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Ruling

Subject: GST - subscription and advertising services for non-residents.

Question:

Are the supplies made by an Australian company (you) to foreign subscribers and advertisers subject to goods and services tax (GST), where it provides subscription and advertising services from its foreign website?

Answer:

No, the supplies of your subscription and advertising services from your foreign website to foreign subscribers and advertisers are not subjected to GST, where the supplies are not connected with Australia or GST-free.

Relevant facts and circumstances

You are an Australian resident (and domiciled) company with Australian resident directors. You are an internet based service company.

You are registered for GST in Australia.

You established a foreign website that is maintained in Australia by the company directors and currently hosted on an overseas server(s). The website is directed solely to that overseas market place.

The foreign (overseas) residents and businesses are then able to advertise for jobs and provide quotes for jobs.

You do not actively complete any of the work (that is, the jobs) but rather facilitate a place for people to find work available.

All subscriptions received and advertising dollars are to be deposited into an Australian Bank account.

Additional information provided:

You advise that you operate, manage and control the overseas server(s) for the website hosted on the overseas server(s).

You do not supply or provide your subscription and advertising services to any entitles in Australia.

A sample copy of the terms and conditions (Agreement) which would be applicable to your clients provide (amongst other things):

General services - The services provided include an online directory of professional companies, professional contractors and jobs, a forum in which the foreign public/job providers are able to post jobs.

Registered service providers - you will provide service providers with some site benefits. A service provider acknowledges that the charges for becoming a registered service provider are $XXX. You are entitled to withdraw the benefits of registration or to remove a business from the site in the event of non-payment. Charges for registered service providers will not be refundable except at your discretion.

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 9-25

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

Reasons for decision

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), which states:

You make a taxable supply if:

· you make the supply for *consideration

· the supply is made in the course or furtherance of an *enterprise that you *carry on

· the supply is *connected with Australia, and

· you are *registered, or *required to be registered, for GST.

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

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

The facts indicate that your supply of the subscription and advertising services on your website satisfies the requirements under paragraphs 9-5(a), 9-5(b), and 9-5(d) of the GST Act because the supply will be made for consideration; the supply is made in the course or furtherance of your enterprise (business); and you are registered for GST.

What needs to be determined is whether the supply of these services is connected with Australia.

Connected with Australia

Under subsection 9-25(5) of the GST Act, it states:

A supply of anything other than goods or *real property is connected with Australia if:

· the thing is done in Australia (paragraph 9-25(5)(a));

· the supplier makes the supply through an enterprise that the supplier *carries on in Australia (paragraph 9-25(5)(b)); or

· all of the following apply:

· neither paragraph 9-25(5)(a) nor (b) applies in respect of the thing;

· the thing is a right or option to acquire another thing; and

· the supply of the other thing would be connected with Australia (paragraph 9-25(5)(c)).

You only need to satisfy one of the paragraphs in subsection 9-25(5) of the GST Act for the supply to be connected with Australia.

Goods and Services Tax Ruling GSTR 2000/31 discusses when a supply is connected with Australia.

Paragraph 9-25(5)(a) of the GST Act provides that a supply of anything other than goods or real property is connected with Australia if the thing is done in Australia. If the 'thing' being supplied is a service, the supply of that service is typically done where the service is performed. If the service is performed in Australia, the service is done in Australia and the supply of that service is connected with Australia under paragraph 9-25(5)(a) of the GST Act. This is the case even if the recipient of the supply is outside Australia.

Furthermore, a supply of a thing other than goods or real property, is connected with Australia under paragraph 9-25(5)(b) of the GST Act if the supplier:

· carries on an enterprise through a permanent establishment in Australia; and

· the supply is made through that permanent establishment.

For a supply to be connected with Australia under paragraph 9-25(5)(b) of the GST Act, a connection must be established between the Australian permanent establishment (PE) and the supply.

We note that in relation to a PE and a server outside Australia, paragraphs 42.1 to 42.10 of the OECD Commentary on Article 5 (Permanent Establishment) of the OECD Model Tax Convention on Income and on Capital (OECD Commentary) specifically address the issue of whether an internet business can constitute a PE. The OECD Commentary indicates that where an enterprise that is carrying on business through a website owns (or leases) and operates a server on which the website is stored and used, the place of business where the server is located could constitute a PE of the enterprise, if the other requirements of the Article are satisfied.

From the facts provided, you advise that you are an Australian resident internet based service company with Australian resident directors. You established the foreign website which is maintained in Australia by these company directors, although the website is hosted on the overseas server(s). You indicated that you may operate, manage and control the overseas server(s) for the website hosted on the servers.

Where the services are performed outside Australia and through a PE (such as an overseas server which you own (or lease) and operate (manage and controlled)), the supply is not connected with Australia. In this circumstance, the supply is not a taxable supply as all the requirements of section 9-5 of the GST Act are not satisfied.

Where the services are performed in Australia (such as by your staff in Australia) or provided through your enterprise (business) in Australia, the supply of your services is connected with Australia and paragraph 9-5(c) of the GST Act is satisfied.

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

The supply of your subscription and advertising services on the website is not input taxed. We need to determine whether the supply satisfies the GST-free provisions.

GST-free

The facts indicate that your services on the website is directed solely to the overseas market place (that is for the foreign public/job providers as stated on your terms and conditions), where foreign (overseas) residents & businesses are then able to advertise for jobs and quote for jobs that are to be completed. You do not supply or provide your subscription and advertising services to any entitles in Australia.

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. Item 2 in the table in subsection 38-190(1) of the GST Act (Item 2) is also of most relevance.

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.

The scope of Item 2 may be limited by subsection 38-190(2A) and subsection 38-190(3) of the GST Act (which is discussed later). It is noted that the limitation by subsection 38-190(2) of the GST Act is not applicable as you are not supplying a right or option.

Non-resident not in Australia in relation to the supply

For the supply of your 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.

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.

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.

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.

On the basis of the facts provided, you advise that your services on the website is directed solely to the overseas market place (that is for the foreign public/job providers), and you do not supply or provide your subscription and advertising services to any entitles in Australia. Accordingly, the supply of your services is made to a non-resident who is not in Australia in relation to the supply when the services are done (performed/provided), and the precondition that the non-resident must not be in Australia is satisfied.

The other requirements of Item 2 must also be taken into consideration.

Paragraphs (a) and (b) of Item 2

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.

Paragraphs (a) of Item 2 ('Item 2(a)')

Under Item 2(a), 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.

Paragraph 44 of Goods and Services Tax Ruling GSTR 2003/7 confirms that supplies of marketing and advertising services are not directly connected with goods or real property.

You established a foreign website which is directed solely to the overseas market place. Foreign residents and businesses are then able to advertise for jobs and provide quotes for jobs. You do not actively complete any of this work (that is, the jobs) but rather facilitate a place for people to find work available.

Your work is 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 subscription and advertising services on your website to a non-resident entity that is not in Australia satisfies Item 2(a).

Paragraph (b) of Item 2 ('Item 2(b)')

For completeness, under Item 2(b), a supply is also GST-free if the non-resident entity acquires your services in carrying on its enterprise (business), and is neither registered nor required to be registered for GST (in Australia).

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 Item 2(b). 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

Limitations

Where the requirements of Item 2 are satisfied, it is necessary to consider subsection 38-190(2A) and subsection 38-190(3) of the GST Act.

Subsection 38-190 (2A) of the GST Act

Subsection 38-190(2A) of the GST Act provides that a supply covered by Item 2 is not GST-free if the acquisition of the supply relates (whether directly or indirectly, or wholly or partly) to the making of a supply of real property situated in Australia that would be input taxed under subdivisions 40-B or 40-C of the GST Act.

Subdivision 40-B of the GST Act deals with the supply of premises by way of lease, hire or licence; and Subdivision 40-C of the GST Act deals with the sale of residential premises and the supply of residential premises by way of long-term lease.

As stated above, GSTR 2003/7 confirms that the supply of marketing and advertising services is not directly connected with goods or real property, although its subject matter may be goods or real property. However, the supply of marketing/advertising services may be indirectly related to the making of the underlying supply of goods or real property in Australia.

As covered in the Explanatory Memorandum (EM) of Tax Laws Amendment (2004 Measures No. 6) Act 2005 in relation to subsection 38-190(2A) of the GST Act, supplies that would be indirectly related to the making of supplies of real property in Australia include advertising services.

The facts indicate that your services on the foreign website are directed solely to the overseas market place, where foreign residents and businesses can advertise and quote for jobs. You do not supply or provide your subscription and advertising services to any entitles in Australia.

Accordingly, where the acquisition of your services is not related (directly or indirectly) to the making of input taxed supplies of real property situated in Australia that would be wholly or partly input taxed, subsection 38-190(2A) of the GST Act does not apply to exclude the supply of your services from being GST-free under Item 2.

We note however that in the circumstance, where the acquisition of your services is related indirectly to the making of input taxed supplies of real property situated in Australia that would be wholly or partly input taxed, subsection 38-190(2A) of the GST Act will apply to exclude the supply of your services from being GST-free under Item 2.

Subsection 38-190(3) of the GST Act

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

From the facts provided, you state you do not supply or provide your subscription and advertising services to any entitles in Australia. Therefore, subsection 38-190(3) of the GST Act does not apply, and the supply is GST-free under Item 2.

All public rulings and publications stated in this ruling are available at the ATO website at www.ato.gov.au