Edited version of private ruling

Authorisation Number: 1011881101778

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Ruling

Subject: GST and fees charged to a non-resident entity

Question 1

Did Y make a creditable acquisition of X's services under the Process ?

Answer

No.

Question 2

Was Y 'in Australia' to any extent for the purpose of item 2 of subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) in relation to X's supply of services during the period?

Answer

No.

Relevant facts and circumstances

X is an Australian-based entity. It provides certain advisory services. Y is an overseas based company. It is incorporated overseas and its principal office is overseas. Y completed a Process comprising the offer of Y's Financial Products to retail investors in Australia and overseas, as well as institutional investors in Australia and overseas.

X acted as manager and corporate adviser in relation to the Process. X's role was primarily governed by the Agreement. The services provided by X under the Agreement are referred to as 'X's services.

In the Process Y issued Financial Products representing new shares. The total amount of fees, including the GST, was paid and remitted to the Tax Office in X's GST return. Y is not currently registered for GST and hence has not claimed back any of the GST. Y considers that X's services to Y are GST-free and hence is seeking clarification as to whether X's placement fee paid by Y with respect to the Process is subject to GST.

The Process comprised particular offers. Y's share registry opened an escrow account (an Australian bank account) for Y's Process and the proceeds of the Process were deposited into this bank account by the investors. All funds were held in escrow until the offering closed.

The funds, less amounts paid to X and other advisers, were transferred to Y. Neither X, nor the share registry, was authorised to conclude contracts with investors for the issue of Financial Products. Y was the only entity that could authorise the issue of the Financial Products.

The Process involved the issue of Financial Products (representing an interest in the underlying shares of Y) in Y to investors. The description of the process was submitted.

The description of Y's register of share operations was submitted.

Financial Products were issued to investors (in both Australia and overseas) as follows:

· during the process, investors paid application monies to the escrow account maintained by the share registry;

· once the process completed, Y issued Y shares to Appointee;

· in turn the Appointee issued Financial Products (being the beneficial interests in those shares) to investors (as directed by Y);

· the Financial Products were then listed on ASX and available to be traded by investors.

Y's presence in Australia

Other than as set out below, Y has not had, and does not currently have any employees in Australia, does not conduct its business in Australia and does not have any assets, presence or any employees in Australia.

During the Process period, Y's representatives visited Australia on occasions for very short periods .A number of Australian independent, non-executive directors were appointed to the board of Y prior to the Process.

Y does not have an Australian bank account. As discussed above, the share registry opened an escrow account in relation to the Process and the proceeds of the Process were deposited into this bank account, the share registry managed the receipt of application monies into this account in Australia. Certain Australian service providers (including X) were paid from this account. Y registered as a foreign company in Australia with ASIC (under the Corporations Act 2001). It is an ASX requirement that a foreign company listing on ASX must first be registered as a foreign company under the Corporations Act 2001. Y's legal counsel has indicated to you the view that this was the only reason Y required an ARBN and, in particular, that Y was not carrying on business in Australia (which is typically the reason an ARBN is obtained). X was nominated as Y's local agent under the Corporations Act 2001. A local agent is required under the Corporations Act 2001 as a condition to registration as a foreign company.

Y has appointed an ASX Liaison Officer (a position required under the ASX Listing Rules). The ASX Liaison Officer is Y's employee and is based solely overseas. Y may explore options for operating its business in Australia at a future date, including having an office in Australia, employing staff and conducting their business.

Assumption

Y proceeds to register for GST and backdate the registration to a particular date.

Reasons for decision

Question 1 and 2

Summary

Y was not in Australia in relation to its acquisition of X's services. Y's acquisition of X's services was not a creditable acquisition.

Detailed reasoning

In order for Y to make a creditable acquisition of X's services under the Process, the acquisition had to meet the requirements of section 11-5 of the GST Act:

You make a creditable acquisition if:

(a) you acquire anything solely or partly for a *creditable purpose; and

(b) the supply of the thing to you is a *taxable supply; and

(c) you provide, or are liable to provide, *consideration for the supply; and

(d) you are *registered, or *required to be registered.

In respect of paragraph (a) creditable purpose is defined in section 11-15 of the GST Act:

(1) You acquire a thing for a creditable purpose to the extent that you acquire it in *carrying on your *enterprise.

(2) However, you do not acquire the thing for a creditable purpose to the extent that:

(a) the acquisition relates to making supplies that would be *input taxed; or

(b) the acquisition is of a private or domestic nature.

(3) An acquisition is not treated, for the purposes of paragraph (2)(a), as relating to making supplies that would be *input taxed to the extent that the supply is made through an *enterprise, or a part of an enterprise, that you *carry on outside Australia.

(4) An acquisition is not treated, for the purposes of paragraph (2)(a), as relating to making supplies that would be *input taxed if:

(a) the only reason it would (apart from this subsection) be so treated is because it relates to making *financial supplies; and

(b) you do not *exceed the financial acquisitions threshold.

(5) An acquisition is not treated, for the purposes of paragraph (2)(a), as relating to making supplies that would be *input taxed to the extent that:

(a) the acquisition relates to making a *financial supply consisting of a borrowing; and

(b) the borrowing relates to you making supplies that are not input taxed.

X supplied services to Y under the the Agreement where it acted as lead manager and corporate advisor to the Process.

The Process was to result in the issue of shares and Financial Products, which each represented a certain interest in a share, to investors. The supply of the Financial Products is an input taxed supply under Item 10 in Regulation 40-5.09(3) of the A New Tax System (Goods and Services Tax) Regulations 1999 and section 40-5 of the GST Act, meaning Y's acquisitions are not for a creditable purpose and therefore not creditable acquisitions.

Whether Y's acquisition of X's services is excluded from being treated as an input taxed supply by paragraph 11-15(3) of the GST Act may not need to be examined as the facts may ensure that Y was entitled to receive a GST-free supply from X in the first instance.

In respect of paragraph 11-5(b) of the GST Act, you have indicated that X charged GST for its supply of services and you have supplied X's tax invoice as evidence. We accept that X's services were a taxable supply made to you.

In respect of paragraph 11-5(c) of the GST Act, you state that you paid the outstanding account, including GST. We accept that you provided or were liable to provide consideration for X's supply.

In respect of paragraph 11-15 of the GST Act, we are to assume that you were registered at the time of the acquisition/s and therefore, for the purposes of this ruling we accept that you satisfy the GST registration requirement.

GST-free and not in Australia

If Y was a non-resident and not in Australia when X supplied services, it would have been entitled to a GST-free supply pursuant to Item 2 in subsection 38-190(1) of the GST Act:

Item 2 requires that the recipient is 'not in Australia when the thing supplied is done'. The Goods and Services Tax Ruling, GSTR 2004/7 sets out the Commissioner's policy on non-resident companies in Australia in relation to a supply. GSTR 2004/7 notes that a non-resident company is in Australia if that company carries on business in Australia:

· at or through a fixed and definite place of its own for a sufficiently substantial period of time; or

· through an agent at a fixed and definite place for a sufficiently substantial period of time.

We consider that it would be reasonable for a supplier to conclude that a non-resident company is in Australia if either the company is registered with ASIC; or the company has a permanent establishment in Australia for income tax purposes.

Although registered with ASIC, a non-resident company to which the supplier makes a supply may be able to demonstrate to the supplier that, even though it is registered with ASIC or has a permanent establishment, on application of the test to its particular circumstances, the non-resident company is not in Australia. Alternately, even if a company is not registered with ASIC, it may still be in Australia on an application of the test. Similarly, even if a company does not have a permanent establishment in Australia for income tax purposes, it may still be in Australia on application of the test to its particular circumstances.

Y is registered with ASIC as a foreign company under the Corporations Act 2001. The registration was required as a precursor to listing on the ASX, furthermore the registration required that a local agent be appointed (X).

A non-resident company is considered to be carrying on business in Australia even though the activities carried on in Australia are not a substantial part of, or are no more than incidental to, the main objects of the company.

Place of its own

A non-resident company clearly has a place of business of its own if it leases or owns a place at which it conducts business through it servants or agents. However, a place of its own is not limited to such a place. A non-resident company occupies a place as a place of its own if it has a right to be there. Evidence of that right is generally to be found in the fact that the company's employees or agents occupy that place for the purposes of its business.

Fixed and definite place

If a non-resident company does not have a fixed and definite place in Australia at, or through which, the business of the non-resident company is carried on in Australia, the company is not in Australia.

The word 'fixed' connotes a degree of permanence in the same location. A place may be fixed even if it only exists for a short time. Although 'fixed place' excludes a place that is purely temporary, it does not mean everlasting. It is a geographical place with some degree of permanence. The word 'definite' is used in the sense of a distinct place; that is a place that can be pointed to as the place at which the non-resident company's business is carried on.

Sufficiently substantial period of time

For a non-resident company to be considered to be in Australia, the business of the non-resident company must have continued, or be intended to continue, at a fixed and definite place for a sufficiently substantial period of time.

Y did not directly lease or otherwise occupy premises in Australia apart from what was required for the minimal presence when conducting a board meeting by phone with directors in Australia and a presence during retail road shows. At the time Y did not conduct its business in Australia beyond its capital raising. You have indicated that at some point in the future Y may look at operating its business in Australia.

In Anglo Australian Foods Ltd v. Credit Suisse (1988) 1 ACSR 69 (Anglo) a Swiss bank set up a representative office in Melbourne for the purpose of promoting the interests of the Swiss bank to large potential corporate borrowers. It was not registered as a foreign company in Victoria. The bank sought an order to set aside a summons that was served on the bank's representative office in Australia. However, the bank's case was dismissed as it was found that the Swiss bank was carrying on a business at its Melbourne office. This is because the office was set up to promote the bank's interest and a significant commercial activity was being carried on there.

While the Anglo case may have some similarities to Y's dealing with potential Australian investors, it differs from Y's dealings with X. For Y's acquisition of X's services Y dealt directly with X and not through a local intermediary.

On balance we consider that Y was not in Australia in relation to its acquisition of X's services during the Process period. The presence of director and other officers, the establishment of the bank account and the registration under the Corporations Act 2001 while relative to a component of the Process process, were not relative to the acquisition of the full range of X's services.

The fact that Y was not in Australia would allow X to make a GST-free supply, accordingly Y's acquisition of the supply could not be a creditable acquisition as it would not meet the requirements of paragraph 11-5(b) of the GST Act.