Edited version of your private ruling

Authorisation Number: 1012445218773

Ruling

Subject: GST - supply of services to a non-resident company

Questions

1. Is the supply of services by an Australian company to non-resident company ('NRCo') a taxable supply?

2. Is the supply of services by an Australian company to NRCo a taxable supply, where the services are provided to another non-resident company ('NRCo2') with a presence in Australia?

Answers

1. Yes. The supply of services by the Australian company to NRCo, but provided to another entity in Australia is a taxable supply.

2. Yes. The supply of services by the Australian company to NRCo, but provided to NRCo2's presence in Australia is a taxable supply.

Relevant facts and circumstances

An Australian company ('you') carries on an enterprise in Australia.

You are registered for goods and services tax (GST).

You entered into an agreement with a non-resident company ('NRCo') to supply professional services (involving technical intellectual assistance, troubleshooting, and hands-on assistance).

NRCo is neither registered nor is required to be registered for GST in Australia. NRCo does not carry on its own business or through any representatives in Australia. There are no interactions with NRCo in Australia as they do not have representatives in Australia.

You provided a copy of an Agreement between you and NRCo, which provides (amongst other things):

· The Agreement covers a specified period.

· You will provide to NRCo specific services within an agreed range of professional services, at agreed prices.

· The fees chargeable to NRCo by you are calculated monthly and are fully inclusive of all services provided. The fees normally include the costs of travelling to and from a client location in Australia, and exclude certain expenses. You will invoice NRCo monthly.

· The relationship between NRCo and you are that of independent service providers. Nothing in this agreement shall be taken as constituting either party or their employees as agents, servants, employees, subsidiaries or representatives of the other party.

· The location of the assignment is in Australia at a specified location, and your role (title) is that of a maintenance technician.

You advised that your 'professional services' require physical maintenance and other hands-on assistance to be provided to another non-resident company ('NRCo2'). You informed that NRCo2 has a presence in Australia and also trades as an Australian registered company. NRCo2 is a client of NRCo.

You advised that essentially, you are a sub-contractor providing services on behalf of NRCo to NRCo2. NRCo may sub-contract the services further where authorised by NRCo2. NRCo may also provide contractual services to NRCo2 in other worldwide locations.

You confirm that you will provide the services to NRCo2 (or customers of NRCo2) in Australia. You carry out work on equipment/machines which are in Australia. You perform your work and provide your services in Australia at premises/locations belonging to NRCo2 or to Australian clients of NRCo2.

You report to an NRCo2 representative in Australia and this representative is required to sign off your timesheets.

You clarified that you perform physical maintenance work on equipment/machines located in Australia. NRCo2 owns the equipment/machines that you work on until they are sold and delivered to NRCo2's customers. Thereafter the Australian customers own the equipment/machines. The current arrangement is that you provide direct hands-on assistance to NRCo2's (representative) in Australia, to support their Australian customers' equipment/machines.

You do not provide any technical advice, troubleshooting, hands-on assistance to NRCo. All your services are provided directly to NRCo2 and performed in Australia. The invoice that you provide to NRCo will state 'for professional services provided to NRCo2 in Australia'.

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 38-190

A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-190(3)

Reasons for decisions

Issues 1 and 2

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; and

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

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

(d) 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 all the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act as:

(a) You make the supply of services to NRCo in return for consideration (by way of payments);

(b) The supply is made in the course or furtherance of your enterprise (business);

(c) The supply is connected with Australia (as the services are performed in Australia and/or supplied through a business that you carry on in Australia); and

(d) You are registered for GST. Note that the supply will only be a taxable during the periods that you are registered or required to be registered for GST.

However, the supply is not taxable 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 services to NRCo could have been input taxed. The GST-free provisions are taken into consideration.

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 your services are items 2 and 3 in the table in subsection 38-190(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.

Item 2

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

(a) 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

(b) the *non-resident acquires the thing in *carrying on the non-residents *enterprise, but is not *registered or *required to be registered.

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

Precondition of Item 2 - Recipient who is not in Australia in relation to the supply

For the supply to be GST-free under Item 2 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) 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.

In addition, even 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).

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 an 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.

The facts indicate that NRCo is a non-resident company. You advise that NRCo is neither registered nor required to be registered for GST. NRCo does not carry on its own business, or through any representatives, in Australia. You do not have any interactions with NRCo in Australia as they do not have representatives in Australia.

Accordingly, prima facie the precondition that the non-resident company (being NRCo) is not in Australia in relation to your supply of services, when the services are performed, is satisfied.

Paragraphs (a) and (b) of Item 2

Where a non-resident entity is not in Australia in relation to a supply when the thing supplied is done, it is necessary to determine if the other requirements in either paragraph (a) or (b) of Item 2 are satisfied.

Under paragraph (a) of Item 2, a supply of a thing that is made to a non-resident who is not in Australia when the thing supplied is done is GST-free if the supply is neither a supply of work physically performed on goods situated in Australia nor directly connected with real property situated in Australia when the work is done.

Goods and Services Tax Ruling GSTR 2003/7 covers the expression 'a supply of work physically performed on goods'. At paragraph 33 of GSTR 2003/7, we consider that such a close link or association between the supply and particular goods or real property exists where, for example, the direct object of the supply is the goods or real property in the sense that:

· the supply changes or affects the goods or real property in a physical way; or

· there is a physical interaction with the goods or real property but without changing the goods or real property; or

· the supply establishes the quantity, size, other physical attributes or the value of the goods or real property; or

· the supply affects (or its purpose is to affect) or protects the nature or value (including indemnity against loss) of the goods or real property; or

· the supply affects, or is proposed to affect, the ownership of the goods or real property including any interest in, or right in or over goods or real property.

Further, paragraphs 57 to 59 of GSTR 2003/7 provide that a supply is a supply of work physically performed on goods where something is done deliberately to the goods to change them or to otherwise affect them in some physical way. The repair of goods is an example of work that is physically performed on goods. In contrast, where activities do not change or affect goods in a physical way, there is no supply of work physically performed on goods. For example, a supply of transporting goods is not work physically performed on goods because the supply only changes the location of the goods, not the goods themselves.

The facts indicate that you supply professional services in your role of a technician. You confirmed that your services require you to perform physical maintenance work and provide other hands-on assistance which is carried out on equipment/machines which are located in Australia.

On the basis of these facts, there is a close link or association between the supply of your services and particular goods (being the equipment/machines), and your work involves a supply of work physically performed on goods (where something is done deliberately to the goods to change them or to otherwise affect them in some physical way). Further, you perform this work and provide your services at premises/locations in Australia.

Accordingly, as your supply of services involves work physically performed on goods situated in Australia, the requirement of paragraph (a) of Item 2 is not satisfied.

Alternatively, we consider whether your supply of services to NRCo is GST-free under paragraph (b) of Item 2. Under paragraph (b) of Item 2, a supply is GST-free if the non-resident acquires your services in carrying on its business, and is neither registered nor required to be registered for GST.

You are able to ascertain the GST registration status of an entity that you deal with by checking the Australian Business Register at www.abr.gov.au.

The supplier must be satisfied, on reasonable grounds that the non-resident is not required to be registered for GST before they can treat their supply as GST-free under paragraph (b) of Item 2. Where the supplier is not in a position to be aware of these circumstances, enquiries should be made of the non-resident. The Commissioner accepts that the supplier has reasonable grounds to be satisfied, if the non-resident has provide a signed written statement, declaring that they are not required to be registered. This is only accepted where the supplier has no reasons to believe the statement is not accurate.

The facts indicate that NRCo is a non-resident company. NRCo does not carry on its own business, or through any representatives, in Australia. NRCo acquires your services in carrying on its business, and is neither registered nor required to be registered for GST in Australia.

Accordingly, on the basis of these facts, your supply of services to NRCo satisfies the requirement of paragraph (b) of Item 2.

Limitations

Having met the requirements of Item 2, it is necessary to consider subsections 38-190(2), 38-190(2A) and 38-190(3) of the GST Act.

From the facts provided, your supply of services to NRCo does not involve a supply of a right or option; and does not relate to making input tax supplies of real property. Therefore, subsections 38-190(2) and 38-190(2A) of the GST Act will not exclude your supply of services from being GST-free.

What remains to be determined is whether your supply is excluded from being GST-free under subsection 38-190(3) of the GST Act. Subsection 38-190(3) of the GST Act states:

Without limiting subsection (2), a supply covered by item 2 in that table is not GST-free if:

(a)    it is a supply under an agreement entered into, whether directly or indirectly, with a *non-resident; and

(b)    the supply is provided, or the agreement requires it to be provided, to another entity in Australia.

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

Under section 195-1 of the GST Act, the 'recipient' in relation to a supply is defined as the entity to which the supply is made.

Goods and Services Tax Ruling GSTR 2006/9 considers multi-party transactions, commonly known as tripartite arrangements. As stated at paragraphs 131 and 132 of GSTR 2006/9:

131. 'Made' in the context of 'a supply made' takes its meaning from the definition of 'recipient' in section 195-1:

recipient, in relation to a supply, means the entity to which the supply was made.

132. 'Provide' is used to contrast with 'made' - it distinguishes between the contractual flow of the supply to the recipient (the entity to which the supply is made) and the actual flow of the supply to another entity (the entity to which the supply is provided).

Under a tripartite arrangement (involving three or more parties) it is possible that a supply is made to one entity under the terms of an agreement, but the supply is provided to another entity. It may be that the agreement, together with the surrounding circumstances, show that there is a binding obligation between the two parties making the arrangement for goods, services or anything else to be provided to a third party.

Further, Goods and Services Tax Ruling GSTR 2005/6 provides guidance in relation to subsection 38-190(3) of the GST Act and the expression provided to another entity.

Paragraphs 38, 59 and 61 of GSTR 2005/6 state:

38. Subsection 38-190(3), in contrast to item 2, focuses on the entity to which the supply is provided, not the entity (the non-resident) to which the supply is made. If the supply is provided (or is required to be provided) to another entity in Australia, subsection 38-190(3) negates the GST-free status that would otherwise apply to the supply covered by item 2. Although the non-resident recipient of the supply is not in Australia, consumption of the supply is considered to be in Australia because the supply is provided to an entity in Australia.

…

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 facts indicate that you have entered into the agreement with NRCo (a non-resident company) for the supply of your services, and therefore NRCo is the recipient of your supply. You also invoice NRCo for your services. However, you are required to provide your services to NRCo2 (that is, NRCo2's presence or its customers) located in Australia. NRCo2 is a client of NRCo, and although it is a non-resident company, NRCo2 has a presence in Australia. You perform your work on equipment/machines and provide your services at premises/locations belonging to NRCo2 (or its customers) in Australia. You also report to an NRCo2 representative in Australia. You do not provide your services directly to NRCo. The invoice that you provide to NRCo will state 'for professional services provided to NRCo2 in Australia'.

On the basis of these facts, your supply of services is provided to, and the actual flow of the supply is to, another entity in Australia (either to NRCo2's presence in Australia or its customers in Australia).

Accordingly, subsection 38-190(3) of the GST Act excludes your supply of services to NRCo from being a GST-free supply under Item 2.

To summarise, your supply of services made to NRCo, but provided to another entity in Australia (being NRCo2's presence in Australia and/or its Australian customers), does not satisfy all the requirements of Item 2 and is not GST-free.

Item 3

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:

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

(b) 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)

For the supply to be GST-free under Item 3, the supply must satisfy both paragraphs (a) and (b) of Item 3, and be neither a supply of work physically performed on goods, nor directly connected with real property, in Australia.

Paragraph (a) of Item 3 - Recipient who is not in Australia in relation to the supply

The requirement under paragraph (a) of Item 3 is that the recipient must not be in Australia in relation to the supply when it is done. This requirement is similar to the precondition of Item 2 in relation to the 'recipient who is not in Australia in relation to the supply' - which has been addressed above (see above).

As stated above, the facts indicate that NRCo is a non-resident company. You advise that NRCo is neither registered nor required to be registered for GST. NRCo does not carry on its own business, or through any representatives, in Australia. You do not have any interactions with NRCo in Australia as they do not have representatives in Australia.

Accordingly, prima facie the condition under paragraph (a) of Item 3 that the non-resident company (being NRCo) is not in Australia in relation to your supply of services, when the services are performed, is satisfied.

Paragraph (b) of Item 3 - Effective use and enjoyment

Even if it is considered that NRCo is not in Australia in relation to your supply of services when it is done, 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).

Goods and Services Tax Ruling GSTR 2007/2 covers the 'effective use or enjoyment' of the supply. 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.

We need to inquire as to the entity that has the actual use or enjoyment of the supply (that is, the entity to which the supply is provided). 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.

Similarly to subsection 38-190(3) of the GST Act, the term 'provided' is used to contrast with the term 'made'. Paragraphs 52 to 54 of GSTR 2007/2 state:

52. A supply may be made and provided to the same entity, or may be made to one entity but be provided to another entity (or entities). Such circumstances are provided for in the legislation by subsections 38-190(3) and (4)…

53. The entity to which the supply is made is the recipient. The supplier may provide the supply to that recipient entity (in which case the recipient is also the providee) or may provide the supply to another entity (in which case the other entity is the providee).

54. A supply is provided to another entity if, in the performance of a service (or in the doing of some thing), the actual flow of that supply is to an entity that is not the recipient. The contractual flow is to the recipient and the actual flow of the supply is to another entity and thus the other entity is the providee.

Paragraphs 60 and 61 of GSTR 2007/2 provide that 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.

The facts indicate that you have entered into the agreement with NRCo (a non-resident company) for the supply of your services, and therefore NRCo is the recipient of your supply. However, you are required to provide your services to NRCo2 (or its customers) in Australia. NRCo2 is a client of NRCo, and although it is a non-resident company, NRCo2 has a presence in Australia. You perform your work on equipment/machines and provide your services at premises/locations belonging to NRCo2 (or its customers) in Australia. You also report to an NRCo2 representative in Australia. You do not provide your services directly to NRCo. The invoice that you provide to NRCo will state 'for professional services provided to NRCo2 in Australia'.

On the basis of these facts, although you have entered into an Agreement with NRCo to supply your services (contractual flow), the supply is provided to, and the actual flow of the supply is to, another entity in Australia (either to NRCo2's presence in Australia or its customers in Australia). Accordingly, NRCo2 (or its customers) in Australia is the providee entity of your 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.

The facts indicate that you will perform your work and provide your services at premises/locations in Australia. You will provide the services to NRCo2's presence (or its customers) in Australia, and also report to an NRCo2 representative in Australia. The providee entity is in Australia and therefore effective use and enjoyment is in Australia.

Accordingly, the requirement of paragraph (b) of Item 3 is not satisfied and your supply of services to NRCo is not GST-free under Item 3.

Supply is neither a supply of work physically performed on goods

For completeness, the requirement that the supply is neither a supply of work physically performed on goods, nor directly connected with real property, in Australia is also not satisfied. This has been addressed in detailed above.

To summarise, your supply of services made to NRCo, but provided to another entity in Australia (being NRCo2's presence in Australia and/or its Australian customers), does not satisfy all the requirements of Item 3 and is not GST-free.

Conclusion

Your supply of services made to NRCo, but provided to another entity in Australia (being NRCo2's presence in Australia and/or its Australian customers and/or any other entity in Australia), does not satisfy all the requirements of Items 2 and 3, and therefore is not GST-free. Consequently, your supply of the services to NRCo is a taxable supply.