Edited version of private ruling

Authorisation Number: 1011841126499

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Ruling

Subject: GST agency relationships and facilitation services

Question 1

Is an Australian company ('you') acting as agent on behalf of a non-resident company, in relation to the acquisition of certain accommodation, in accordance with Subdivision 153-A of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer 1

Yes, you are acting as agent on behalf of the non-resident company in relation to the acquisition of certain accommodation as per your agency agreement and arrangements with the non-resident company.

Question 2

Are you acting as agent on behalf of the non-resident company in relation to the acquisition of certain education courses, in accordance with Subdivision 153-A of the GST Act?

Answer 2

Yes, you are acting as agent on behalf of the non-resident company in relation to the acquisition of certain education courses as per your agency agreement and arrangements with the non-resident company.

Question 3

Is the facilitation/handling fee charged by you to the non-resident company consideration for a GST-free supply in accordance with Item 2 in the table in subsection 38-190(1) of the GST Act?

Answer 3

Yes, the facilitation/handling fee charged by you to the non-resident company is consideration for a GST-free supply.

Relevant facts and circumstances

An Australian company ('you') is an outbound tour operator in Australia and is registered for goods and services tax (GST).

A non-resident company is a foreign tour operator and a related entity. The non-resident company does not have a permanent establishment in Australia and is not registered or required to be registered for GST.

The non-resident company provides Australian tour packages to its customers overseas.

Certain accommodation and education courses may be provided as part of the tour packages.

You and the non-resident company intend to enter into a written agency agreement (a copy is provided), with the non-resident company acting as principal and you appointed as agent, in respect of acquisitions of certain accommodation and education courses.

You will inform third party suppliers that you are acting in the capacity as agent for the non-resident company when facilitating these acquisitions. You will facilitate the acquisitions by communicating with suppliers, making reservations and resolving any issues that may arise in relation to the acquisitions.

Any handling fee charged by you in respect of your agency/facilitation services will be itemised separately on an invoice that you will issue to the non-resident company.

The agency arrangement will be confined to certain acquisitions specified.

The agency agreement provides (amongst other things) that:

· The non-resident company is the principal, and you are the agent.

· The principal wishes to appoint the agent as its agent to perform the 'services' as defined in this agreement. It is intended that Subdivision 153-A of the GST Act would apply in respect of the acquisitions contemplated by this agreement.

· The agency relationship between the principal and agent is confined to the services as defined.

· Services means the agency services performed by the agent to facilitate the acquisitions of certain accommodation and education courses, including arranging and contacting service providers based on instructions from the principal. The agency services will also include resolving issues with service providers, processing of invoices and the payment of invoices that are issued by service providers.

· The principal appoints the agent, and the agent agrees to act, as the agent of the principal in the performance of the services.

· The agent agrees to do all things necessary to perform the services. The services performed by the agent will be provided to the principal only. The agent will inform the suppliers that it is acting on behalf of the principal.

· The principal agrees to reimburse the agent any costs it incurs in acting as agent for the principal. The agent agrees to issue a tax invoice to the principal in respect of the reimbursement of any costs in relation to its role as agent.

· The principal agrees to remunerate the agent for its role as agent, by paying to the agent a facilitation fee.

· The parties do not intend to create in this agreement any form of partnership or trust arrangement or any relationship of employer and employee.

You also state that the non-resident company will be providing to you express authority to negotiate with suppliers of certain accommodation and education courses in Australia. You will not be entering into contracts with third party suppliers in your own right, and that the acquisitions will be at the direction(s) of the non-resident company. Further, the agency agreement is not an arrangement under Subdivision 153-B of the GST Act.

This private ruling does not cover the GST treatment of the accommodation and education courses, nor the relationship between the third party suppliers and you, the non-resident company or the end-customers.

Reasons for decisions

Issues 1 and 2

Goods and Services Tax Ruling GSTR 2000/37 discusses the principal and agency relationship and explains the application of the GST law to transactions involving these relationships.

Whether you are acting as an agent on behalf of a principal is a question of fact. In most cases, any relevant documentation about the business relationship, the description used by the parties and the conduct of the parties establish the existence of an agency relationship.

As stated in paragraphs 28 and 29 of GSTR 2000/37:

28. In most cases, any relevant documentation about the business relationship, the description used by the parties and the conduct of the parties establish the existence of an agency relationship. Therefore, the following factors may show that you are an agent under an agency relationship, although no single factor (by itself) is determinative:

· any description of you as an agent, having authority to act for another party, in an agreement (expressed or implied) between you and the other party;

· any exercise of the authority that you are given to enter into legal relations with a third party;

· whether you bear any significant commercial risk;

· whether you act in your own name;

· whether you are remunerated for your services by way of commissions and whether you are entitled to keep any part of your remuneration secret from another party; and

· whether you decide the price of things that you might sell to third parties.

29. In some situations, these factors may be difficult to establish. For example, situations may arise where:

· the existence of a principal is disclosed but not named; or

· the existence of a principal is not disclosed to third parties.

However, documents used by the parties and the conduct of the parties may still indicate the existence of an agency relationship.

From the facts provided, you advise that you and the non-resident company have/will enter into an agency agreement, where the non-resident company is acting as principal and you are appointed as agent in respect of certain acquisitions (that is, in relation to certain accommodation and education courses only). There will be an express authority by the non-resident company to you in relation to these acquisitions. You will inform any third party suppliers that you are acting as agent for the non-resident company in relation to these acquisitions. You will not be entering into contracts with third party suppliers in your own right. You have provided an agency agreement outlining your agency relationship with the non-resident company, and have stated that it is intended that subdivision 153-A of the GST Act will apply in respect of the acquisitions covered in this agency agreement. The services to be performed are agency services to facilitate the acquisitions of certain accommodation and education courses, based on instructions from the non-resident company (as principal), and in return you are paid a facilitation/handing fee.

On the basis of the facts provided, and taking into consideration the above mentioned factors, it is considered that an agency relationship exists between you and the non-resident company for the purposes of subdivision 153-A of the GST Act in relation to the acquisitions of certain accommodation and education courses that are made after the agency agreement is made, where those acquisitions are made in accordance with the agreement terms.

Issue 3

You advise that in return for the supply of your agency/facilitation services to the non-resident company, the non-resident company will pay you a facilitation/handing fee.

GST is payable on a taxable supply under section 9-5 of the 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 agency/facilitation 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 made through a business that you carry on in Australia and/or is performed in Australia (and therefore the supply is connected with Australia); and

(d) You are registered for GST.

However, your supply of the agency/facilitation services is not a taxable supply to the extent that it is GST-free or input taxed.

GST-free

Section 38-190 of the GST Act specifies the circumstances where the supplies of things other than goods or real property for consumption outside Australia are GST-free. Of relevance to the supply of your agency/facilitation services to the non-resident company is item 2 in the table in subsection 38-190(1) of the GST Act (Item 2).

Under 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.

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

Non-resident not in Australia in relation to the supply

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 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.

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, performed/provided).

From the facts provided, the supply of your agency/facilitation services is to the non-resident company which is a non-resident entity. You advise that the non-resident company does not have a permanent establishment in Australia. Further, you advise that you will be/are acting as an agent for the non-resident company in relation to certain acquisitions from third party suppliers (as specified in the agency agreement).

Paragraph 375 of GSTR 2004/7 provides that for supplies of agency services made by the agent to the non-resident company, the (non-resident) company is not in Australia in relation to the supply of those agency services. This is because the agent does not make the (non-resident) company in Australia in relation to supplies that it makes itself to the (non-resident) company.

Accordingly, where the non-resident company does not have any other representatives acting on their behalf in Australia in relation to your services, and does not carry on its own business in Australia in relation to your supply of agency/facilitation services, the non-resident company is considered to be 'not in Australia' in relation to the supply of your agency/facilitation services for the purposes of Item 2.

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

Where a non-resident entity is not in Australia in relation to the supply when the thing supplied is done, it is necessary to determine if the other requirements in either paragraph (a) or (b) of 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.

Paragraph 44 of Goods and Services Tax Ruling GSTR 2003/7 covers when supplies of things are not directly connected with goods or real property. We consider that a direct connection does not exist where the supply does not relate to particular goods or real property or only indirectly relates to such goods or real property. Supplies of this kind include services of merely arranging supplies between two other parties.

From the facts provided, the services to be performed are agency/facilitation services to facilitate the acquisitions of certain accommodation and education courses on behalf of the non-resident company. The supply of these agency/facilitate services to the non-resident company 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, the supply of your agency/facilitation services to the non-resident company satisfies the requirement of paragraph (a) of Item 2.

In addition, where the non-resident company acquires your agency/facilitation services in carrying on its enterprise (business), and is neither registered nor required to be registered for GST in Australia, the supply of your agency/facilitation services to the non-resident company will also satisfy paragraph (b) of Item 2.

Please note that you are able to ascertain the GST registration status of an entity that you deal with by checking the Australian Business Register at www.abr.gov.au.

Limitations

Having met the requirements of Item 2, it is also necessary to consider subsection 38-190(3) of the GST Act. Subsection 38-190(3) of the GST Act states:

Without limiting subsection (2), a supply covered by item 2 in that table 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.

From the facts available, the supply of your agency/facilitation services in return for the facilitation/handing fee is not provided, and there is no agreement(s) with the non-resident company to provide these services to another entity in Australia. The facts do not indicate that the agency/facilitation services (provided for under your agency agreement with the non-resident company) are provided to the third party suppliers of the accommodation and education courses in Australia.

If a supply is provided to an entity outside Australia and another entity in Australia benefits from that supply this does not alter the outcome that the supply is provided to an entity outside Australia.

Accordingly, subsection 38-190(3) of the GST Act does not exclude the supply of your agency/facilitation services to the non-resident company from being GST-free under Item 2.

In summary, the supply of your agency/facilitation services to the non-resident company in return for the facilitation/handling fee is GST-free under Item 2 and no GST payable on this supply.