Edited version of private ruling

Authorisation Number: 1011703128460

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Ruling

Subject: GST and services supplied to a non-resident

Question

Is the supply of your services GST-free when provided to the non-resident companies referred to in scenarios A and B?

Answer

Yes, the supply of your services is GST-free when provided to the non-resident clients referred to in scenarios A and B.

Relevant facts and circumstances

You carry out consulting work for customers.

You are registered for GST.

You occasionally supply a service to non-resident companies who manufacture and supply products for sale. This service involves you introducing a business operator wanting to purchase particular goods to a non-resident manufacturer who produces those goods for sale. The introduction takes place overseas.

You have personal friendships both with the business owners (potential purchasers) and overseas based producers/manufactures/suppliers of goods. The supply of your services is a casual arrangement. You do not enter into any written agreement with a non-resident manufacturer when you supply your services.

Where the services you supply prove successful for the non-residents business, the manufacturer makes a small payment to you in the form of a commission. Where the introduction was not successful you only received payment to reimburse the travel and associated costs you incurred. You consider any commission payment you receive from this arrangement is a subjective expression of gratitude by the overseas manufacturer rather than a contractual obligation. To date you have received minimal payment for your supply of services.

You do not supply your services to, or receive payment from, potential purchasers.

You have provided details of two occasions where you have supplied your services to specific non-resident manufacturers/suppliers of goods referred to in scenarios A and B (the non-resident manufacturers). In both scenarios you introduced a friend carrying on a business to another friend operating a manufacturing company overseas. The introduction took place overseas.

You were not involved in any sale of goods that may have occurred between the
non-resident manufacturers and the potential purchasers resulting from your introduction.

The non-resident manufacturers are not registered or required to be registered for GST. These manufacturers reside overseas and are not residents of Australia. They do not have a permanent establishment, presence or an agent here in Australia.

You do not provide, and are not required to provide, your services to other entities in Australia as part of your arrangement with the non-resident manufacturers.

The services you provide are 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.

Reasons for decision

Detailed reasoning

Taxable supply

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

(a) you make the supply for consideration

(b) the supply is made in the course or furtherance 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 in not a taxable supply to the extent that it is GST-free or input taxed.

In your case, you have supplied your services to the non-resident manufacturers for consideration. The supply of your services is connected with Australia as you are carrying on your enterprise in Australia. You are registered for GST. Therefore, the supply of your services will satisfy paragraphs 9-5(a) to 9-5(d) of the GST Act.

However, as stated above, a supply is not a taxable supply if it is GST-free or input taxed. The supply of your services to the non-resident manufacturers is not input taxed under the GST Act or a provision of another Act. Therefore, a matter for consideration is whether your supply is
GST-free.

GST-free

Section 38-190 of the GST Act provides that certain supplies of things other than goods or real property, for consumption outside of Australia are GST-free. As the supply of your services to the non-resident manufacturers is neither a supply of goods nor a supply of real property, section
38-190 is relevant for consideration.

Item 2 in the table in subsection 38-190(1) of the GST Act (Item 2) provides that a supply of a thing, other than goods or real property, made to a non-resident is GST-free if the non-resident is not in Australia when the thing supplied is done and:

(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.

Non-resident not in Australia in relation to the supply

A non-resident for GST purposes is an entity that is not an Australian resident for the purposes of the Income Tax Assessment Act 1936.

You advised that both the non-resident manufacturers in scenarios A and B are companies that reside overseas and are non-residents of Australia. They do not have a permanent establishment, presence or an agent in Australia. Therefore, the non-resident manufacturers are non-residents for GST purposes.

For the supply of your services 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 it is performed/provided.

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:

(a) at or through a fixed and definite place of its own for a sufficiently substantial period of time, or

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

From the facts given, the non-resident manufacturers do not have an office, branch or representative in Australia. Therefore, we consider that the non-resident manufacturers are not in Australia in relation to the supply of your services for the purposes of Item 2.

Paragraphs (a) or (b) of Item 2

For your supply to be GST-free under Item 2 the supply must also satisfy the requirements of either paragraph (a) or paragraph (b) of Item 2.

In this case, the services you provide to the non-resident manufacturers 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 such, the supply of your services will satisfy paragraph (a) of Item 2 and therefore will be covered by Item 2.

However, the scope of Item 2 is limited by subsection 38-190(3) of the GST Act.

Limitation of Item 2

Subsection 38-190(3) of the GST Act provides that a supply covered by Item 2 is not GST-free if:

(a) it is a supply under an agreement entered into, whether directly or indirectly, with a
non-resident, and

(b) 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 explains the operation of subsection 38-190(3) of the GST Act. This ruling provides that subsection 38-190(3) only applies if there is a supply of something, being a supply that is made to a non-resident and is covered by Item 2, and that same supply is provided, or is required to be provided to another entity in Australia. That is the contractual flow of the supply is to one entity (the non-resident) and the actual flow of the supply is to another entity in Australia.

The intent of this provision is to impose a further location test where the supply is provided, or required to be provided, to another entity. If that other entity is in Australia, subsection 38-190(3) of the GST Act operates to negate the GST-free status that would otherwise apply under Item 2.

In your case, you supplied introduction services to the non-resident manufacturers. The supply of these services meets the requirements of paragraph 38-190(3)(a) of the GST Act as the supply is made under an informal agreement entered into with a non-resident.

What needs to be determined is whether this supply also meets the requirements of paragraph
38-190(3)(b) of the GST Act.

You do not provide and are not required to provide your services to another entity in Australia. Hence, the contractual and actual flow of the introduction services will be to the non-resident manufacturers. Accordingly, the requirements of paragraph 38-190(3)(b) of the GST Act will not be met.

Therefore, the supply of the introduction services by you will not be excluded by subsection
38-190(3) of the GST Act from being GST-free under Item 2. Therefore, the supply of your introduction services to the non-resident manufacturers will be GST-free under Item 2.