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Ruling
Subject: GST and supplies made to a non-resident entity
Question 1
Are the services you provided to B GST-free supplies pursuant to Item 2 in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Answer
Yes.
Relevant facts and circumstances
You are an Australian-based, corporate advisory firm. You provide various services, including advising in relation to capital raisings, mergers, acquisitions and project financing. B is an overseas based company. It is incorporated overseas and its principal office is also overseas. In December 2010, B completed an initial public offering (IPO) of its shares, comprising an offer of CHESS Depositary Interests (CDIs) on the Australian Securities Exchange (ASX). The IPO comprised the offer of CDIs to retail investors in Australia and overseas.
B's presence in Australia
Other than as set out below, B 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 IPO period, B's Chairman visited Australia on two occasions and B's president visited Australia on one occasion each for approximately one week at a time (referred to above). Two Australian independent, non-executive directors were appointed to the board of B prior to the IPO.
Subject to the board meeting referred to above, board meetings have not previously been, and are unlikely in the future to be, held in Australia and generally take place periodically via conference calls. B's board currently has a total of six directors. B has engaged a number of independent, Australian based advisers advising on various legal, financing and other issues. All instructions to Australian advisers originate from B personnel overseas.
B does not have an Australian bank account. As discussed above, B's share registry opened an escrow account in relation to the IPO and the proceeds of the IPO were deposited into this bank account, B's share registry managed the receipt of application monies into this account in Australia. Certain Australian service providers (including you) were paid from this account. B registered as a foreign company in Australia with ASIC (under the Corporations Act 2001) in November 2010. 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. B's legal counsel has indicated view that this was the only reason B required an ARBN and, in particular, that B was not carrying on business in Australia (which is typically the reason an ARBN is obtained). You were nominated as B'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.
B an ASX Liaison Officer (a position required under the ASX Listing Rules), this person is B's Chief Financial Officer and Company Secretary and is based solely overseas.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 section 38-190
A New Tax System (Goods and Services Tax) Act 1999 section 40-5
A New Tax System (Goods and Services Tax) Regulations 1999 regulation 40-5.09
Reasons for decision
Summary
B was not in Australia in relation to its acquisition of your services, therefore your supply was GST-free.
Detailed reasoning
If B was a non-resident and not in Australia when you supplied services, you were entitled to make a GST-free supply pursuant to Item 2 in subsection 38-190(1) of the GST Act:
Supplies of things, other than goods or real property, for consumption outside Australia | ||
Item |
Topic |
These supplies are GST-free (except to the extent that they are supplies of goods or *real property)... |
1 |
… |
... |
2 |
Supply to *non-resident outside Australia. |
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-resident's *enterprise, but is not *registered or *required to be registered. |
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.
B 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 (you).
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.
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.
B 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 two directors in Australia and a presence during retail road shows. At the time B did not conduct its medical device business in Australia beyond its capital raising. You have indicated that at some point in the future B 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 B's dealing with potential Australian investors, it differs from B's dealings with you. For B's acquisition of your services B dealt directly with you and not through a local intermediary.
On balance we consider that B was not in Australia in relation to its acquisition of your services during the IPO 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 IPO process, were not relative to the acquisition of the full range of your services.
The fact that B was not in Australia would allow you to make a GST-free supply.