Edited version of your private ruling

Authorisation Number: 1012309075652

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Ruling

Subject: GST and supplies of goods and/or services in relation to marketing/promotional work under an agreement with a non-resident entity

Question 1:

Is the supply of marketing/promotional services made by an Australian company (you) under an agreement with a non-resident company ('NRCo') subject to goods and services tax (GST), where the marketing materials are directed towards Australian businesses?

Answer 1:

Yes, the supply of marketing/promotional services made by you under the agreement with NRCo is a taxable supply, where NRCo is determined to be in Australia through another Australian company ('AusCo') in relation to your supply, or the services are provided to AusCo.

Question 2:

Is the supply of goods (promotional items) made by you under an agreement with NRCo subject to GST, where the promotional goods are given to the Australian businesses?

Answer 2:

Yes, the supply of goods made by you under the agreement with NRCo is a taxable supply, where the goods are distributed to entities in Australia.

Relevant facts and circumstances

An Australian company ('you') are registered for goods and services tax (GST).

A non-resident company ('NRCo') is incorporated overseas, with an address in another overseas country. Another Australian company ('AusCo') is a related company to NRCo in Australia.

You run the Australian program ('program'). Your understanding is the program is for AusCo, under an agreement with NRCo.

Your work consists of researching, writing and designing useful and compelling content and materials, and emailing them to certain staff in Australian companies nationally a few times a year.

The strategy is to convince these people to buy certain products.

Within the same campaign, you are approaching potential new targets in Australia to join the program through a direct mail campaign that asks them to register online on the website to become a member. The XXX people to register will receive an USB (drives) as an incentive. You source the USBs from overseas and have them sent to you in Australia for distribution. You then mail them out to the new members with a letter welcoming them to the program. The letter is signed off by a Marketing Manager of AusCo and with details of AusCo.

After someone has joined the program, you only email the members and place online content on the 'XXX' website several times a year for them to review and read compelling articles and case studies, and look at presentations which demonstrate why they should have certain products.

You have provided a copy of the 'Agreement' which provides (amongst other things) that:

The Agreement is between NRCo and you.

Upon receipt of a purchase order from NRCo, you agree to sell certain products in the quantities listed on such purchase order. Such product/service shall have a warranty and be governed by the terms and conditions of such purchase order.

Scope of services, prices/rates, performance standards:

Online/offline marketing program: - you will provide the full range of marketing program management services to the {brand} business units upon receipt of official purchase order and scope of work.

Proof of Performance (PoP) requirements: - you shall provide all the PoP for the goods/services you provide to the Program Manager after each purchase order completion.

The PoP requirements were outlined for the listed approved activities.

Rate cards - a list of your staff and their years of experience is provided.

Third party mark up - XX% mark up will be charged on third party costs or on out of pocket expenses. These costs should be passed through only and supporting third party invoices will be available upon request.

If the pricing listed is higher than the price charged to any of your other customers for that product, you shall adjust your price to NRCo to the lower price. NRCo makes no commitment for a fixed quantity of products to be furnished or for any minimum monetary amount to be expended during the period.

Your understanding is that if the employees in Australia are purely a marketing arm of their international headquarters and their budgets and marketing campaigns are set and agreed to by the headquarters, then they are purely conducting part of a global initiative and supplying the required marketing collateral to realise the KPIs (that is, key performance indicators) and the financial targets dictated by the headquarters.

Additional information received:

Once a marketing campaign is signed off you perform the required work by supplying the services and relevant goods (that is, direct the marketing materials and promotional items) to the members, on behalf of NRCo (or relevant party).

You itemise all your services and goods separately on your estimates and invoice(s) to NRCo (or the relevant party on behalf of NRCo).

In relation to the emailed materials and online content directed towards the members, the members do not pay for anything as this is a complimentary program. A powerpoint presentation was provided showing the sample work delivered to the members for the program, which appears to be your creation and designs of certain promotional information and materials in relation to '{brand}'. The presentation also shows sample mail out letters (including the sample designed '{brand}l USB pack') to be sent to new targets and/or members. The letters to be sent to members are signed off by the Marketing Manager (of AusCo) and included details of AusCo. The presentation also included an email of the confirmation of project timeline of activities (which provides a timeline of activities, including approvals) sent to this same officer at AusCo.

You confirmed that the activities listed in the project timeline (which included submissions, reviews and approvals) were sent to the Marketing Manager at AusCo. This Marketing Manager also provided the reviews (feedback) and approvals (authority) on the activities. Alternatively, a member of the AusCo team may have reviewed the activities as they may have more knowledge on some of the capabilities that you wrote about. All the submissions, reviews and approvals for any of your other work are also sent to this Marketing Manager. You are not certain who employs the local staff in Australia, only that you manage the work and marketing materials at the offices of AusCo.

The agreement letter covers all of your work to be performed for NRCo (and/or relevant entity). There is no separate agreement with AusCo.

A copy of a standard XXX Purchase Order is provided, and provides (amongst other things):

· The 'buyer' is NRCo.

· The 'seller' is you.

· The purchase order is billed to NRCo care of another related overseas company ('OSCo').

· The following are shipping instructions: 'Ship To: AusCo in Australia'.

· You informed that the description for the PO is for both supplies of goods and services.

For this program, you work with the representatives and staff in Australia at their office in Australia. That is, in relation to your supplies, all your involvement and interactions are with the staff in Australia. You deal directly with the AusCo team so all directives comes to you through them. Your understanding is that the directives come to the AusCo team via their headquarters who would nominate the budget and agree to marketing campaigns that AusCo then facilitates.

For the goods (any promotional items) to be distributed, you sourced the goods from overseas and pay for them, and then invoice NRCo (or relevant entity) for the goods. You provide proof of purchase, receipts and photos, for which NRCo then pays you. That is, once you have received the goods and pay the invoice to the USB suppliers, you then charge NRCo (or relevant entity) for all these goods. All the goods are distributed in Australia.

You designed the '{brand} USB pack' for a campaign, and sourced the pack (goods) from overseas for distribution in Australia.

You further clarified that the person that signed that Agreement between you and NRCo was a staff ('SS') in another overseas country to NRCo.

You are unaware of the role of NRCo in Australia as you do not have involvement with them. You only have involvement with the AusCo team. You only interact with Australian (individuals) who are employed here, and live and work in Australia. You meet them at their office in Australia and take briefs and work directly from these staff in Australia.

You provided a letter from SS to suppliers regarding GST charges on marketing services to NRCo. This letter indicates that NRCo has no business presence, no employees and no fixed place of business in Australia. Instead NRCo is an overseas registered entity and is the sole sales agent of {brand}'s products in the Asia Pacific region. AusCo only acts as the liaison for such services to be provided, as NRCo has no employees in Australia.

This private ruling only addresses the marketing/promotional services as described, and not all other supplies that you may supply to NRCo and/or AusCo.

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 38-185

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(3)

Reasons for decisions

The facts indicate that under your arrangements with NRCo, you make supplies of marketing/promotional services (that is, refers to work in researching, writing and designing contents and materials to be emailed and made available online to members) and goods (that is, supply and distribute the promotional items). The GST implications of each supply are considered separately.

Issue 1 - Marketing/promotional services

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; 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 defined term in section 195-1 of the GST Act)

The facts indicate that you satisfy the requirements of paragraph 9-5(a) to 9-5(d) of the GST Act because you make the supply under the agreement with NRCo in return for consideration (by way of payments); the supply is made in the course of your business; the supply is connected with Australia (as the services are performed in Australia or provided through an enterprise in Australia); and you are registered for GST.

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

There are no provisions under the GST legislation in which your supply of the marketing/promotional services could have been input taxed. What remains to be determined is whether the supply of these services is GST-free. A service is done when it is performed.

GST-free supply

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. Of relevance to the supply of services under the agreement with NRCo are items 2 and 3 in the table in subsection 38-190(1) of the GST Act.

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

Under item 3 in the table in subsection 38-190(1) of the GST Act (Item 3), a supply is GST-free where it is:

· a supply:

· that is made to a *recipient who is not in Australia when the thing supplied is done; and

· the effective use or enjoyment of which takes place outside Australia;

· other than a supply of work physically performed on goods situated in Australia when the thing supplied is done, or a supply directly connected with *real property situated in Australia.

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

Item 2 is applicable to a supply made to a non-resident recipient. Item 3 is applicable irrespective of the residency of the recipient.

Precondition of Item 2 and paragraph (a) of Item 3 - Recipient who is not in Australia in relation to the supply

For the supply to be GST-free under Items 2 & 3 there is a condition that the recipient must not be in Australia in relation to the supply when it is done.

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.

From the facts provided, NRCo indicated that it is an overseas registered entity and is the sole sales agent of {brand} products in the Asia Pacific region (which would include Australia). NRCo has indicated that it has no business presence, no employees and no fixed place of business in Australia. However, NRCo has advised that AusCo acts as the liaison for such services to be provided, as NRCo has no employees in Australia.

We need to consider whether NRCo carries on business (or activities) in Australia through AusCo as an agent at a fixed and definite place for a sufficiently substantial period of time.

Carries on its business through an agent in Australia

Paragraphs 250, 277, 278, and 280 of GSTR 2004/7 state:

250. We consider that if a non-resident company carries on business at or through a fixed and definite place of its own in Australia and it had carried on, or intends to carry on, its business from such premises by its servants or agents for a sufficiently substantial period of time, that company is in Australia.

277. If a non-resident company has no fixed and definite place of its own in Australia, it may still carry on business in Australia through an agent from some fixed and definite place.

278. The key issue in this kind of situation is whether the non-resident company is itself carrying on business in Australia through a duly appointed agent, or whether the business being conducted is the agent's own business, the non-resident company merely being one of its customers.

280. The question of whether the agent is carrying on the non-resident company's business or doing no more than carrying on the agent's own business necessitates an investigation of the functions which the agent performs and all aspects of the relationship between the agent and the non-resident company

Paragraph 281 of GSTR 2004/7 lists various factors to assist in determining whether a non-resident company can properly be regarded as carrying on business in Australia through an agent.

Paragraph 282 of GSTR 2004/7 provides that if the business of a non-resident company involves making of contacts for sales, leases or similar, the authority of the agent to conclude contracts in Australia on behalf of the non-resident is an important factor in establishing whether the non-resident is carrying on business in Australia. Further, paragraph 283 of GSTR 2004/7 states:

283. If an agent has the power to make contracts on behalf of the non-resident company without seeking the company's approval before binding the non-resident to contractual obligations, this is a factor of great importance in establishing that the agent is carrying on the non-resident company's business. While it is not the sole determinative factor, when coupled with other factors such as the agent displaying the name of the non-resident company on the agent's premises, or the non-resident company reimbursing the rent and staff costs of the agent, there will be little difficulty in establishing that the agent is carrying on in Australia the business of the non-resident. In these circumstances, the non-resident company has, in effect, adopted the agent's place of business as its own, and the non-resident company is in Australia.

Paragraph 311 of GSTR 2004/7 further provides that if the business of a non-resident company does not involve making contracts for sales, leases or similar, we consider that a non-resident company is in Australia if the agent carries on a material part of the non-resident's business.

From the facts available, NRCo has indicated that it has no business presence, no employees and no fixed place of business in Australia. However, NRCo is the sole sales agent of {brand} products in the Asia Pacific region (which would include Australia), and has advised that AusCo acts as the liaison for such (marketing/promotional related) services to be provided, as NRCo has no employees in Australia.

As you do not have any direct involvement with NRCo, you are unaware of the role of NRCo in Australia. Your understanding is that if the employees in Australia are purely a marketing arm of their international headquarters and their budgets and marketing campaigns are set and agreed to by the headquarters, then they are purely conducting part of a global initiative and supplying the required marketing collateral to realise the KPIs and the financial targets dictated by the headquarters. The headquarters would nominate the budget and agree to marketing campaigns that NRCo then facilitates.

In relation to your services under the agreement with NRCo, all your involvements have been with the AusCo team. You deal directly with the AusCo team so all directives comes to you through them. You only interact with Australian (individuals) who are employed here, and live and work in Australia. You meet them at their office in Australia and take briefs and work directly from these staff in Australia.

For a campaign, the marketing/promotional materials and letters sent to the Australian business were signed off by the Marketing Manager of AusCo and with details of AusCo. That is, the letters are created and sent on behalf of AusCo. The confirmation of project timeline of activities' (which provides a timeline of activities, including approvals for the campaign) was also sent to this same officer of AusCo.

You also confirmed that the activities in the project timeline (which included submissions, reviews and approvals) were sent to the Marketing Manager at AusCo. This Marketing Manager also provided the reviews (feedback) and approvals (authority) on the activities. Alternatively, a member of the AusCo team may have reviewed the activities as they may have more knowledge on some of the capabilities that you wrote about. All the submissions, reviews and approvals for any of your other work are also sent to this Marketing Manager. You are not certain who employs the local staff in Australia, only that you manage the work and marketing materials at the offices of AusCo.

Further information and investigation of the functions which AusCo performs and all aspects of the relationship between NRCo and AusCo (as the agent) would need to be conducted to determine whether NRCo carries on business (or activities) in Australia through AusCo as their agent in Australia.

We consider that if AusCo is authorised to provide instructions on behalf of NRCo without seeking that company's approval before binding them to contractual obligations, or if AusCo carries on a material part of NRCo's business (which may include the marketing functions), it may be considered that NRCo is in Australia (through AusCo as their agent). This would need to be taken into consideration with other factors (including those listed in paragraph 281 of GSTR 2004/7).

In Australia in relation to the supply

In addition, if a non-resident company is determined to be in Australia on the basis of the above tests, it is necessary to determine if the non-resident company is in Australia in relation to the supply, when the supply is done (that is, provided/performed).

For the purposes of Items 2 and 3 the pre-condition that the recipient is not in Australia at the relevant time, requires that the recipient is not in Australia in relation to the supply.

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.

Examples of tasks that are of a simple administrative nature are listed in paragraph 352 of GSTR 2004/7, which include payments of the supplier's invoice on behalf of the company, passing on or on forwarding emails and information, being a point of telephone contact to pass on messages, being a mailing address or delivery contact on behalf of the company, or being a point of contact for a visiting representative of the company.

Paragraphs 348 and 349 of GSTR 2004/7 state: 

348. To work out whether a company is in Australia in relation to the supply, it is necessary to examine the role the presence of the company in Australia plays in relation to the supply.

349. Clearly if the supply to a company 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, the company is in Australia in relation to the supply. There is a connection between the supply and the presence in Australia that is not a minor connection.

The facts indicate that NRCo is the sole sales agent of {brand} products in the Asia Pacific region (which would include Australia). NRCo has advised that AusCo acts as the liaison for your services to be provided, as NRCo has no employees in Australia.

Your understanding is that the employees in Australia are purely a marketing arm of their international headquarters and that their budgets and marketing campaigns are set and agreed to by the headquarters. For work with this program, you work with the representatives and staff at the office in Australia. The Agreement with NRCo covers all the work that you will perform for the whole organisation. There is no separate agreement with AusCo.

All your involvement and interactions are with the staff in Australia. You deal directly with the AusCo team so all directives comes to you through them. Your understanding is that the directives comes to the AusCo team via their headquarters who would nominate the budget and agree to marketing campaigns that AusCo then facilitates with you. For the campaign, the information and marketing/promotional materials and letters sent to the Australian business are signed off by the Marketing Manager (of AusCo) and included details of AusCo. The 'confirmation of project timeline of activities' (which provides a timeline of activities, including approvals for the campaign) was also sent to this same officer of AusCo.

You also confirmed that your submissions of the activities in the project timeline were sent to the Marketing Manager at AusCo for reviews and approval. This person (or a member of the AusCo team) provided the reviews (feedback) and approvals (authority) on the activities. All your submissions, reviews and approvals for your other work are also sent to the Marketing Manager of AusCo. You manage the work and marketing materials at the offices of AusCo.

On the basis of these facts above, AusCo's involvement and interactions with you in relation to the supply of your services under the Agreement with NRCo are not administrative tasks of a minor nature. Further, if the supply of your services is for the purposes of the Australian presence (such as, for AusCo to carry out its own marketing functions), there is a connection between the supply and the presence in Australia that is not a minor connection. Where it is considered that NRCo is in Australia (through AusCo as their agent), we consider that NRCo is in Australia (through AusCo as agent/representative for NRCo) in relation to your supply to them.

Accordingly, in such circumstance, the precondition to Items 2 and paragraph (a) of Item 3 are not satisfied, and the supply of your marketing/promotional services is not GST-free under Items 2

or 3.

For completeness, even if it is considered that NRCo is not in Australia in relation to the supply of the marketing/promotional services, subsection 38-190(3) of the GST Act and paragraph (b) of Item 3 should be taken into consideration when applying Item 2 and Item 3, respectively.

Item 2 and subsection 38-190(3) of the GST Act

Subsection 38-190(3) of the GST Act limits the scope of Item 2. This subsection 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.

· (* denotes a defined term under section 195-1 of the GST Act).

Goods and Services Tax Ruling GSTR 2005/6 provides guidance on the application of subsection 38-190(3) of the GST Act.

The term 'provided' is used to contrast with the term 'made'. Paragraphs 59 and 61 of GSTR 2005/6 state:

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.

The focus 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. In some instances, it is inherent in the nature of the supply that the supply is provided to a particular entity.

Paragraph 79 of GSTR 2005/6 states:

79. In situations where the contractual flow of a supply is to an entity (other than an individual), and it is necessary to determine whether the actual flow of the supply is to another entity (other than an individual), we consider that a strong indicator that the supply is provided to another entity is that the contracting entity has no further interaction with, or participation in, the provision of the supply beyond contracting and paying for the supply. However, the application of subsection 38-190(3) is still dependent upon on all the facts and circumstances of the supply.

In relation to when another entity benefits from the supply, if the nature of the supply is such that the supply is only provided to an entity outside Australia, subsection 38-190(3) of the GST Act does not apply. This outcome is not altered even if another entity in Australia benefits from a supply provided to another entity outside Australia. Similarly, if a supply is provided to an entity in Australia, and another entity outside Australia benefits from that supply this does not alter the outcome that the supply is provided to an entity in Australia. This can occur with, for example, the supply of advertising services. If the advertising services are made and provided to a non-resident, subsection 38-190(3) does not apply to that supply even if another entity in Australia derives a benefit from that supply. However, we must determine the nature of the supply having regard to all the facts and circumstances of the supply, and then whether that supply, as properly described, is provided to another entity in Australia.

Examples of advertising services are given in Examples 23, 32 and 33 in GSTR 2005/6.

Example 32 - supply of advertising services made and provided to a non-resident parent company

573. An Australian advertising agency, Aus Ad Co, wins a contract to supply advertising services to an Egyptian company, Nile Co. The services are to develop and prepare advertising material for the products sold by the Nile Co group world-wide including products sold by the Australian subsidiary of Nile Co, Aust Co. Nile Co does not carry on business in Australia either through a place of business of its own or its subsidiary or any other agent acting on behalf of the company.

574. The advertising service supplied by Aus Ad Co is the development of an advertising campaign and the preparation of print, television and radio advertisements including those for the Australian market. Aus Ad Co only deals with Nile Co in relation to the development and preparation of the advertising campaign for the Australian brand of products. Nile Co exercises full control over the conduct of the advertising services and Aus Ad Co only talks to and works with the marketing staff of Nile Co in developing the campaign and the advertising material. The Australian subsidiary is not involved with the supply. Aus Ad Co delivers the advertising 'copy' (that is, the product) directly to the media in Australia.

Item 2:

575. The supply of advertising services is made by Aus Ad Co to Nile Co, a non-resident company that is not in Australia when the services are performed. The supply satisfies the requirements of item 2 and is, therefore, a supply covered by item 2.

Subsection 38-190(3)

576. The supply of advertising services by Aus Ad Co to Nile Co is a supply under an agreement entered into with a non-resident. Paragraph 38-190(3)(a) is therefore satisfied.

Provided to another entity

577. What is being supplied is an advertising campaign for the world-wide products of the Nile group. Having regard to the facts and circumstances of the supply including the way the supply is carried out - see paragraph 574, it follows that the supply of advertising services is made and provided to Nile Co. The nature of the supply is such that the supply is not provided to another entity, even though other entities in the Nile group, in particular, Aust Co, benefit from the advertising campaign run by Nile Co. The actual flow of the advertising service is to Nile Co, not Aust Co.

578. Subsection 38-190(3) does not negate the GST-free status of the supply of the advertising services covered by item 2.

579. The above example is contrasted with the following example.

Example 33 - supply of advertising services made to a non-resident parent company and provided to its Australian subsidiary

580. An Australian advertising agency, Aus Ad Co wins a contract to supply advertising services to a X company, Sing Co. The contract for the supply is between Aus Ad Co and Sing Co. Sing Co does not carry on business in Australia either through a place of business of its own or through an agent acting on behalf of the company. Aust Co, a subsidiary of Sing Co in Australia, is not the agent of Sing Co in Australia. The contract is for the development and preparation of advertising material for products sold by Aust Co.

581. Aus Ad Co deals with Aust Co in relation to the advertising campaign for the Australian brand of products including, for example, obtaining sign-off on the advertising copy. Aus Ad Co does not deal with Sing Co in relation to the development and approval for the advertising copy. Aust Co exercises full control over the conduct of the advertising services. Aus Ad Co talks to the marketing staff of Aust Co and works with them to develop the campaign and the advertising material. Sing Co has no further participation in the supply beyond contracting and paying for the supply.

Item 2:

582. The supply of advertising services by Aus Ad Co is made to Sing Co, a non-resident company that is not in Australia when the advertising services are performed. The supply satisfies the requirements of item 2 and is, therefore, a supply covered by item 2.

Subsection 38-190(3)

583. The supply of advertising services by Aus Ad Co to Sing Co is a supply under an agreement entered into with a non-resident. Paragraph 38-190(3)(a) is therefore satisfied.

(i) Provided to another entity

584. What is being supplied is an advertising campaign to advertise the goods sold by the Australian subsidiary. Aus Ad Co only deals with the Australian subsidiary throughout the course of developing the advertising campaign for those products. Aus Ad Co does not deal with Sing Co in relation to the development and approval for the advertising copy. Aust Co exercises full control over the conduct of the advertising services. Aus Ad Co talks to the marketing staff of Aust Co and works with them to develop the campaign and the advertising material.

585. The nature of the advertising service is such that the supply is provided to the Australian subsidiary. In contrast to the previous example, the offshore parent company contracts for advertising services to be provided to the Australian subsidiary. Other than contracting for the supply, Sing Co is not otherwise involved with the supply. The supply is provided to another entity, Aust Co. The actual flow of the advertising services in this example is to Aust Co, another entity.

(ii) Provided to that other entity in Australia

586. Aust Co is in Australia when the services are performed. As the services are for the purposes of Aust Co in Australia, the supply of advertising services is provided to another entity, Aust Co, in Australia.

587. Subsection 38-190(3) negates the GST-free status of the supply covered by item 2.

We look at the facts and circumstances of the supply to determine whether a supply is provided to another entity outside Australia.

You run the program under an agreement with NRCo. You have no separate agreement with AusCo. Your work consists of researching, writing and designing useful and compelling content and materials of certain products, and emailing or making them available online to Australian businesses. Within the same campaign, you are approaching potential new targets in Australia to join the program through a direct mail campaign.

In relation to the emailed materials and online content directed towards the members, they do not pay for anything to be members of the complimentary program. Although the Australian businesses may derive a benefit from that supply of the information and online contents, the nature of the supply of the marketing/promotional services (as described) of the {brand} products is such that this supply is not provided to the Australian business for the purposes of Item 2 (or Item 3).

In relation to the marketing/promotional services supplied under the Agreement and PO (that is, purchase order) with NRCo, you are unaware of the role of NRCo in Australia, as you do not have involvement or interactions directly with them. The Agreement is with NRCo (signed by an officer in another country), and billed to NRCo care of OSCo. Other than having the Agreement with NRCo (as the 'buyer'), you do not have any direct involvement or work with NRCo. The Agreement with NRCo provides that for the 'online/offline marketing program' you will provide the full range of marketing program management services to '{brand} business units' upon receipt of an official PO and scope of work. The sample PO states the shipping instructions, which is to be shipped to AusCo in Australia.

As stated above, your understanding is that the international headquarters would nominate the budget and agree to marketing campaigns that AusCo then facilitates. For your work, your understanding is that you run the program for AusCo as you only have involvement with the AusCo team. You only interact with Australian (individuals) who are employed here, and live and work in Australia. You meet them at their office in Australia, and take briefs and work directly from these staff in Australia. For the campaign, the marketing/promotional materials (and letters) sent to the Australian business were signed off by the Marketing Manager and details of AusCo. That is, the letters are created and sent on behalf of AusCo. The 'confirmation of project timeline of activity' (which provides a timeline of activities, including approvals for the campaign) was also sent to this same officer of AusCo.

You also confirmed that your submissions of the activities in the project timeline were sent to the Marketing Manager at AusCo for reviews and approval. This person (or a member of the AusCo team) provided the reviews (feedback) and approvals (authority) on the activities. All your submissions, reviews and approvals for your other work are also sent to the Marketing Manager of AusCo. You manage the work and marketing materials at the offices of AusCo.

On the basis of these facts above, it would appear that the supply of your marketing/promotional services (as described) is made under an agreement with NRCo, but the services are provided to AusCo. Accordingly, even if it is considered that NRCo is not in Australia in relation to the supply of your marketing/promotional services, subsection 38-190(3) of the GST Act would exclude the supply from being GST-free under Item 2.

Paragraph (b) of Item 3

For completeness in applying Item 3, even if it is considered that NRCo is not in Australia in relation to the supply of the marketing/promotional services when it is performed, paragraph (b) of Item 3 must also be satisfied for the supply to be GST-free under Item 3.

Paragraph (b) of Item 3 requires the place of effective use or enjoyment of a supply to be determined (that is, whether the place is outside Australia). We take a two step approach to work out whether effective use or enjoyment of a supply takes place outside Australia. First, we determine the entity to which the supply is provided (the providee entity). We then determine whether provision of the supply to the providee entity is outside Australia.

A supply that is made to a recipient entity may be provided to another entity. If a supply is made to a recipient and provided to another entity, the entity that actually uses or enjoys the supply is that other entity. According to paragraph 41 in GSTR 2007/2, a supply is made to a recipient and provided to another entity if in the performance of the service (or in the doing of some thing) the actual flow of that supply is to an entity that is not the recipient entity with which the supplier made the agreement for the supply. That is while the contractual flow of the supply is to the recipient entity, the actual flow of the supply is to another entity.

Thus, to determine the effective use or enjoyment of the supply, it is necessary to inquire as to the entity that has the actual use or enjoyment of the supply.

As discussed above, on the basis of the facts provided, NRCo has advised that it has no employees in Australia and that AusCo acts as the liaison for your services to be provided. Other than having the Agreement with NRCo, you do not have any direct involvement or work with NRCo. Your understanding is that the employees in Australia are purely a marketing arm of their international headquarters and that their budgets and marketing campaigns are set and agreed to by the headquarters. For your work with this program, you work with the representatives and staff at their office in Australia. The Agreement with NRCo covers all the work that you will perform. There is no separate agreement with AusCo.

You consider that you run the program for AusCo as you only have involvement with the AusCo team. All your involvement and interactions are with the staff in Australia. You deal directly with the AusCo team so all directives comes to you through them. Your understanding is that the directives comes to the AusCo team via their headquarters who would nominate the budget and agree to marketing campaigns that AusCo then facilitates with you. For a campaign, the marketing/

promotional materials (letters) sent or made available online to the Australian business were signed off by the Marketing Manager (and details) of AusCo. That is, the letters are created and sent on behalf of AusCo. The 'confirmation of project timeline of activities' (which provides a timeline of activities, including approvals for the campaign) was also sent to this same officer of AusCo.

You also confirmed that your submissions of the activities in the project timeline were sent to the Marketing Manager at AusCo for reviews and approval. This person (or a member of the AusCo team) provided the reviews (feedback) and approvals (authority) on the activities. All your submissions, reviews and approvals for your other work are also sent to the Marketing Manager of AusCo. You manage the work and marketing materials at the offices of AusCo.

The Agreement with NRCo provides that for the 'online/offline marketing program', you will provide the full range of marketing program management services to '{brand} business units' upon receipt of an official PO and scope of work. The sample PO states the shipping instructions, which is to be shipped to AusCo in Australia.

AusCo appears to have the actual use or enjoyment of the supply of your services. While NRCo is the recipient(s) of the supply under the Agreement/PO, it is considered that the services are provided to AusCo in order for them to perform their marketing functions (see discussion on paragraph 38-190(3) of the GST Act above), and AusCo is the providee entity of the supply.

The next step is to determine whether the effective use or enjoyment of the supply takes place outside Australia.

Effective use or enjoyment of a supply only takes place outside Australia if there is provision of the supply to the providee entity outside Australia.

In this circumstance, AusCo (as the providee entity) is in Australia and located in Australia at the time of the supply, and therefore the use or enjoyment of the services takes place in Australia.

Accordingly, the supply of the marketing/promotional services under the Agreement with NRCo but is provided to AusCo in Australia do not satisfy the requirement of paragraph (b) of Item 3, and is not GST-free under Item 3.

As the above requirements are not satisfied, there is no need to consider other requirements under Items 2 and 3. The supply of the marketing/promotional services, as described, would be a taxable supply under section 9-5 of the GST Act, where all the requirements of Item 2 and 3 are not satisfied.

Issue 2 - supply of goods

Your work consists of researching, writing and designing useful and compelling content and materials which are emailed and/or available online to members. You also state that within the campaign, you supply and distribute goods (that is, promotional items such as designed USBs) as an incentive to those who register for the program. For the goods to be supplied, you sourced the goods from overseas and pay the suppliers. You then distribute them out to members with a letter welcoming them to the program. You itemise all your services and goods separately on your estimates and invoice(s) to NRCo (or the relevant party on behalf of NRCo). You provide proof of purchase, receipts and photos of the goods, for which NRCo then pays you. We also note that the PO allows for a XX% mark-up on third party costs. All the goods are distributed in Australia.

A supply may be characterised as consisting of one or more things or parts. A mixed supply has to be separated or unbundled and needs to be individually recognised, whereas a composite supply is treated as a supply of a single thing.

Where you make a supply that is identifiable as having more than one part and each part is taxable, you do not need to apportion the consideration for the supply. This is because GST is payable on the whole supply. Similarly, if all of the parts of a supply are identifiable as being

non-taxable, GST is not payable on any part of the supply.

Goods and Services Tax Ruling GSTR 2001/8 covers and distinguishes between a mixed supply (which contains separately identifiable parts), and a composite supply (which has one dominant part with other parts that are not treated as having a separate identity because they are integral, ancillary or incidental to the dominant part). It is a question of fact and degree whether a supply is mixed or composite.

We consider that your supply of the goods (for which you are entitled to a mark up on third party costs under your Agreement with NRCo) constitute an aim in itself and can be identified as another dominant supply.

The supply of the goods under your Agreement with NRCo will be a taxable supply where it satisfies all the requirements of a taxable supply under section 9-5 of the GST Act (as stated above).

The facts indicate that paragraphs 9-5(a) to 9-5(d) of the GST Act are satisfied because:

· you make the supply of the goods for consideration; and

· the supply is made in the course of a business that you carry on; and

· the supply is connected with Australia (as the goods will be made available in 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.

There are no provisions under the GST legislation in which your supply of the goods could have been input taxed. What remains to be determined is whether the supply is GST-free.

GST-free

Section 38-185 of the GST Act covers the GST-free exports of goods. A supply is GST-free under Item 1 in the table in subsection 38-185(1) of the GST Act (Item 1) if the supply is:

· a supply of goods, but only if the supplier exports them from Australia before, or within 60 days (or such further period as the Commissioner allows) after:

· the day on which the supplier receives any of the consideration for the supply; or

· if, on an earlier day, the supplier gives an invoice for the supply - the day on which the supplier gives the invoice.

Goods and Services Tax Ruling GSTR 2002/6 covers the export of goods.

For a supply of goods to be GST-free under Item 1 the supplier must export the goods before, or within a 60-day period (or such further period as the Commissioner allows).

The facts indicate that the goods are not exported from Australia, but are distributed to the members in Australia.

Accordingly, your supply of the goods does not satisfy the requirements under section 38-185 of the GST Act and is not GST-free. The supply of the goods, under the Agreement with NRCo, which are distributed in Australia, is a taxable supply.