Edited version of private ruling

Authorisation Number: 1011760835788

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: GST on international product services and reverse charging

Question:

Is an Australian entity (you) liable for GST under the reverse charge provision contained in Division 84 of the A New Tax System (Goods and Services Tax) GST Act 1999 (GST Act) in relation to the acquisition of the product service?

Answer:

No. You are not liable for GST under the reverse charging provision in Division 84 of the GST Act in relation to the acquisition of the specified product service.

Relevant facts and circumstances

An Australian entity (you) are registered for goods and services tax (GST).

You acquired a particular product service.

A non-resident company (NRCo) has a head office located overseas. NRCo has a related Australian company, AusCo.

Originally, you were invoiced for the product service by AusCo. GST was included in these tax invoices. A sample tax invoice is provided. The address for AusCo is shown.

Over the past few months the invoicing for the product service has moved to the head office overseas and issued by NRCo. The invoices issued by NRCo are exclusive of GST. A sample tax invoice is provided. The invoice contains the name and address details of NRCo, but has an Australian location for cheque payments and has an Australian bank account to send EFT payments to.

You have queried the matter with AusCo, and have questioned them in relation to their Australian business number (ABN) and GST registration status, and requested information on its presence in Australia. The response received was that NRCo does not have to apply or register for an ABN or GST, and does not have a presence in Australia as the invoicing business operates overseas.

You obtained information from areas in your organisation regarding the product(s) and how the items are used. The product is distributed to each user and the licences are held in a central location. There are period based fees for each licence and this entitles the user to use the product and receive updates. The product is used only for internal purposes.

It is your understanding that all of NRCo/AusCo's product services appears to be supplied by the Australian branches (that is, AusCo), while the tax invoices are now supplied by the international branch (that is, NRCo). You are concerned that there is a compliance problem with the current tax invoice as there is a presence on behalf of the international company with the product services provided in Australia.

You provided the following additional information:

You are unable to fully determine who is the supplier of the product updates. The update process remains the same since the change in the invoicing process. To date you have not obtained any new licences as all payments have been suspended pending the outcome of this ruling.

The only communication regarding the change in invoicing for the services by NRCo is in an online letter (referred to as the 'notification letter'). This notification letter states that effective during 20XX, due to a re-structure of NRCo/AusCo's businesses, there will be changes to the way in which your payments of invoices must be handled. The product services and related products and services will be invoiced by NRCo. Certain services may continue to be invoiced by the same company that you have been dealing with until now, depending on your location.

There has been no other communication stating that the supply chain has changed for the product and related service.

You do not have a copy of the original agreement(s) for the acquisition, but have referred to a copy of the current online agreement. This agreement does not clearly state the details as to the entity that supplies the services as it is general in nature. The description of services under this agreement provides you with access to a variety of resources ('collectively "Services"). The Services are subject to the terms of use. There are restrictions on use of the product. NRCo/AusCo controls and operates this from its headquarters in various locations overseas.

You have not acquired any new licences as all payments have been suspended. The current product installed via AusCo and was done before the changes. As long as your licence(s) is valid, you are able to update the product. There has been no communication with NRCo/AusCo that the means by which this service has changed.

The current licence(s) entitles you to services and updates. The service is conducted mainly via email and the last email (dated prior to the changes) was received from an officer located in Australia. It is uncertain which company name the service operates under, but the email has AusCo as the company name.

You have had little business related contact with either AusCo or NRCo since your questioning of the GST with the new invoicing arrangements. According to the finance manager in Australia, NRCo has no presence in Australia, and there is no requirement for them to be registered for GST.

You state that the acquisition of the product services is for a creditable purpose.

Reasons for decision

Division 84 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) is a special provision under the GST Act that deals with supplies of things other than goods or real property that are made outside Australia to a recipient in Australia. The GST on a supply that is a taxable supply under this division is reverse charged to the recipient of the supply.

Under section 84-5 of the GST Act a supply may be treated as a taxable supply as follows:

84-5 Intangible supplies from offshore that are taxable supplies under this Division

(1) A supply of anything other than goods or *real property that is:

· a supply not *connected with Australia; or

· a supply that is connected with Australia because of paragraph 9-25(5)(c);

· is a taxable supply if:

a) the *recipient of the supply acquires the thing supplied solely or partly for the purpose of an *enterprise that the recipient *carries on in Australia, but not solely for a *creditable purpose; and

b) the supply is for *consideration; and

c) the recipient is *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)

Accordingly, where all the requirements in subsection 84-5(1) of the GST Act are satisfied, a supply of anything other than goods or real property that is made outside Australia to a recipient in Australia is a taxable supply and the recipient will be liable for GST on that supply.

Characterisation of the supply

For Division 84 of the GST Act to apply, we first need to determine if the supply by NRCo/AusCo to you is of things other than goods or real property.

The meaning of a supply is defined in section 9-10 of the GST Act as 'any form of supply whatsoever'. It includes (without limiting) a supply of goods, services, a provision of advice or information, and any rights, or combination of these things.

A specific Goods and Services Tax Ruling discusses the characterisation of the product services as a supply of goods, a supply of the product as an intangible property, a supply of a service, or a supply of rights.

From the information provided, the supply of the product services is not considered a supply of goods (as there is no tangible property supplied). Furthermore, it is clear that the supply of the product services is not a supply of real property.

Where the product and its licence(s) are supplied with restrictions on use, the supply is not of rights (as you are not supplied with the intellectual property rights, such as copyrights, to the product). The supply of the product service is a supply of the product as an intangible property and/or services. Accordingly, the supply by NRCo/AusCo to you is of things other than goods or real property.

Paragraphs 84-5(1)(a) or 84-5(1)(b) of the GST Act - Connected with Australia

Under subsection 9-25(5) of the GST Act, a supply of anything other than goods or real property (such as a service) is connected with Australia if:

· the thing is done in Australia;

· the supplier makes the supply through an enterprise that the supplier carries on in Australia; or

· all of the following apply:

· neither paragraph 9-25(5)(a) nor (b) of the GST Act applies in respect of the thing;

· the thing is a right or option to acquire another thing; and

· the supply of the other thing would be connected with Australia.

From the information provided, the supply of the product services was originally supplied and invoiced by AusCo. Over the past few months the invoicing for the product service was moved to the head office overseas and issued by NRCo. The notification letter states that due to a re-structure of NRCo/AusCo's businesses, there will be changes to the way in which your payments of the invoices must be handled. However, it is not fully certain from the available information who is now the supplier of the product service. We will therefore apply Division 84 of the GST Act to both circumstances to determine if you are liable for GST under the reverse charging provision.

Supply made by AusCo

Where the supply is made by AusCo, the supply is connected with Australia as the supplier makes the supply through an enterprise that it carries on in Australia (and the thing, being the product service is performed/provided in Australia). Accordingly, the supply is connected with Australia under paragraphs 9-25(5)(a) and/or 9-25(5)(b) of the GST Act, and the requirements in paragraphs 84-5(1)(a) and 84-5(1)(b) of the GST Act are not satisfied. In this circumstance, as all the requirements of section 84-5 of the GST Act are not satisfied, you are not liable for GST under this reverse charging provision.

Supply made by NRCo

Where the supply is made by NRCo, paragraph 84-5(1)(a) of the GST Act is satisfied as the supply of the product service made by NRCo is not connected with Australia. This is because:

· the product service is not done in Australia - that is, NRCo is/will be providing their product service to you when they are outside Australia; and

· the product service is not made through an enterprise that NRCo carries on in Australia, when the product service is provided directly from NRCo's operations overseas to you.

In this circumstance, as paragraph 84-5(1)(a) of the GST Act is satisfied, there is no need to consider paragraph 84-5(1)(b) of the GST Act. However, for completeness, paragraph 84-5(1)(b) of the GST Act is not satisfied as the supply of the product service was not a supply of a right or option to acquire another thing (for which the supply of the other thing would be connected with Australia under paragraph 9-25(5)(c) of the GST Act).

Further, for completeness, we note that if the supply was made by NRCo through AusCo (as their agent) to you, that the supply may be connected with Australia. In this circumstance, all the requirements of section 84-5 of the GST Act are not satisfied, and you would not liable for GST under this reverse charging provision.

The following only applies when the supply is made by NRCo and the supply is not connected with Australia.

Paragraph 84-5(1)(c) of the GST Act - Creditable purpose

Under subsection 11-15(1) of the GST Act you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise.

However, subsection 11-15(2) of the GST Act provides that you do not acquire the thing for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed (such as financial supplies or the sale and rental of residential premises) or the acquisition is of a private or domestic nature.

Accordingly, paragraph 84-5(1)(c) of the GST Act is satisfied where the services are acquired solely or partly for the purposes of making input taxed supplies or are for a private nature.

From the information provided, you acquire the product service for the purposes of carrying on your enterprise. The acquisition does not relate to the making of input taxed supplies (such as financial supplies or sale or rental of residential premises), nor is of a private nature. The acquisition was for a creditable purpose. Accordingly, the requirement in paragraph 84-5(1)(c) of the GST Act is not satisfied.

Paragraphs 84-5(1)(d) and 84-5(1)(e) of the GST Act - Consideration and GST registration

As paragraph 84-5(1)(b) of the GST Act is not satisfied, there is no need to consider paragraphs 84-5(1)(d) and 84-5(1)(e) of the GST Act. However, for completeness, these paragraphs are satisfied because you provide or are required to provide consideration for the product, and you are registered for GST, respectively.

Summary

Accordingly, as the supply of the product service to you by either AusCo or NRCo does not satisfy all the requirements of section 84-5 of the GST Act, it is not a taxable supply, and you are not liable for GST, under this reverse charging provision.

Additional Information

Division 83

Sometimes the requirements for non-resident enterprises to register for GST pose practical difficulties when the non-resident has no presence in Australia. Division 83 of the GST Act provides that in certain circumstances, a non-resident making supplies 'connected with Australia' and an Australian recipient can agree that the GST payable on a taxable supply made by the non-resident supplier is payable by the Australian recipient. As these supplies are then disregarded in working out annual turnover, this may alleviate the need for the non-resident supplier to register for GST.

The reverse charging provision under Division 83 of the GST Act is only applicable if there is an agreement between you and NRCo which requires you (the recipient) to pay the GST on a taxable supply (if any) made by NRCo (and all the other requirements are satisfied). If there is no agreement, you are not liable for GST under this reverse charging provision.