to the overseas company, Company X a GST-free supply under subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Is the supply made by the Australian company to the overseas company, Company Y a GST-free supply under subsection 38-190(1) of the GST Act?

Advice/Answers

Yes, the supply made by the Australian company to the overseas company, Company X is a GST-free supply under item 2 in the table in subsection 38-190(1) of the GST Act.

Yes, the supply made by the Australian company to the overseas company, Company Y is a GST-free supply under item 2 in the table in subsection 38-190(1) of the GST Act.

Relevant facts

You are a company based in Australia and are registered for the goods and services tax (GST).

You were engaged by Company X (an overseas based company) and Company Y (an overseas based company) to provide them with advertising campaigns for their clients located outside Australia.

You supplied Companies X and Y with the preparation of media strategy and executions plans for the promotion and advertising of the various products of the clients.

Once the strategy and cost estimates were approved by Companies X and Y, you then purchased television airtime and print space from Australian media suppliers to run the advertising material that was created by the client.

You acquire the television spot and magazine space in your own right for Companies X and Y, and you invoice them for the acquired media space and a co-ordination fee. Companies X and Y will invoice their clients.

You advised that no representatives from Companies X and Y or their clients have ever visited Australia when you made your supply. The clients may have some subsidiaries operating in Australia and these Australian subsidiaries were not permitted to contact you or be involved with your supply.

Reasons for decisions

Questions 1 and 2

GST is payable on a taxable supply. Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) you make a taxable supply if:

(a) you make the supply for consideration;

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

(c) the supply is connected with Australia; and

(d) you are registered or required to be registered for GST.

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

From the information received, you will satisfy paragraphs 9-5(a) to 9-5(d) of the GST Act when supplying your services to Companies X and Y as:

· you make the supply for consideration;

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

· the supply is connected with Australia as you make the supply through a business that you carry on in Australia; and

· you are registered for GST.

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

There is no provision under the GST Act that makes your supplies input taxed. The next step is to determine whether your supply is GST-free.

GST-free supply

Subsection 38-190(1) 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 particular relevance to your supply is item 2 in the table in subsection 38-190(1) of the GST Act (Item 2).

Item 2 provides that a supply that is made to a non-resident who is not in Australia when the thing supplied is done will be GST-free where:

(a) the supply is neither a supply of work physically performed on goods situated in Australia when the work is done nor a supply directly connected with real property situated in Australia; or

(b) the non-resident acquires the thing in carrying on the non-resident's enterprise, but is not registered or required to be registered.

Accordingly, where the provisions in either (a) or (b) above are met, the supply will be GST-free if the non-residents, Companies X and Y are not in Australia when the thing supplied is done.

Not in Australia in relation to the supply

For a supply to be GST-free under Item 2, there is a precondition that the non-resident must not be in Australia in relation to the supply when the thing supplied is done.

Where the thing supplied is a service, when the service is done refers to the period of time during which the service is performed.

Goods and Services Tax Ruling GSTR 2004/7 (available at www.ato.gov.au) provides guidance on when a non-resident is not in Australia when the thing supplied is done.

A non-resident company is in Australia if the company carries on its business or activities in Australia:

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

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

Further, 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; or

· the presence of the company is involved in the supply, unless the only involvement is minor.

From the information received, Companies X and Y are non-resident companies that have no presence in Australia and they do not carry on their business activity through a subsidiary or branch in Australia.

As such Companies X and Y are not in Australia in relation to your supply of services.

The next step is to determine whether paragraphs (a) and/or (b) of Item 2 are satisfied.

Paragraph (a) of Item 2

The requirements in paragraph (a) are met if the thing supplied is neither work physically performed on goods situated in Australia when the work is done, nor directly connected with real property situated in Australia.

Goods and Services Tax Ruling GSTR 2003/7 (available at www.ato.gov.au) provides guidance on when a supply is physically performed on goods and when a supply is directly connected with real property.

Paragraph 142 of GSTR 2003/7 provides that a supply of advertising is about conveying the advertising message. Even though the subject matter of the advertisement may be goods or real property, this does not establish a direct connection with those underlying things. Although the advertising is caused by a need arising in relation to the goods or real property and would not occur but for the goods or real property, this does not make the supply of advertising directly connected with the goods or real property. This is because an advertising supply is directly connected with all the things necessary for the conveying of the message. Its immediate object is not to effect the sale of the goods or real property but the conveying of the message.

From the information received, the requirements in paragraph (a) of Item 2 are satisfied because your services are neither a supply of work physically performed on goods situated in Australia nor a supply directly connected with real property situated in Australia.

As the requirements in paragraph (a) of Item 2 are satisfied, there is no need to consider paragraph (b) of Item 2.

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

The scope of Item 2 is limited by subsection 38-190(3) of the GST Act which provides that a supply covered by Item 2 is not GST-free if:

· it is a supply under an arrangement 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.

Subsection 38-190(3) of the GST Act applies if there is a supply of something, being a supply that is made to a non-resident and covered by Item 2, and the same supply is provided, or is required to be provided to another entity in Australia.

A supply is provided to another entity if the contractual flow is to one entity (the non-resident recipient) while the actual flow of that supply (for example, the doing of the thing supplied) is in whole or in part, to another entity that is not the non-resident entity with which the supplier made the agreement for the supply. The contractual flow is to one entity (the non-resident entity) and the actual flow of the supply is to another entity.

On the basis of the facts received, subsection 38-190(3) of the GST Act is not applicable to your supply as you are not required to provide your services to another entity in Australia.

Your supply of services to Companies X and Y is therefore not excluded from being GST-free under subsection 38-190(3) of the GST Act.

Summary

Your supply of services to Companies X and Y is GST-free under item 2 in the table in subsection 38-190(1) of the GST Act