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Ruling

Subject: GST and sale of assets to a non-resident company

Question:

Is the supply of the Assets by an Australian company to a non-resident company pursuant to an Asset Sale Agreement GST-free?

Answer:

Yes, the supply of the Assets by the Australian company to the non-resident company pursuant to the Asset Sale Agreement is GST-free.

Relevant facts and circumstances

The parties:

An Australian company (Seller) is registered for goods and services tax (GST).

Based on the definition of 'Business' in the Asset Sale Agreement (Agreement) discussed below, i.e.

Business means the business of issuing XXX {certain financial products} directly and through exclusive and non-exclusive agency agreements with distribution partners carried on by the Seller…

we understand that Seller carries on the business of supplying certain financial products. The 'business' definition in the Agreement also indicates that, in addition to supplying XXX directly, Seller has Distribution Contracts with numerous financial entities (such as banks, brokers, advisers etc as listed in Schedule X to the Agreement) who may act as agents for Seller in relation to the supply of XXX to customers.

A non-resident company (Buyer) is incorporated overseas and Seller advised that Buyer operates out of that overseas country, that a majority of Buyer's shareholders are not resident in Australia, and that Buyer only carries on its business in the overseas country. We have confirmed that Buyer's major shareholders are resident in various overseas countries.

The Agreement:

In a letter Seller advised that the Agreement was signed by Buyer in the overseas country on XX/XX/XX {date} and countersigned several days later by Seller in Australia on XX/XX/XX {date}.

Pursuant to clause X of the Agreement Seller agrees to sell the Assets to Buyer at Completion. 'Assets' is defined in clause XX of the Agreement as all interest, right and title of the Seller to the Intellectual Property Rights and Goodwill. 'Intellectual Property Rights' is defined as several trademarks registered for use in Australia and several domain names, X of which end with '.com.au, some which end with '.co.{o/s}', and some which end with 'biz'.

Notwithstanding that some of the domain names end with '.co.{o/s}', it was stated in the ruling request that the trade marks and domain names only have value for use in Australia. In the letter to the Australian Taxation Office (ATO) Seller provided further clarification as follows:

There are two sets of Intellectual Property (IP) rights being supplied. One set for {overseas} and one set for Australia. The overseas set includes no goodwill as the XXXX branded products are only issued in Australia. The consideration under the Agreement of $XXXXXX is for the supply of the Australian set of IP and goodwill. The Australian IP rights and goodwill only provide value if used in Australia via either electronic commerce in Australia from an overseas location or via a physical presence of the supplier in Australia.

'Goodwill' is defined in clause X of the Agreement as the goodwill of the Seller relating to the Intellectual Property Rights.

Clause X of the Agreement states that it is a Condition Precedent to Completion of the Agreement that Seller arranges for Buyer to meet with representatives of some of the distributors referred to in Schedule X to the Agreement: {distributors listed}

Seller advised in the ruling request that these meetings would occur in Australia and that Buyer would be in Australia for these meetings. Clause X allows Buyer to terminate the Agreement by issuing a No Proceed Notice prior to the Cut-off date on the ground that, on the basis of the meetings with the specified distributors, Buyer does not wish to proceed with the Agreement, provided that Buyer pays Seller a $XXXXX Reimbursement Fee.

In the letter dated XX/XX/XX Seller advised that on an earlier date XX/XX/XX Buyer waived the Condition Precedent, i.e. Buyer notified Seller in writing that the Agreement was unconditional.

Clause X of the Agreement states that Completion must take place on the Completion Date (defined as the last day of the month in which the condition precedent in clause X is either fulfilled or waived) at the premises of Seller's solicitors or at another place agreed by Seller and Buyer. In the letter dated {date} Seller also advised that, due to a technical IT issue, Buyer and Seller agreed that Completion would be deferred until XX/XX/XX.

At Completion Seller must, inter alia, deliver to Buyer all certificates of title and other documents related to ownership of the Assets, duly executed assignment or change of ownership forms required to transfer the Intellectual Property Rights to Buyer, plus an executed Outsourcing Agreement between Seller and Buyer (which we have not seen, but which, based on clause X of the Agreement, appears to require Seller to continue to operate for the benefit of Buyer those Distribution Contracts which have not been either transferred by Seller to Buyer or replaced by new Distribution Contracts as at Completion), plus any Deed of Novation of a Distribution Contract. Clause XX states that, on Completion, Buyer must pay to Seller the Purchase Price (i.e. $XXXXXX, less certain entitlements, plus any GST payable).

In the letter dated XX/XX/XX Seller further advised that the $XXXXX Reimbursement Fee referred to in clause XX of the Agreement would not become payable and that Buyer would simply pay the Purchase Price of $XXXXXX plus any GST (if any) to Seller for the Assets. As noted above, in the letter dated XX/XX/XX Seller advised:

The consideration under the Agreement of $XXXXXX is for the supply of the Australian set of IP and goodwill. The Australian IP rights and goodwill only provide value if used in Australia either via electronic commerce in Australia from an overseas location or via a physical presence of the supplier in Australia.

In response to questions from the ATO as to whether Buyer either carried on its own business in Australia or carried on business in Australia through an agent, Buyer advised in the letter dated XX/XX/XX that Buyer did not do so at present but intended to do so following Completion of the Agreement. By next letter dated XX/XX/XX, however, Seller provided different advice following the receipt of further information from Buyer:

· [Buyer] has no intention to carry on its XXX business from any country other than the overseas country;

· The XXX products will be issued only from the overseas country via a website, e-mail or other forms of electronic communication…

· The XXX business going forward will be carried out entirely from the overseas country, i.e. no staff will be employed in Australia and no offices located in Australia will be used in respect of the sale of XXX to Australian customers. All the sales and transactions will be conducted through a website,

· e-mails and other forms of electronic communication from the overseas country. A third party administrator has been appointed in Australia by [Buyer] to provide administrative functions only - that is, the administrator will not be an agent representing [Buyer] in respect of its XXX business.

The Agreement also states that, prior to Completion, Buyer may (but is not obliged to) offer employment to each employee listed in Schedule X. Schedule X to the Agreement refers to X number of employees, including a manager, operations manager and operations analyst.

Clauses X and X of the Agreement deal with Warranties (as listed in Schedule X) given by Seller to Buyer and the limitations to those Warranties.

Clause X sets out a protective covenants granted by Seller in favour of Buyer including an agreement by Seller not to be concerned in any business in Australia which is competitive with the business of the provision of XX for a period of 24 months following Completion. Clause X of the Agreement deals with transfer or replacement of the Distribution Contracts:

During the period commencing on the date of this agreement and expiring 6 months after the Completion Date, in respect of each Distribution Contract the Buyer and the Seller must use their respective reasonable endeavours to obtain:

· the transfer to the Buyer from the Seller of the Distribution Contract…

· a termination of the Distribution Contract and, to the extent practicable, its replacement with agreement to be entered into between the Buyer and the applicable intermediary…

The Buyer is not entitled to rescind this agreement in circumstances where a Distribution Contract is not transferred, terminated, or replaced.

Clause X of the Agreement sets out the arrangements that apply until Distribution Contracts are transferred to Buyer and requires Seller to perform Seller's obligations under those Distribution Contracts in accordance with the Outsourcing Agreement and states that Seller and Buyer will be entitled to benefits under those Distribution Contracts in accordance with the Outsourcing Agreement. Clause X of the Agreement grants the Seller a licence to use the trade marks under certain terms.

Clause X of the Agreement deals with Post-Completion Obligations and, for 12 months following Completion, obliges Buyer to issue XXX under the brand on terms and conditions, for a commission, and for a product cost that are substantially similar to those used by Seller prior to Completion. Clause X of the Agreement deals with announcements and confidentiality, clause X deals with GST, clause X deals with notices and clause X contains miscellaneous provisions.

The Agreement does not refer to any supply of a going concern for GST purposes, and there is no indication that Buyer is currently registered for GST in Australia. In response to an information request from the ATO Seller also advised in the letter dated XX/XX/XX as follows:

· Representatives of Buyer who are involved in meetings with the specified distributors referred to in clause X of the Agreement will come from both Australia and an overseas country.

· The Intellectual Property Rights acquired pursuant to the Agreement are being acquired to run a business in Australia which will probably be operated by a new entity set up as a subsidiary of the overseas based Buyer.

· Other than the meetings with the specified distributors, Seller has had normal interactions in Australia with Buyer's representatives over the course of the sale process.

· In relation to a question about the role of the representatives of Buyer who are in Australia in relation to the supply (i.e. whether they can enter into contracts with Seller, merely collect information, enter into contracts with distributors) Seller advised that Buyer is not associated with the supply made by Seller and that that supply will cease immediately once Buyer takes over the business upon Completion.

The ruling request:

The ruling request included a submission that the supply of the assets under the Agreement is not GST-free and referred to item 4 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

In response to a request from the ATO for clarification of the question asked in the ruling request, Seller confirmed in the letter dated XX/XX/XX that the question asked by Seller is whether the supply or supplies made by Seller to Buyer pursuant to the Agreement is GST-free.

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 9-10

A New Tax System (Goods and Services Tax) Act 1999, Section 9-15

A New Tax System (Goods and Services Tax) Act 1999, Subsection 9-25(5)

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

A New Tax System (Goods and Services Tax) Act 1999, Section 195-1

Reasons for decision

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), which states:

You make a taxable supply if:

(a) you make the supply for *consideration

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

(c) the supply is *connected with Australia, and

(d) you are *registered, or *required to be registered, for GST.

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

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

The facts indicate that Seller satisfies the requirements in paragraphs 9-5(b) and 9-5(d) of the GST Act because the supply (or supplies) is made in the course or furtherance of Seller's enterprise (business) and Seller is registered for GST.

What remains to be considered are paragraphs 9-5(a) and 9-5(c) of the GST Act, and whether the supply (supplies) is GST-free or input taxed.

Supply for consideration

It is necessary to consider all of the circumstances of a transaction to ascertain the essential character of the supply or supplies.

The Agreement obliges Seller to sell to Buyer the Intellectual Property Rights (specified trade marks and domain names) and the goodwill relating to those Intellectual Property Rights, but Seller advised by letter dated XX/XX/XX that the $XXXXXX consideration payable under the Agreement is being paid for the 'Australian set' of Intellectual Property Rights, i.e. the trade marks registered in Australia and the domain names ending with '.com.au' and, possibly, 'biz' (which we understand is a generic top-level domain name intended to be used for registration of domains to be used by businesses).

Section 9-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states:

9-10 Meaning of supply

(1) A supply is any form of supply whatsoever.

(2) Without limiting subsection (1), supply includes any of these:

…

(b) a supply of services;

…

(e) a creation, grant, transfer, assignment or surrender of any right;

…

(g) an entry into, or release from, an obligation:

(i) to do anything;

(ii) to refrain from an act;

(iii) to tolerate an act or situation;

(h) any combination of any 2 or more of the matters referred to in paragraphs (a) to (g).

Goods and Services Tax Ruling GSTR 2003/8 discusses the meaning of 'right' for GST purposes generally:

25. The word 'right' is not defined for GST purposes and has a very broad meaning under the general law. A 'right' has been defined as 'generally, a benefit or claim entitling a person to be treated in a certain way'.

26. However, it is not necessary for the right to be a proprietary right.

27. There is further discussion of the meaning of 'right' at paragraphs 50 to 53 of this Ruling.

and:

51. Some commentators have raised whether supplies of rights for GST purposes should be restricted to supplies of proprietary rights. Reference has been made to cases decided in a stamp duty context where personal rights have been held not to be 'property' as defined under the relevant legislation.

52. In the Commissioner's view, there is no basis for limiting the operation of item 4 to supplies of proprietary rights. The stamp duty cases were decided in the context of provisions containing specific references to property and against the background of conveyance duty applying generally to instruments transferring interests in property.

Goods and Services Tax Ruling GSTR 2006/9 states:

102. The Commissioner considers that an agreement that does not bind the parties in some way is not sufficient to establish a supply by one party to the other.

In the present case the Intellectual Property Rights sold by Seller to Buyer pursuant to the Agreement are registered trade marks and domain names and the Agreement obliges Seller to deliver to Buyer all documents relating to ownership and use of the Assets plus executed assignments or change of ownership forms on Completion. We therefore consider that there is a 'supply' within the meaning of section 9-10 of the GST Act, being a transfer or assignment of any right within the meaning of paragraph 9-10(2)(e) of the GST Act.

We consider that the supply of the goodwill (defined as the Seller's goodwill relating to the Intellectual Property Rights) is merely integral, ancillary or incidental to the supply of the Intellectual Property Rights according to the tests set out in Goods and Services Tax Ruling GSTR 2001/8 (paragraph 59) and that the supply of the Intellectual Property Rights and the goodwill is therefore a single composite supply of Intellectual Property Rights.

In relation to whether the supply made by Seller is made for consideration, 'consideration' is defined broadly in paragraph 9-15(1)(a) of the GST Act to include 'any payment… in connection with a supply of anything'. As Seller advised in the letter dated XX/XX/XX that the $XXXXXX payable to Seller pursuant to the Agreement is for the supply of the Australian set of Intellectual Property Rights, we consider that the supply made by Seller is made for consideration.

Connected with Australia

Paragraph 9-5(c) of the GST Act requires that the supply is connected with Australia. Subsection 9-25(5) of the GST Act states:

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

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

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

(c) all of the following apply:

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

(ii) the thing is a right or option to acquire another thing; and

(iii) the supply of the other thing would be connected with Australia (paragraph

9-25(5)(c)).

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

Paragraph 9-25(5)(a) of the GST Act provides that a supply of anything other than goods or real property is connected with Australia if the thing is done in Australia.

'Thing' is defined in section 195-1 of the GST Act to mean anything that can be supplied or imported. Things other than goods or real property that can be supplied include services, advice, information, rights, obligations to do anything, or any combination of these things. Under paragraph 9-25(5) of the GST Act the connection with Australia requires that the 'thing' being supplied is 'done' in Australia.

The meaning of 'done' depends on the nature of the 'thing' being supplied. 'Done' can mean, for example, performed, executed, completed or finished depending on what is supplied.

Paragraphs 74 to 77 of GSTR 2000/31 state:

The creation, grant, transfer, assignment or surrender of a right

74. If the supply is the creation, grant, transfer, assignment or surrender of a right, the creation of that right in another, the granting, transfer or assignment of that right to another, or the surrender of that right, is done where the right is created in that other person, granted, transferred or assigned to that other person or surrendered respectively.

75. The act that creates that right in another or grants, transfers or assigns that right to another, or surrenders the right, will depend on the facts of each individual case.

76. If, for example, a right is granted under an agreement to another to use certain intellectual property, the granting of that right to another is done where the agreement is made. If the agreement is made27 in Australia, the supply of that right is connected with Australia. If the agreement is made outside Australia, the supply is not connected with Australia under paragraph 9-25(5)(a). However, even if the agreement is made outside Australia the supply is connected with Australia under paragraph 9-25(5)(b) if the supplier makes the supply through an enterprise that the supplier carries on in Australia…

Entry into, or release from, an obligation

77. If the supply is the entry into, or release from, an obligation to do anything, or to refrain from an act, or to tolerate an act or situation, the entering into that obligation or the release from that obligation is done where the obligation is entered into or the release is effected.

Footnote 27 to paragraph 76 in GSTR 2000/31 states a contract is made where the last act necessary to create a binding contract is performed (see W. A. Dewhurst and Co. Pty. Ltd. v. Cawrse [1960] V.R. 278 at 282.

Paragraphs 202 to 209 of GSTR 2000/31 also discuss the creation, grant, transfer, assignment or surrender of a right, as above.

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

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

(b) the supply is made through that permanent establishment.

Paragraph 78 of GSTR 2000/31 states:

The supply is made through an enterprise carried on in Australia

(c) 78. If a supply of a thing is not connected with Australia because the thing is not done in Australia, the supply is connected with Australia if, under paragraph 9-25(5)(b), the supplier makes the supply through an enterprise that the supplier carries on in Australia.

(d) In the letter dated XX/XX/XX Seller advised that Buyer signed the Agreement on XX/XX/XX in the overseas country, and Seller counter-signed the Agreement several days later on XX/XX/XX in Australia. As the contract is made where the last act necessary to create a binding contract is performed, the Agreement is made (done) in Australia. Consequently the supply of the Assets by Seller to Buyer is connected with Australia pursuant to paragraph 9-25(5)(a) of the GST Act.

(e) Alternatively, the supply of the Assets is connected with Australia pursuant to paragraph 9-25(5)(b) of the GST Act because Seller makes the supply through an enterprise that Seller carries on in Australia.

(f) Accordingly, the supply of the Assets by Seller to Buyer satisfies the requirements of paragraph

(g) 9-5(a) to 9-5(d) of the GST Act and is a taxable supply except to the extent that it is GST-free or input taxed.

GST-free and input taxed supply

On the basis of the facts provided, the supply of the Assets by Seller to Buyer is not input taxed. We need to determine whether that supply is GST-free.

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. In particular, item 4 in the table in subsection 38-190(1) of the GST Act (Item 4) is of most relevance to the supply of rights.

Item 4 refers to:

a supply that is made in relation to rights if:

(a) the rights are for use outside Australia; or

(b) the supply is to an entity that is not an *Australian resident and is outside Australia when the thing supplied is done.

GSTR 2003/8 states that a supply is a 'supply that is made in relation to rights' if it fits within one of the following three categories:

1. supplies identified in paragraph 9-10(2)(e) of the GST Act;

2. supplies of things that derive their value exclusively, or almost exclusively, from rights; and

3. supplies of services directly connected with rights.

Paragraphs 81 and 82 of GSTR 2003/8 state that intellectual property is a generic term describing a variety of rights to control or profit from ideas and information. Intellectual property can be divided into four main areas: forms of expression; scientific advances; reputation; and confidential information. Supplies of intellectual property rights are supplies that are made in relation to rights for the purposes of Item 4.

Accordingly, the supply of the Intellectual Property Rights (and related goodwill) to Buyer pursuant to the Agreement is a supply made in relation to rights for the purposes of Item 4.

Paragraph (a) of Item 4

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'.

Paragraphs 108 to 108A, and 117 of GSTR 2003/8 state:

Supply that is made in relation to rights 'for use outside Australia'

Meaning of 'for use'

108. 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'.

108A. A supply does not fall within item 4 simply on the basis that the essential characteristics of the rights demonstrate that they may be used outside Australia. It is the intended use of those rights that determines if the supply that is made in relation to the rights falls within item 4. The extent to which the supply is taxable or GST-free is not affected by the actual use of the rights, other than as potential evidence of the intended use.

…

117. The intended use of a right also encompasses the situation where the recipient does not actually exploit the right. For example, a patent may be acquired by an entity in the course of its enterprise to prevent other entities from exploiting that right. In these circumstances, the right is for use where it prevents other entities from exploiting the right.

In the letter dated XX/XX/XX Seller advised that the $XXXXXX consideration under the Agreement 'is for the supply of the Australian set of IP and goodwill' and that those rights 'provide value only if used in Australia either via electronic commerce in Australia from an overseas location or via physical presence of the supplier in Australia'. The 'Australian set' of the Intellectual Property Rights are the trade marks registered in Australia and domain names ending with '.com.au' and, possibly, 'biz'. Seller further advised that 'the intellectual property rights are being acquired to run a business in Australia'. In our view the facts indicate that Buyer intends to use the Australian set of IP rights in Australia.

Accordingly, the supply of the Australian Intellectual Property Rights (and related goodwill) is not GST-free under paragraph (a) of Item 4, as those rights are for use in Australia.

Paragraph (b) of Item 4

A supply that is made in relation to rights is GST-free under paragraph (b) of Item 4 'if 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 2004/7 states:

32. The requirement that the non-resident is outside Australia when the thing supplied is done in paragraph (b) of item 4 is a requirement, in our view, that the non-resident is not in Australia in relation to the supply when the thing supplied is done.

Not an Australian resident

Paragraph (b) of Item 4 requires that the supply is made to an entity that is not an Australian resident.

Section 195-1 of the GST Act defines 'Australian resident' as a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA). A company is a resident of Australia pursuant to subsection 6(1) of the ITAA 1936 if that company is incorporated in Australia or, not being incorporated in Australia, has either its central management and control in Australia or its voting power controlled by shareholders who are residents of Australia.

By next letter dated XX/XX/XX Seller advised that Buyer is incorporated in the overseas country, that all or a majority of Buyer's shareholders are overseas residents, and that Buyer operates out of the overseas country. We therefore consider that Buyer is not an Australian resident.

When the thing supplied is done:

GSTR 2004/7 discusses when an entity is not in Australia when the thing supplied is done.

In relation to when the thing supplied is 'done', GSTR 2004/7 refers to GSTR 2000/31 which we have discussed above in relation to 'connected with Australia'. GSTR 2000/31 states:

76. If, for example, a right is granted under an agreement to another to use certain intellectual property, the granting of that right to another is done where the agreement is made.

and a footnote to paragraph 76 states:

A contract is made where the last act necessary to create a binding contract is performed (see W. A. Dewhurst and Co. Pty. Ltd. v. Cawrse [1960] V.R. 278 at 282.

We consider that the countersigning of the Agreement by Seller in Australia on XX/XX/XX was the last act necessary to create a binding contract for the sale of the Assets to Buyer and that, for the purposes of paragraph (b) of Item 4, the thing supplied was 'done' on XX/XX/XX.

Outside Australia:

Paragraph (b) of Item 4 requires that the recipient of the supply is 'outside Australia' when the thing supplied is done. GSTR 2004/7 states that this is a requirement that the non-resident is not in Australia in relation to the supply when the thing supplied is done (Paragraph 32) and that this is a proxy test for where the supply to the non-resident is consumed (Paragraph 181):

The presumption is that if the non-resident or other recipient of the supply is 'not in Australia' when the thing supplied is done, the supply of that thing is for consumption outside Australia and is GST-free, provided the other requirements of the item are met.

Buyer is a company. GSTR 2004/7 accepts that a company is an artificial entity which does not have a precise physical location and that its presence can only be established through the presence of its representatives (Para 230) and that a

non-resident company is in Australia for the purposes of paragraph (b) of Item 4 if that company carries on business in Australia through:

(a) a fixed and definite place of its own for a sufficiently substantial period of time; or

(b) an agent at a fixed and definite place for a sufficiently substantial period of time (Paragraph 241).

In the letter dated XX/XX/XX Seller initially advised that Buyer did not presently carry on business in Australia from a fixed and definite place in Australia but intends to do so once following Completion of the Agreement. Seller also advised that Buyer intends to carry on business through a representative in Australia following Completion of the Agreement. In the next letter dated XX/XX/XX, however, Seller advised that Seller had received additional information from Buyer, that Buyer has no intention to carry on the XXX business from any country other than the overseas country, that Buyer will issue XXX products only from the overseas country via a website, e-mail or other forms of electronic communication, that Buyer will not employ any staff in Australia, that Buyer will not use offices located in Australia in respect of the sale of XXX products to Australian customers, and that Buyer has appointed a third party administrator in Australia to perform administrative functions but not to act as an agent for Buyer in respect of the XXX business.

Based on the advice from Seller, we are satisfied that Buyer does not carry on business in Australia through a fixed and definite place of Buyer's own.

In relation to whether Buyer carries on business in Australia through an agent at a fixed and definite place for a sufficiently substantial period of time, we note that, pursuant to clause X of the Agreement, during a period of six months which commenced on the date of the Agreement, Buyer and Seller must use their best endeavours to either transfer from Seller to Buyer the numerous Distribution Contracts listed in Schedule X to the Agreement or terminate those agreements and replace them with Distribution Agreements entered into with Buyer. Clause X of the Agreement also states that where an existing Distribution Contract has not been transferred to Buyer or replaced by the Completion Date, Seller will perform Seller's obligations under that existing Distribution Contract pursuant to an Outsourcing Agreement which entitles Buyer to the benefits arising from that Distribution Contract.

We have not seen the Distribution Contracts but, given that the 'business' definition in clause X of the Agreement refers to 'the business of issuing XXX {certain financial products} directly and through exclusive and non-exclusive agency agreements', it is necessary to consider whether Buyer may commence carrying on business in Australia through an agent as the result of one or more Distribution Contracts being either transferred to Buyer or replaced with a Distribution Contract to which Buyer is a party. However, a review of Schedule X to the Agreement indicates that Seller has entered into Distribution Contracts with numerous financial entities (as listed). Consequently, we consider that although each financial entity (banks, brokers, advisers etc) may supply XXX products to customers as agents for Buyer, each bank, broker, adviser etc. is carrying on its own business rather than Buyer's business, as discussed in GSTR 2004/7 (Paragraph 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.

Without reviewing the Outsourcing Agreement we cannot conclusively determine whether, to the extent that Seller performs Seller's obligations under existing Distribution Agreements after Completion Date, Buyer would be carrying on business in Australia through a duly appointed agent. As certain relevant Distribution Contract will not have been transferred or replaced, however, we consider it more likely that Seller carries on Seller's business (using the licence granted by Buyer pursuant to clause X of the Agreement) and merely agrees to pay a share of the profits from that business to Buyer.

We therefore consider that Buyer is outside Australia (in relation to the supply of the Assets (Intellectual Property Rights and related goodwill) pursuant to the Agreement, when the thing supplied is done) for the purposes of paragraph (b) of Item 4.

Subsection 38-190(2)

The scope of Item 4 is limited by subsection 38-190(2) of the GST Act. A supply covered by Item 4 is not GST-free if it is the supply of a right or option to acquire something the supply of which would be connected with Australia and would not be GST-free.

The supply of the Intellectual Property Rights and related goodwill is the supply of rights, but is not a supply of rights to acquire something else. Consequently, subsection 38-190(2) of the GST Act will not prevent the supply of the Intellectual Property Rights and related goodwill to Buyer from being GST-free.

In summary, the supply of the Assets (Intellectual Property Rights and related goodwill) by Seller to Buyer pursuant to the Asset Sale Agreement is GST-free under Item 4.