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Ruling

Subject: Goods and services tax (GST) and expert opinion report writing services

Question

Is GST payable on your supply of the service of writing an expert opinion report, where you deal with the non resident entity's Australian based lawyers and you address your invoices to the non-resident entity, c/- a resident entity and send them to an address in Australia?

Answer

GST will not be payable where your supply of the service of writing an expert opinion report is not directly connected with real property situated in Australia and/or the non-resident entity is not registered or required to be registered for GST. Otherwise, GST will be payable.

See reasons for decision for advice on the circumstances in which your supplies will be directly connected with real property situated in Australia.

Relevant facts and circumstances

You are registered for GST.

You operate an enterprise in Australia only.

You are contracted to write expert opinion reports for other entities. The reports are used in Australian court cases.

You sub-contract out the service of writing the reports to Australian based entities.

The court cases involve compensation claims, for injury, for example. The parties to the court cases are the injured party and another entity which is being sued for compensation.

The incident resulting in the injury happens in Australia.

The non-resident entity is an insurance underwriter.

The non-resident entity is a non-resident entity that is not based in Australia.

You do not know if the non-resident entity is registered or required to be registered for GST.

The non-resident entity may pay compensation to the injured party.

The non-resident entity may reimburse an insurance company for an insurance settlement paid by the insurance company.

The reports contain opinions on technical questions, for example, the following questions:

· Whether there was adequate security personnel and whether security arrangements were adequate at a certain establishment in Australia.

· Whether fencing on a property was adequate.

· OH&S issues in a certain establishment.

· Reconstructing a motor vehicle accident.

· Whether there was enough light over a pedestrian footpath.

· Why a scaffold collapsed.

You give a copy of an expert opinion report to the non-resident entity's Australian based lawyer (for example, the entity) and a copy of the report to the resident entity (an insurance claims manager). The other parties receive a copy of the report via the non-resident entity's Australian based lawyer.

The non-resident entity examines the reports to decide whether to settle a compensation case before the case proceeds to court.

The non-resident entity does not have to attend court or come to Australia to enable you to provide the report writing services.

You deal with the non-resident entity's Australian based lawyers, which the non-resident entity hires. The non-resident entity gives the Australian based legal firm approval to organise provision of an expert opinion report. You address your quotes to the non-resident entity (c/- the resident entity).

The non-resident entity sometimes instructs you to address your invoices to the non-resident entity, c/- (Australian based entity, for example the resident entity)(address in Australia). In these cases, you send the invoices to an address in Australia.

The non-resident entity pays you for the report writing services.

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 your supply of report writing services under the circumstances if your supply is not directly connected with real property situated in Australia and/or the non-resident entity is not registered or required to be registered for GST. Under such circumstances, the requirements of item 2 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) would be satisfied and you do not provide your supply, and are not required to provide your supply, to 'another entity in Australia'. Otherwise, GST will be payable as the requirements of section 9-5 of the GST Act would be satisfied.

Detailed reasoning

GST is payable by you where you make a taxable supply.

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)

You satisfy the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act. This is because:

· you supply report writing services for consideration,

· you supply the services in the course or furtherance of an enterprise that you carry on

· the supply is connected with Australia, and

· you are registered for GST.

There are no provisions in the GST Act under which your supply of the services is input taxed.

Therefore, what remains to be determined is whether your supply of the services is GST-free.

GST-free supplies of services to non-residents

Item 2 in the table in subsection 38-190(1) of the GST Act (item 2) provides that a supply of something other than goods or real property is GST-free if:

(a) the supply is neither a supply of work physically performed on goods situated in Australia when the work is done nor a supply directly connected with real property situated in Australia; or

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

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

Without limiting subsection (2) or (2A), a supply covered by item in the table is not GST-free if:

(a) it is a supply under an agreement entered into, whether directly or

indirectly, with a *non-resident; and

(b) the supply is provided, or the agreement requires it to be provided, to

another entity in Australia.

Paragraph 31 of Goods and Services Tax Ruling GSTR 2004/7 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.

You are contracted to write expert opinion reports. Therefore, you make supplies of the service of writing expert opinion reports. Hence, you make supplies of something other than goods or real property.

In relation to the contract under which you supply report writing services, you deal with the non-resident entity's Australian based lawyer, for example, the resident entity.

In accordance with paragraph 45 of Goods and Services Tax Ruling GSTR 2000/37, when an agent is authorised to undertake a transaction on behalf of the principal, thereby binding the principal to the legal effects of the transaction, then the transaction is made by the principal through the agent.

We need to consider whether the non-resident entity's Australian based lawyer enters into the purchase transaction in the capacity of agent on behalf of the non-resident entity.

Paragraph 28 of GSTR 2000/37 provides indicators that help determine whether there is an agency relationship. It states:

28. In most cases, any relevant documentation about the business relationship, the description used by the parties and the conduct of the parties establish the existence of an agency relationship. Therefore, the following factors may show that you are an agent under an agency relationship, although no single factor (by itself) is determinative:

· any description of you as an agent, having authority to act for another party, in an agreement (expressed or implied) between you and the other party;

· any exercise of the authority that you are given to enter into legal relations with a third party;

· whether you bear any significant commercial risk;

· whether you act in your own name;

· whether you are remunerated for your services by way of commissions and whether you are entitled to keep any part of your remuneration secret from another party; and

· whether you decide the price of things that you might sell to third parties.

In accordance with GSTR 2000/37, it is recognised that there are situations where a solicitor acts as agent for a client. Paragraph 48 of GSTR 2000/37 states:

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.

The non-resident entity gives an Australian based legal firm approval to organise provision of an expert opinion report. You address your quotes to the non-resident entity (c/- the resident entity). You address your invoices to the non-resident entity. The non-resident entity pays you for your report writing services. Based on these facts, we conclude that the non-resident entity is liable to pay you for your services.

Therefore, the relevant legal firm, as agent for the non-resident entity, is authorised to undertake the purchase transaction (purchasing report writing services from you) on behalf of the principal - the non-resident entity, thereby binding the principal to the legal effects of the transaction (specifically, the non-resident entity becomes liable to pay you for your services). Therefore, in accordance with paragraph 45 of GSTR 2000/37, this purchase is made by a principal - the non-resident entity through its agent - the relevant legal firm. Hence, the non-resident entity is the recipient of your supply and purchaser of your supply.

You supply report writing services to the non-resident entity - a non-resident and the non-resident is not in Australia in relation to your supply.

Work physically performed on goods situated in Australia

Your supply is not a supply of work physically performed on goods situated in Australia when the work is done.

Supplies directly connected with real property situated in Australia

Paragraph 32 of Goods and Services Tax Ruling GSTR 2003/7 provides guidance on the meaning of directly connected with goods or real property for the purposes of subsection 39-190(1) of the GST Act. It states:

32. As explained above, we consider that the expression 'directly connected with' contemplates a very close link or association between the supply and particular goods or real property.

Paragraph 33 of GSTR 2003/7 gives examples of supplies that are directly connected with goods or real property. It states:

33. We consider that such a close link or association between the supply and particular goods or real property exists where, for example, the direct object of the supply is the goods or real property in the sense that:

· the supply changes or affects the goods or real property in a physical way; or

· there is a physical interaction with the goods or real property but without changing the goods or real property; or

· the supply establishes the quantity, size, other physical attributes or the value of the goods or real property; or

· the supply affects (or its purpose is to affect) or protects the nature or value (including indemnity against loss) of the goods or real property; or

· the supply affects, or is proposed to affect, the ownership of the goods or real property including any interest in, or right in or over goods or real property.

Paragraph 34 of GSTR 2003/7 states:

34. This is not an exhaustive list of the situations where, in our view, a direct connection exists. There may be some supplies that are directly connected with goods or real property that do not readily fit into one of these categories.

Your supply of the service of writing an expert opinion report on the issue of whether fencing on a property was adequate is a supply that is directly connected with real property situated in Australia. This is because your supply establishes a physical attribute of real property situated in Australia.

Your supply of the service of writing an expert opinion report on the issue of whether there was adequate lighting above a pedestrian footpath is directly connected with real property situated in Australia. This is because your supply establishes a physical attribute of real property situated in Australia.

Your supply of the service of writing an expert opinion report on OH&S issues in an establishment would be directly connected with real property situated in Australia if your report establishes a physical attribute of real property situated in Australia. Otherwise, your supply of this service would not be directly connected with real property situated in Australia.

Your supplies of the service of writing expert opinion reports on the other issues you mentioned are not supplies of the types listed in paragraph 33 of GSTR 2003/7. Additionally, we do not consider that there is a very close link or association between these supplies and particular real property. Hence, these supplies are not directly connected with real property situated in Australia.

Recipient of supply makes acquisition in carrying on its enterprise

The non-resident entity acquires your services in carrying on its enterprise.

When requirements of item 2 will be satisfied

Where your supply of report writing services is not directly connected with real property situated in Australia and/or the non-resident entity is not registered or required to be registered for GST, you will satisfy the requirements of item 2. Otherwise, the requirements of item 2 will not be satisfied.

We shall now consider whether the exception at subsection 38-190(3) of the GST Act applies.

Your supply of report writing services to the non-resident entity is a supply under an agreement you have with the non-resident entity - a non-resident. Therefore, the requirement of paragraph 38-190(3)(a) of the GST Act is satisfied.

Provision of supply to another entity in Australia

Paragraphs 60 to 62 of Goods and Services Tax Ruling GSTR 2005/6 provide guidance on determining whether a supply is provided to 'another entity' for the purposes of subsection

38-190(3) of the GST Act. They state:

60. The example in the Explanatory Memorandum accompanying the Bill⁹ that introduced subsection 38-190(3) illustrates this. In that example, non-resident parents contract for the supply of education services to be provided to their children in Australia. The contractual flow of the services is to the parents, while the actual flow of the services is to the children. The supply is made to the parents (non-residents) and provided to another entity, each child, in Australia.

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.

62. For example, if a supply of entertainment services is made to a non-resident company and in the performance of that service the employees are the entities that are entertained, the actual flow of that service is to another entity, each employee (see above where the meaning of 'another entity' is discussed). The supply is made to the non-resident company (the employer) and provided to another entity (each employee).

Paragraph 471 of GSTR 2005/6 discusses the situation where a non-resident entity makes an acquisition through a resident agent. It states:

471. Sometimes a non-resident entity makes an acquisition through a resident agent. If all the agent does is to arrange, on behalf of the non-resident, for the supply to be made and provided to the non-resident, the supply is not provided to the resident agent in Australia.

Paragraphs 472 to 476 of GSTR 2005/6 give an example of the principle in paragraph 471 of GSTR 2005/6. They state:

Example 19 - Australian barrister engaged by an Australian solicitor who is acting as agent of a non-resident individual

472. An Australian solicitor acting as agent for a non-resident individual engages an Australian barrister to supply legal services to the non-resident individual on an immigration matter. The individual is not in Australia when the legal services are performed and the supply is not directly connected with real property situated in Australia.

Item 2

473. The supply of legal services by the barrister is made to the non-resident individual (principal) through the solicitor, as agent for the non-resident. The presence in Australia of the solicitor does not mean that the non-resident individual is in Australia for the purposes of item 2. The supply by the barrister to the non-resident individual meets the requirements of item 2.

Subsection 38-190(3)

474. The supply of legal services by the barrister to the non-resident individual is a supply under an agreement entered into indirectly with a non-resident (that is, through the resident agent). Paragraph 38-190(3)(a) is therefore satisfied.

Provided to another entity

475. What is being supplied is advice on immigration matters concerning the non-resident individual. The barrister has been engaged by the Australian solicitor to provide advice to the non-resident individual. The legal services are provided to the non-resident, not the agent. The supply by the barrister to the non-resident individual is both made and provided to the non-resident, through the solicitor as agent. The supply by the barrister is neither made nor provided to the solicitor.

476. Subsection 38-190(3) does not apply to the supply of the legal services provided by the barrister.

Based on the fact that the non-resident entity would be purchasing the report writing services for its own purposes (the non-resident examines the reports to decide whether to settle a compensation case before it proceeds to court), we consider that the actual flow of your supply is solely to the non-resident entity, despite the fact that other parties receive copies of the reports and would use the reports. Therefore, you provide your supply solely to the non-resident entity.

The non-resident entity is a non-resident entity. You are not providing your supply of report writing services to the resident agent of the non-resident entity (the non-resident entity's Australian based lawyer) as all this agent does is arrange, on behalf of the non-resident entity - the non-resident, for the supply to be made and provided to the non-resident entity- the non-resident.

You are providing your supply of report writing services to the non-resident entity with which you have an agreement to supply your services

Hence, you are not providing your supply of report writing services to 'another entity in Australia' and you are not required to provide your supply of report writing services to 'another entity in Australia', for the purposes of paragraph 38-190(3)(b) of the GST Act.

Therefore, not all of the requirements of subsection 38-190(3) of the GST Act are satisfied. Hence, the exception at this subsection does not apply.

Therefore, where the requirements of item 2 are satisfied, you will make a GST-free supply to the non-resident entity.

Hence, you would not make a taxable supply if the requirements of item 2 are satisfied (under the circumstances you have set out). Therefore, GST would not be payable on your supplies under the circumstances if the requirements of item 2 are satisfied.

If the requirements of item 2 are not satisfied, you will not make a GST-free supply to the non-resident entity under the circumstances. Under these circumstances, you would make a taxable supply as all of the requirements of section 9-5 of the GST Act would be satisfied. Therefore, GST would be payable under these circumstances.