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Ruling

Subject: GST and supplies of services in relation to rights.

Questions:

Are professional and official fees in relation to securing of intellectual property rights in Australia for patents, trade marks, designs and copyrights subject to goods and services tax (GST), where the applicant (proprietor) of those rights is not an Australian resident and is not present in Australia at the time the rights are created?

Are professional fees in relation to dealing with intellectual property rights (for example, assignment and license) in Australia for patents, trade marks, designs and copyrights between two parties subject to GST, where both parties to a transaction (dealing) are not Australian residents and are not present in Australia at the time the rights are created?

Are professional and official fees in relation to securing of intellectual property rights in overseas jurisdictions for patents, trade marks, designs and copyrights subject to GST, where the applicant (proprietor) of those rights is an Australian resident?

Advice/Answers:

No, the supply of your professional services (for the professional fees) in relation to securing of intellectual property rights to a non-resident entity which is not in Australia in relation to the supply is not taxable. The supply of these professional services is GST-free. In addition, expenses incurred in your own right as principal forms part of the consideration for the supply of these professional services, which is GST-free.

The official fees (expenses) incurred as agent on behalf of a client, will be a supply made by a third party supplier(s) to the client (and not a supply made by, or provided to, you). The GST status of these expenses is determined by the third party supplier(s).

No. The supply of your professional services (for the professional fees) in relation to dealing (assignment/licensing) with intellectual property rights in Australia to a non-resident entity which is not in Australia in relation to the supply is not taxable. The supply of these professional services is GST-free.

No, the supply of your professional services (for the professional fees) to an Australian resident entity is not taxable, provided the services are in relation to securing intellectual property rights intended to be used overseas. This supply would be GST-free. In addition, expenses incurred in your own right as principal forms part of the consideration for the supply of these professional services, which is GST-free.

The official fees (expenses) incurred as agent on behalf of a client, will be a supply made by a third party supplier(s) to the client (and not a supply made by, or provided to, you). The GST status of these expenses is determined by the third party supplier(s).

Relevant facts and circumstances

You are an Australian company that provides professional services to applicants and agents of applicants around the world, including Australia and elsewhere to secure registrations of intellectual property rights (for example patents, trade marks, registered designs and other intellectual property rights).

You are registered for GST in Australia.

You secure intellectual property protection in Australia and in overseas jurisdictions (and world-wide protection) through certain authorities/organisations.

Your services also cover the licensing and assignment of these rights, including the filing of assignments at the various authorities/organisations.

You charge professional and official fees to your clients for your services.

You charge professional and official fees in relation to the securing of intellectual property rights in Australia to an applicant (proprietor) of those rights who is not an Australian resident and is not present in Australia at the time the rights are created.

You charge professional fees in relation to the dealing with intellectual property rights in Australia (for example, assignment and license) between two parties, where both parties to the transaction are not Australian residents and are not present in Australia at the time the rights are created.

You also charge professional and official fees in relation to the securing of intellectual property rights in overseas jurisdictions to an applicant (proprietor) of those rights who is an Australian resident.

Additional information provided:

You have provided your terms of engagement which is applicable to all your clients (both Australian residents and non-residents). The terms of engagement provides (amongst other things) that: the advice is provided to the client; you will only invoice the client for work that they have instructed you to do; unless otherwise quoted, your fees are quoted as exclusive of disbursements; and you invoice for disbursements separately from your own fees.

The professional fees are for your services rendered in respect of the registration of the intellectual property rights themselves.

You incur expenses on a client matter as an agent and not as a principal as the rights obtained are owned at the time of their creation by the client themselves and you have no ability to control these instruments yourselves apart from being the agent of the client. You separately invoice for these items in your invoices as disbursements. You state that you incur these expenses as an agent on behalf of the clients.

The vast majority of your clients would not have any local representatives in Australia in relation to your services. The only example, where there would potentially be such an arrangement would be if a client briefs a local solicitor, who briefs you. You charge the client but receive instructions from the solicitor as agent for the client. This would be in the minority of cases.

In the vast majority of cases, the non-resident recipients would not be registered or required to be registered for GST in Australia. You propose to introduce a term into your terms of engagement that non-resident recipients inform you of their GST registration status.

You also provide services in dealings with intellectual property rights (such as assignment and license) between two parties. You will supply your services to one of the parties for the assignment/licensing of the intellectual property rights between the parties, both of which are

· non-residents and not present in Australia, when you perform your services. Generally, neither party will have representatives in Australia in relation to your services. In a minority of cases, for example, you may be representing a non-resident client and interacting with a legal representative (patent attorney or solicitor) of another party in Australia who may be representing that party, where that party is a resident or non-resident in the transaction.

In relation to dealings with intellectual property rights between two parties, your services in this scenario are offered to the non-resident sellers or recipients who would not be registered or required to be registered for GST in Australia. Your services to these clients would be provided in relation to intellectual property rights in Australia.

You contend that the supplies in relation to the professional and official fees are not subject to GST.

Relevant legislative provisions:

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

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

Reasons for decisions

Issue 1

Official fees

You may incur expenses on a client matter both as principal in the ordinary course of providing your services to a client and as an agent of the client.

The 'official fees' are those fees paid for registering an intellectual property right (which are paid to the various authorities/organisations).

We need to determine whether the official fees form part of the consideration for the supply of your professional services. 

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. 

Paragraphs 48 to 54 of GSTR 2000/37 describe the effects of an agency relationship on disbursements by lawyers, and can be applied to any situation involving service providers and their clients.

Paragraphs 48 and 49 of GSTR 2000/37 state:

48. Agents may incur expenses on a client matter both as an agent of the client and as a principal in the ordinary course of providing their services to the client. For example, in most cases, even though agreements between solicitors and clients may not use the term agent or agency, it is clear that the clients have authorised the solicitors to act on their behalf in the particular matter. When the solicitor acts as an agent for the client, the general law of agency applies so that the solicitor is 'standing in the shoes' of the client.

49. If a disbursement is made by a solicitor and incurred in the solicitor's 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 solicitor's overall fee. This is because the reimbursement is part of the consideration payable by the client for services supplied by the solicitor. 

To make the distinctions clearer paragraphs 50 to 53 of GSTR 2000/37 describe the sort of fees that a solicitor may pay on behalf of a client and describes when those fees would be paid as an agent and as a principal. Paragraphs 50 and 51 of GSTR 2000/37 state:

50. The following are examples of common fees and charges, for which a client is liable, that may be paid for by a solicitor as a paying agent of the client. If the solicitor makes the payment, GST is not payable on the subsequent reimbursement by the client to the solicitor for:

· application fees;

· registration fees;

· court fees;

· barrister's fees when the barrister is engaged by the client;

· incorporation fees;

· most fees in connection with registering and maintaining the status of particular legal relationships such as companies, partnerships, societies or associations;

· fines, penalties, stamp duty and taxes; and

· probate fees.

51. The following are examples of common disbursements that, depending upon the contractual arrangements between the client and the solicitor, can be incurred by a solicitor and then reimbursed by a client as part of the consideration payable for legal services provided to the client by the solicitor. If the following disbursements are incurred by a solicitor, GST is payable on the subsequent reimbursement by the client to the solicitor: 

· search fees;

· municipal search fee (eg rates; zoning; permits);

· birth/death/marriage certificate fees;

· barrister's fees when the barrister is engaged by the solicitor;

· witness fees;

· fees for recording court proceedings;

· service of document fees;

· fees for expert report or attendance in court; and

· fees to obtain court transcript.

Paragraph 50 of GSTR 2000/37 above indicates that generally application fees and registration fees, for which a client is liable, may be paid for by a solicitor as a paying agent of the client. Hence, the reimbursement forms no part of the consideration payable by the client for the supply of (professional) services by the solicitor.

You advised that you incur the official fees (expenses) on a client matter as an agent on behalf of the client and not as a principal.

Accordingly, where the disbursement is made by you and incurred in your capacity as a paying agent for a particular client, then no GST is payable on the subsequent reimbursement by the client. This is because the thing to which the disbursement relates is supplied by a third party supplier(s) to the client, not to you (as the agent). Also, the reimbursement forms no part of the consideration payable by the client for the supply of your professional services.

Note that in circumstances where you incur expenses (not as an agent on behalf of the client) to enable you to perform your professional services to the client, these expenses will form part of the consideration for your professional services (whether the reimbursement is separately itemised or included as part of your overall fee). The GST status will be that of the underlying supply (that is, the professional services, which is addressed below).

Professional fees

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:

You make the supply of services in return for consideration by way of payments; and

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

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

You are registered for GST.

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

On the basis of the facts provided, the supply of your professional services is not input taxed. We need to determine whether the supply satisfies the GST-free provisions.

GST-free supply

You provide professional services to applicants around the world, including Australia and elsewhere to secure registrations of intellectual property rights (for example patents, trade marks, registered designs and other intellectual property rights). The facts indicate that you are supplying services, and not the actual intellectual property rights, to your clients. In the first circumstance, you will supply professional services in relation to securing of intellectual property rights in Australia to an applicant (proprietor) who is not an Australian resident and is not present in Australia at the time the rights are created.

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 most relevance to the supply of your professional services in relation to securing of intellectual property rights to a non-resident entity is item 4 in the table in subsection 38-190(1) of the GST Act (Item 4).

Under Item 4, a supply is GST-free where it is:

· a supply that is made in relation to rights if:

· the rights are for use outside Australia; or

· the supply is to an entity that is not an *Australian resident and is outside Australia when the thing supplied is done.

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

The scope of Item 4 may be limited by subsections 38-190(2) and 38-190(2A) of the GST Act which are not applicable as you are supplying professional services, and not a right or option. Further, the professional services are not in relation to making a supply of real property in Australia that would be input taxed.

Supply that is made in relation to rights

For Item 4 to apply there is a requirement that the supply must be made in relation to rights. Goods and Services Tax Ruling GSTR 2003/8 addresses the supply of rights.

Under GSTR 2003/8, a supply of a thing is a 'supply that is made in relation to rights' if it fits within one of the following three categories:

· supplies identified in paragraph 9-10(2)(e) of the GST Act;

· supplies of things that derive their value exclusively, or almost exclusively, from rights; and

· supplies of services directly connected with rights.

Category 1

In relation to supplies identified in paragraph 9-10(2)(e) of the GST Act, paragraphs 65 and 66 of GSTR 2003/8 state:

65. Where a transaction comprises a bundle of features and acts, you must consider all of the circumstances of the transaction to ascertain its essential character. While many transactions involve rights being supplied, Category 1 only covers a supply if:

· the essential character or substance of the supply, or the dominant part of a composite supply, is one of rights; or

· the essential character of a separately identifiable part of the supply is one of rights.

66. Where rights are merely integral, ancillary or incidental to another dominant part of the supply, the supply is characterised by the dominant part.

You provide the professional services to facilitate the creation/securing of the rights for the applicant (being your client), but are not supplying them with the intellectual property rights. The essential character or substance of your supply is of professional services, and not of rights. Accordingly, category 1 in GSTR 2003/8 does not apply to your professional services.

Category 2

In relation to supplies of things comprising a bundle of rights that derive their value exclusively, or almost exclusively, from those rights, paragraphs 27E and 27F of GSTR 2003/8 state:

27E. A supply of a thing which comprises a bundle of rights is a supply that is made in relation to rights for the purposes of item 4 if:

the thing supplied derives its value exclusively, or almost exclusively, from those rights; and

through the supply, the supplier either supplies the rights to the recipient or surrenders the rights.

27F. In order to fit within category 2, a supply of a thing need not be properly characterised as a supply of rights for GST purposes, nor must it be a supply under paragraph 9-10(2)(e). The supply must, however, encompass rights and the value of the supply must be in the rights. For this to occur, any tangible thing that passes between supplier and recipient which evidences the rights (such as a bank note) must, without those rights, be worthless or of incidental worth.

As stated above, the essential character or substance of your supply is of professional services, and not of rights. You provide the professional services to facilitate the creation/securing of the rights for the applicant (being your client), but you are not the supplier of the actual intellectual property rights. You perform your services for the applicant, but do not pass on a thing that derives its value exclusively or almost exclusively, from the rights (that is, you do not supply or surrender any rights to them). Accordingly, category 2 in GSTR 2003/8 does not apply to your professional services.

Category 3

A supply of services (including provision of advice or information) that is directly connected with rights is a supply that is made in relation to rights for the purposes of Item 4. Paragraphs 28 and 28A of GSTR 2003/8 state:

28. A supply of services (including provision of advice or information) that is directly connected with rights is a supply that is made in relation to rights for the purposes of item 4. A supply of services has a direct connection with rights if for example:

· the service facilitates a dealing in or exercise of the rights; or

· the service affects (or its purpose is to affect) or protects the nature or value (including indemnity against loss) of the rights.

28A. Item 4 only applies to a service that facilitates a dealing in rights if the essential character or substance of the dealing is one of rights. Similarly, item 4 only applies to services that affect or protect the nature or value of a thing if the essential character or substance of that thing is rights.

Further, ATO Interpretative Decision ATO ID 2012/1 covered paragraph (a) of Item 4 in relation to brokerage services for foreign shares listed overseas, and concluded that the supply of these services are made in relation to rights. We consider that a supply of a service is made in relation to rights if the service is directly connected with rights. Services will be directly connected with rights if, for example, they affect the ownership of a thing and the essential character or substance of that thing is of rights.

The facts indicate that your professional services are services that facilitate ownership (such as securing/assignment/licensing) of the intellectual property rights for patents, trade marks, designs and copyrights, and have a direct connection with those rights. Accordingly, category 3 in GSTR 2003/8 applies, and the supply of your professional services in relation to securing of the intellectual property rights is a 'supply that is made in relation to rights'.

We now consider whether the supply of your professional services satisfy either paragraphs (a) or (b) of Item 4.

Paragraphs (a) or (b) of Item 4

Paragraph (a) of Item 4

A supply that is made in relation to rights is GST-free under paragraph (a) of item 4 ('Item 4(a)') if the rights are for use outside Australia.

Paragraphs 108A and 123A of GSTR 2003/8 state:

108A. A supply does not fall within item 4 simply on the basis that the essential characteristics of the rights demonstrate that they may be used outside Australia. It is the intended use of those rights that determines if the supply that is made in relation to the rights falls within item 4. The extent to which the supply is taxable or GST-free is not affected by the actual use of the rights, other than as potential evidence of the intended use.

123A. If a supply of services is made to a recipient in relation to rights that the recipient already owns, we consider that it is the intended use of the rights at the time the services are provided that is relevant. The previous use of the rights is not relevant, other than as potential evidence of the intended use. Accordingly, a supply of a service is not GST-free if it is made in relation to rights that, before the supply of the service, were used offshore, but following the supply are intended to be used in Australia.

In this circumstance, you will supply professional services in relation to securing of intellectual property rights in Australia. Item 4(a) is not applicable if the intellectual property rights are intended for use in Australia.

We note that determining where (that is, in or outside Australia) the recipient of your services intends to use the intellectual property rights that your services relate to, could only be done by you making inquiries with the recipient.

Paragraph (b) of Item 4 - Non-resident not in Australia when the thing supplied is done

A supply that is made in relation to rights is GST-free under paragraph (b) of item 4 ('Item 4(b)') if the supply is to an entity that is not an Australian resident and is outside Australia when the thing supplied is done.

There is a condition that the non-resident must not be in Australia in relation to the supply when the thing supplied is done. For a supply of services, the services are done when they are provided/performed.

Goods and Services Tax Ruling GSTR 2004/7 discusses when an entity is not in Australia when the thing supplied is done. There are different tests to determine whether an entity is in Australia depending on the type of entity.

Supply to a non-resident individual

Under paragraph 35 of GSTR 2004/7, 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.

A non resident individual is in Australia in relation to the supply if the non resident individual is involved with the supply while in Australia. A non resident individual is involved with the supply where the non-resident individual is in contact with the supplier while in Australia and that contact is not minor (eg. a courtesy call or checking on the progress of the supply). If a non resident individual is in Australia for a purpose that is not related to the supply, eg. the individual is on holiday in Australia and has no contact with the supplier or only has minor contact, the non-resident individual is not considered to be involved with the supply and is therefore not in Australia in relation to the supply.

Supply to a non-resident company

Under paragraph 37 of GSTR 2004/7, 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 fixed and definite place of its own for a sufficiently substantial period of time; or

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

Where a non-resident company has no fixed and definite place of its own in Australia, but may still carry on business in Australia through an agent from some fixed and definite place, paragraph 278 of GSTR 2004/7 provides that 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.

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).

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.

The different tests for other entity types (such as partnerships and trusts) can be found in paragraphs 43 to 51 of GSTR 2004/7.

The facts indicate that the vast majority of your clients would not have any local representatives in Australia in relation to your professional services. The only example, where there would potentially be such an arrangement would be if a client briefs a local solicitor, who briefs you. You charge the client but receive instructions from the solicitor as agent for the client. This would be in the minority of cases.

We note that if the business being conducted is the solicitor's own business, and the non-resident entity merely being one of its customers, that the non-resident entity is not in Australia.

Where the supply of your professional services is made to a non-resident entity that is in Australia in relation to the supply when the services are performed/provided, the condition that the non-resident must not be in Australia, when the thing supplied is done is not satisfied. In this circumstance, the requirement of Item 4(b) is not satisfied, and the supply is not GST-free.

Where the supply of your professional services is made to a non-resident entity that is not in Australia in relation to the supply when the services are performed/provided, the condition that the non-resident must not be in Australia, when the thing supplied is done is satisfied.

You advise that you supply professional services (in return for the professional fees) in relation to securing of intellectual property rights in Australia to an applicant (proprietor) of those rights who is not an Australian resident and is not present in Australia at the time. In such circumstance, the requirement in Item 4(b) that the non-resident is not in Australia (in relation to the supply) when the thing supplied is done, is satisfied. Accordingly, all the requirements of Item 4 are satisfied, and the supply of your professional services is GST-free.

Item 2

For completeness, item 2 in the table in subsection 38-190(1) of the GST Act (Item 2) is also of relevance to the supply of your professional services to a non-resident entity.

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

· 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-residents *enterprise, but is not *registered or *required to be registered.

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

The scope of Item 2 may be limited by subsection 38-190(3) of the GST Act (discussed later).

Non-resident not in Australia when the thing supplied is done

For the supply of your professional 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 provided/performed. This is the same requirement in Item 4(b) which has been addressed in detail above.

In circumstances 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. You only need to satisfy either paragraph (a) or (b) of Item 2 for the supply to be GST-free.

Paragraph (a) of Item 2

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 when the work is done nor a supply directly connected with real property situated in Australia.

You provide professional services to applicants around the world to secure registrations of intellectual property rights. The professional services are 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 professional services to a non-resident entity that is not in Australia in relation to your services satisfies paragraph (a) of Item 2.

Paragraph (b) of Item 2

You advised that in the vast majority of cases, the non-resident recipients would not be registered or required to be registered for GST in Australia. You propose to introduce a term into your terms of engagement that non-resident recipients inform you of their GST registration status.

Under paragraph (b) of Item 2, a supply is also GST-free if the non-resident entity (which is not in Australia in relation to the supply) acquires your professional services in carrying on its enterprise (business), and is neither registered nor required to be registered for GST.

The supplier must be satisfied, on reasonable grounds that the non-resident is not required to be registered for GST before they can treat their supply as GST-free under paragraph (b) of Item 2. Where the supplier is not in a position to be aware of these circumstances, enquiries should be made of the non-resident. The Commissioner accepts that the supplier has reasonable grounds to be satisfied, if the non-resident has provide a signed written statement, declaring that they are not required to be registered. This is only accepted where the supplier has no reasons to believe the statement is not accurate.

Please note that the GST registration status of an entity can be ascertained by checking the Australian Business Register at www.abr.gov.au.

Limitation - Subsection 38-190(3) of the GST Act

Where it has been determined that the precondition and the requirements of either paragraph (a) or (b) of Item 2 is satisfied, it is necessary to consider subsection 38-190(3) of the GST Act which states:

Without limiting subsection (2), a supply covered by item 2 in that table is not

GST-free if:

· it is a supply under an agreement entered into, whether directly or indirectly, with a *non-resident; and

· the supply is provided, or the agreement requires it to be provided, to another entity in Australia.

Goods and Services Tax Ruling GSTR 2005/6 provides guidance on the application of subsection 38-190(3) of the GST Act.

You will supply the professional services to a non-resident entity that is not present in Australia at the time the rights are created. The facts do not indicate that there is an agreement(s) to provide your professional services to another entity in Australia. Accordingly, in such circumstance, subsection 38-190(3) of the GST Act will not apply to excluding the supply from being GST-free.

Summary - issue 1

To summarize, the supply of your professional services (for the professional fees) in relation to securing of intellectual property rights to a non-resident entity which is not in Australia in relation to the supply is not taxable. The supply of these professional services is GST-free under either Item 4(b) or Item 2. In addition, expenses incurred in your own right as principal forms part of the consideration for the supply of these professional services, which is GST-free.

The official fees (expenses) incurred as agent on behalf of a client, will be a supply made by a third party supplier(s) to the client (and not a supply made by, or provided to, you). The GST status of these expenses is determined by the third party supplier(s).

Issue 2

You also provide professional services in the dealing with intellectual property rights (such as assignment and license) between two parties. You will supply your services to one of the parties for the assignment/licensing of the intellectual property rights between the parties, both of which are non-residents and not present in Australia, when the rights are created. Generally, neither party will have representatives in Australia in relation to your services. In minority of cases, for example, you may be representing a non-resident client and interacting with a legal representative (patent attorney or solicitor) of another party in Australia who may be representing that party, where that party is a resident or non-resident in the transaction.

You will supply your professional services to the non-resident sellers or recipients of the intellectual property rights who would not be registered or required to be registered for GST in Australia. Your services to these clients would be provided in relation to intellectual property rights in Australia.

Item 4(b) and Item 2 are also of relevance to the supply of your professional services, for the dealing (assignment and license) with intellectual property rights in Australia, to a non-resident entity. The application of Item 4(b) and Item 2 to the supply of your professional services are covered in detail in Issue 1, and are summarised below.

As stated in Issue 1, a supply of services (including provision of advice or information) that is directly connected with rights is a supply that is made in relation to rights for the purposes of Item 4. Item 4 applies to a service that facilitates a dealing in rights if the essential character or substance of the dealing is one of rights, and also applies to services that affect or protect the nature or value of a thing, if the essential character or substance of that thing is rights.

The facts indicate that your professional services are services that facilitate ownership (assignment/licensing) of the intellectual property rights (for patents, trade marks, designs and copyrights) between the two parties, and have a direct connection with those rights.

Accordingly, category 3 in GSTR 2003/8 applies, and the supply of your professional services, in relation to the dealing with intellectual property rights (assignment and license) between the two parties, is made in relation to rights. Further, you advised that your client is a non-resident seller/buyer(s) who is not present in Australia, and therefore the requirement of paragraph Item 4(b) would be satisfied. All the requirements of Item 4 would be satisfied in such circumstance and the supply of your professional services is GST-free.

The supply of your professional services to a non-resident seller/buyer(s) who is not present in Australia, in relation to the dealing with intellectual property rights (assignment and license) between the two parties, would also satisfy Item 2. For more information on the application of Item 2, see Issue 1 above.

To summarise, the supply of your professional services (in return for the professional fees) for the dealing with (such as assignment and licensing of) intellectual property rights in Australia to a non-resident entity (which is not in Australia in relation to your supply) is GST-free.

Issue 3

In this circumstance, you charge professional and official fees in relation to the securing of intellectual property rights in overseas jurisdictions to applicants (proprietors) of those rights who are Australian residents. That is, you are supply professional services in relation to securing of intellectual property rights overseas to applicants who are Australian residents.

In relation to the GST treatment of the official fees, refer to the heading 'official fees' in issue 1 above.

In relation to the supply of your professional services to an Australian resident entity, section 38-190 of the GST Act is also of relevance. In particular, Item 4(a) may be applicable to the supply of your professional services in relation to securing of intellectual property rights overseas for an Australian resident entity.

Under Item 4(a), a supply is GST-free where it is a supply that is made in relation to rights, if the rights are for use outside Australia.

As stated above, a supply of services (including provision of advice or information) that is directly connected with rights is a supply that is made in relation to rights for the purposes of Item 4. Item 4 applies to a service that facilitates a dealing in rights if the essential character or substance of the dealing is one of rights, and also applies to services that affect or protect the nature or value of a thing, if the essential character or substance of that thing is rights.

The facts indicate that your professional services are services that facilitate ownership (such as securing/assignment/licensing) of the intellectual property rights for patents, trade marks, designs and copyrights, and have a direct connection with those rights. Accordingly, category 3 in GSTR 2003/8 applies, and the supply of your professional services in relation to securing of the intellectual property rights is a 'supply that is made in relation to rights'.

We now consider whether the supply of your professional services satisfy either paragraphs (a) or (b) of Item 4.

A supply that is made in relation to rights is GST-free under Item 4(a) if the rights are for use outside Australia.

Paragraphs 108A, 123A and 129 of GSTR 2003/8 state:

108A. A supply does not fall within item 4 simply on the basis that the essential characteristics of the rights demonstrate that they may be used outside Australia. It is the intended use of those rights that determines if the supply that is made in relation to the rights falls within item 4. The extent to which the supply is taxable or GST-free is not affected by the actual use of the rights, other than as potential evidence of the intended use.

123A. If a supply of services is made to a recipient in relation to rights that the recipient already owns, we consider that it is the intended use of the rights at the time the services are provided that is relevant. The previous use of the rights is not relevant, other than as potential evidence of the intended use. Accordingly, a supply of a service is not GST-free if it is made in relation to rights that, before the supply of the service, were used offshore, but following the supply are intended to be used in Australia.

129. Factors that may be relevant to forming a judgment as to the extent of intended use of rights for the purposes of paragraph (a) of item 4 include:

· expectations of the recipient, based on reasonable grounds, as to the likely use of the right over the period for which the right is granted, or if the right has been granted for an unspecified period, the expectations of the recipient as to the likely use over the anticipated period of use;

· economic, social, cultural and political conditions the nature of the right itself, for example, the language of a written work or its relevance to a particular culture, may influence where the right will be used;

· past revenue, royalty or profitability patterns evident from the use of similar rights this may come from industry statistics or from past experience in the recipient's business; and

· projected use of the right in and outside Australia based on market research.

In this circumstance, the facts indicate that you supply professional services in securing of intellectual property rights in overseas jurisdictions. In general overseas intellectual property rights would be for use in that overseas country. However, determining where the recipient of your services intends to use the intellectual property rights can be established by you making inquiries with the recipient, and the recipient could be asked to confirm that they expect to use those rights overseas. Accordingly, if the intellectual property rights are intended to be used overseas at the time you provide the professional services to secure those rights in the overseas jurisdictions,

Item 4(a) is satisfied and the supply of your professional services is GST-free in such circumstance.

Note that as the supply of your professional services is to an Australian resident(s) Item 4(b) is not applicable. However, the supply may still be GST-free under Item 4(a).

Summary - Issue 3

To summarize, the supply of your professional services (for the professional fees) to an Australian resident entity is not taxable, provided the services are in relation to securing intellectual property rights intended to be used overseas. This supply would be GST-free. In addition, expenses incurred in your own right as principal forms part of the consideration for the supply of these professional services, which are GST-free.

The official fees (expenses) incurred as agent on behalf of a client, will be a supply made by a third party supplier(s) to the client (and not a supply made by, or provided to, you). The GST status of these expenses is determined by the third party supplier(s).

All public rulings referred to are available at the Australian Taxation Office website at www.ato.gov.au