Edited version of private ruling

Authorisation Number: 1011725510233

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Ruling

Subject: GST and international supply

Questions:

1. Is your supply of services to the client GST-free where you performed these services:

(a) in Australia?

(b) outside Australia?

Answer: Yes.

The supply of your services to the client is GST-free where you performed these services in Australia and outside Australia.

2. Will the answers be different if you are paid by the client's branches in Australia?

Answer: No.

The supply of your services to the client is GST-free when you are paid by the client's branches in Australia.

3. What are the GST implications for the cost you incurred for the supply of your services with a mark up to the client?

Answer: You are not required to include GST for the cost you incurred for the supply of your services with a mark up to the client as the supply of your services is GST-free.

4. Referring to publication 10674-07.7392, does the 'reverse charge' apply to your travel costs (airfare, accommodation, ground transport costs) whilst performing your services overseas?

Answer: No.

Reverse charge is not applicable in your case. Please refer to reason for decisions for explanations.

Relevant facts

You are an Australian resident company and registered for GST.

You provide general management advice and consultancy support services (services) to the client, an overseas company that incorporated under the laws of an overseas country and has registered offices overseas.

Your services are provided on a cost-plus contracting basis. Your provision of services is based on verbal agreement and the client has not yet signed the contract. You have provided the draft contract that is currently in negotiation with the client.

Under the agreement you agreed to provide your service in the form of deliverable or material to the client. The physical deliverables are documents and your services predominantly relate to the production of these documents.

The client is contracted to supply documents to an Australian entity. You assist the client in developing these documents to ensure they comply with the Australian entity's stated requirements. The client incorporates some of your service deliverables into their supplies to the Australian entity. On occasion, you provide interim service deliverables (working/draft documents) direct to the Australian entity representatives on behalf of the client for preliminary review and comment. The client then takes your final service deliverables, uses or modifies them as required, and formally delivers them to the Australian entity. You do not invoice your client specifically for supplying the interim service deliverables.

You have no control of the service deliverables once you have delivered them to the client as your supply to the client was completed. Any further comments on the service deliverables are provided to the client by the Australian entity. The client may or may not forward these comments to you for incorporation in the next revision.

You perform your services in Australia or at the client's premises overseas or in another country. Services performed in Australia incur costs such as airfares, accommodation, ground transport and you on-charge these costs to the client with an additional mark-up.

The client is neither incorporated in Australia nor registered with ASIC. It has two branches in Australia. You were paid by one of the branches and you are currently paid directly by the client. You stated that you may be paid by the other branch in future. You do not communicate or report your work to the two Australian branches and they are just serving as the paying agents for your remuneration.

The client and its two branches are registered for GST.

Reasons for decisions

1(a) and (b). Supply of your services to the client that is either performed in Australia or outside Australia

Section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you must pay the GST payable on any taxable supply that you make.

Taxable supply

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 Australia; and

(d) you are *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.

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

A supply is defined in section 9-10 of the GST Act to include, amongst other things, any of these:

· a supply of goods, or

· a supply of services, or

· a creation, grant, transfer, assignment or surrender of any right.

Paragraph 71 in Goods and Services Tax Ruling GSTR 2000/31 states that if a supply is the provision of advice or information which involves work to create, develop or produce that advice or information for the recipient, for example, a report or opinion, the supply is the performance of services. The service deliverables you supplied to the client is incidental to the services you supplied to the client and you are therefore supplying a consultancy service to the client.

From the information provided, the supply of your service to the client meets the requirements of paragraphs 9-5(a), 9-5(b) and 9-5(d) of the GST Act, as:

· you receive consideration from the client for the supply of your service

· the supply of your service to the client is in the course or furtherance of an enterprise that you carry on

· you are registered for GST.

The next step is to determine whether the supply is connected with Australia where the services are performed in Australia or outside Australia.

Connected with Australia

Section 9-25 of the GST Act provides for supplies connected with Australia. Subsection 9-25(5) of the GST Act states:

Supplies of anything else

(5.) A supply of anything other than goods or *real property is connected with Australia if either:

(a) the thing is done in Australia; or

(b) the supplier makes the supply through an *enterprise that the supplier *carries on in Australia.

(c) all of the following apply:

(i) neither paragraph (a) nor (b) applies in respect of the thing

(ii) the thing is a right or option to acquire another thing

(iii) the supply of the other thing would be connected with Australia.

In your case, you supply the services to the client through an enterprise that you carry on in Australia. Therefore, the supply of your services to the client is connected with Australia regardless whether they are performed in Australia or outside Australia and the requirement in paragraph 9-5(c) of the GST Act is satisfied.

Hence, your supply of services to the client is taxable to the extent that it is not GST-free or input taxed.

The supply of your service is not input taxed under the GST provisions and what remains to determine is whether the supply of your services to the client is 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 client is neither a supply of goods nor a supply of real property, item 2 in the table in subsection 38-190(1) of the GST Act (item 2) is relevant in this circumstance.

Item 2

A supply is GST-free under item 2 where it is:

a supply that is made to a non-resident who 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.

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 (ITAA 1936).

Based on the facts provided, the client is a non-resident for GST purposes.

In order for a supply to be GST-free under Item 2, the client must not be in Australia when your services are performed.

Non-resident company is not in Australia when the thing supplied is done

Goods and Services Tax Ruling GSTR 2004/7 provides the Tax Offices view when a non-resident is not in Australia in relation to the supply.

A non-resident company is present in Australia if:

· it carries on a business or its activities in Australia through a place of its own or through an agent acting on its behalf; and

· that place of business or agent has a fixed and definite place in Australia; and

· the business has continued for a substantial period of time.

Even if a company is in Australia, it may not be in relation to the supply and so can still satisfy the 'not in Australia' requirement. To work out whether a company is in Australia in relation to the supply, it is necessary to examine the role the presence of the company in Australia plays in relation to the supply.

A non-resident company is in Australia in relation to the supply if:

· the supply is for the purposes of the Australian presence of the company; or

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

If the involvement of the Australian presence is limited to the carrying out of simple administrative tasks on behalf of the company, as a matter of administrative convenience, that involvement is minor. The connection between the supply and the presence is so minor in nature that it is reasonable to conclude that the presence of the company in Australia is not in relation to the supply. Paragraph 352 in GSTR 2004/7 provides examples of task of a simple administrative nature. It states:

352. Tasks of a simple administrative nature include:

· payment of, or arranging for payment of, the supplier's invoice on behalf of the company;

· passing on an e-mail to the company;

· being a point of telephone contact to pass on messages to the company;

· being a point of contact for a visiting representative of the company; and

· on-forwarding information to the company.

You advised that the client has two branches in Australia. You are currently paid directly by the client and you were paid by one of the branches in the past. You will be paid by the other branch in future. You stated that both branches act as a paying agent for your remuneration and you do not communicate or report your service to either of them. We consider that the connection between your supply and the presence of the two branches in Australia is minor and their presence is not in relation to your supply. Therefore, the client is not in Australia in relation to your supply of service.

Where a non-resident entity is not in Australia when the supply is done, the supply must still meet the requirements in either paragraph (a) or (b) of Item 2.

Paragraphs (a) and/or (b) of Item 2

Based on the information supplied, the client acquires the service in carrying on its enterprise and is registered for GST. As such, the requirements in paragraph (b) in Item 2 are not satisfied. Therefore it is necessary to determine whether the requirements of paragraph (a) in item 2 are satisfied.

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.

Your supply of service to the client is neither a supply of work physically performed on goods situated in Australia nor a supply directly connected with real property situated in Australia. Therefore, the requirements in paragraph (a) of Item 2 have been met.

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

Limitations to 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. Paragraphs 59 and 61 of GSTR 2005/6 provide guidance in relation to the expression 'provided to another entity'. Generally a supply is made to whoever you are contractually liable to perform the services for, in this instance your supply is made to the client. However, a supply is provided to whoever obtains the actual effective use or enjoyment of the supply, that is, the actual beneficiary.

Paragraph 509 of GSTR 2005/6 provides that for the purposes of applying subsection 38-190(3) of the GST Act, the focus is on the nature of the supply and the actual flow of that supply.

In this case, you are supplying advice and consultancy services in the form of deliverable material to your client.

The key issue here is what the client does with your deliverables. If the client merely passes on your deliverables to the Australian entity then your supply is provided to another entity, the Australian entity DMO.

According to the facts you provided, your supply is to assist the client in developing the documents to ensure they comply with the Australian entity's stated requirements. The client incorporates your service deliverables into the documents and supplies the documents to the Australian entity. The purpose of your services is for the client, so they can meet their obligations to provide the documents which have to comply with all necessary requirements under the agreement that they entered into with the Australian entity. Your services are undertaken for the client and utilised by the client to deliver their supply to the Australian entity.

You also stated that in providing your service, you have no or limited interaction/ dealing with the Australian entity. You may provide interim service deliverables (working/draft documents) direct to the Australian entity representatives on behalf of your client for preliminary review and comment. However, the client would take your final service deliverables, use or modifies them as required and formally delivers them to the Australian entity.

Further, you have entered into verbal agreement to supply your services to the client, who is a non-resident. You have not provided and the agreement does not require you to provide your services to other entities in Australia. Even though your service deliverables might ultimately been supplied to the Australian entity by the client, you do not provide your services directly to the Australian entity. After you submit the service deliverables to the client, you have no control of your service deliverables. The client may make changes to your service deliverables before they are provided to the Australian entity. As such, the client provides the service deliverables to the Australian entity in their own right. Hence, the contractual and actual flow of your services is to the client.

Paragraph 521 of GSTR 2005/6 provides many examples about whether a supply is provided to another entity in Australia. Examples 26 to 31 highlight when interactions between the supplier of the services/advice and the Australian resident entity are considered minor.

Therefore, subsection 38-190(3) of the GST Act does not exclude the supply of your services to the client from being GST-free under Item 2.

Accordingly, the supply of your services to the client is GST-free under item 2 in the table in subsection 38-190(1) of the GST Act.

2. The GST implications when you are paid by the Australian branches

As discussed, the two Australian branches are acting as the paying agents for your remuneration and their involvement for your supply is minor. Your supply of services to the client and is GST-free under Item 2 even when you are paid by the client's branches in Australia.

3. The GST implications for the costs you incurred for the supply of your services with a mark up to the client

You incurred costs in the course of supplying your service. When you on-charge the costs with a mark up to the client, it forms part of the consideration payable by the client for your services regardless the costs are separately itemised or included as part of your overall fee.

As the supply of your services to the client is GST-free, GST is not payable when you on-charge the cost you incurred for the supply of your services with a mark up to the client.

4. Reverse charge

Normally, the suppliers are liable for GST under the GST Act. However, there are some reverse charge provisions available to non-residents making supplies connected or not connected with Australia. The non-resident may be able to use this option, provided that all the requirements in those provisions are satisfied.

Under Division 83 of the GST Act, where the recipient and non-resident supplier agree, the recipient can account for the GST that would be charged by the non-resident. That is, the GST on the taxable supply is 'reverse charged' to the recipient.

The circumstances where reverse charging can apply are provided in subsection 83-5(1) of the GST Act. They are:

· the supplier is a non-resident; and

· the supplier does not make the supply through an enterprise that the supplier carries on in Australia; and

· the recipient is registered or required to be registered; and

· the supplier and the recipient agree that the GST on the supply will be payable by the recipient.

In your case, GST has mostly not been charged on travel costs incurred while you are overseas. Further, you do not indicate that you have agreed with the non-resident suppliers that the GST on the supply will be payable by you. Therefore, reverse charge is not applicable for travel costs incurred whilst performing services overseas.

All public rulings which have been referred to in this ruling are available from the Tax Offices website at www.ato.gov.au .