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Ruling

Subject: GST and international services

Question

Is GST payable on the supply of storage and delivery services?

Answer

Yes.

Facts

You supply various equipment, delivery, storage and local freight services. You are registered for GST.

For many years now, you have had agency/distribution agreements with a variety of overseas suppliers.

One of your overseas suppliers is X Ltd, a company based in X country. X Ltd is not registered with the Australian Securities and Investment Commission and is not registered for GST. Although X Ltd has consultants in Australia, it does not carry on its business in Australia through a place of its own.

X Ltd has an arrangement with an Australian company (the Australian customer) for the supply of certain goods. The goods are imported to Australia by the Australian customer and they are the owner of these goods having purchased and paid for them. However, under the Australian customer's arrangement with X Ltd, the Australian customer wants the goods stored off site and will only take delivery when needed.

X Ltd has contracted you to provide storage and delivery services on its behalf under its arrangement with the Australian customer. Hence, when the goods arrive in Australia you take delivery and store them in your warehouse.

You have taken out insurance for your other products and for the products owned by the Australian customer. As a requirement of the insurance policy, the goods are stored off the floor. The warehouse has shelves where pallets of stock clearly labelled for the Australian customer are stored.

You provided a copy of the agreement for storage and delivery services (the Agreement). The Agreement contains the following details:

· You are required to accept inbound products shipped from X Ltd directly to your warehouse.

· You are required to ensure that the goods arrive in an acceptable condition and visual spot checks are required to ensure products are of an acceptable quality.

· You must ensure that the stock is insured for transit, fire, theft and flooding.

· You must provide shipping services for the goods to set locations around Australia.

· You must use a reputable freight service where the goods are shipped with insurance and a signature is required at the remote location.

· X Ltd will provide you with the serial number of each unit delivered.

· You must notify X Ltd and their customer as to serial number of the device being shipped to each location.

· You must provide monthly reports for stock and inventory, and maintain accurate records.

· You may be required to do some pre-conditioning of the devices. It is envisaged that these pre-deployment activities will not exceed a few minutes per device and will not be more than a simple check prior to dispatch of the unit.

· You shall invoice X Ltd at the end of each month, including a report for units shipped for that month.

You must clearly articulate in your invoice charges related to shipping, pre-deployment and approval fees as 3 separate line items. The pricing (excluding GST) is as follows:

· Storage and delivery at $a per unit with a minimum of X units in the current year.

· Pre-conditioning fees at $b per unit.

· Approval fees at $c per unit.

You authorise X Ltd to ship units, with your 'A-Tick Labelling', to your warehouse for distribution in Australia as per the Agreement. A fee of $c per complying unit will be paid to you for use of the 'A-Tick' and compliance.

If X Ltd provides notice, you must provide X Ltd or its representatives on request with access to any premises where stock is warehoused.

Each customer's stock must be clearly identified and warehoused.

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 Subsection 38-190(1).

A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-190(3).

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1.

Reasons for decision

Section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you must pay the GST on any taxable supply that you make.

Section 9-5 of the GST Act 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 order to determine the GST treatment of the supply of storage and delivery services to X Ltd, we need to consider the characteristics of that supply. That is, we need to determine whether the supply that you make is a combination of separately identifiable parts or it is a supply that contains a dominant part and includes something that is integral, ancillary or incidental to that part.

Goods and Services Tax Ruling GSTR 2001/8, amongst other things, describes the characteristics of supplies that contain a combination of separately identifiable taxable and non-taxable parts. It refers to these supplies as mixed supplies. It also describes the characteristics of supplies that appear to have more than one part but that are essentially supplies of one thing, that is, a dominant part and something that is integral, ancillary or incidental to that part. The ruling refers to these supplies as composite supplies.

The distinction between parts that are separately identifiable and things that are integral, ancillary or incidental, is a question of fact and degree and requires an objective assessment.

Based on the information provided, the supply of storage and delivery services to X Ltd is not a composite supply. We consider that the supply is a combination of separately identifiable parts. That is, none of these parts is integral, ancillary or incidental in relation to the whole supply. Therefore, we need to look at each component of the supply separately and determine its GST treatment.

Supply of storage

Before we determine the GST status of the storage, we need to determine the character of the supply that is whether it is a supply of services or of real property.

In determining whether a supply is properly characterised as a supply of real property or something else, it is necessary to consider all the aspects of the transaction to ascertain its essential character.

Paragraphs 105 and 106 of GSTR 2003/7 provide the ATO view on storage and state:

Rental of particular secure storage space

105. If a licence to occupy a particular secure storage space is supplied along with security services but those services are ancillary to the licence to occupy land, the supply is of real property.

Provision of storage services, without rental of a particular site

106. Where the supply is of storage services only, there being no right to occupy particular storage space, the real property is merely the setting for the service performed. The supply is the service of storing goods. There is no supply of real property.

We consider that you are making a supply of storage services and not a supply of real property to X Ltd.

Having established the character of the supply, we can now consider the GST status of the supply of storage services.

The supply of your storage services satisfies the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act. This is because:

· the supply is made for consideration

· the supply is made in the course or furtherance of your enterprise

· the supply is connected with Australia as the services are done in Australia and

· you are registered for GST.

The supply of your storage services is not input taxed under any provision of the GST Act or any other Act. It remains to be determined if the supply of storage services is GST-free.

Subsection 38-190(1) 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 particular relevance to your supply is item 2 in the table in subsection 38-190(1) of the GST Act (item 2).

Item 2 provides that a supply of a thing (other than goods or real property) made to a non-resident is GST-free if 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-resident's *enterprise, but is not *registered or *required to be registered for GST.

Accordingly, where the provisions in either (a) or (b) above are met, the supply will be GST-free if the non-resident is not in Australia when the thing supplied is done.

Goods and Services Tax Ruling GSTR 2004/7 provides guidance on when a non-resident is 'not in Australia' for the purposes of item 2.

The meaning of 'not in Australia'

The requirement in item 2 that the non-resident is not in Australia when the thing supplied is done is a requirement that the non-resident is not in Australia in relation to the supply when the thing supplied is done.

Paragraph 184 of GSTR 2004/7 states:

As the Australian location of the entity to which the supply is made at the relevant time is a proxy test for identifying when consumption occurs in Australia, we consider that the expression 'not in Australia' should be interpreted in the context of the supply in question. The expression 'not in Australia' requires, in our view, that the non-resident or other recipient is not in Australia in relation to the supply. This means that a non-resident or other recipient of a supply may satisfy the 'not in Australia' requirement if that entity is in Australia but not in relation to the supply…

Paragraphs 230 to 332 of GSTR 2004/7 discuss when a non-resident company is in Australia for the purposes of item 2 (and paragraph (b) of item 4).

At paragraph 241 of GSTR 2004/7, we established a test where we consider that 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:

· 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.

From the information provided, X Ltd does not carry any business through a representative in Australia and does not have any presence in Australia in relation to your supply. As such, X Ltd is 'not in Australia' in relation to your supply of storage services when such supply is made.

The supply of your services must also satisfy the requirements of either paragraph (a) or paragraph (b) of item 2 for the supply to be GST-free.

Paragraph (a) and/or (b) of item 2

Goods an Services Tax Ruling GSTR 2003/7 examines the meaning of the expressions 'directly connected with goods or real property' and 'a supply of work physically performed on goods' as used in subsection 38-190(1) of the GST Act.

GSTR 2003/7 provides, amongst other things, that a supply is a supply of work physically performed on goods where something is done deliberately to the goods to change them or to otherwise affect them in some physical way.

In your case, when you store the goods you do not change or affect the goods in a physical way. Therefore, the supply of the storage services is not considered to be a supply of work physically performed on goods. In addition, the supply of your services is not directly connected with real property situated in Australia. Accordingly, the requirement in paragraph (a) of item 2 is satisfied.

As the requirement of paragraph (a) of item 2 is satisfied, there is no need to consider if the requirement of paragraph (b) of item 2 is met.

However, item 2 is limited by subsection 38-190(3) of the GST Act.

Limitations of item 2

If the supply covered by item 2 is under an agreement entered into, whether directly or indirectly, with a non-resident entity and that supply is provided to another entity in Australia, or the agreement requires that it be so provided, subsection 38-190(3) of the GST Act negates the GST-free status of that supply.

Subsection 38-190(3) of the GST Act states:

Without limiting subsection 38-190(2) or (2A), a supply covered by item 2 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.

GSTR 2005/6 which provides the ATO view on the operation of subsection 38-190(3) of the GST Act states at paragraphs 59 and 61:

59. The word 'provided' is used in subsection 38-190(3) to contrast with the term 'made' in item 2. In the context of section 38-190, the contrasting words indicate that if a non-resident contracts for a supply to be provided to another entity, the place of consumption should be determined with regard to the entity to which the supply is provided, not the entity to which the supply is made.

61. Thus the expression 'provided to another entity' means, in our view, that in the performance of a service (or in the doing of some thing), the actual flow of that supply is, in whole or part, to an entity that is not the non-resident entity with which the supplier made the agreement for the supply. The contractual flow is to one entity (the non-resident recipient) and the actual flow of the supply is to another entity.

Your supply of storage services to X Ltd is a supply under an agreement with a non-resident. Paragraph 38-190(3)(a) of the GST Act is therefore satisfied.

What is being supplied is storage of the goods sent to Australia by X Ltd and imported by the Australian customer. As the Australian customer is the owner of the imported goods, the nature of the service is such that the supply of storage services is provided to the Australian customer, another entity. Since the Australian customer is in Australia, paragraph 38-190(3)(b) of the GST Act is also satisfied as the supply is provided to another entity in Australia.

Accordingly your supply of storage services is not GST-free under item 2 by virtue of subsection 38-190(3) of the GST Act.

The supply of the storage services is not GST-free under any other provisions of the GST Act or any other Act.

Therefore, as all the requirements of section 9-5 of the GST Act are satisfied, the supply of the storage services is a taxable supply.

Supply of delivery services

The supply of your delivery services satisfies the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act as follows:

· you make a supply for consideration

· the supply is made in the course or furtherance of your enterprise

· the supply is connected with Australia because the delivery services are performed in Australia and

· you are registered for GST in Australia.

The supply of delivery services is not input taxed under any provision of the GST Act or any other Act. It remains to be determined if the supply of delivery services is GST-free.

In this instance, we need to consider if the supply is GST-free under item 2.

As outlined above, based on the information provided, X Ltd is not in Australia in relation to your supply of delivery services when such supply is made.

Paragraph 59 of GSTR 2003/7 provides that a supply of transporting goods is not work physically performed on goods because the supply only changes the location of the goods, not the goods themselves.

Hence, the supply of delivery services is not considered to be a supply of work physically performed on goods situated in Australia. Furthermore, the supply of delivery services is not a supply directly connected with real property situated in Australia. As such, paragraph (a) of item 2 is satisfied.

Having met the requirements of item 2, it is necessary to consider subsection 38-190(3) of the GST Act.

GSTR 2005/6 states that it is necessary to establish the exact nature of the supply to determine to which entity that service or thing is provided. In relation to delivery or freight services paragraph 75 states:

75. In the case of delivery or freight services where goods from one entity are addressed for delivery to another entity, we accept that the delivery or freight services are provided to that addressee entity…

Further, paragraph 119 of GSTR 2005/6 provides:

119. In the case of delivery or freight services which are provided to an entity other than an individual in the circumstances described at paragraph 75, we accept those services are provided to that entity in Australia, if the goods are addressed to that entity in Australia. Alternatively, if the goods are addressed to that entity outside Australia, we accept those services are provided to that entity outside Australia. This outcome is not dependent upon the residency status of the entity to which the goods are addressed…

In your case, you have a contractual obligation to X Ltd, a non-resident company, to deliver goods on their behalf to a particular location in Australia as requested by X Ltd's customer, the Australian customer. The exact nature of the supply is to deliver the goods to the Australian customer in locations within Australia. It is the Australian customer who is availing themselves of the delivery services. Although the contractual flow of your delivery services is to a non-resident company, the flow of the actual services is to the Australian customer, as the delivery of the goods is to a particular location in Australia. Therefore, the supply of your delivery services is provided to the Australian customer, which is another entity in Australia.

Accordingly, subsection 38-190(3) of the GST Act excludes the delivery services from being GST-free under item 2 because this part of the supply is provided to an entity in Australia.

The supply of the delivery services is not GST-free under any other provisions of the GST Act or any other Act.

Therefore, as all the requirements of section 9-5 of the GST Act are satisfied, the supply of the delivery services is a taxable supply.

Although the supply of storage and delivery services to X Ltd is a combination of separately identifiable parts, the supply of each component of the supply is taxable. Hence, GST is payable on the supply.