Edited version of your private ruling

Authorisation Number: 1012261306641

This edited version of your ruling will be published in the public register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.

Ruling

Question 1

Is a supply of consultancy services by you to a non-resident entity a taxable supply?

Answer 1 

No, the supply of consultancy services by you to the non-resident entity is not a taxable supply and therefore is not subject to the goods and services tax (GST).

Question 2

Is a supply of rights by you to the non-resident entity to use intellectual property outside Australia a taxable supply?

Answer 2

No, the supply of rights by you to the non-resident entity to use intellectual property outside Australia is not a taxable supply and therefore is not subject to GST.

Question 3

Is the supply of a licence by you to the non-resident entity for which you receive consideration in the form of royalty payments, a supply that is subject to GST?

Answer 3

No, the supply of a licence by you to the non-resident entity is not subject to GST.

Relevant facts and circumstances

You are an Australian company which is registered for GST. You have developed certain technologies related to the high global-warming.

You have entered into a development and license agreement (agreement) with a non-resident entity to assist in the design, construction, commissioning and operating of a plant in an overseas country. Under the agreement, you supply your consultancy services and a licence to use your technologies and the intellectual property to the non-resident entity in the overseas country.

The non-resident entity is incorporated in the overseas country. The non-resident is not registered for GST in Australia.

You supply your consultancy services to the non-resident via teleconference linkup. However, you have also been overseas to provide hands-on consultancy services. Under the agreement, you receive monthly consideration for your supply of consultancy services.

Under the agreement, you also supply exclusive rights to the non-resident entity to use the intellectual property of the developed process. You have developed a process for treatment and fully own the intellectual property associated with the technology including patents issued in Australia as well as in the overseas country. The rights to use the intellectual property are for use in the overseas country. The agreement is signed by the non-resident entity in the overseas country. You supply an exclusive licence to the non-resident to use the intellectual property rights in the overseas country.

Under the agreement, you have also given an exclusive licence to the non-resident entity to use the technologies developed by you. The non-resident entity will pay you consideration in the form of a royalty payment. The royalties will come into effect when the plant has been constructed. The rights to use your technology are for use in the overseas country.

The non-resident entity does not carry on business in Australia. The non-resident entity also does not have any representatives acting on its behalf in Australia in relation to your supply to the non-resident entity.

You do not have an agreement with the non-resident entity to provide your services to another entity in Australia.

Legislation

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

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

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

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

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

A New Tax System (Goods and Services Tax) Act 1999 Section 9-10

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

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(2)

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

A New Tax System (Goods and Services Tax) Act 1999 Division 40

Reasons for Decisions

Issue 1

Taxable supply

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) 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.

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

Accordingly, your supply of consultancy services to the non-resident entity will be a taxable supply if it meets all the requirements in section 9-5 of the GST Act.

From the facts given, your supply of consultancy services satisfies all the requirements of paragraphs 9-5(a) to (d) of the GST Act, as follows:

· You make a supply of consultancy services and in return you will receive consideration for the supply by way of payment;

· You supply the consultancy services in the course or furtherance of your business (enterprise);

· You supply the services through an enterprise that you carry on in Australia (and therefore the supply is connected with Australia); and

· You are registered for GST in Australia.

Hence, your supply of consultancy services to the non-resident entity is taxable to the extent that it is not GST-free or input taxed.

The supply of consultancy services by you to the non-resident entity does not satisfy any of the input taxed provisions under the GST Act. The GST-free provisions under the GST Act must also be taken into consideration.

GST-free

Section 38-190 of the GST Act lists supplies of things other than goods or real property, for consumption outside Australia that are GST-free. Of relevance to the supply of consultancy services by you to the non-resident entity 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 the non-resident is not in Australia when the thing supplied is done and: 

· the supply is neither the 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.

Accordingly, where the provisions of 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.

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 performed/provided.

Goods and Services Tax Ruling GSTR 2004/7 discusses when an entity is not in Australia when the thing supplied is done. Paragraph 37 of GSTR 2004/7 provides that 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).

From the facts given, you supply the consultancy services to the non-resident entity who is based overseas. You advise that the non-resident entity does not carry on business or any activities at or through a fixed and definite place of its own for a sufficiently substantial period of time in Australia. Furthermore, the non-resident entity does not have any representatives acting on its behalf in Australia in relation to your consultancy services to the non-resident entity, and you deal directly with the non-resident entity who is overseas. Therefore, it is considered that the non-resident entity is 'not in Australia' for the purposes of Item 2.

Paragraphs (a) and/or (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.

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

From the facts provided, you advised that the supply of consultancy services by you to the non-resident entity is neither a supply of work physically performed on goods situated in Australia nor a supply directly connected with real property situated in Australia.

Further, paragraph 44 of Goods and Services Tax Ruling GSTR 2003/7 establishes that the supply of consultancy services is not directly connected with goods or real property. This is because we consider that a direct connection does not exist where the supply does not relate to particular goods or real property or only indirectly relates to such goods or real property.

Therefore, the supply of consultancy services by you to the non-resident entity satisfies paragraph (a) of Item 2 and is GST-free.

In addition, where 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 supply of services by you to the non-resident entity will also be GST-free under paragraph (b) of Item 2.

Please note that you are able to ascertain the GST registration status of an entity that you deal with by checking the Australian Business Register at www.abr.gov.au.

Limitations

Finally, having met the requirements of Item 2, it is also necessary to consider 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 given, the supply of consultancy services by you to the non-resident entity is not provided, and you do not have any agreements with the non-resident entity to provide the consultancy services to any other entity in Australia. Therefore, subsection 38-190(3) of the GST Act does not exclude this supply from being GST-free under Item 2.

It is noted that the limitations in subsection 38-190(2) of the GST Act are not applicable (as you are not supplying a right or option), and subsection 38-190(2A) of the GST Act is not applicable (as the consultancy services are not related to the making of input taxed supplies of real property).

In summary, the supply of consultancy services by you to the non-resident entity is GST-free under Item 2 and no GST payable on this supply.

Issue 2

As discussed in the reasons for decisions to issue 1, GST is payable on a taxable supply under section 9-5 of the GST Act.

You satisfy the requirements of the taxable supply under paragraphs 9-5(a) to 9-5(d) of the GST Act as you make the supply of rights to the non-resident entity to use intellectual property for consideration; the supply is made in the course or furtherance of your enterprise; the supply is connected with Australia and you are registered for GST.

Hence, the supply of rights to use intellectual property by you to the non-resident entity outside Australia is a taxable supply to the extent that it is not GST-free or input taxed.

There are no provisions under the GST legislation in which the supply of rights to use intellectual property by you to the non-resident entity could have been input taxed. What remains to be determined is whether the supply is GST-free.

GST-free

As discussed in the reasons for decisions to issue 1, the supply of rights to use intellectual property by you to the non-resident entity will be GST-free if it satisfies all the requirements in subsection 38-190 (1) of the GST Act.

Of most relevance to this situation is item 4 in the table in subsection 38-190(1) of the GST Act (Item 4), which deals with supplies made in relation to rights. Item 4 states that a supply of rights is GST-free 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.

Goods and Services Tax Ruling GSTR 2003/8 provides guidance on the supply of rights for use outside Australia.

The supplies of intellectual property rights are supplies that are made in relation to rights for the purposes of Item 4. In relation to paragraph (a) of Item 4 above, paragraph 108 of GSTR 2003/8 confirms that a supply that is made in relation to rights is GST-free under paragraph (a) of Item 4 'if the rights are for use outside Australia'.

Based on the facts given, you have an agreement with the non-resident entity to supply a licence which provides the recipient with an exclusive right to process and with exclusive rights to use the intellectual property. The rights are exercised overseas. As such, the rights are for use outside Australia, the supply satisfies the requirements of item 4 (a) of the GST Act.

Furthermore, you advised us that the non-resident entity is not an Australian resident and was outside Australia when you supplied the rights. Therefore, the supply of rights to use the intellectual property also satisfies the requirements of item 4(b) of the GST Act.

The supply is not excluded from being GST-free under subsection 38-190(2) of the GST Act as it is not a supply of a right to acquire something the supply of which would be connected with Australia and would not be GST-free.

Therefore, the supply of rights to use the intellectual property outside Australia by you to the non-resident entity is a GST-free supply under Item 4.

Issue 3

As discussed in the reasons for decisions to issue 1, GST is payable on a taxable supply under section 9-5 of the GST Act.

You satisfy the requirements of the taxable supply under paragraphs 9-5(a) to 9-5(d) of the GST Act as you make the supply of a license to the non-resident entity to use your technology for consideration; the supply is made in the course or furtherance of your enterprise; the supply is connected with Australia and you are registered for GST.

Hence, the supply of a licence to use the technology by you to the non-resident entity outside Australia is a taxable supply to the extent that it is not GST-free or input taxed.

There are no provisions under the GST legislation in which the supply of a license to use the technology by you to the non-resident entity could have been input taxed. What remains to be determined is whether the supply is GST-free.

GST-free

As discussed in the reasons for decisions to issue 1, the supply of a license to use the technology by you to the non-resident entity will be GST-free if it satisfies all the requirements in subsection 38-190 (1) of the GST Act.

As discussed in the reasons for decisions to issue 2, supplies of licenses are supplies that are made in relation to rights for the purposes of Item 4.

Based on the facts given, you have an agreement with the non-resident entity to supply a license which provides the non-resident entity with exclusive rights to use the technologies developed by you. The rights are exercised overseas. As such, the rights are for use outside Australia, the supply satisfies the requirements of item 4 (a) of the GST Act.

Furthermore, you advised us that the non-resident entity is not an Australian resident and was outside Australia at the time of granting the rights. Therefore, the supply of rights to use your technologies outside Australia also satisfies the requirements of item 4(b) of the GST Act.

The supply is not excluded from being GST-free under subsection 38-190(2) of the GST Act as it is not a supply of a right to acquire something the supply of which would be connected with Australia and would not be GST-free.

Therefore, the supply of a license to use the technologies outside Australia by you to the non-resident entity is a GST-free supply under Item 4, and the payment of royalties to you by the non-resident entity in relation to this licence is not subject to GST.

All public rulings and/or publications referred to in this ruling are available at the Tax Office website at www.ato.gov.au.