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Ruling

Subject: goods and services tax (GST) and international

Question 1

Is GST payable by you on your supplies where you need to undertake international travel in order to make these supplies?

Answer

GST is not payable on any charges you impose on your customer where your customer is a non-resident who is not in Australia in relation to your supply of business consulting services when you provide these services.

GST is not payable on any charges you impose on your customer where:

· your customer is not in Australia in relation to your supply of business consulting services when you provide these services and

· that supply is provided to an entity outside Australia when you provide these services.

Where the circumstances are not those set out in either of the two paragraphs above,

GST is payable on any charges you impose on the customer.

It is possible that in some cases GST will be payable on part of your supply but not the other part.

This ruling applies for the following periods:

The scheme commences on:

Relevant facts and circumstances

You are registered for GST.

You operate a business in Australia providing business consulting services to Australian and other clients with regard to export and other business conducted overseas. You provide the business consulting services to your customers.

You charge a base fee for your supplies of business consulting services.

Additionally, part of your fees is on-charges for international travel on behalf of and with various clients to assist their export endeavours. Examples of such travel expenses are international air fares and hotel expenses incurred overseas and overseas land transport.

You may also incur interpreter services expenses. The interpreters are overseas.

You also incur domestic expenses, which you on-charge to your customers.

Where you purchase the items relating to international travel, the interpreter services and items relating to domestic expenses, you make these purchases in your own name.

Where your customer is an individual, you may provide some of the business consulting services in Australia and some of the business consulting services overseas. In these cases, the presence of the customer overseas is integral to the provision of the supply.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1)

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 section 9-40

A New Tax System (Goods and Services Tax) Act 1999 section 38-190

Reasons for decision

Summary

GST is not payable on any charges you impose on your customer where your customer is a non-resident who is not in Australia in relation to your supply of business consulting services when you provide these services, as your supplies of the services are GST-free under item 2 in the table in subsection 39-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) (item 2) in these cases.

GST is not payable on any charges you impose on your customer where your customer is not in Australia in relation to your supply of business consulting services when you provide these services and your supply is provided to an entity outside Australia when you provide these services, as your supplies of the services are GST-free under item 3 in the table in subsection 38-190(1) of the GST Act (item 3) in these cases.

Where the circumstances are not those set out in either of the two paragraphs above,

GST is payable on any charges you impose on the customer, as all of the requirements of section 9-5 of the GST Act are satisfied in these cases.

Detailed reasoning

GST is payable by you where you make taxable supplies.

You make a taxable supply where you satisfy the requirements of section 9-5 of the GST Act, which states:

You make a taxable supply if:

you make the supply for *consideration; and

the supply is made in the course or furtherance of an *enterprise that

you *carry on; and

the supply is *connected with Australia; and

you are *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 term defined in section 195-1 of the GST Act)

In your case, you satisfy the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act. That is, you supply business consulting services for consideration and you make these supplies in the course or furtherance of an enterprise that you carry on. Additionally, your supplies of business consulting services are connected with Australia and you are registered for GST.

There are no provisions in the GST Act under which your supplies of business consulting services are input taxed.

Therefore, what remains to be determined is whether your supplies of business consulting services are GST-free.

Subsection 38-190(1) of the GST Act provides that supplies of things other than goods or real property to entities that are not in Australia are GST-free in certain circumstances.

There are no other provisions in the GST Act under which your supplies of business consulting services would be GST-free.

The relevant items in the table in subsection 38-190(1) of the GST Act are items 2 and 3 (items 2 and 3).

Where your supplies of business consulting services are GST-free, GST is not payable on your fees for these services as these supplies are not taxable in these circumstances.

Consideration includes a payment made in connection with a supply of anything. The treatment of disbursements and reimbursements is considered in Goods and Services Tax Ruling GSTR 2000/37. It explains agency relationships and reimbursement of agents in detail. Using the example of supplies made by solicitors, paragraph 49 of GSTR 2000/37 states: 

49. If a disbursement is made by a solicitor and incurred in the solicitors capacity as a paying agent for a particular client, then no GST is payable by the solicitor on the subsequent reimbursement by the client. This is because the goods or services to which the disbursement relates are supplied to the client, not to the solicitor, by a third party. Also, the reimbursement forms no part of the consideration payable by the client for the supply of services by the solicitor. However, if goods or services are supplied to the solicitor to enable the solicitor to perform services supplied to the client, GST is payable by the solicitor on any reimbursement by the client of expenses incurred on those goods or services, whether the reimbursement is separately itemised or included as part of the solicitors overall fee. This is because the reimbursement is part of the consideration payable by the client for services supplied by the solicitor.

You advised that where you purchase the items relating to international travel, the interpreter services and items relating to domestic expenses, you make these purchases in your own name. Therefore, you are not acting as an agent for your customer. You incur theses expenses in the course of providing your business consulting services to your customer. Therefore, in accordance with paragraph 49 of GSTR 2000/37, the reimbursement of these costs forms part of the consideration for your supply of business consulting services to your customers.

Hence, if you are making a GST-free supply of business consulting services to a customer, the on-charge of international travel expenses, interpreter expenses and domestic expenses form part of the consideration for the GST-free supply of the business consulting services, and therefore, these supplies will not be taxable. Hence, GST will not be payable on your on-charge of these expenses to your customers in such circumstances. If your supply of business consulting services is not GST-free, you will satisfy all of the requirements of section 9-5 of the GST Act. Hence, GST will be payable on your on-charge of international travel expenses, interpreter expenses and domestic expenses under such circumstances.

Item 2 in the table in subsection 38-190(1) of the GST Act provides that a supply of something other than goods is GST-free if the supply is made to a non-resident who is not in Australia when the thing supplied is done and:

· 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

· the non-resident acquires the thing in carrying on the non-resident's enterprise, but is not registered or required to be registered for GST.

Item 3 in the table in subsection 38-190(1) of the GST Act provides that a supply of something other than goods or real property is GST-free if the supply:

(a) 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.

You make supplies of business consulting services, which is something other than goods or real property.

Your supply is not of work physically performed on goods situated in Australia or a supply directly connected with real property situated in Australia.

Paragraph 31 of Goods and Services Tax Ruling GSTR 2004/7 provides the Australian Taxation Office (ATO) view on the meaning of not in Australia. It states:

31. The requirement that the non-resident in item 2, or the recipient in item 3, is not in Australia when the thing supplied is done is a requirement, in our view, that the non-resident or recipient is not in Australia in relation to the supply when the thing supplied is done.

Paragraph 199 of GSTR 2004/7 provides that where the thing supplied is a service -when the service is done refers to the period of time during which the service is performed.

Paragraph 203 of GSTR 2004/7 provides that if a supply is made to a non-resident individual who is physically in Australia when the thing supplied is done, the individual is in Australia for the purposes of item 2.

Paragraph 35 of GSTR 2004/7 explains how to determine whether a non-resident individual recipient is in Australia in relation to a supply for the purposes of item 2. It states:

35. A non-resident individual is in Australia if that individual is physically in Australia. If a non-resident individual is physically in Australia and in contact (other than contact which is only of a minor nature) with the supplier, that presence is in relation to the supply.

Paragraph 218 of GSTR 2004/7 explains how to determine whether contact is minor. It states:

218. Contact is minor if it is limited to contact of a simple administrative nature, such as checking on the progress of the supply or a courtesy call on the supplier. If this is the only contact between the non-resident individual and the supplier we consider that the individual is not in Australia in relation to the supply.

Paragraph 215 of GSTR 2004/7 provides that if a non-resident individual recipient is in Australia only on matters unrelated to the supply, we consider that the individual recipient is in Australia but not 'in relation to the supply' for the purposes of item 2. We recognise that the physical presence in Australia of the non-resident individual at the relevant time is merely coincidental.

Paragraph 224 of GSTR 2004/7 provides that where the recipient of a supply is a non-resident individual that individual is in Australia for the purposes of item 3 if that individual is physically in Australia when the thing supplied is done.

Paragraph 61 of GSTR 2004/7 explains how to determine whether a non-resident individual recipient is in Australia in relation to a supply for the purposes of item 3. It states:

61. A non-resident individual who is physically in Australia when the thing supplied is done is in Australia in relation to the supply to the extent that the non-resident is in contact (other than contact which is only of a minor nature) with the supplier while in Australia.

Paragraph 228 of GSTR 2004/7 provides that a non-resident individual who is physically in Australia when the thing supplied is done is not in Australia in relation to a supply for the purposes of item 3 if that individual is in Australia only on matters unrelated to the supply.

Paragraph 222 of GSTR 2004/7 provides that a resident individual is in Australia for the purposes of item 3 if the individual is physically located in Australia when the thing supplied is done.

Paragraph 60 of GSTR 2004/7 provides that a resident individual who is physically in Australia when the thing supplied is done is in Australia in relation to the supply for the purposes of item 3.

Flowchart 2 in GSTR 2004/7 provides that an individual recipient is in Australia in relation to the supply if the individual is involved with the supply while in Australia. Therefore, if a resident individual recipient is not in Australia when the thing supplied is done, they are not in Australia in relation to the supply for the purposes of item 3.

Paragraph 37 of GSTR 2004/7 explains how to determine whether a non-resident company is in Australia for the purposes of item 2. It states:

37. A non-resident company is in Australia if that company carries on business (or in the case of a company that does not carry on business, carries on its activities) in Australia:

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

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

Paragraph 64 of GSTR 2004/7 explains how to determine whether a company is in Australia for the purposes of item 3. It states:

64. A company is in Australia if it is incorporated in Australia. If the company is not incorporated in Australia, the company is in Australia (irrespective of the residency status of that company) if the company carries on business (or in the case of a company that does not carry on business, carries on its activities) in Australia:

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

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

Paragraphs 349 and 350 of GSTR 2004/7 explain how to determine whether a company is in Australia in relation to a supply for the purposes of items 2 and 3. They state:

349. Clearly if the supply to a company 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, the company is in Australia in relation to the supply. There is a connection between the supply and the presence in Australia that is not a minor connection.

350. 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', unless the only involvement is minor.

Paragraphs 351 and 352 of GSTR 2004/7 provide guidance on determining whether the involvement of the Australia presence in the supply is minor.

Paragraph 43 of GSTR 2004/7 explains how to determine whether a non-resident partnership is in Australia for the purposes of item 2. It states:

43. A non-resident partnership is in Australia if that partnership carries on business (or in the case of a partnership that is in receipt of ordinary income or statutory income jointly, other activities which generate that income) in Australia:

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

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

Paragraph 68 of GSTR 2004/7 explains how to determine whether a partnership is in Australia for the purposes of item 3. It states:

68. A partnership (irrespective of its residency status as determined in accordance with this Ruling) is in Australia if the partnership carries on business (or in the case of a partnership that is in receipt of ordinary income or statutory income jointly, other activities which generate that income) in Australia:

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

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

Paragraph 399 of GSTR 2004/7 explains how to determine whether a partnership is in Australia in relation to a supply for the purposes of items 2 and 3. It states:

399. At paragraphs 347 to 379, we explain when a company is in Australia in relation to the supply. The principles outlined in those paragraphs also apply to determine whether a partnership is in Australia in relation to the supply.

Paragraph 49 of GSTR 2004/7 explains how to determine whether a non-resident trust is in Australia for the purposes of item 2. It states:

49. We consider that a non-resident trust is in Australia if a trustee of that trust, acting in its capacity as trustee, carries on business (or in the case of a trustee that does not carry on business, carries on the trust's activities) in Australia:

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

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

Paragraph 77 of GSTR 2004/7 explains how to determine whether a trust is in Australia for the purposes of item 3. It states:

77. A trust (irrespective of its residency status as determined in accordance with this Ruling) is in Australia if a trustee of that trust, acting in its capacity as trustee, carries on business (or in the case of a trustee that does not carry on business, carries on the trust's activities) in Australia:

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

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

Paragraph 431 explains how to determine whether a trust is in Australia in relation to a supply for the purposes of items 2 and 3. It states:

431. To work out whether a trust is in Australia in relation to the supply, it is necessary to examine the role the presence of the trust in Australia plays in relation to the supply. At paragraphs 347 to 379, we explain when a company is in Australia in relation to the supply. The principles outlined in those paragraphs also apply to determine whether a trust is in Australia in relation to the supply.

Paragraph 205 of Goods and Services Tax Ruling GSTR 2007/2 provides that effective use or enjoyment of a supply takes place outside Australia if the supply is provided to an entity outside Australia.

Paragraph 272 of GSTR 2007/2 provides that a supply is provided as and when the thing supplied is done. This is the relevant time for determining whether a supply is provided to an entity in Australia or outside Australia and thus whether effective use or enjoyment of the supply takes place outside Australia.

Paragraphs 99, 102 and 103 of GSTR 2007/2 explain how to determine whether a supply is provided to a non-resident individual outside Australia.

Paragraph 99 of GSTR 2007/2 states:

99. If a supply is provided (or is required to be provided) to a non-resident individual who is not physically in Australia when the thing supplied is done, the supply is provided to that individual outside Australia.

Paragraphs 102 and 103 of GSTR 2007/2 state:

102. If a non-resident individual's presence in Australia is integral to, as distinct from being merely coincidental with, the provision of the supply, we consider that the supply is provided to that individual in Australia. As the supply is provided to the individual in Australia, effective use or enjoyment of the supply does not take place outside Australia. Paragraph (b) of item 3 is not satisfied and the supply is not GST-free under item 3. (See Flowchart 3, page 35.)

103. Conversely, if a non-resident individual's presence in Australia is not integral to the provision of the supply, we consider that the supply is not provided to that individual in Australia; it is provided to the non-resident individual outside Australia. As the supply is provided to the non-resident individual outside Australia, effective use or enjoyment of the supply takes place outside Australia. Paragraph (b) of item 3 is therefore satisfied and the supply is GST-free under item 3 if the other requirements of item 3 are satisfied. (See Flowchart 3, page 35.)

Paragraphs 93, 96 and 97 of GSTR 2007/2 explain how to determine whether a supply to a resident individual is provided to the individual in Australia.

Paragraph 93 of GSTR 2007/2 states:

93. If a supply is provided (or is required to be provided) to a resident individual who is physically in Australia when the thing supplied is done, the supply is provided to that individual in Australia.

Paragraphs 96 to 98 of GSTR 2007/2 state:

96. If a resident individual's presence outside Australia is integral to, as distinct from being merely coincidental with, the provision of the supply, we consider that the supply is provided to that individual outside Australia. As the supply is provided to the individual outside Australia, effective use or enjoyment of the supply takes place outside Australia. Paragraph (b) of item 3 is satisfied. The supply is GST-free under item 3 if the other requirements of item 3 are satisfied. (See Flowchart 2, page 34.)

97. Conversely, if a resident individual's presence outside Australia is not integral to the provision of the supply, we consider that the supply is provided to the individual in Australia. As the supply is provided to the individual in Australia, effective use or enjoyment of the supply does not take place outside Australia. Paragraph (b) of item 3 is not satisfied and the supply is not GST-free under item 3. (See Flowchart 2, page 34.)

98. Apportionment is required if, for part of the time when the thing supplied is done, a resident individual is physically outside Australia and that individual's presence outside Australia is integral to the provision of the supply. That part of the otherwise taxable supply is GST-free. Apportionment is discussed at paragraphs 137 to 145.

Paragraph 107 of GSTR 2007/2 provides guidelines for determining whether an individual's presence at a particular location is integral to the provision of a supply. It states:

107. Determining whether an individual's presence at a particular location is integral to the provision of the supply requires an examination of the facts and circumstances of the supply. However, some indicators that an individual's presence at a particular location is integral to the provision of the supply, and is not merely coincidental, include:

o the need for the supply arises from the individual's presence at that location; or

o the presence of the individual at that location is integral to the performance, receipt or delivery of the supply.

Paragraph 119 of GSTR 2007/2 provides that if an entity supplies services to a company, partnership or trust and the customer only has a presence in Australia (that is, it has no presence such as a branch office outside Australia), the supply is provided to that entity in Australia and effective use or enjoyment of the supply takes place in Australia. Paragraph (b) of item 3 is not satisfied and the supply is not GST-free under item 3.

Paragraph 124 of GSTR 2007/2 provides that if an entity supplies services to a company, partnership or trust that has a presence in Australia and outside Australia, we consider that effective use or enjoyment of the supply by the recipient takes place outside Australia if the supply is provided to that entity outside Australia. The supply is provided to the recipient outside Australia if the supply is for the purposes of the recipient's presence outside Australia. Paragraph (b) of item 3 is satisfied and the supply is GST-free under item 3 if the other requirements of item 3 are satisfied.

You will make a GST-free supply of business consulting services under item 2 where you make the supply to a non resident recipient who is not in Australia in relation to the supply when the business consulting services are provided as you will satisfy all of the requirements of that item in such circumstances.

You will make a GST-free supply of business consulting services under item 3 where you make the supply to a recipient who is not in Australia in relation to the supply when the business consulting services are provided and your supply of the business consulting services is provided to an entity outside Australia when the services are provided as you will satisfy all of the requirements of that item in such circumstances.

Where you make a GST-free supply, you will not make a taxable supply as you will not satisfy all of the requirements of section 9-5 of the GST Act. Therefore, GST will not be payable on these supplies.

Where your supply of business consulting service is not GST-free under item 2 or item 3, you will not make a GST-free supply. Under these circumstances, you will make a taxable supply as all of the requirements of section 9-5 of the GST Act will be satisfied, and therefore, GST will be payable on your supply.

If your supply of business consulting services to a particular customer is partly GST-free and partly not GST-free, you will make a mixed supply in accordance with Goods and Services Tax Ruling GSTR 2001/8. In such cases, GST will be payable on the non-GST-free portion of your supply of business consulting services only, and the on-charged expenses will need to be apportioned on a fair and reasonable basis between the GST-free business consulting services and the non-GST-free business consulting services.

It is possible that your supply of business consulting services to a particular customer under a particular contract could be partly GST-free and partly not GST-free. This could happen, for example, where you make a supply to a resident individual, and that individual is inside Australia when you are providing part of the business consulting services and outside Australia when you are providing another part of the business consulting services and the customer's presence overseas is integral to the provision of the supply.

Some expenses may relate specifically to your supply of business consulting services you provide overseas, for example, international travel expenses. Therefore, if your supply of business consulting services are GST-free to the extent that they are provided overseas, GST will not be payable on your on-charge for such expenses.

Providing a supply to a different entity to the recipient of the supply

If you make a supply under an agreement you have with a non-resident and you provide, or the agreement you have with your customer requires you to provide, your business consulting services to an another entity in Australia, subsection 38-190(3) of the GST Act would operate to deny GST-free treatment under item 2 if the supply would have otherwise been GST-free under that item.

Due to the operation of subsection 38-190(4) of the GST Act, where you make a supply under an agreement you have with an Australian resident and you provide, or the agreement you have with the recipient, requires the supply to be provided to another entity outside Australia, your supply will be taken for the purposes of item 3 to be a supply made to a recipient who is not in Australia.

(The advice set out in the two paragraphs immediately above is not relevant to your current circumstances, as you currently provide your supplies to your customers, but may be relevant in future if circumstances change.)

The public rulings mentioned above can be found on the ATO website, www.ato.gov.au.