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Ruling

Subject: Goods and services tax (GST) and reverse charging

Question 1

Has Entity 1 made taxable supplies of its business services that were connected with Australia?

Answer

Yes.

Question 2

If Entity 1 has made taxable supplies of the business services that were connected with Australia and its customer has also accounted for the acquisition of these services under Division 84 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), such that the Commissioner has received two amounts for the same supply, is Entity 2 entitled to a refund of GST?

Answer

No.

Relevant facts and circumstances

Entity 1 is incorporated in an overseas country.

Entity 1 is registered for GST.

Entity 1 is a member of a GST group. The representative member of this GST group is Entity 2, a wholly owned subsidiary of Entity 1.

Entity 1 is a global services company. It specialises in services to a certain sector.

Entity 1 has entered into arrangements with a number of Australian clients for the provision of certain things and business services including the following:

· issuing licences for the use of something

· provision of something maintenance services which are done outside Australia

· providing business services, which are provided either virtually via the internet, from outside Australia and/or by consultants in Australia, and

· providing training sessions, which are conducted virtually via the internet.

Entity 1 has received consideration for these supplies.

The supplies in question are the supplies of business services that were provided by consultants in Australia. Entity 1 organises the performance of these services by consultants of Entity 1, Entity 2 or other related non-resident something companies.

Entity 1's major (number) customers (including Entity 3) are entities that make supplies for a non-creditable purpose and are therefore not entitled to claim full input tax credits on a significant number of their acquisitions, including their acquisitions of services from Entity 1.

Entity 1 has supplied business services to these customers. Some of the business services were provided by consultants in Australia.

Entity 2 does not act as a resident agent for Entity 1. Entity 2 does not enter into business service contracts with Entity 1's customers on behalf of Entity 1 thereby binding Entity 1 to its customers. Instead Entity 1 enters into its business service contracts with its customers directly.

Entity 2 has paid GST to the Australian Taxation Office (ATO) on the supplies of the business services that were provided in Australia.

Entity 3 has also paid GST to the ATO on the supplies of the business services that were provided in Australia based on the belief that these supplies were subject to the reverse charging requirement of Division 84 of the GST Act.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1)

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

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

A New Tax System (Goods and Services Tax) Act 1999 paragraph 9-25(5)(a)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 9-25(5)(c)

A New Tax System (Goods and Services Tax) Act 1999 section 9-40

A New Tax System (Goods and Services Tax) Act 1999 subsection 48-40(1)

A New Tax System (Goods and Services Tax) Act 1999 section 83-5

A New Tax System (Goods and Services Tax) Act 1999 section 84-5

A New Tax System (Goods and Services Tax) Act 1999 subsection 84-10(1)

Taxation Administration Act 1953 section 8AAZLH

Reasons for decisions

Question 1

Summary

Entity 1's supplies of the business services in question were taxable supplies because:

· Entity 1 supplied these services for consideration

· Entity 1 made these supplies in the course or furtherance of an enterprise that it carries on

· these supplies were connected with Australia

· Entity 1 is registered for GST, and

· reverse charging does not apply.

Detailed reasoning

You make a taxable supply where you satisfy the requirements of 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 term defined in section 195-1 of the GST Act)

Entity 1's supplies of the business services in question satisfied the requirements of paragraphs 9-5(a), 9-5(b) and 9-5(d) of the GST Act. This is because:

· it supplied these services for consideration

· it made these supplies in the course or furtherance of an enterprise that it carries on, and

· it is registered for GST.

There are no provisions in the GST Act under which Entity 1's supplies of the business services were GST-free or input taxed.

Therefore, what remains to be determined is whether Entity 1's supplies of the business services that were provided by consultants in Australia were supplies 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; or

(b) the supplier makes the supply through an *enterprise that the supplier

carries on in Australia; or

(c) all of the following apply:

(i) neither paragraph (a) nor (b) applies in respect of the thing;

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

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

Services are not goods or real property.

Therefore, a supply of services is connected with Australia if the requirements of subsection 9-25(5) of the GST Act are satisfied. Subsection 9-25(5) of the GST Act states:

Paragraph 65 of Goods and Services Tax Ruling GSTR 2000/31 states:

65. If the 'thing' being supplied is a service, the supply of that service is typically done where the service is performed. If the service is performed in Australia, the service is done in Australia and the supply of that service is connected with Australia under paragraph 9-25(5)(a). This is the case even if the recipient of the supply is outside Australia.

Some of Entity 1's business services were performed in Australia, that is, those that were provided by consultants in Australia. Therefore, the things supplied in these cases were done in Australia. Hence, the supplies of the business services that were provided by consultants in Australia were connected with Australia under paragraph 9-25(5)(a) of the GST Act, and therefore the requirement of paragraph 9-5(c) of the GST Act is satisfied.

Hence, Entity 1 made taxable supplies of the business services that were provided by consultants in Australia, as all of the requirements of section 9-5 of the GST Act are satisfied.

Question 2

Summary

Entity 2 is not entitled to a refund of the GST it paid to the ATO, as it correctly paid GST to the ATO.

Entity 2 is not entitled to a refund of the GST Entity 1's customers paid to the ATO as Entity 2 did not pay these amounts to the ATO.

Detailed reasoning

GST is payable by an entity on taxable supplies that it makes.

However, subsection 48-40(1) of the GST Act provides that the GST payable on a taxable supply that a member of GST group makes is payable by the representative member of the GST group.

Subsection 84-10(1) of the GST Act provides a reverse charging rule for offshore intangible supplies. It states:

The GST on a supply that is a *taxable supply because of section 84-5:

is payable by the *recipient of the supply; and

is not payable by the supplier.

Section 84-5 of the GST Act states:

A supply of anything other than goods or *real property that is:

(a) a supply not *connected with Australia; or

(b) a supply connected with Australia because of paragraph 9-25(5)(c);

is a taxable supply if:

(c) the *recipient of the supply acquires the thing supplied solely or partly

for the purpose of an *enterprise that the recipient *carries on in Australia, but not solely for a *creditable purpose; and

(d) the supply is for consideration; and

(e) the recipient is *registered or *required to be registered.

Entity 1's supplies of the business services that were provided in Australia were connected with Australia, but not because of paragraph 9-25(5)(c) of the GST Act. Therefore, subsection 84-10(1) of the GST Act does not apply to the situation in question. Hence, the GST payable on the supplies of the business services is not reverse charged under subsection 84-10(1) of the GST Act.

Section 83-5 of the GST Act also contains a reverse charging rule. It states:

(1) The GST on a *taxable supply is payable by the *recipient of the supply, and is

not payable by the supplier, if:

(a) the supplier is a *non-resident; and

(b) the supplier does not make the supply through an *enterprise that the

supplier *carries on in Australia; and

(c) the recipient is *registered or *required to be registered; and

(d) the supplier and the recipient agree that the GST on the supply be

payable by the recipient

(2) However, this section does not apply to:

(a) a supply that is a *taxable supply under Division 84 (which is about offshore

supplies other than goods or real property); or

(b) a taxable supply made by a *non-resident through a *resident agent; or

(c) a supply that is disregarded under paragraph 188-15(3)(b) or (c) or

188-20(3)(b) or (c)(which are about supplies of rights or options

offshore).

Entity 1 and Entity 3 have not agreed that Entity 3 would pay the GST on any of the supplies in question. Entity 2 has paid GST on the supplies in question. Therefore, section 83-5 of the GST Act does not apply.

As the requirements of section 9-5 of the GST Act are satisfied and reverse charging does not apply and the representative member of the something GST group is Entity 2, GST was payable by Entity 2 on the supplies of the business services that were provided in Australia.

Entity 2 is not entitled to a refund of the GST it has paid to the ATO as Entity 2 was liable to pay that GST.

Entity 2 is not entitled to a refund of the GST that Entity 3 (or any other customer of Entity 1) has incorrectly paid to the Tax Office, as Entity 2 did not pay these incorrectly paid GST amounts.

We can't advise the ruling applicant whether Entity 1's customers or any other entities other than something GST group members are entitled to refunds because that concerns the tax affairs of taxpayers that the ruling applicant does not represent.

It is the entity that incorrectly pays GST to the ATO that is entitled to a refund from the ATO, subject to the 4 year time limitation.