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Ruling

Subject: GST and publishing services

Question 1

Is an Australian entity (you) making a taxable supply when you provide the following book publishing services to recipients (authors) that are in Australia at the time of making the supply:

(a) You supply a 'full publishing service' to an author, and provide editing, publishing and marketing services.

(b) You supply a 'limited publishing service' to an author and invoice the author separately for some of your supplies in relation to costs of editing or graphic design and artwork.

(c) You supply a 'proof and edit only publishing service' to an author.

Advice/Answers

(a) Yes. When you supply any published eBook to an end user, the proceeds from the sale of this eBook is a taxable supply.

You are not making, a taxable supply when you make royalty payments to authors. The author is making a supply of a right (the licence to publish) to you and therefore you are the recipient of the supply. The royalty payments that you make are consideration for this supply.

(b) Yes. The supply of an eBook to an end user is a taxable supply and the supplies that you invoice separately for in relation to the costs of editing or graphic design and artwork are also taxable supplies.

You are not making a taxable supply when you make royalty payments to authors; these payments are consideration for the supply of the right to publish their work.

(c) Yes. You are making a taxable supply of proof and edit only publishing services to authors.

Question 2

Are you making a creditable acquisition when you make royalty payments to an author that is in Australia and is registered for GST purposes, when you publish their work?

Advice/Answers

As the author is registered for GST purposes, they are making a taxable supply to you. You are making a creditable acquisition and are entitled to claim an input tax credit for this acquisition.

Question 3

Are you making a creditable acquisition when you make royalty payments to an author that is not registered or required to be registered for GST purposes, when you publish their work?

Advice/Answers

As the author is not registered or required to be registered for GST purposes, this is not a taxable supply to you. As it is not a taxable supply, you are not making a creditable acquisition and will not be entitled to claim an input tax credit.

Question 4

Are you entitled to issue a recipient created tax invoice (RCTI) under the A New Tax System (Goods and Services Tax) Act 1999 Classes of Recipient Created Tax Invoice Determination (No. 31) 2000?

Advice/Answers

Yes. You are entitled to issue a RCTI under this determination.

Question 5

Are you making a taxable supply of publishing services when you supply proof and editing services to a non-resident author who is not in Australia when you supply these services?

Advice/Answers

No. This supply of services will be GST-free.

Question 6

Are you making a taxable supply when you sell the eBook to a non-resident who is not in Australia when you supply these services?

Advice/Answers

No. This supply of an eBook to a non-resident will be GST-free.

Relevant facts and circumstances

You are a publishing entity. You provide publishing services to clients and also publish eBooks. Your GST turnover is not over the threshold; however you have registered for GST purposes in Australia as you expect that your turnover will be over the threshold in the future.

You have provided a copy of your standard publishing and licence terms and Conditions (the contract). This is a draft agreement that you intend to operate in accordance with. Any prospective authors that you deal with will need to comply with the terms of this contract.

You receive manuscripts from people both in Australia and overseas. The manuscripts are received in electronic form.

Scenario 1 Full publishing service

You provide a full publishing service in a more traditional publishing manner. You bear all costs that you incur in editing; copy editing and proofing in order to create an electronic book to sell. You then provide a verbatim text document of their work to the author. The author does not receive a copy of the actual eBook that you will publish. The only end product that the author receives is a copy of their text which they already own.

The contract states that you agree to provide publishing services to the author and the author will grant you the rights and authorities necessary for you to provide them with said publishing services.

The author, by entering into a full publication contract with you gives you the rights (licence) to sell the electronic book. The contract states that the author will grant you the licence to edit and then sell their electronic book for the initial term and then on a perpetual basis until such time that the author or you terminate the licence in writing. This term is ordinarily three years. In return for the rights to the licence, you publish and promote the book for sale on a specific internet bookstore.

The contract establishes that you will be making royalty payments as consideration for the supply of the rights to the author. Presently your contract refers to Royalty payments as being a percentage of the total sale price for each book unit sold. You advise that you now intend to amend this clause and impose a flat rate per unit sold for the purposes of calculating the royalty payment amounts that the authors are entitled to. Regardless of the calculation method that you use, this royalty amount has to be determined by you (the recipient of the supply) as you are the entity that will need to determine how many book units will be sold.

Scenario 2 Limited publishing service

If you are doubtful that a book will sell, you may provide a more limited publishing service. You will provide publishing services as per the contract where the author grants you the licence to publish the eBook in return for lower royalty payments. In addition you may bill the author separately for the supply of your services in relation to your costs of editing or the costs you incur in the graphic design and artwork for the eBook.

Scenario 3 Proof and edit only

You will provide publishing services to your authors to turn their manuscripts into an eBook for them. The author will walk away with an end product in the form of an electronic file. You will charge your author a fee for their manuscript to be edited.

This supply is not considered in your draft contract. You intend to post prices on your website for these types of services. You do not intend to ask these customers to sign any form of contract. You will provide them with a quote for services and simply bill them once their eBook is complete.

Specifically, you will provide a substantive edit, copy edit and proof edit, to final publication of the book as an electronic file. You are providing this supply of your expertise in the form of publishing services to the author. The author has not signed over the rights to their eBook in the form of a licence for you to publish the book. The author retains their ownership of the eBook and is paying you a fee for your editing services.

You intend to treat this supply as a taxable supply of your publishing services and will remit GST on this supply when you provide this service to authors that are in Australia.

You do not require written advice on Scenario 3 in relation to authors that are in Australia. You would like us to consider this scenario in relation to authors who are non-residents, who are not in Australia at the time of the supply of your proof, and editing services and are not registered or required to be registered for GST purposes in Australia.

Relevant legislative provisions

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

Paragraph 9-10(2)(e) of A New Tax System (Goods and Services Tax) Act 1999

Section 11-5 of A New Tax System (Goods and Services Tax) Act 1999

Subsection 11-15(2) of A New Tax System (Goods and Services Tax) Act 1999

Section 11-20 of A New Tax System (Goods and Services Tax) Act 1999

Subsection 38-190(1) of A New Tax System (Goods and Services Tax) Act 1999

Subsection 38-190(2) of A New Tax System (Goods and Services Tax) Act 1999

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

Reasons for decisions

Issue 1

Question 1

Summary

You will enter into a contract with various authors to acquire copyright in their written work. As a result you have the right to publish that work. The proceeds from the sale of any published book is payable to you and this is a taxable supply by you. As consideration for the right to publish the authors' work, you will pay a percentage of the proceeds to the author (royalties). Separate from the contract between the parties for the rights in the work, where the writer contributes to, or even covers, the initial cost of your publishing and marketing this is a taxable supply by you.

Taxable supply

GST is payable on any taxable supplies that you make. Under section 9-5 of the GST Act you make a taxable supply if:

a) the supply is made for consideration;

b) it is made in the course or furtherance of an enterprise that you carry on;

c) it 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.

Supplies of eBooks and other publishing services

The supply of the sales of the eBook to end users and other publishing services that you supply and invoice the author meets paragraphs (a) to (d) in section 9-5 of the GST Act, as follows:

a) You make a supply of an eBook and other publishing services and receive consideration for the supplies;

b) You make the supply in the course or furtherance of your business (enterprise);

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

d) You are registered for GST in Australia.

Hence, the supply of the sale of the eBook and other publishing services that you make are taxable to the extent that it is not GST-free or input taxed.

Your supply of eBooks and other publishing services do not satisfy any of the input taxed provisions or the GST-free provisions under the GST Act.

Accordingly you are making a taxable supply when you sell eBooks and supply other publishing services as follows:

1(a) 'Full publishing service'

You are making a taxable supply when you supply an eBook to an end user and receive consideration for this supply in the form of proceeds from the sales of the eBook.

However you are not making, a taxable supply when you make royalty payments to authors. The author in signing your contract agrees to make a supply of a right (the licence to publish) to you and you are the recipient of the supply. The royalty payments that you make to the author are calculated by you based on the quantity of sales of the eBook that you make. Despite the fact that you are required to determine the amount of royalty payments that the author will receive, this is still consideration for their supply of the licence to publish.

1(b) 'Limited publishing service'

You are making a taxable supply when you supply an eBook to an end user and receive consideration for this supply in the form of proceeds from the sales of the eBook. In addition you are making a taxable supply when you invoice the author for other supplies in relation to costs of editing or graphic design or the cost of artwork.

Reference is made to the preceding answer in Question 1(a) for further explanation. You are not making, a taxable supply when you make royalty payments to authors. The author makes a supply of a right (the licence to publish) to you and you are the recipient of the supply.

1(c) 'Proof and edit only service'

You are making a taxable supply when you provide proof and edit services to the authors. These are supplies that you make for which you receive consideration, thus you are making taxable supplies when you supply proof and edit services. There is no contract for these supplies and the author does not sign over any rights to publish their eBook to you, thus you are not the recipient of any supply when you make proof and edit services.

Question 2

Under section 11-20 of the GST Act you are entitled to claim GST paid on any creditable acquisition you make.

You make a creditable acquisition under section 11-5 of the GST Act if:

(a) you acquire anything solely or partly for a creditable purpose; and

(b) the supply of the thing to you is a taxable supply; and

(c) you provide, or are liable to provide consideration for the supply; and

(d) you are registered or required to be registered.

Paragraph 11-5(a) of the GST Act - is the supply a creditable acquisition?

Under subsection 11-15(2) of the GST Act, you do not acquire the thing for a creditable purpose to the extent that:

(a) the acquisition relates to making supplies that would be input taxed (for example financial supplies and supplies of residential premises); or

(b) the acquisition is of a private or domestic nature.

You acquire the supply of rights from an author that is registered for GST in Australia, for a creditable purpose as you acquire the services in carrying on your enterprise and the acquisition is not in relation to input taxed supplies and is not of a private or domestic nature.

Paragraph 11-5(b) - Is the supply of rights by the author (registered for GST in Australia) to you a taxable supply?

The supply of the right to publish the work in the form of an eBook by the author to you meets all the requirements in paragraphs (a) to (d) of section 9-5 of the GST Act, as follows:

(a) the author makes a supply of the right to publish the eBook and in return they receive consideration for the supply by way of payment of royalties;

(b) the author supplies the right to publish the eBook in the course or furtherance of their business (enterprise);

(c) the author is in Australia and supplies the right to publish the eBook through an enterprise that they carry on in Australia (and therefore the supply is connected with Australia); and

(d) the author is registered for GST in Australia.

Hence, the supply of the right to publish the eBook by the author to you is taxable to the extent that it is not GST-free or input taxed.

The supply of the right to publish the eBook by the author does not satisfy any of the input taxed provisions or the GST-free provisions under the GST Act.

As the supply of the right to publish the eBook by the author meets all the requirements in section 9-5 of the GST Act, the supply is a taxable supply. Thus you satisfy paragraph 11-5(b) of the GST Act.

Paragraph 11-5(c) and (d) of the GST Act

You provide consideration for the supplies in the form of royalty payments. You are registered for GST. Hence your acquisition of the rights from the author satisfies paragraphs (c) and (d) of the GST Act.

As all requirements in section 11-5 are met, your acquisitions will be creditable acquisitions under section 11-5 of the GST Act.

Question 3

Please refer to the information provided in the answer to Question 2 above.

Where the author is not registered for GST purposes they do not satisfy paragraph 9-5(d) of the GST Act as listed above, therefore they are not making a taxable supply of rights to you.

Therefore, paragraph 11-5(b) of the GST Act is not satisfied and you are not making a creditable acquisition. You are not entitled to claim any input tax credits for the royalty payments you make as consideration for the supply of rights from the author.

Question 4

Recipient Created Tax Invoices (RCTIs)

The GST legislation provides that a recipient created tax invoice is a tax invoice belonging to a class of tax invoices that the Commissioner has determined in writing may be issued by the recipient of a taxable supply.

Goods and Services Tax Ruling GSTR 2000/10 specifies three classes of tax invoices that may be issued by a recipient of a taxable supply. These classes include:

· tax invoices for taxable supplies of agricultural products;

· tax invoices for taxable supplies made to government related entities; and

· tax invoices for taxable supplies made to registered recipients that have a turnover of at least $20 million; or are members of a group that has such an entity as a member.

You do not fall within any of these classes. Registered recipients of taxable supplies not covered by the specified classes in GSTR 2000/10 can request that the Commissioner make a determination to allow them to issue RCTIs. Such requests are considered on the basis of the particular circumstances of the industry, including the nature of the taxable supplies, the suppliers and the recipients.

For a recipient of a supply to be entitled to issue RCTIs, the recipient must set the value of the supply after it is made. In addition, the value must be set by some process or calculation the recipient of the supply undertakes.

In this case, you (the recipient) set the value of the supply made to you after the supply is made by the author. You calculate the amount to be paid to the author based on a percentage of the price of the eBooks sold, which is based on sales data held by you.

The author does not have access to this information, is not in a position to know the value of the supply and relies on you to advise them of the value of the supply made.

This situation is addressed in A New Tax System (Goods and Services Tax) Act 1999 Classes of Recipient Created Tax Invoice Determination (No. 31) 2000 as follows:-

In Determination No. 31 the Commissioner states that:

'A publisher who is the recipient of a taxable supply may issue a tax invoice that belongs to a class of tax invoices for a taxable supply of an author's publication where the recipient:

(i) establishes the value of the taxable supply as a royalty based on the value of sales of the author's publication;

(ii) satisfies the requirements set out in Clause 5.

Clause 5 states:

'A recipient must satisfy the following requirements:

(a) the recipient must be registered for GST;

(b) the recipient must set out in the tax invoice the ABN of the supplier;

(c) the recipient must issue the original or a copy of the tax invoice to the supplier within 28 days of making, or determining, the value of a taxable supply and must retain the original or the copy;

(d) the recipient must issue the original or a copy of an adjustment note to the supplier within 28 days of the adjustment and must retain the original or the copy;

(e) the recipient must reasonably comply with its obligations under the taxation laws;

(f) the recipient must have either:

- a written agreement with the supplier specifying the supplies to which it relates, that is current and effective when the RCTI is issued, agreeing that:

(i) the recipient can issue tax invoices in respect of the supplies;

(ii) the supplier will not issue tax invoices in respect of the supplies;

(iii) the supplier acknowledges that it is registered for GST when it enters into the agreement and that it will notify the recipient if it ceases to be registered; and

(iv) the recipient acknowledges that it is registered when it enters into the agreement and that it will notify the supplier if it ceases to be registered for GST; or

- an agreement with the supplier embedded in an RCTI it issues that contains the following statement:

The recipient and the supplier declare that this agreement applies to supplies to which this tax invoice relates. The recipient can issue tax invoices in respect of these supplies. The supplier will not issue tax invoices in respect of these supplies. The supplier acknowledges that it is registered for GST and that it will notify the recipient if it ceases to be registered. The recipient acknowledges that it is registered for GST and that it will notify the supplier if it ceases to be registered for GST. Acceptance of this RCTI constitutes acceptance of the terms of this written agreement.

Both parties to this supply agree that they are parties to an RCTI agreement. The supplier agrees to notify the recipient if the supplier does not wish to accept the proposed agreement within 21 days of receiving this document;

(g) the recipient must not issue a document that would otherwise be a recipient created tax invoice, on or after the date when the recipient or the supplier has failed to comply with any of the requirements of this determination;

(h) if a recipient has been carrying on an enterprise as a publisher for a period less than 12 months, the recipient must notify the Commissioner in writing of the recipient's intention to use recipient created tax invoices. This notification must be made before 14 days have elapsed after the first occasion that a recipient created tax invoice is issued by that recipient.'

You meet all the requirements of Determination No. 31. As such, you can issue RCTIs for taxable supplies made by the author to you. Please note clause 5(h) requires entities that have been carrying on a publishing enterprise for less than 12 months to notify the Commissioner of their intention to issue RCTIs.

Question 5

Supplies of proof and editing services to non-resident authors

Under the GST Act, the term 'supply' is defined to include a supply of services. Where you supply a proof and editing service, you will satisfy paragraphs (a) to (d) of section 9-5 in that:

· you charge a fee (consideration) for this service

· you make the supply in carrying on your publishing enterprise

· the supply is connected with Australian because it is supplied through an enterprise that you carry on in Australia, and

· you are registered for GST.

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

The supply does not satisfy any of the input taxed provisions under the GST Act, we will consider the GST-free provisions.

Generally, the supply of a thing (other than goods or real property) for consumption outside Australia will be GST-free where the relevant GST legislative provisions are met. Relevant to your situation is item 2 in the table in subsection 38-190(1) of the GST Act (Item 2). As you provide the proof and editing services to non-resident authors, the supply of these services will be GST-free where the requirements of Item 2 are met.

Item 2 provides that a supply is GST-free if it 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 that is directly connected with real property situated in Australia, or

· the non-resident acquires the thing in carrying on its enterprise and the non-resident is not registered or required to be registered.

Goods and Services tax Ruling GSTR 2004/7 explains that a non-resident individual is in Australia if that individual is physically in Australia in relation to the supply when the thing supplied is done.

Where a supply is made to a non-resident individual and that individual is physically present in Australia when the thing supplied is done, the individual is in Australia. However, as stated the individual must be in Australia 'in relation to the supply'. If the individual is in Australia on matters unrelated to the supply, the individual recipient is in Australia, but is not in Australia 'in relation to the supply'.

With respect to supplies made to individuals, it is not relevant whether the individual has a representative (including an agent) present in Australia at the time of the supply. Rather, the focus is on the whereabouts of the individual to whom the supply is made.

Based on the information provided by you, the non-resident authors are not physically in Australia at the time that the services are provided. Therefore, the remaining conditions of Item 2 can be considered to determine if the supply is GST-free.

A supply of proof and editing services made to a non-resident will be GST-free if either of the conditions referred to in paragraphs (a) or (b) of Item 2 are met.

With respect to paragraph (a) of Item 2, the supplies of services will not be GST-free, if the supply involves 'work physically performed on goods situated in Australia'.

You advise that the manuscripts are transmitted in electronic form. However, in order to assess the manuscripts, you may print a hardcopy of the material. To determine if the work carried out by you is 'work physically performed on goods' it is necessary to examine what it is that is actually being supplied.

The term 'goods' is defined in the GST Act, to mean any form of tangible personal property. The term 'tangible' connotes a physical existence and has the effect of excluding intangibles. A manuscript in electronic form is not tangible personal property. Rather it is intellectual property and is therefore not 'goods' for GST purposes.

For more information on the meaning 'directly connected with goods or real property' and ' a supply of work physically performed on goods' please refer to Goods and Services Tax Ruling GSTR 2003/7.

On objective assessment, we consider that what is actually being assessed in this case are the original concepts/ideas of the author, that is, the intellectual property contained in manuscript form. As intellectual property is not 'goods', your supply of proof and editing services is not a supply of 'work physically performed on goods'. The fact that you print a hardcopy of the manuscript does not change the character of the thing being assessed.

As the proof and editing services provided by you, does not involve 'work physically performed on goods' situated in Australia when the work is done or directly connected with real property in Australia, the supply will be GST-free under paragraph (a) of Item 2 when you provide these services to a non-resident author who is not in Australia.

Alternatively, the supply may be GST-free under paragraph (b) of Item 2 if the non-resident author is not registered or required to be registered for GST and they acquire the proof and editing services in carrying on their enterprise. Whether the authors are carrying on an enterprise will be a question of fact.

Subsection 38-190(3) of the GST Act

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

· it is a supply under an 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.

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

A supply is provided to another entity if the contractual flow is to one entity (the non-resident recipient) while the actual flow of that supply (for example the doing of some other thing supplied) is in whole or in part, to another entity that is not the non-resident entity with which the supplier made the agreement for the supply. The contractual flow is to one entity (the non-resident entity) and the actual flow of the supply is to another entity. For example, if a supply of entertainment services is made to a non-resident company and in the performance of that service the employees are entertained, the actual flow of the service is to another entity, each employee.

Accordingly, where a supplier has an agreement (written or oral) with a non-resident and is required to provide the same supply to another entity in Australia, the supply will not be GST-free under item 2 by virtue of subsection 38-190(3) of the GST Act.

From the facts, you will supply proof and edit services to a non-resident author. You are not required to provide these services to another entity in Australia. Therefore, subsection 38-190(3) of the GST Act will not apply in your circumstances.

For more information on subsection 38-190(3) of the GST Act please refer to Goods and Services Tax Ruling GSTR 2005/6 (available on www.ato.gov.au)

Question 6

Please refer to the information provided in the answer to Question 5 above.

The supply of an eBook to a non-resident entity is neither a supply of work physically performed on goods situated in Australia nor a supply directly connected with real property in Australia. Therefore, your supply of eBooks to non-resident entities will meet the requirements of paragraph (a) in item 2.

As paragraph (a) in item 2 is satisfied, it is unnecessary to apply paragraph (b) to your circumstances.

Subsection 38-190(3) of the GST Act

From the facts provided, you have an agreement with the non-resident entities to supply them with eBooks. There are no facts to indicate that these entities require you to provide that same supply to another entity in Australia. Therefore, subsection 38-190(3) of the GST Act will not apply in your circumstances.

In summary:

Supplies to non-resident entities

In summary, a supply of a book electronically to a non-resident entity that is not in Australia in relation to the supply will be GST-free if paragraph (a) of item 2 is satisfied and the supplier is not required to provide the supply to another entity in Australia.

Other Information

All publications mentioned in this ruling are available on our website at www.ato.gov.au