Edited version of private ruling

Authorisation Number: 1011813485756

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Ruling

Subject: GST - supply of legal services to an Australian company - insurance claims

Question

Is the supply of legal services by an Australian legal firm ('you') in relation to insurance claims under a product and public insurance policy for which an offshore captive insurer ('OCI') is liable under the insurance, a GST-free supply under either item 2 and/or item 3 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No. The supply of your legal services under your arrangements with an Australian company (and its legal team) and/or the OCI in relation to liability matters is not GST-free. The Australian company ('AusCo') and OCI are considered to be in Australia in relation to your supply, and therefore the supply of your legal services is provided to an entity in Australia and is a taxable supply.

Relevant facts:

An Australian legal firm ('you') supplies legal services, and is registered for goods and services tax (GST).

A multinational corporation ('Corp') domiciled overseas provides its products and services to customers in many countries. Corp has local Corp subsidiaries in Australia, including AusCo. Corp's offshore captive insurer is OCI, which is a related entity.

You have been engaged to provide legal services in relation to insurance claims arising under Corp's global product and public liability insurance ('Corp insurance policy').

The Corp insurance policy is currently structured so that the local Corp subsidiaries receive full indemnification for the claim defence costs and also claim payments. In other words, as the insured party the local Corp subsidiaries look to Corp's insurance policy for indemnification. Further, the local Corp subsidiaries have no direct involvement in arranging the Corp insurance policy as this occurs on a global basis.

Corp holds insurance for product and public liability risks and the insurance risks is 100% reinsured to OCI.

OCI is an overseas based company and is a non-resident of Australia. OCI does not carry on business at or through a fixed and definite place of its own in Australia, and is neither registered nor required to be registered for Australian GST.

The captive insurance program provides full indemnification for the claims costs of all Corp subsidiaries globally, including the local Corp subsidiaries, from the first dollar. As a result, there is no excess or deductible payable under the current insurance cover (and subsequent reinsurance cover) and none of the expenses relating to the claim event are borne by the local Corp subsidiaries, which therefore have no ultimate financial interest or exposure in relation to liability matters.

When a claim arises against a local Corp subsidiary, OCI (as the captive insurer) along with Corp's risk department (based overseas), as well as the legal department (referred to as the

'Legal-Team') of AusCo and the relevant local Corp subsidiary will be actively involved in the management of each claim.

All the members of the Legal-Team are employees of AusCo ('Legal-Team/AusCo'), which is one of the local Corp subsidiaries.

The management of a claim against a local Corp subsidiary typically occurs as follows:

· An external loss adjuster works with Legal-Team/AusCo in managing liability matters. The loss adjuster takes the lead in managing non-litigious matters and Legal-Team/AusCo generally takes the lead in managing litigious matters or matters involving the engagement of your legal services.

· The local Corp subsidiary is expected to provide necessary information, documents and assistance in relation to the management of the claim.

· In relation to litigious matters, your primary point of contact is the lawyer from Legal-Team/AusCo. Legal-Team/AusCo reviews and comments on documentation, provides legal input, assists with obtaining information from the relevant local Corp subsidiary and is involved in general discussions on the strategic approach with respect to legal and other related matters.

· At times, communication takes place between you and the relevant local Corp subsidiary, without a lawyer from Legal-Team/AusCo being a party to that communication. However, amongst other communications, initial instructions to you are issued by a lawyer from

Legal-Team/AusCo.

· When it becomes necessary to settle a matter, you will work with Legal-Team/AusCo to formulate a settlement recommendation. The settlement recommendation will be circulated to Corp's risk management department, relevant personnel from Legal-Team/AusCo, the loss adjuster and relevant personnel from the local Corp subsidiary.

· Generally a consensus view from all parties receiving the settlement recommendation is sought and obtained. However, in accordance with Corp's formal delegation of decision making authority ('DOA'), the following approvals must be obtained:

· Insurance claims DOA: For smaller claims, the loss adjuster and for all claims over a certain amount a member of Corp's risk department (overseas). Matters involving your services typically involve an exposure for in excess of $XX, so relevantly the DOA for a settlement is not held by any personnel based in Australia as Corp's risk department is based overseas.

· Litigation DOA: For all litigation matters (whether insured or uninsured), a member of Corp's legal team(s). For up to $XXX this will be a member of Legal-Team/AusCo, but above that amount the litigation DOA is held by Corp lawyers based overseas.

· Where mediation or a settlement conference takes place, you will be provided with instructions from Legal-Team/AusCo to appear. A lawyer from Legal-Team/AusCo will also usually attend. In accordance with the DOA regime described above an upper limit of authority to settle the matter will have been set before the mediation/settlement conference.

Advice provided by you is addressed in a variety of ways including being addressed to the local Corp subsidiary, directly to a lawyer in Legal-Team/AusCo or OCI and sometimes being sent care of an entity other than the addressee. Regardless of the above, the advice will always be sent to a lawyer in Legal-Team/AusCo who will further disseminate as necessary.

Tax invoices issued by you are addressed to OCI, but sent care of Legal-Team/AusCo who reviews and approves the invoices. The invoices are then sent by Legal-Team/AusCo to the loss adjuster in Australia, who in turn sends the invoices to an overseas office where payment is arranged directly to you.

The Legal-Team of AusCo provides legal services in respect of Australian legal matters, or matters of global significance with an Australian impact. Legal-Team/AusCo's role therefore includes the provision of legal services to the local Corp subsidiaries, but it is not limited to the local Corp subsidiaries. Legal-Team/AusCo's role includes providing legal support and assistance in relation to public and products liability insurance claims in the manner described above, but its role is by no means limited to this. Indeed, these matters would comprise a small percentage of the overall workload of Legal-Team/AusCo. Legal-Team/AusCo advises on and is involved in the whole range of legal areas.

You indicated that Legal-Team/AusCo amongst other things, acts as the primary point of contact for you in dealing with claims for product and public liability. Further, when it becomes necessary to settle a matter, Legal-Team/AusCo will work with you to resolve a matter where OCI is 'on risk' for both indemnity and expenses. In effect, there is an implicit authorisation from OCI to Legal-Team/AusCo to, amongst other things, carry out the necessary activities to deal with claims for product and/or public liability and where relevant engage you for your legal services. In other words, you advised that Legal-Team/AusCo is acting for OCI as an implied procurement agent.

Other information:

In respect of any documentation for the engagement of your legal services, previously you provided a proposal (profile document). However, there is no current letter of engagement with you in relation to the engagement of your legal services. You advised that on [date], you were informed of the changes to the captive insurance program effective from [date] and for tax invoices to be issued to OCI.

Copies of Corp's insurance policy, fronting insurance and re-insurance policy with OCI were not provided as you informed that you did not have access to these documents. The Australian Taxation Office (ATO) was advised to issue this private ruling based on the fact that OCI provides full indemnification for the insurance claims of all Corp subsidiaries globally, including the local Corp subsidiaries. None of the expenses relating to the claim event are borne by the local Corp subsidiaries and they have no ultimate financial interest or exposure in relation to liability matters. OCI is 'on risk' for both indemnity and expenses in relation to the claims.

You confirm that the offshore captive insurer is OCI. In relation to the extent of your interactions with OCI, it is advised that for litigious matters (where external lawyers are typically engaged), your primary contact is a lawyer from Legal-Team/AusCo. You will specifically interact with the general counsel. You do not specifically interact with OCI. OCI has few staff and limited expertise. However, as OCI is 'on risk' for both indemnity and expenses from the first dollar, a OCI representative (usually a member of Corp's overseas based risk management department) will generally be involved in a telephone conference to make key decisions on settlement strategy and quantum of payment(s).

When you represented OCI at a mediation/settlement conference (or in court), OCI (or its representatives) was not in Australia. Typically, a lawyer from Legal-Team/AusCo was present.

You were engaged by Legal-Team/AusCo for the legal services in relation to a claim. It is advised that there is no written agreement(s) between AusCo (being the employer of the Legal-Team) and OCI which outlines their arrangements and relationship in regards to the procurement of your legal services.

Legal-Team/AusCo did not indicate that they were acting as an agent for OCI and/or the local Corp subsidiaries and/or any other entity when they engaged you for your legal services.

You advise that the agreed arrangements and relationship between Legal-Team/AusCo and OCI are as outlined in the private ruling request.

You further provide the following information in respect of the relationship between

Legal-Team/AusCo and OCI:

· AusCo is the main operating entity for certain businesses.

· In relation to claims, you advise that an external loss adjustor works with Legal-Team/AusCo in managing liability matters.

· Legal-Team/AusCo does not receive any remuneration from OCI or another entity for their services in dealing with the claims.

· OCI does not make any other contributions (such as reimbursement of costs and financing of the business activities performed by Legal-Team/AusCo).

· OCI does not exercise any control over the running of the business activities conducted by Legal-Team/AusCo.

· Legal-Team/AusCo does not reserve part of its staff or accommodation for the conducting of business related to OCI.

· The settlement deed will always be in the name of the defendant (operating business) and not in the name of OCI. Hence, Legal-Team/AusCo does not make binding contracts in OCI's name.

Legal-Team/AusCo informed that there were new billing requirements for Corp liability matters. You are informed that the responsibility for Corp's entire portfolio of liability insurance matters was transferred from the respective business units to Corp's captive insurance company, and that all future tax invoices be addressed to OCI. Original tax invoices are still sent to the relevant contact person at Legal-Team/AusCo, who will review and approve tax invoices before submitting them for payment.

The profile document outlines (amongst other things) the services on offer to the companies in Australia.

Reasons for decision:

GST is payable on a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). From the facts provided, you satisfy the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act as:

(a) You make the supply of legal services in return for consideration by way of payments; and

(b) The supply is made in the course or furtherance of an enterprise (business) that you carry on; and

(c) The supply is provided through a business that you carry on in Australia and the services are performed in Australia (and therefore the supply is connected with Australia); and

(d) You are registered for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

The supply of your legal services is not input taxed. We need to determine whether the supply made to Legal-Team/AusCo and/or OCI satisfies the GST-free provisions.

GST-free supply

Section 38-190 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 relevance to the supply of legal services to Legal-Team/AusCo and/or OCI are items 2 and 3 in the table in subsection

38-190(1) of the GST Act.

Under item 2 in the table in subsection 38-190(1) of the GST Act (Item 2), a supply is GST-free 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-residents *enterprise, but is not *registered or *required to be registered.

Under item 3 in the table in subsection 38-190(1) of the GST Act (Item 3), a supply is GST-free where it is:

a supply:

(a) that is made to a *recipient who is not in Australia when the thing supplied is done; and

(b) the effective use or enjoyment of which takes place outside Australia;

other than a supply of work physically performed on goods situated in Australia when the thing supplied is done, or a supply directly connected with *real property situated in Australia.

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

Item 2 is applicable to a supply made to a non-resident recipient. Item 3 is applicable irrespective of the residency of the recipient.

Precondition of Item 2, and paragraph (a) of Item 3 - Recipient who is not in Australia in relation to the supply

For the supply to be GST-free under Items 2 & 3 there is a condition that the recipient must not be in Australia in relation to the supply when it is done.

We first need to determine who you are supplying your legal services and advice to, under the agreements and arrangements with AusCo (and its Legal-Team) and/or OCI (the offshore captive insurer), before determining the GST status of the supply.

Who is the recipient of the supply?

Under section 195-1 of the GST Act, the recipient in relation to a supply is defined as the entity to which the supply is made.

Goods and Services Tax Ruling GSTR 2006/9 considers multi-party transactions, commonly known as tripartite arrangements. As stated at paragraphs 131 and 132 of GSTR 2006/9:

131. 'Made' in the context of 'a supply made' takes its meaning from the definition of 'recipient' in section 195-1:

recipient, in relation to a supply, means the entity to which the supply was made.

132. 'Provide' is used to contrast with 'made' - it distinguishes between the contractual flow of the supply to the recipient (the entity to which the supply is made) and the actual flow of the supply to another entity (the entity to which the supply is provided).

Under a tripartite arrangement (involving three or more parties) it is possible that a supply is made to one entity under the terms of an agreement, but the supply is provided to another entity. It may be that the agreement, together with the surrounding circumstances, show that there is a binding obligation between the two parties making the arrangement for goods, services or anything else to be provided to a third party.

In identifying binding obligations, paragraph 56 of Goods and Services Tax Ruling GSTR 2006/10 state:

56. An arrangement between the parties will be characterised not merely by the description given to the arrangement by the parties, but by looking at the various transactions entered into and the circumstances in which the transactions are made. This is discussed in GSTR 2006/9.

Further, proposition 14 in GSTR 2006/9 provides the Commissioner's view on a tripartite arrangement whereby a third party may pay for a supply, but is not the recipient of that supply.

The facts provided indicate that you have been retained and engaged by Legal-Team/AusCo to provide legal services in respect of insurance claims arising under the Corp insurance policy for which OCI (as the captive insurer) is ultimately at risk. You advise that there is no letter of engagement for your legal services, and there is no agreement(s) between Legal-Team/AusCo which outlines their arrangements and relationship in regards to the procurement of your legal services.

However, you have advised that Legal-Team/AusCo engaged you for the legal services;

Legal-Team/AusCo is the primary point of contact for you in dealing with claims for product and public liability, and you work with them when necessary to settle/resolve a matter involving OCI. Legal-Team/AusCo did not indicate to you that they were acting as an agent for OCI and/or any other entities when they engaged you for the legal services; tax invoices are sent to Legal-Team/

AusCo for review and approval; you receive instructions from Legal-Team/AusCo and you do not specifically interact with OCI. On assessment of these facts and the arrangements outlined and in the absence of any written agreements provided, it appears that the legal effects of the transactions with you are binding on Legal-Team/AusCo. In this circumstance, the supply is made to Legal-Team/AusCo, who is the recipient of the supply of your legal services.

Legal-Team/AusCo is in Australia in relation to the supply of your legal services, when the legal services are performed/provided.

Where the supply is made to OCI (through Legal-Team/AusCo as their agent/representative):

As stated above, we consider that the supply of your legal services are made to Legal-Team/AusCo, however the alternative is that the supply is made to OCI (through Legal-Team/AusCo as their agent/representative).

You advise that there may be an implicit authorisation from OCI to Legal-Team/AusCo to, amongst other things, to carry out the necessary activities to deal with claims for product and/or public liability and where relevant engage you for your legal services. In other words, Legal-Team/AusCo is acting for OCI as an implied procurement agent. Accordingly, if Legal-Team/AusCo had engaged you on behalf of OCI, the supply is made to OCI, who is the recipient of the supply of your legal services.

As stated at paragraph 15 of Goods and Services Tax Ruling GSTR 2000/37:

15. When an agent uses his or her authority to act for a principal, then any act done on behalf of that principal is an act of the principal...

In addition, paragraphs 234 and 236 of Goods and Services Tax Ruling GSTR 2005/6 state:

234. A non-resident principal may make an acquisition of a service or other thing through an agent. The agent is authorised to undertake the acquisition on behalf of the principal, thereby binding the principal to the legal effects of the transaction.

236. In these circumstances, the supply of the service is made to the non-resident. (In the case of a non-resident entity, other than an individual, the presence of an agent in Australia can sometimes result in the non-resident entity failing the requirement in item 2 that the non-resident is not in Australia.)

Does OCI carry on its business through an agent in Australia?

You advise that there is no agreement(s) between Legal-Team/AusCo and OCI which outlines their arrangements and relationship in regards to the procurement of your legal services. You also advise that OCI is not a resident of Australia, and that OCI does not carry on business at or through a fixed and definite place of its own in Australia. We need to consider whether OCI carries on business (or activities) in Australia through AusCo (and its Legal-Team) as an agent at a fixed and definite place for a sufficiently substantial period of time.

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 through:

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

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

Paragraph 250 of GSTR 2004/7 states:

We consider that if a non-resident company carries on business at or through a fixed and definite place of its own in Australia and it had carried on, or intends to carry on, its business from such premises by its servants or agents for a sufficiently substantial period of time, that company is in Australia.

Further, paragraphs 277 and 278 of GSTR 2004/7 provide that if a non-resident company has no fixed and definite place of its own in Australia, it may still carry on business in Australia through an agent from some fixed and definite place. The key issue in this kind of situation is whether the non-resident company is itself carrying on business in Australia through a duly appointed agent, or whether the business being conducted is the agent's own business, the non-resident company merely being one of its customers.

Paragraph 281 of GSTR 2004/7 lists various factors to assist in determining whether a

non-resident company can properly be regarded as carrying on business in Australia through an agent. In relation to those factors the following were observed:

· AusCo and OCI are related entities, and although AusCo (that is, its Legal-Team) may not be involved in supplying insurance, AusCo is actively involved in managing liability matters in relation to claims handling activities for OCI. Legal-Team/AusCo takes the lead in managing litigious matters and matters involving the engagement of your legal services. Legal-Team/AusCo is the primary point of contact for you in dealing with claims for product and public liability, and you work with them when necessary to settle/resolve a matter involving OCI. The claims handling is a significant part of an insurance business.

Legal-Team/AusCo has the authority to settle the claims (subject to certain limits). OCI appears to be conducting its claims handling activities in Australia through AusCo (and its Legal-Team).

· You advise that Legal-Team/AusCo does not receive any remuneration from OCI or another entity for their services in dealing with the claims. OCI does not make any other contributions (reimbursement of costs and financing of the business activities performed by Legal-Team/AusCo). Although this may indicate that OCI is not carrying on its business (activities) through Legal-Team/AusCo, if Legal-Team/AusCo is not receiving any consideration for their services in managing the claims, this may be an indication that the legal services are acquired by Legal-Team/AusCo for its own purpose(s) in performing their services.

· You advise that OCI does not exercise any control over the running of the business activities conducted by Legal-Team/AusCo, and that AusCo (Legal-Team) does not reserve part of its staff or accommodation for the conducting of business related to OCI. However, the facts also indicate that the Legal-Team (staff) of AusCo are actively/substantially involved in the management, recommendations, and settlement of claims (liability matters) for OCI. The claims handling activities are a significant part of an insurance business, which indicates that OCI is carrying on its business activities (claims handling function) in Australia through AusCo.

· You advise that Legal-Team/AusCo did not indicate that they were acting as an agent for OCI and/or the local Corp subsidiaries when they engaged you for your legal services; Legal-Team/AusCo does not make binding contracts in OCI's name because the settlement deed will always be in the name of the defendant (operating business); and that

Legal-Team/AusCo undertakes its own business activities. However, you have stated that Legal-Team/AusCo (amongst other things), acts as the primary point of contact for you in dealing with claims for product and public liability. Legal-Team/AusCo will work with you to resolve a matter where OCI is 'on risk'. There is an implicit authorisation from OCI for Legal-Team/AusCo to carry out the necessary activities to deal with claims for product and/or public liability and where necessary engage you for your legal services.

Legal-Team/AusCo has the authority to settle the claims (subject to certain limits). This indicates that Legal-Team/AusCo is an agent of OCI in relation to its liability matters.

It is necessary to weigh up these various factors, but is not necessarily limited to the factors listed in paragraphs 281 of GSTR 2004/7.

Paragraph 283 of GSTR 2004/7 provides that if an agent has the power to make contracts on behalf of the non-resident company without seeking the company's approval before binding the non-resident to contractual obligations, this is a factor of great importance in establishing that the agent is carrying on the non-resident company's business.

You advise that there is an implicit authorisation from OCI for Legal-Team/AusCo to carry out the necessary activities to deal with claims for product and public liability and where necessary engage you for your legal services. Legal-Team/AusCo has the authority to settle the claims (subject to certain limits). Legal-Team/AusCo also reviews and approves the payments of your invoices for the legal services, before submitting them for payments from overseas (OCI). This indicates that Legal-Team/AusCo has the authority to bind OCI to these transactions and that they are carrying on OCI's business activities in Australia.

Further, paragraph 311 of GSTR 2004/7 provides that if the business of the non-resident company does not involve making contracts for sales, leases or similar, we consider that a non-resident company is in Australia if the agent carries on a material part of the non-resident's business. This is illustrated in BHP Petroleum Pty Ltd v. Oil Basins Ltd [1985] VR 725 ('BHP'), which is covered at paragraphs 312 to 317:

313. In BHP it had to be decided whether, in engaging the services of certain accounting and legal firms in Australia, a foreign company was:

...merely employing solicitors and accountants to carry out certain work for reward or whether, in fact, the work carried out by the solicitors and accountants forms a part and a material part of the defendant's business as a trustee.

314. Murray J found that:

...much of the work done is of the very essence of the defendant's business, namely the receipt of the royalty payments, the ascertainment of the appropriate taxation retention, the apportionment of the payments, the transmission of payments to Weeks Petroleum and to other persons beneficially entitled.

315. The non-resident company's sole purpose was to simply hold and administer, as trustee, various royalties. Therefore, Murray J came to the conclusion that the work carried out by the accountants and solicitors constituted the business of the defendant.

316. In BHP, the business of the non-resident did not involve concluding contracts. As Murray J said:

It is not to the point in my opinion in the present case to say that the solicitors have no independent discretion and no authority to do anything but to carry out the distribution in accordance with instructions received. For that matter, ...nor has the defendant itself any such discretion.

317. In these circumstances the power of the agent to conclude contracts in Australia was not relevant.

Although AusCo (that is, its Legal-Team) may not be involved in supplying insurance, AusCo is actively involved in managing liability matters in relation to claims handling activities for OCI. The claims handling is a significant and material part of an insurance business. Legal-Team/AusCo takes the lead in managing litigious matters and matters involving the engagement of your legal services. OCI has few staff and limited expertise. Legal-Team/AusCo is the primary point of contact for you in dealing with claims for product and public liability, and you work with them when necessary to settle/resolve a matter involving OCI. Legal-Team/AusCo has the authority to settle the claims (subjected to certain limits). OCI appears to be conducting its claims handling activities, which is a material part of an insurance business, in Australia through AusCo (and its Legal-Team). This conclusion is consistent with BHP's case.

The above factors strongly indicate that OCI is carrying on its business activities through an agent (that is, Legal-Team/AusCo) in Australia. Further, Legal-Team/AusCo is carrying on the business (activities) at a fixed and definite place for a sufficiently substantial period of time in Australia. Accordingly, OCI is considered to be in Australia for the purposes of Items 2 and 3.

In Australia in relation to the supply

In addition, if a non-resident company is determined to be in Australia on the basis of the above test, it is necessary to determine if the company is in Australia in relation to the supply, when the supply is done (that is, provided/performed).

For the purposes of Items 2 and 3 the condition that the recipient is not in Australia at the relevant time, requires that the recipient is not in Australia in relation to the supply.

Paragraphs 41 and 65 of GSTR 2004/7 provide that 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 it is a non-resident company or the Australian head office if it is an Australian incorporated company. 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.

Examples of tasks that are of a simple administrative nature are listed in paragraph 352 of GSTR 2004/7, which include payments of the supplier's invoice on behalf of the company, passing on or on forwarding emails and information, being a point of telephone contact to pass on messages, being a mailing address or delivery contact on behalf of the company, or being a point of contact for a visiting representative of the company.

The facts provided indicate that Legal-Team/AusCo's role in the provision of your legal services is more than simple administrative tasks and the mere passing on of information or advice to OCI. In relation to a claim and the supply of your legal services for liability matters of OCI, Legal-Team/AusCo's involvements in the transaction(s) are as follows:

· Legal-Team/AusCo engages you for your legal services.

· AusCo (and its Legal-Team) is actively involved in the management, recommendation and settlement of each claim.

· The role of the Legal-Team of AusCo is to provide legal services in respect of Australian legal matters or matters of global significance with an Australian impact. Legal-Team/

AusCo's role includes providing legal support and assistance in relation to public and products liability insurance claims (but its role is by no means limited to this).

· Legal-Team/AusCo works with the lost adjuster in managing liability matters. Legal-Team/

AusCo generally takes the lead in managing litigious matters or matters involving the engagement of your legal services. For litigious matters, your primary point of contact is Legal-Team/AusCo. You have limited direct contact with OCI.

· Legal-Team/AusCo reviews and comments on documentation, provides legal input, assists with obtaining information from the relevant local Corp subsidiary and is involved in general discussions on the strategic approach with respect to legal and other related matters.

· Amongst other communications, initial instructions to you are issued by Legal-Team/

AusCo. When it becomes necessary to settle a matter, you will work with Legal-Team/

AusCo to formulate a settlement recommendation.

· For litigation matters (whether insured or uninsured), a member of Legal-Team/AusCo (in particular amounts of $XXX or less) has the litigation DOA.

· Where mediation or a settlement conference takes place, you will be provided with instructions from Legal-Team/AusCo to appear. A lawyer from Legal-Team/AusCo will also usually attend.

· Although advice may be addressed to various entities, the advice will always be sent to Legal-Team/AusCo who will further disseminate as necessary.

· Although tax invoices are addressed to OCI, tax invoices are sent to Legal-Team/AusCo who reviews and approves the invoices prior to submitting payment(s).

Even if it is argued that your legal services are not acquired for Legal-Team/AusCo's own purposes, on the basis of the facts above, Legal-Team/AusCo's (as the agent/representative for OCI) involvements and interactions in the transactions are not administrative tasks of a minor nature. Legal-Team/AusCo manages claims in relation to liability matters of OCI, and they receive, review and use the legal advice as part of the claims handling activities, rather than just on forwarding the advice to OCI.

Accordingly, in this circumstance it is considered that OCI is in Australia in relation to the supply of your legal services, and the precondition to Item 2 and paragraph (a) of Item 3 are not satisfied.

Item 2 and subsection 38-190(3)

Item 2 is applicable to a supply made to a non-resident recipient. The recipient in relation to a supply is the entity to which the supply is made as defined in section 195-1 of the GST Act.

Where the supply of your legal services is made to Legal-Team/AusCo, who is the recipient of the supply:

Legal-Team/AusCo is a company in Australia and is not a non-resident of Australia. Accordingly, when the supply is made to Legal-Team/AusCo and they are the recipient of the supply of your legal services, Item 2 is not applicable.

Where the supply of your legal services is made to OCI (through Legal-Team/AusCo as their agent), who is the recipient of the supply:

In relation to the supply of your legal services made to OCI, through Legal-Team/AusCo as agent on their behalf, as the precondition that the non-resident must not be in Australia in relation to the supply when it is performed/provided is not satisfied (as discussed above), it is not necessary to consider whether paragraphs (a) and/or (b) of Item 2 are satisfied. In this circumstance, the supply is not GST-free under Item 2.

There is no need to apply subsection 38-190(3) of the GST Act in relation to the supply of your legal services when Legal-Team/AusCo is act as agent for OCI as the supply does not satisfy

Item 2.

Summary

In summary, the supply of your legal services under your arrangements with AusCo (and its

Legal-Team) and/or OCI in relation to liability matters is not GST-free under Item 2.

Item 3 and subsection 38-190(4)

Item 3 is applicable irrespective of the residency of the recipient.

GSTR 2004/7 and Goods and Services Tax Ruling GSTR 2007/2 provide guidance on the application of Item 3.

For the supply to be GST-free under Item 3, the supply must satisfy both paragraphs (a) and (b) of Item 3, and be neither a supply of work physically performed on goods, nor directly connected with real property, in Australia.

Where the supply of your legal services is made to Legal-Team/AusCo, who is the recipient of the supply:

Where the supply of your legal services is made to Legal-Team/AusCo (who is the recipient of the supply), the requirement under paragraph (a) of Item 3 that the recipient must not be in Australia in relation to the supply when it is done, is not satisfied as Legal-Team/AusCo carries on its business in Australia and is in Australia when your legal services are performed. Accordingly, the requirement in paragraph (a) of Item 3 is not satisfied.

Where a supply is made to a recipient who fails the not in Australia requirement in paragraph (a) of Item 3, it is necessary to consider whether subsection 38-190(4) of the GST Act applies.

Subsection 38-190(4) of the GST Act extends the scope of Item 3. This subsection provides that a supply to a recipient who is in Australia in relation to the supply is taken for the purposes of Item 3, to be a supply made to a recipient who is not in Australia if:

(a) the supply is made under an agreement entered into, whether directly or indirectly, with an Australian resident; and

(b) the supply is provided, or the agreement requires it to be provided, to another entity outside Australia.

GSTR 2004/7, GSTR 2005/6 and GSTR 2007/2 provide guidance on the application of subsection 38-190(4) of the GST Act. In GSTR 2007/2, we determine whether a supply is made to one entity but provided to another entity in the same way determined in GSTR 2005/6. The principles in subsection 38-190(3) of the GST Act similarly apply to the application of subsection 38-190(4) of the GST Act.

Similarly to subsection 38-190(3) of the GST Act, the term 'provided' is used to contrast with the term 'made'. Paragraphs 52 to 54 of GSTR 2007/2 state:

52. A supply may be made and provided to the same entity, or may be made to one entity but be provided to another entity (or entities). Such circumstances are provided for in the legislation by subsections 38-190(3) and (4)…

53. The entity to which the supply is made is the recipient. The supplier may provide the supply to that recipient entity (in which case the recipient is also the providee) or may provide the supply to another entity (in which case the other entity is the providee).

54. A supply is provided to another entity if, in the performance of a service (or in the doing of some thing), the actual flow of that supply is to an entity that is not the recipient. The contractual flow is to the recipient and the actual flow of the supply is to another entity and thus the other entity is the providee.

Paragraphs 60 and 61 of GSTR 2007/2 provide that the focus point in working out whether a supply is provided to another entity is the facts and circumstances of the doing of the thing supplied. By the supplier examining what it is required to do and in what circumstances, the supplier is able to objectively determine to whom the supply is provided. In some instances, it is inherent in the nature of the supply that the supply is provided to a particular entity.

Paragraph 76 of GSTR 2005/6 and paragraph 63 of GSTR 2007/2 provide that in cases of supplies that involve the supply of legal services, the question of whether the supply is provided to another entity depends on the facts and circumstances in any given case.

Further, paragraph 19 of GSTR 2005/6 state:

In situations where the contractual flow of a supply is to an entity (other than an individual), and it is necessary to determine whether the actual flow of the supply is to another entity (other than an individual), we consider that a strong indicator that the supply is provided to another entity is that the contracting entity has no further interaction with, or participation in, the provision of the supply beyond contracting and paying for the supply. However, the application of subsection 38-190(3) is still dependent upon on all the facts and circumstances of the supply…

We look at the facts and circumstances of the supply to determine whether a supply is provided to another entity outside Australia.

Legal-Team/AusCo's involvements and interactions in relation to claims for which OCI is 'on risk' and in relation to the engagement for the supply of your legal services have been outlined in detail above. Although OCI is 'on risk' in relation to claims, the facts provided indicate that the supply of your legal services is either made and provided to Legal-Team/AusCo, or alternatively provided to OCI (through Legal-Team/AusCo as their agent in Australia) who is considered to be in Australia in relation to the supply of your legal services (see heading 'Does OCI carry on its business through an agent in Australia?' above). Accordingly, subsection 38-190(4) of the GST Act and paragraph (a) of Item 3 are not satisfied.

Where the supply of your legal services is made to OCI (through Legal-Team/AusCo as their agent), who is the recipient of the supply:

Where the supply of the legal services is made to OCI (through Legal-Team/AusCo as their agent), that is OCI is the principal in the transactions, as discussed above it is considered that OCI carries on its business activities in Australia through Legal-Team/AusCo as their agent in Australia in relation to your supply of legal services. Hence, the requirement in paragraph (a) of Item 3 is not satisfied.

Further, when an Australian agent is authorised to undertake a transaction on behalf of a non-resident principal, the supply is made under an agreement entered into indirectly with the non-resident principal (who is the recipient entity) through the Australian agent, and not with the Australian agent. Accordingly, paragraph 38-190(4)(a) of the GST Act is not satisfied and the supply is not GST-free under Item 3, when OCI carries on its business (activities) in Australia through Legal-Team/AusCo as their agent in Australia. Paragraph 38-190(4)(b) of the GST Act is also not satisfied as a supply made under an agreement with a non-resident (such as OCI) and provided to itself outside Australia, is not to 'another entity' outside Australia.

Accordingly, subsection 38-190(4) of the GST Act and paragraph 38-190(3)(a) of the GST Act are not satisfied because the supply is provided to an entity in Australia.

Another entity benefits from the supply

If a supply is provided to an entity in Australia, and another entity outside Australia benefits from that supply this does not alter the outcome that the supply is provided to an entity in Australia, and thus effective use or enjoyment of the supply does not take place outside Australia.

Later use of the advice

For the later use of a supply, that is, a supply is provided to another entity in Australia, and that supply is later used outside Australia, that later use does not alter the fact that the supply is provided to that entity in Australia.

Paragraph (b) of Item 3 - effective use or enjoyment of a supply

As paragraph (a) of Item 3 is not satisfied, it is not necessary to consider paragraph (b) of Item 3. For completeness, this paragraph is briefly covered below.

Paragraph (b) of Item 3 requires the place of effective use or enjoyment of a supply to be determined (that is, whether the place is outside Australia). We take a two step approach to work out whether effective use or enjoyment of a supply takes place outside Australia. First, we determine the entity to which the supply is provided (the providee entity). We then determine whether provision of the supply to the providee entity is outside Australia.

As discussed above, Legal-Team/AusCo is a company in Australia, or alternatively OCI is considered to be in Australia in relation to the supply of your legal services (through

Legal-Team/AusCo). Whether the providee entity is Legal-Team/AusCo or OCI, the providee entity will be in Australia in relation to your legal services, and the effective use or enjoyment of your legal services takes place in Australia. Accordingly, the supply of your legal services to

Legal-Team/AusCo and/or OCI does not satisfy the requirement of paragraph (b) of Item 3, and is not GST-free under Item 3.

Summary

In summary, the supply of your legal services under your arrangements with AusCo (and its Legal-Team) and/or OCI in relation to liability matters is not GST-free under Item 3.