Edited version of private ruling

Authorisation Number: 1011737222444

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Ruling

Subject: GST and supply of consulting services to non-resident

Question 1

Is the supply of consultancy services made by you to a non-resident entity a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) 1999 Act (GST Act) where your services are provided to the Australian clients of non-resident entity?

Answer

Yes, your supply of consultancy services to the non-resident entity is a taxable supply under section 9-5 of the GST Act but only to the extent that these services are provided to the Australian clients of the non-resident entity.

Question 2

Is the supply of consultancy services made by you to a non-resident entity GST-free where your services are provided to the overseas clients of the non-resident entity?

Answer

Yes, your supply of consultancy services to the non-resident entity is GST-free supply under item 2 in the table of subsection 38-190(1) of the GST Act but only to the extent that these services are provided to the overseas clients of the non-resident entity.

Relevant facts

You are a sole trader carrying on an enterprise of providing consulting services and are registered for goods and services tax (GST).

You have entered into an agreement with a non-resident company to provide your services to their clients in Australia and the Asia-Pacific region.

The non-resident entity is not registered for GST.

The contractual arrangements with the non-resident entity require you to:

§ liaise with the non-resident entity 's clients in Australia and to manage the integration of the software for their usage

§ travel overseas to work specifically with overseas clients at their sites

§ deal with overseas IT programmers.

§ do infrastructure work for the non-resident entity.

Reasons for decision

GST is payable on a taxable supply. Section 9-5 of the GST Act provides that 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.

In this situation, you make a supply of consultancy services that satisfies paragraphs (a) to (d) of section 9-5 of the GST Act as follows:

a) You make a supply of consultancy services for payment as consideration;

b) The supply of service is made in the course or furtherance of your enterprise;

c) The supply of services is connected with Australia because the services are performed in Australia and you make the supply of services through an enterprise that you carry on in Australia; and

d) You are registered for GST.

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

The supply of your service does not satisfy any of the input taxed provisions under the GST Act.

However, the GST-free provisions for certain supplies of things other than goods or real property for consumption outside Australia may be applicable.

The supply of consultancy services is not a supply of goods or real property. Therefore, it is appropriately considered under section 38-190 of the GST Act.

In particular, item 2 in the table in subsection 38-190(1) of the GST Act (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 GST.

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

For a supply of 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 the thing supplied is done.

Not in Australia

We consider that the precondition in Item 2 requiring that the non-resident is not in Australia is a requirement that the non-resident is not in Australia in relation to the supply.

As expressed in paragraph 37 of Goods and Services Tax Ruling GSTR 2004/7 a non-resident company is in Australia if the company carries on business 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.

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 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.

Where you supply your services to a non-resident that is not in Australia as contemplated above, the precondition in Item 2 is satisfied.

From the information received, the non-resident entity does not carry any business through a representative in Australia and does not have any presence in Australia in relation to your supply. As such, the non-resident entity is considered to be 'not in Australia' in relation to your supply when you perform your service. The precondition in Item 2 is satisfied.

Paragraph (a) of Item 2

Paragraph (a) of Item 2 is met if the thing supplied is not directly connected with real property situated in Australia and is not work physically performed on goods situated in Australia when the work is done.

The phrases 'directly connected with goods or real property' and 'a supply of work physically performed on goods' are explained in GSTR 2003/7. The ruling provides, amongst other things, that a supply is a supply of work physically performed on goods where something is done deliberately to the goods to change them or to otherwise affect them in some physical way. Where activities do not change or affect goods in a physical way, there is no supply of work physically performed on goods.

From the information received, the requirements in paragraph (a) of Item 2 are satisfied because the supply of consultancy 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. Accordingly your supply will be GST-free under item 2(a) to the extent that it is not negated by subsection 38-190(3) of the GST Act.

As paragraph (a) of Item 2 is satisfied paragraph (b) does not need to be considered.

Subsection 38-190(3)

A supply covered by Item 2 will not be GST-free if the provisions of subsection

38-190(3) are met. Subsection 38-190(3) provides that the supply will not be GST-free if:

a) it is a supply under an arrangement 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.

GSTR 2005/6 establishes the ATO view on the application of this subsection.

Provided to another entity

The word 'provided' is used in subsection 38-190(3) of the GST Act to contrast with the term 'made' in Item 2. In the context of section 38-190 of the GST Act, the contrasting words indicate that if a non-resident contracts for a supply to be provided to another entity, the place of consumption should be determined with regard to the entity to which the supply is provided, not the entity to which the supply is made.

Thus the expression 'provided to another entity' means, in our view, that in the performance of a service (or in the doing of some thing), the actual flow of that supply is, in whole or part, to an 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 recipient) and the actual flow of the supply is to another entity.

In this case, under the agreement with the non-resident entity, you are required to provide technical support to their clients in Australia. Your supply is made to the non-resident entity but is provided to their clients in Australia. The contractual flow of your services is to the non-resident entity but the actual flow of your services is to their clients in Australia. Your services are therefore not provided to the non-resident entity. Subsection 38-190(3) negates the GST-free status of the supply covered by Item 2. Your supply of consultancy services is not GST-free under Item 2 by virtue of subsection 38-190(3) of the GST Act.

Your supply of consultancy service to the non-resident entity's clients in Australia is therefore taxable under section 9-5 of the GST Act.

Question 2

Services provided to clients that are not in Australia

Where you provide services to the overseas clients of the non-resident entity you do not satisfy paragraph 38-190(3)(b) of the GST Act. Therefore, subsection 38-190(3) of the GST Act does not exclude the supply of your services to the non-resident entity from being a GST-free supply under Item 2.

Therefore, the consultancy services you supply to the overseas clients of the non-resident entity are GST-free under item 2 in the table in subsection 38-190(1) of the GST Act.