Edited version of private ruling

Authorisation Number: 1011699385682

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Ruling

Subject: GST and international supply of services

Question

Is the supply of services by the Australian entity Company C to Company B, a non-resident GST-free under subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, the supply of services by the Australian entity Company C to Company B is a GST-free supply under paragraph (a) of item 2 in the table in subsection 38-190(1) of the GST Act.

Relevant facts

Company A

Company A is a profit company incorporated overseas and they are not registered for the Australian goods and services tax (GST). They do not carry on business in Australia through a branch office or permanent establishment situated in Australia. They do not carry on any business in Australia through an agent. They have two subsidiary companies - Company B located outside Australia and Company C located in Australia.

Company A is a global and independent examination provider and provides independent testing and internationally recognised certification. They reach their target market via global business partners, including universities and companies.

Company A has formal agreements with these partners and each agreement provides for them to accredit the other party in exchange for an annual accreditation fee. These partners are accredited as accredited exam centres (AECs) and accredited training providers (ATPs), are Company A's clients and pay fees to Company A in exchange for the accreditation and allied services supplied by Company A.

Company A supplies courseware, including testing and certification to their accredited partners who in turn contract with professionals and their employers for the provision of the training leading to the exams and certifications. Company A does not deal directly with the professionals and other candidates in the course of developing training courses, testing and certifications.

Company B

Company B is a profit company incorporated outside Australia and is not registered for the Australian GST. They do not carry on business in Australia through a branch or permanent establishment situated in Australia. They also do not carry on any business in Australia through an agent.

Company B's supplies include Company A's accreditations and certifications and these supplies are made from overseas. They have the support of Company A's Australian subsidiary company (Company C) while supplying their services to Company A.

Company B's primary role is to supply services to Company A. Company B supports Company A with the distribution of educational services globally, including the Australian industry. In Australia these services are supplied by Company C, acting as a subcontractor to them.

Company C

Company C is a company incorporated in Australia and is a wholly owned subsidiary of Company A. They are registered for the GST. They provide their services to Company B and in their own rights to clients located in Australia.

Company C's supplies to Company B

Company C's role is to provide services to Company B, including business development, account management, client liaison, exam dispatch, exam co-ordination and marking (multiple choice exam questions), results printing and results distribution.

Company C supports and assists Company B with the performance of these services in Australia by co-ordinating exams, printing, posting, collecting and marking exam papers, reporting exam results to International, posting Company A's approved certificates to the AECs for successful candidates and Company B's prepared coaching reports to the AECs for unsuccessful candidates. These are minor but important activities. Company C's main function in Australia is to assist Company B with sales, marketing and account management.

Company C also assists Company B with accreditation by auditing the AECs and ATPs when the latter apply for and seek to renew their accreditation.

Company C does not have any authority to sign accreditation contracts on behalf of Company A or Company B. They obtain orders or requests for accreditation and forward them overseas for processing and possible acceptance.

In relation to exams, Company C prints the hard copy exams and posts them to the AECs. An exam coordinator arranges for the completed exams to be returned to Company C and these are marked by external markers contracted in Australia by Company C. The results are reported to Company B for processing. Company C then prints and issues the internationally recognised certificates to the successful candidates.

Company C does not have a contract or written terms and conditions with Companies B and A.

Company C has no written agency agreement with Companies B and A and has no authority to bind either of them in any contract.

The main support tasks previously undertaken by Company C for Company B on a regular basis include:

· business development for example obtaining new orders for company's A services and re-orders from existing customers for consideration by the overseas company;

· account management in relation to existing customers. For example an existing customer who has not paid their renewal and have questions will contact Company C; Company C will visit the customer to discuss the concern of the customer and relay the information to Company B;

· exam dispatch;

· multiple choice exam marking;

· results printing and distribution.

Company C's services are provided to Company B so that Company B can meet their obligations to Company A. In turn Company A wishes to meet its obligations to the ATPs and AECs.

The services provided by Company C are not provided to the ATPs and AECs, even though they and their students ultimately benefit from the ability to sit exams and have them marked in the course of achieving qualifications.

Company C has no contractual relationship with the ATPs and AECs. Companies A, B and C have no formal contact with the candidates.

Reasons for decision

GST is payable on a taxable supply. Under section 9-5 of the 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, Company C satisfies paragraphs 9-5(a) to 9-5(d) of the GST Act when supplying their services to International as:

(a) Company C makes the supply for consideration;

(b) the supply is made in the course of an enterprise (business) that Company C carries on;

(c) the supply is connected with Australia as company C makes the supply through a business that they carry on in Australia; and

(d) Company C is 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 Company C's supplies input taxed. The next step is to determine whether their 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.

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 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.

Accordingly, where the provisions in either (a) or (b) above are met, the supply will be GST-free if company B is not in Australia when the thing supplied is done.

From the information received, the supply of services is made to a non-resident that is not in Australia when Company C performs their services since Company B's place of business is located outside Australia. Further the requirements in paragraph (a) of Item 2 are satisfied as the supply of services is neither a supply of work physically performed on goods situated in Australia nor a supply directly connected with real property situated in Australia.

However, the supply is not GST-free to the extent that subsection 38-190(3) of the GST Act negates that GST-free status.

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 Company C's supply as Company C is not required to provide their services to another entity in Australia. The AECs and ATPs are not the recipients of Company C's supply of services though Company C has interactions with them. This is because the services Company C performs are for the purposes of Company B since they enable company B to meet their obligations to Company A and Company A to meet their agreements with the AECs and ATPs.

Company C's supply of services to Company B is therefore GST-free under paragraph (a) of Item 2 as their supply is not excluded from being GST-free under subsection 38-190(3) of the GST Act.