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Ruling

Subject: GST and supplies to a non-resident

Question 1:

What is the goods and services tax (GST) status of your supplies to overseas manufacturers where you receive a professional fee as consideration?

Answer:

From the facts given, your supplies to the overseas manufacturers are done in and outside Australia and related to customers located in and outside Australia.

Overseas customers

Your supplies to the overseas manufacturers are GST-free where the potential customers are located overseas and you receive the professional fee as consideration.

Australian customers

Your supplies to the overseas manufacturers are a combination of taxable and GST-free supplies when you receive the professional fee as consideration and the customers are located in Australia. You will be liable to pay GST on the taxable supplies.

You therefore need to apportion the consideration you receive for the taxable and GST-free supplies to find the consideration for the taxable part. You can use any reasonable method to apportion the consideration and the method you use must be supportable in the particular circumstances.

Question 2:

Will GST be applicable on your sale of the security products in Australia?

Answer:

Yes, GST will be payable on the sale of the security products in Australia by DSS.

Question 3:

Will GST be applicable to the importation of the products in Australia by you?

Answer:

Yes, GST will be applicable to the importation of the products in Australia by you where the customs value of the goods is more than $1,000.

Question 4:

Can you claim back the GST paid on the acquisitions you made for your Australian business operation?

Answer:

Yes, you can claim back the GST paid on the acquisitions you made for your Australian business operation where these acquisitions are creditable acquisitions and you hold valid tax invoices at the time you make the claim. You can also claim back the GST paid on the creditable importations you have made provided you hold the documentations for the imported goods.

Relevant facts

You are an Australian company and registered for the GST. Your vision is to provide professional services to potential overseas customers and Australian customers of overseas manufacturers. In return you will receive a professional service fee from the various manufacturers on whose behalf they will be working in those markets.

Further, you will be importing various security products in Australia which you will sell in the Australian market.

Overseas manufacturers/ overseas customers

Manufacturers located outside Australia will be producing security products and entities located overseas will order and buy these products directly from them. The purchased products will be delivered by the manufacturers as the supply part is the responsibility of the manufacturers.

You will make professional services to various overseas manufacturers on whose behalf you will be working in some specific markets overseas. You will look for new potential products and for new security applications which can be introduced in the markets. The services include providing advice on prevention of fraud and providing solutions to the customers to solve the areas of risk.

You will be reviewing each customer's exposure to fraud and making presentations to those potential customers as to the benefit of the specific security products suitable for their circumstances. This is part of the consulting service.

You do not currently have a contract in place with the various manufacturers. You advised you will draw a formal contract with the manufacturers shortly.

As part of your responsibility you will look for new customers and areas of interest for the manufacturers. You will therefore make presentations to overseas customers for the purpose of selling the security products to them. The presentation is part of the supply contract which you will be doing.

You will be responsible for advising the manufacturers' potential customers (overseas customers) on the correct solutions including the appropriate security features and will prepare the tender bids for the manufacturers. You will also do presentations and training wherever required and will take full responsibility of any errors committed during the advising process and any financial implications emanating from the same.

The professional fees that you will receive from the overseas manufacturers are for marketing and consulting services which includes preparation of the tender bids for the manufacturers, making presentations, installations of the products and providing training to the potential customers. The professional fee is a lump sum amount which is paid only where a sale has been made that is the customer has made a purchase with the manufacturer. Where no sale has been made you do not receive any payment from the overseas manufacturers.

The fee varies on a case to case basis as the items are varied as per customer's needs and depending on what price is finally charged to the customer you will be paid the fee. The final price is fixed and decided by you.

The overseas manufacturers do not have any representatives in Australia or any third party that will be involved with the supply made by you to them. They are non-residents of Australia for taxation purposes and you are of the view that as they are not operating in Australia they are not required to be registered for GST.

The overseas manufacturers will not provide you with a list of customers for the marketing and consulting services. You will be responsible for looking for the customers plus new product development wherever possible.

The overseas customers do not have subsidiaries in Australia and do not have any representatives in Australia that would be involved with your supplies. The overseas customers are not registered or required to be registered for GST.

Customers in Australia

As you proceed with your business activities you will enter into agreements with various manufacturers to sell/market their products in Australia. You will provide their services within Australia to customers residing in Australia, for the purposes of selling them the security products.

You will represent the manufacturers in Australia by selling and marketing their products in Australia. Your role will be to expand the business in Australia with products which have never been marketed before by the manufacturers. The value of the products will vary from product to product. To determine the Australian customers you will approach various potential customers based on experience and as usual done in any new business venture of this kind.

If the Australian customers decide to purchase the security products they will place the order and enter into a purchase contract with you with the exception of large contracts which the manufacturers may opt to take on themselves. The Australian customers who have contracted you for your services will not request you to provide the services to entities located outside Australia. The Australian customers may be registered for GST.

You procure the small products from the manufacturers and deliver them to the Australian customers. You will buy the products from the manufacturers, add a margin and sell to the final customers. Terms and conditions will be on a case by case basis depending on the customer. You will enter the products under your name at customs.

The products will need to be installed when purchased. You will be responsible for the installation. Where any of the products have some problems the final customer will contact you to fix the problem.

Where the manufacturers are supplying the large products for the major Australian contracts you will receive the professional fees. You will be receiving the professional fees for the Australian sales achieved for the manufacturers, for the development of the market for their products, providing consultation to the potential customers, infilling the tenders, follow up of the business till it is completed successfully and payment received. You have the role of locating potential purchasers to collecting monies from the customers on behalf of the manufacturers and you will receive the professional fee based on the final price you set for the sale. The payment is normally received after full completion of the sale

You will provide all the local support required for the product including installation, preventative maintenance and provision of training and consumables from time to time and the payment for the purchase will be made directly to the manufacturers. You will provide after sale support to Australian customers and that will be charged directly to the customer and you will collect the payments.

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 section11-5

A New Tax System (Goods and Services Tax) Act 1999 section 11-15

A New Tax System (Goods and Services Tax) Act 1999 section 13-5

A New Tax System (Goods and Services Tax) Act 1999 section 13-10

A New Tax System (Goods and Services Tax) Act 1999 section 15-5

A New Tax System (Goods and Services Tax) Act 1999 section 15-10

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

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

A New Tax System (Goods and Services Tax) Act 1999 section 42-5

A New Tax System (Goods and Services Tax) Act 1999 section 69-5

Reasons for decisions

Question 1:

What is being supplied?

Before we determine whether you are liable to pay GST on the professional fees you receive from the overseas manufacturers we first need to determine what is being supplied in return for the professional fees.

From the facts given, the professional fees that you will receive from the overseas manufacturers are for marketing and consulting services which include preparation of the tender bids for the manufacturer, presentations, installations of the products and training to the potential customers. You will provide all the local support required for the products including installation, training, preventative maintenance and provision of consumable from time to time. You will provide after sale support to the Australian customers. This service will be charged directly to the customer and you will collect the payments.

The professional fee is a lump sum amount which is paid only where a sale has been made that is the customer has made a purchase with the manufacturer. Where no sale has been made you do not receive any payment from the overseas manufacturer.

Where the marketing services are carried out before a sale occurs and no professional fees have been received for these marketing services, GST will not be applicable to the supply of marketing services as you have not received any consideration for your supply of marketing services. Accordingly, all the requirements in section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) would not be satisfied (for more information on section 9-5 please refer below).

However, where you receive the professional fees, this fee will be consideration for supplies made by you to the overseas manufacturers. In this instance, the professional fees would relate to the following supplies:

· Supply of marketing services;

· Supply of training services and after sale support services;

· Supply of installations and maintenance services;

· Supply of administrative services.

The next step is to determine the GST status of these supplies where the consideration is the professional fees.

GST status of supplies

GST is payable on a taxable supply. Under section 9-5 of the 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; and

· 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.

Based on the information received, you will satisfy paragraphs 9-5(a) to 9-5(d) of the GST Act as:

· you make the supplies and receive the professional fees as consideration;

· the supplies are made in the course of an enterprise that you carry on;

· the supplies are connected with Australia as they are done through an enterprise that you carry on in Australia; and

· you are registered for GST.

However, the supplies will be taxable supplies to the extent that they are not GST-free or input taxed. There is no provision under the GST Act that will make these supplies input taxed.

The next step is to examine whether these supplies are GST-free and therefore excluded from being taxable supplies.

GST-free supply

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 supplies is item 2 in the table in subsection 38-190(1) of the GST Act (Item 2).

Item 2 provides that a supply that is made to a non-resident who is not in Australia when the thing supplied is done will be GST-free where:

· 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.

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 and to the extent that subsection 38-190(3) of the GST Act does not negate this GST-free status.

Not in Australia in relation to the supply

For a supply 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 the thing supplied is done.

Where the thing supplied is a service, when the service is done refers to the period of time during which the service is performed.

Goods and Services Tax Ruling GSTR 2004/7 (available at www.ato.gov.au) provides guidance on when a non-resident is not in Australia when the thing supplied is done.

A non-resident company is in Australia if the company carries on its business or 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.

Further, 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; or

· the presence of the company is involved in the supply, unless the only involvement is minor.

Based on the information received, the precondition that the non-resident must not be in Australia in relation to the supply when the thing supplied is done is met as the overseas manufacturers carry on their business activities outside Australia.

Paragraph (a) of Item 2

The requirements in paragraph (a) of Item 2 are met if the thing supplied is neither work physically performed on goods situated in Australia when the work is done, nor directly connected with real property situated in Australia.

Goods and Services Tax Ruling GSTR 2003/7 (available at www.ato.gov.au) provides guidance on when a supply is physically performed on goods and when a supply is directly connected with real property.

A supply of work physically performed on goods is always directly connected with goods. However, not all supplies directly connected with goods are also supplies of work physically performed on goods. A supply of work physically performed on goods requires a much closer connection with the goods. In many cases it is self-evident that a supply is a supply of work physically performed on goods.

Paragraph (b) of Item 2

Under paragraph (b) of Item 2, a supply other than goods or real property is GST-free if the non-resident acquires the services in carrying on their 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. The supplier can check the GST registration status of an entity that they deal with by checking the Australian business register at www.abr.gov.au

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 reasonable grounds to be satisfied, if the non-resident has provided a written statement, declaring that they are not required to be registered. This is only accepted where the supplier has no reason to believe the statement is not accurate.

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

The scope of Item 2 is limited by subsection 38-190(3) of the GST Act which provides that a supply covered by Item 2 is not GST-free if:

· it is a supply under an arrangement 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 (available at www.ato.gov.au) provides guidance on the application of subsection 38-190(3) of the GST Act.

Subsection 38-190(3) of the GST Act applies if there is a supply of something, being a supply that is made to a non-resident and covered by Item 2, and the same supply is provided, or is required to be provided to another entity in Australia.

The word 'provided' is used in subsection 38-190(3) of the GST Act to contrast with the term 'made' in Item 2. In the context of section 38-190 of the GST Act, 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.

Accordingly, a supply is provided to another entity if the contractual flow is to one entity (the non-resident recipient) while the actual flow of that supply (for example, the doing of the thing supplied) is in whole or in part, to another 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 entity) and the actual flow of the supply is to another entity.

A clear understanding of the exact nature of the supply is essential in determining whether that supply is provided to another entity. It is only by having regard to what is in substance and reality being supplied that it is possible to identify to which entity that supply is provided.

The focal point in working out whether a supply is provided to another entity is the facts and circumstances of the doing of the thing supplied. By the supplier examining what it is required to do and in what circumstances, the supplier is able to objectively determine to whom the supply is provided.

Supply of marketing services

From the facts given, the marketing services made to the overseas manufacturers (done in and outside Australia) will satisfy paragraph (a) of Item 2 as:

· the non-resident (overseas manufacturers) is not in Australia in relation to the supply;

· the supply of marketing services is not a supply of work performed on goods though they are connected to goods; and

· the services are not directly connected with real property in Australia.

Further subsection 38-190(3) of the GST Act is not applicable as the supply of the marketing services under the arrangement is made and provided to the overseas manufacturer and not to the potential overseas and Australian customers who are only receiving information about the products through the marketing services.

Accordingly, your supply of marketing services will be GST-free under paragraph (a) of Item 2.

Supply of training services and after sale support services

Overseas customers

Where you perform the training and after sale support services outside Australia and the customers are located outside Australia, the supply of these services will be GST-free under paragraph (a) of Item 2.

Subsection 38-190(3) of the GST Act is not applicable as you are required under the arrangement with the overseas manufacturer to provide the services to entities that are located outside Australia.

Australian customers

Where you perform the training and after sale services in Australia and the customers are located in Australia, the supply of these services will not be GST-free under paragraph (a) of Item 2 by virtue of subsection 38-190(3) of the GST Act as under the arrangement in place with the overseas manufacturers, you are required to provide these training and after sale services to these customers who are located in Australia.

The supply of the training and after sales services in this instance is a taxable supply and you will be liable for GST on the taxable supply.

Supply of installations and maintenance services

Customers located outside Australia

Where you perform the installation and maintenance services outside Australia and the customers are located outside Australia, the supply of these services will be GST-free under paragraph (a) of Item 2.

Subsection 38-190(3) is not applicable as you are required under the arrangement with the overseas manufacturer to provide the services to entities that are located outside Australia.

Customers located in Australia

Paragraph (a) of Item 2

Where you perform the installation and maintenance services in Australia and the customers are located in Australia, the supply of the installation and maintenance services will not be GST-free under paragraph (a) of Item 2 as the supply is a supply of work performed on goods located in Australia.

Paragraph (b) of item 2

Where the overseas manufacturer is not required to be registered for GST, the supply of installation and maintenance services will be GST-free under paragraph (b) of Item 2.

Before you treat the supply as GST-free under paragraph (b) of Item 2, you must be satisfied that the non-resident manufacturers are not required to be registered for GST since a supply of goods that requires installation or maintenance in Australia by a non-resident would be connected with Australia and if the turnover of these supplies supply is over $75,000 the non-resident would be required to be registered for GST.

However, subsection 38-190(3) of the GST Act will be applicable to the supply as under the arrangement in place with the overseas manufacturers you are required to provide installation and maintenance services to these customers who are located in Australia. The supply of the installation and maintenance services will therefore be a taxable supply by virtue of subsection 38-190(3) of the GST Act

Supply of administrative services

From the facts given, the supply of administrative services (done in and outside Australia) will satisfy paragraph (a) of Item 2 as:

· the non-resident (overseas manufacturers) is not in Australia in relation to the supply;

· the supply of administrative services is not a supply of work performed on goods situated in Australia; and

· the services are not directly connected with real property in Australia.

Further subsection 38-190(3) of the GST Act is not applicable to the supply as you are not required to provide the administrative services to another entity in Australia.

Accordingly, the supply of Administrative services will be GST-free under paragraph (a) of Item 2

Summary

Overseas customers

Your supply of services to the overseas manufacturers is GST-free where the potential customers are located overseas.

Australian customers

Your supply of services to the overseas manufacturers is a combination of taxable and GST-free supplies where the customers are located in Australia. You will be liable to pay GST on the taxable supplies.

You therefore need to apportion the consideration you receive for the taxable and GST-free supplies to find the consideration for the taxable part. You can use any reasonable method to apportion the consideration and the method you use must be supportable in the particular circumstances.

The following publication which is available at www.ato.gov.au may be of assistance to you:

Goods and Services Tax Ruling GSTR 2001/8 - it provides guidance on apportioning consideration received for taxable and non-taxable parts for GST purposes.

Question 2:

A supply of goods in Australia is a taxable supply where all the requirements in section 9-5 of the GST Act are met.

From the facts given, you will satisfy all the requirements in section 9-5 of the GST Act when you sell the products in Australia as:

· you make the supply for consideration;

· the supply is made in the course of an enterprise that you carry on in Australia;

· the supply is connected with Australia as the goods are delivered in Australia (subsection 9-25(1) of the GST Act);

· you are registered for GST; and

· there is no provision under the GST Act that will make the supply of these goods in Australia GST-free or input taxed.

Accordingly, you will be liable to pay GST for the taxable supplies of these goods in Australia.

Question 3:

GST is payable on importation of goods in Australia where the importation is a taxable importation. For an entity to make a taxable importation there are no requirements for the entity to register for GST or for the entity to carry on an enterprise.

Under subsection 13-5(1) of the GST Act you make a taxable importation if:

· goods are imported; and

· you enter the goods for home consumption (within the meaning of the Customs Act 1901).

However, the importation is not a taxable importation to the extent that it is non-taxable importation.

Goods and Services Tax Ruling GSTR 2003/15 provides guidance on importation of goods into Australia. Paragraphs 29 and 30 of GSTR 2003/15 state:

29. Goods are typically imported into Australia when they are brought to Australia to be unloaded here. "Imported' in this context has its ordinary meaning.

30. Imported goods are entered for home consumption, within the meaning of the Customs Act, by an 'owner' as defined in that Act, entering imported goods for home consumption. The imported goods are entered by lodging an import entry in the name of the owner.

From the facts given you will satisfy paragraphs (a) and (b) in subsection 13-5(1) of the GST Act as you will be the owner of the imported goods when they arrive in Australia.

However, the importation is not a taxable importation to the extent that it is a non-taxable importation.

Under section 13-10 of the GST Act an importation is a non-taxable importation if:

· if it is an importation of a kind set out in Division 42 of the GST Act; or

· to the extent had it been a supply, the supply would have been a GST-free or input taxed supply.

Subsection 42-5(1) of the GST Act list the items in Schedule 4 to the Customs Tarriff Act 1995 that will make the importation of the goods non taxable importations and includes 'low value goods' or goods on which customs duty and taxes is $50 or less and which have a customs value of less than $1,000.

Accordingly, if the value of the imported goods is less than $1,000 no GST will be payable as the importation will be a non taxable importation.

However, where the value of the imported goods is more than $1,000 GST will be payable as the importation will be a taxable importation under subsection 13-5(1) of the GST Act. The GST will be payable before the goods are released by Customs and you would make the payments at the same time that you pay customs duty if the goods are subject to customs duty.

For more information on imported goods please refer to the fact sheet GST and imported goods which is available at www.ato.gov.au

Question 4:

You are entitled to input tax credits for your creditable acquisitions and creditable importations.

Under section 11-5 of the GST Act you make a creditable acquisition if:

· you acquire anything solely or partly for a creditable purpose;

· the supply of the thing to you is a taxable supply;

· you provide or are liable to provide consideration for the supply; and

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

Under subsection 11-15(1) of the GST Act you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your business.

However, under subsection 11-15(2) of the GST Act you do not acquire the thing for a creditable purpose if the acquisition relates to making input taxed supplies (for example financial supply) or the acquisition is of a private or domestic nature.

Under section 15-5 of the GST Act, you make creditable importations if:

· you import goods solely or partly for a creditable purpose;

· the importation is a taxable importation; and

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

Under subsection 15-10(1) of the GST Act, you import goods for a creditable purpose to the extent that you import the goods in carrying on your business.

However, you are not entitled to an input taxed credit to the extent that the importation relates to making input taxed supplies or is private or domestic in nature (subsection 15-10(2) of the GST Act).

Accordingly if you satisfy the requirements in sections 11-5 and 15-5 of the GST Act you are entitled to claim back the GST paid on the acquisitions or importations.

There are, however, certain acquisitions or importation for which you cannot claim the GST paid (and which are not deductible for Australian income tax purposes). Generally, such expenditure has a private element and includes expenditure on:

· Travel for an accompanying relative;

· Recreational club fees;

· Leisure facilities or boats;

· Entertainment, including certain meal entertainment expenses;

· Non-cash business benefits where a private benefit is also received (for example, a person receives benefits of a private nature to induce that person to purchase items of plant or equipment);

· Non-compulsory uniform expenses and

Certain car parking expenses.

To claim an input tax credit for a creditable acquisition you must also hold a valid tax invoice if the price (that is including GST) of the acquisition exceeds $82.50.

Further you must have documentations showing the goods have been imported and the goods have entered Australia for home consumption before you can claim input tax credit for the creditable importation.

Summary

You are entitled to input tax credits for the creditable acquisitions and creditable importations that you made provided you hold valid tax invoices for the creditable acquisitions and documentations for the creditable importations.