Edited version of your private ruling

Authorisation Number: 1012447198881

Ruling

Subject: GST implications in relation to the importation and exportation of goods

1. Does a non-resident company (NRCO) make a taxable importation of products (products) and is NRCO liable for GST, when NRCO supplies or delivers the products to an Australian company (AUSCO)?

2. Does NRCO make a taxable supply in respect of products delivered by NRCO to AUSCO on consignment and subsequently purchased from NRCO by AUSCO?

Answers

1. No, NRCO does not make a taxable importation of products and NRCO is not liable for GST, when NRCO supplies or delivers the products to AUSCO.

2. No, NRCO does not make a taxable supply in respect of products delivered by NRCO to AUSCO on consignment and subsequently purchased from NRCO by AUSCO.

Relevant facts and circumstances

The parties

An Australian company ('AUSCO') is registered for both GST and the deferred GST scheme in respect of GST payable on imported goods. AUSCO is a distributor of products in Australia. Most of the products distributed by AUSCO are sourced from overseas.

An overseas company ('OSCO') is a company incorporated outside Australia and a wholly-owned subsidiary of AUSCO. OSCO is neither registered nor required to be registered for GST in Australia.

For many years AUSCO has distributed certain products (products) in Australia. The products were supplied to AUSCO by another overseas company ('OSCO2').

A non-resident company ('NRCO') is the manufacturer of the products. NRCO is a company incorporated outside Australia which has no presence in Australia and is neither registered for GST in Australia nor required to be so registered.

NRCO advised that NRCO does not have a fixed place of business in Australia, NRCO does not have a physical presence in Australia, AUSCO does not act as an agent on behalf of NRCO and does not have any authority to conclude contracts on behalf of NRCO, AUSCO does not manufacture or process goods or merchandise belonging to NRCO in Australia, and all sales by NRCO to NRCO's customers in the Asia Pacific region are concluded outside Australia.

NRCO recently terminated NRCO's distribution agreement with OSCO2 and commenced supplying the products directly to NRCO's customers, including AUSCO.

NRCO and AUSCO intend to record the new arrangement between NRCO and AUSCO in a Distribution Agreement, a draft of which (draft Agreement) was provided to the ATO.

Initial supply of products by NRCO to AUSCO:

By letter to the ATO dated {date} NRCO and AUSCO advised that each purchase order issued by AUSCO to NRCO for products indicates whether AUSCO wants NRCO to supply the products on normal terms or deliver them on consignment.

In a letter to NRCO and AUSCO dated {date} the ATO enclosed the ATO Fact Sheet GST and Consignment Sales. The Fact Sheet states:

If you sell goods on consignment, you have agreed to sell the goods without first buying the goods from the owner. Typically, your agreement specifies one of the following:

You agree to sell the goods on behalf of the owner as an agent

You agree to purchase the goods for an agreed price when you find a buyer.

The way GST applies to consignment sales you make depends on whether the sale is a 'sale or return' or an 'agency' sale.

'Sale or return' sales:

You are making a 'sale or return' sale where you purchase the goods from their owner when you find a buyer for those goods. This means you are selling the goods to the customer in your own right because you are purchasing the goods from the owner and selling them to the purchaser. If you make this type of sale and you are registered for GST, you are liable to pay GST on the full sale price of the goods.

It is likely that you are making 'sale or return' sales if any of the following apply:

· The amount you pay to the owner when a buyer is found is agreed in advance;

· Any amount you receive from the buyer that is over the agreed amount you have to pay the owner is yours to keep;

· You set the sale price of the goods;

· You don't have to tell the owner of the goods the final selling price or details of how much profit you made on the sale;

· You have to provide a warranty on the goods;

· You have to guarantee title to the goods;

You do not bear any commercial risk; that is, if the goods are not sold, you don't have to purchase them.

'Agency' sales:

You are making an agency sale when you sell consigned goods on behalf of the owner of the goods as their agent. Under these circumstances, you are not liable to pay GST to us on the sale; however, you must pay GST to us on the commission you receive. The owner of the goods is liable to pay GST on the sale if both of the following apply:

· they are registered for GST

· they make the sale in the course of running their business.

By letter dated {date} the ATO asked NRCO and AUSCO whether products delivered by NRCO to AUSCO on consignment were delivered on a 'sale or return' or 'agency' basis (taking into account the factors listed in the Fact Sheet) and whether AUSCO acted as NRCO's agent in relation to such products.

In a letter to the ATO dated {date} NRCO and AUSCO advised:

The purchase orders differentiate the [products] acquired on normal terms and on consignment.

The initial sale of the products by NRCO to [AUSCO] is on a 'sale or return' basis.

[AUSCO] does not act as agent in any capacity in relation to dealings with NRCO.

NRCO enters into the agreement with the Asia Pacific customers and agrees to supply them with the specified products. There is no relationship between [AUSCO] and the Asia Pacific customers.

In the ruling request NRCO and AUSCO stated:

[NRCO] invoices [AUSCO] for consignment stock once [AUSCO] has disposed of that stock.

The draft Agreement states:

Payment for the Products

Invoices for AUSCO stock will be payable within XX days.

Consignment stock sales/costs will be invoiced at the end of the month and payable within X days thereafter (see below for separate terms on consignment stock)

Supply of the Products

Notwithstanding delivery and the passing of risk, property in and title to the product shall remain with NRCO until NRCO has received payment of the full price therefore and for all other product supplied by NRCO to [AUSCO].

In the ruling request NRCO and AUSCO advised the relevant Incoterm for the supply or delivery of products by NRCO to AUSCO is CFR. The draft Agreement states:

The products supplied by NRCO to [AUSCO] shall be delivered Cost and Freight at a Port in Australia (Incoterm CFR) in accordance with the ICC-INCOTERMS 2010.

According to the International Chamber of Commerce website CFR in the INCOTERMS 2010 means:

Cost and Freight (CFR): seller clears the goods for export and delivers them when they are onboard the vessel at the port of shipment. Seller bears the cost of freight to the named port of destination. Buyer assumes all risks for goods from the time goods have been delivered on board the vessel at the port of shipment.

NRCO and AUSCO also advised that AUSCO is the 'importer of record for Customs purposes', is responsible for clearing the products through Customs, and is liable for all duty and GST. The draft Agreement states:

[AUSCO] is responsible for clearing all products through Customs.

All charges associated with duty and GST will be the responsibility of [AUSCO]. All other charges, including freight, will be passed on at cost. These charges will be itemised and included on the sales invoice or separately subject to [AUSCO] requests.

NRCO and AUSCO further advised in the ruling request:

While some [products] are supplied on consignment terms by [NRCO], the risks and rewards of ownership rest with [AUSCO] and [AUSCO] acts as principal in all respects.

'Re-supply' of products by AUSCO to NRCO and export of the products by NRCO to NRCO's
Asia-Pacific customers

In the ruling request NRCO and AUSCO advised that, after NRCO has supplied products to AUSCO, AUSCO may 're-supply' some of those products to NRCO so that NRCO can then sell the products to NRCO's customers in the Asia-Pacific region:

In addition to supplying its Australian customers, [AUSCO] may also re-supply [products] to NRCO who will export the [products] for sale within the Asia Pacific region.

[AUSCO] will invoice [NRCO] as a separate supply for the sale of the consignment stock in Australia which [NRCO] exports to its customers in the Asia Pacific region.

NRCO and AUSCO also made the following submission in the ruling request:

As contemplated by the Agreement, [NRCO] will make supplies of [products] to customers in the Asia Pacific region and may choose to source [these products] from the consignment stock held by [AUSCO]. In such instances, [AUSCO] will be entitled to charge [NRCO] a fee for processing and packing the [products] to enable [NRCO] to export the [products] from Australia.

For legal purposes only, [NRCO] retains title to the [products] until paid by [AUSCO]. However, for all other purposes, [AUSCO] enjoys all the rights and responsibilities of ownership and has unfettered dispositive power. Therefore, [AUSCO] will be making a supply to [NRCO] in Australia for [NRCO] to satisfy its orders with its overseas customers.

In an e-mail dated {date} NRCO and AUSCO advised that the Incoterm applied to the sale of products by NRCO to one of NRCO's Asia Pacific customers is CFR and that, accordingly, NRCO is the exporter from Australia.

The section of the draft Agreement relevant to sales by NRCO to NRCO's Asia Pacific customers states:

NRCO SALES IN THE ASIA PACIFIC REGION

NRCO will, from time to time, make sales of products in the Asia Pacific region (subject always to [AUSCO'] appointment under this document as NRCO's exclusive distributor for the resale of products in the territory).

When requested and where it otherwise has the stock available to do so, AUSCO will supply stock to NRCO for sales in the Asia Pacific region on the following terms:

(i) AUSCO will provide processing services to NRCO to assist NRCO in exporting the products from Australia to the Asia Pacific region;

(ii) AUSCO will supply the products at a price equal to the price at which NRCO originally supplied the products to NRCO [sic], plus an amount to reflect the cost of freight borne or to be borne by AUSCO in initially receiving the products to its warehouse, and in subsequently supplying the products for the purposes covered by this clause;

(iii) The products supplied by AUSCO to NRCO shall be sold ex works (Incoterm EXW) in accordance with the ICC INCOTERMS 2010;

(iv) NRCO will provide all necessary documentation and confirmations required under section 38-185(3) of the A New Tax System (Goods and Services Tax) Act 1999 Cth to ensure that the supply (as that term is defined in the GST Act) from AUSCO to NRCO will be GST-free (as that term is defined in the GST Act), including (a) confirmation that the products were goods entered by NRCO for export within the meaning of section 113 of the Customs Act 1901 (Cth); (B) confirmation that the products have not been altered by NRCO (except as necessary for export) since their supply by AUSCO; and (C) the provision of a copy of the bill of lading or seaway bill to confirm the export has taken place.

(vi) AUSCO shall invoice NRCO for the products supplied, with invoices payable within XX days of issue…

In addition, Appendix XX to the draft Agreement states:

[AUSCO] agrees to act as distribution centre for certain products for other markets across Asia Pacific region.

All sales/orders shipped to other markets in the region to be processed, packed and shipped at a cost to NRCO of AUD$$ plus freight (cost of freight to be borne by market)

Supply of products by AUSCO to OSCO:

In the ruling request NRCO and AUSCO advised that, as from {date}, OSCO has been selling the products in a specific overseas country, that AUSCO sells the products to OSCO on ex-work terms at market rates, and that AUSCO and OSCO treat the sale of the products by AUSCO to OSCO as a GST-free export for Australian GST purposes. NRCO and AUSCO submitted that the requirements in subsection 38-185(3) of the GST Act are satisfied as follows:

· OSCO is neither registered nor required to be registered for Australian GST;

· OSCO exports the products from Australia within 60 days of paying any consideration or receiving an invoice (whichever is the earlier);

· The products are entered for export within the meaning of section 13 of the Customs Act 1901;

· Following the supply of the products by AUSCO to OSCO the products are not altered or used in any way, except to the extent (if any) necessary to prepare them for export; and

· AUSCO has sufficient documentary evidence (as provided by OSCO) to show that the products are exported.

The products sold by AUSCO to OSCO may be sourced from products either supplied to AUSCO by NRCO on normal terms or delivered by NRCO to AUSCO on consignment. AUSCO enters into agreements to supply the products to OSCO in AUSCO's own right.

Processing fee:

Subclause XX in the 'NRCO Sales in the Asia Pacific region' section of the draft Agreement obliges AUSCO to supply processing services to NRCO to assist NRCO in exporting products from Australia to NRCO's customers in the Asia Pacific region, and Appendix XX to the draft Agreement provides for AUSCO to charge NRCO AUD$$ plus freight (cost of freight to be borne by market) for those services.

The draft Agreement:

The draft Agreement between NRCO and AUSCO is to take effect from {date} once it is finalised.

In addition to the provisions of the draft Agreement already referred to above, the draft Agreement sets out the obligations of NRCO and AUSCO as follows:

NRCO's obligations:

NRCO appoints AUSCO as NRCO's exclusive distributor for the resale of certain products (as detailed in Appendix XX of the Agreement) in Australia and another country (territory) and AUSCO agrees to purchase the products for resale in the territory.

NRCO agrees not to supply the products to other users in the territory and confirms that NRCO has the authority to grant and guarantee AUSCO exclusivity in respect of the products.

NRCO agrees to sell the products to AUSCO at set prices, ex-works an overseas country (countries).

Invoices for products sold to AUSCO on normal terms are payable within XX days. Products delivered to AUSCO on consignment are invoiced at the end of the month and are payable within X days thereafter.

NRCO arranges for all freight and delivery of products from certain overseas countries to the destination specified by AUSCO. AUSCO reserves the right to control logistics and source its own freight and logistics providers.

AUSCO submits each purchase order to NRCO by fax or email under a unique order reference number or code. As soon as possible after receiving a purchase order NRCO tells AUSCO the time and date on which the products ordered should be available for despatch from overseas or any other factory address nominated by NRCO. The draft Agreement states:

Notwithstanding delivery and the passing of risk, property in and title to the product shall remain with NRCO until NRCO has received payment of the full price therefore and for all other product supplies by NRCO to [AUSCO].

NRCO is responsible for the proper packing and shipping of all orders to ensure that containers arrive with the products in first quality condition and is responsible for full replacement including freight and other charges of any products damaged as a result of inadequate packing and shipping.

NRCO agrees to indemnify AUSCO in the event of any claim made against AUSCO by any customer, purchaser, or other person in relation to or in connection with the product, including claims relating to defects in the quality of the product supplied by NRCO to AUSCO.

AUSCO' obligations:

AUSCO agrees to use all reasonable endeavours to promote and extend the sale of the products in the territory.

The parties acknowledge that AUSCO will order stock from NRCO at such times and in such quantities so as to allow AUSCO to maintain sufficient stock levels to fulfil its orders in the territory.

AUSCO agrees to provide a comprehensive sales and marketing service for the products.

AUSCO agrees to provide a quarterly update which will include a forecast of all potential sales activity for the current and upcoming months, mentioning probability of winning percentage (%). The forecasts are not binding for AUSCO and will be used by NRCO only for planning purposes.

The draft Agreement then deals with sales of products by NRCO to NRCO's customers in the
Asia-Pacific region. The relevant terms of the draft Agreement have been set out above.

The draft Agreement continues for X years from the date of commencement, but may be terminated by either party by giving six months' notice.

Appendix XX to the draft Agreement states that it is planned to move to 100% consignment stock of certain types of goods within a timeframe to be agreed and sets out agreed levels of consignment stock. Appendix XX also states that fast types for AUSCO will move to consignment 'as soon as possible' and be maintained at the levels listed, but slower types will remain the property of AUSCO and be purchased by AUSCO (although these types will be replaced by consignment stock within an agreed time frame).

Appendix XX to the draft Agreement states that AUSCO and NRCO agree that systems are to be put in place (but not form part of the Agreement) for:

(a) Order processing - to include lead times and reserving stock;

(b) Consignment stock processing; and

(c) Consignment stock replenishing system.

Terms of supply of products by NRCO to NRCO's Asia-Pacific customers:

As noted above, in an e-mail dated {date} NRCO advised that the Incoterm for the sale of products by NRCO to NRCO's Asia-Pacific customers will be CFR and that, accordingly, NRCO will be the exporter from Australia. As noted above, the International Chamber of Commerce website states that 'CFR' in the INCOTERMS 2010 means that NRCO (as seller) clears the products for export, delivers the products to the customer when the products are placed on board the vessel at the port of shipment, and bears the cost of freight of the products to the port of destination.

Other information

AUSCO's website indicates that AUSCO distributes a range of products on behalf of several manufacturers.

The Australian Business Register confirmed that NRCO does not have an Australian business number (ABN) and is not registered for GST.

Both AUSCO and NRCO requested private rulings in relation to their arrangements. This ruling addresses NRCO's issues, and a separate ruling will be issued to AUSCO.

Relevant legislative provisions:

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

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

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

A New Tax System (Goods and Services Tax) Act 1999 Section 13-5

A New Tax System (Goods and Services Tax) Act 1999 Section 15-5

A New Tax System (Goods and Services Tax) Act 1999 Section 15-10

A New Tax System (Goods and Services Tax) Act 1999 Section 23-5

A New Tax System (Goods and Services Tax) Act 1999 Section 29-5

A New Tax System (Goods and Services Tax) Act 1999 Section 33-15

A New Tax System (Goods and Services Tax) Act 1999 Section 38-185

A New Tax System (Goods and Services Tax) Act 1999 Division 42

Income Tax Assessment Act 1936 Section 6

Sale of Goods Act 1923 (NSW) Section 23

Reasons for decisions

Question 1 - Taxable importation

Subsection 7-1(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states that GST is payable on taxable importations, section 13-15 of the GST Act states that an entity (you) must pay the GST payable on any taxable importation that you make, and subsection 13-5(1) of the GST Act states:

You make a taxable importation if:

(a) goods are imported; and

(b) you enter the goods for home consumption (within the meaning of the Customs Act 1901).

However, the importation is not a taxable importation to the extent that it is a *non-taxable importation.

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

'Import' is defined in section 195-1 of the GST Act to mean 'import goods into Australia'. Goods and Services Tax Ruling GSTR 2003/15 states:

29. Goods are typically imported into Australia when they are brought to Australia to be unloaded here. 'Imported' in this context has its ordinary meaning.

30. Imported goods are entered for home consumption, within the meaning of the Customs Act, by an 'owner', as defined in that Act, entering imported goods for home consumption. The imported goods are entered by lodging an import entry in the name of the 'owner'.

31. If you, as 'owner', lodge an import entry in your name, you enter imported goods for home consumption within the meaning of the Customs Act and you are liable to pay GST on that importation if the importation is a taxable importation.

The draft Agreement states:

NRCO will arrange for all freight and delivery of [products] from certain overseas countries to the destination specified by [AUSCO]

and:

The products supplied by NRCO to AUSCO shall be delivered Cost and Freight at a Port in Australia (Incoterm CFR) in accordance with the ICC-INCOTERMS 2010.

We therefore consider that the requirement in paragraph 13-5(1)(a) of the GST Act is satisfied as the products supplied or delivered by NRCO to AUSCO are brought to Australia to be unloaded here.

The second requirement for a taxable importation, as set out in paragraph 13-5(1)(b) of the GST Act, is specific to an entity, i.e. 'you' make a taxable importation of the imported goods if 'you' enter those goods for home consumption. Section 195-1 of the GST Act states that if a provision of the GST Act uses the expression 'you' it applies to entities generally and section 184-1 of the GST Act defines entity to include a body corporate.

Where goods are entered for home consumption, the 'owner' of the goods must pay any customs duty and GST to the Australian Customs and Border Protection Service (Customs) at the time of entry of the goods (or defer GST which is accounted directly to the ATO). GSTR 2003/15 states:

98. The 'owner' of the goods for Customs purposes is not restricted to the legal owner. Section 4 of the Customs Act provides that the 'owner' can be:

... any person (other than an officer of Customs) being or holding himself out to be the owner, importer, exporter, consignee, agent, or person possessed of, or beneficially interested in, or having any control of, or power of disposition over the goods.

99. The wide meaning of 'owner' ensures that customs duty (and GST) can be collected on imported goods from the entity that enters the goods for home consumption, regardless of who imported the goods. The 'owner' is held responsible by Customs for the information contained in the import entry. The goods may not be released from Customs control until the GST has been paid.

Accordingly, the 'owner' includes the legal owner of the goods, importer, exporter, consignee, agent, or other person with an interest in, or control over, the goods. The 'owner' is broadly defined under the Customs Act to ensure that whichever entity is named as owner on the Customs entry is responsible for payment of duty and other responsibilities under that Act. It is the owner (as defined) that makes the taxable importation and is liable for GST.

GSTR 2003/15 also states:

31. If you, as 'owner', lodge an import entry in your name, you enter imported goods for home consumption within the meaning of the Customs Act and you are liable to pay GST on that importation if the importation is a taxable importation.

Further, subsection 33-15(1) of the GST Act explains how and when the liability for GST on taxable importations is payable, and states the amounts of GST on taxable importations are to be paid by the 'importer'. GSTR 2003/15 state:

110. GST on taxable importations is payable by the 'importer' to Customs at the same time and place, and in the same manner, as the customs duty on the goods is payable (or would be payable if the goods were subject to customs duty).

111. 'Importer' in this context does not mean the entity that actually brings the goods, or causes them to be brought, into Australia. The liability for GST falls on the entity that makes the taxable importation. Importer, in this context, therefore, simply means the entity that makes the taxable importation and is therefore liable to pay the GST on the taxable importation. That entity is typically, but need not be, the same entity that brings the goods, or causes the goods to be brought, into Australia.

In the ruling request, AUSCO and NRCO advised that AUSCO is the importer of record for Customs purposes and is responsible for clearing the products through Customs in Australia (i.e. AUSCO completes the Customs formalities) and paying all charges associated with duty and GST. NRCO and AUSCO confirmed in a letter that AUSCO does not act as an agent of NRCO. The draft Agreement states:

[AUSCO] is responsible for clearing all products through Customs.

As AUSCO lodges an import entry which names AUSCO as 'owner' in respect of products supplied or delivered by NRCO to AUSCO, NRCO does not lodge an import entry in NRCO's name in respect of those products. Consequently NRCO does not satisfy paragraph 13-5(1)(b) of the GST Act and does not make a taxable importation of those products.

Question 2 - Taxable supply in respect of products delivered to AUSCO on consignment and subsequently purchased by AUSCO from NRCO

In the ruling request NRCO requested a ruling confirming that NRCO does not make a taxable supply when legal title passes to AUSCO in respect of products originally delivered to AUSCO on consignment, i.e. where NRCO has delivered products to AUSCO on consignment, AUSCO enters the products for home consumption, AUSCO finds a customer in Australia willing to purchase the products from AUSCO, and AUSCO pays NRCO for the products. NRCO submitted:

For legal purposes only, [NRCO] retains title to the [products] until paid by [AUSCO]. However, for all other purposes [AUSCO] enjoys all the rights and responsibilities of ownership and has unfettered dispositive power.

[NRCO] does not make a taxable supply once [NRCO] transfers title of the [products] to [AUSCO] on the basis [AUSCO] was the importer of the [products] and as such was liable for GST when the products first entered Australia.

We consider that NRCO does make a supply to AUSCO when AUSCO pays NRCO and property in and title to the products passes from NRCO to AUSCO. The ATO Fact Sheet GST and Consignment Sales indicates that the ATO considers that, for GST purposes, NRCO does not make a supply to AUSCO when NRCO delivers products to AUSCO on consignment but that NRCO makes such a supply if AUSCO subsequently finds a buyer for those products and then purchases those products from NRCO:

If you sell goods on consignment, you have agreed to sell the goods without first buying the goods from the owner. Typically, your agreement specifies one of the following:

You agree to sell the goods on behalf of the owner as an agent

You agree to purchase the goods for an agreed price when you find a buyer.

The way GST applies to consignment sales you make depends on whether the sale is a 'sale or return' or an 'agency' sale.

'Sale or return' sales:

You are making a 'sale or return' sale where you purchase the goods from their owner when you find a buyer for those goods. This means you are selling the goods to the customer in your own right because you are purchasing the goods from the owner and selling them to the purchaser. If you make this type of sale and you are registered for GST, you are liable to pay GST on the full sale price of the goods.

It is likely that you are making 'sale or return' sales if any of the following apply:

· The amount you pay to the owner when a buyer is found is agreed in advance;

· Any amount you receive from the buyer that is over the agreed amount you have to pay the owner is yours to keep;

· You set the sale price of the goods;

· You don't have to tell the owner of the goods the final selling price or details of how much profit you made on the sale;

· You have to provide a warranty on the goods;

· You have to guarantee title to the goods;

You do not bear any commercial risk; that is, if the goods are not sold, you don't have to purchase them.

'Agency' sales:

You are making an agency sale when you sell consigned goods on behalf of the owner of the goods as their agent. Under these circumstances, you are not liable to pay GST to us on the sale; however, you must pay GST to us on the commission you receive. The owner of the goods is liable to pay GST on the sale if both of the following apply:

· they are registered for GST

· they make the sale in the course of running their business.

In addition, Goods and Services Tax Ruling GSTR 2000/29 analyses arrangements for delivery of goods on sale or return terms into two supplies and confirms that one of those supplies (i.e. the supply of those goods by sale), 'occurs when the goods are accepted or on-sold' and is attributed in accordance with the basic attribution rules in Division 29 of the GST Act:

239. For attribution purposes, there are two separate supplies made under arrangements for the supply of goods on approval, or on 'sale or return' terms:

·   a supply of a right to display the goods for sale, for which no consideration is paid; and

·   a supply of goods by way of sale, which occurs when the goods are accepted or on-sold.

240. Under these arrangements (unlike the bailment fee in floor plan arrangements) the supply of rights to display goods for sale is not for consideration and therefore will not constitute a taxable supply.

241. The subsequent supply of goods by the manufacturer or wholesaler (and the acquisition of goods by the retailer) will be for consideration. The basic attribution rules will apply to that transaction as it is a taxable supply.

242. The retailer may return the goods to the supplier before the agreed acceptance period (if any) expires, having decided not to accept them. The return of the goods to the supplier where the original supply was not for consideration does not have any GST consequences.

We therefore do not agree with the submission that NRCO does not make a supply when NRCO transfers title to and property in the products to AUSCO.

Nor do we agree with the reasoning advanced by NRCO in support of that submission, i.e. that there is no supply by NRCO to AUSCO because AUSCO is the importer of the products delivered on consignment and as such was liable for GST when those products first entered Australia.

Goods and Services Tax Advice GSTA TPP 053 addresses the issue of whether the GST payable under section 13-5 of the GST Act on the taxable importation of consignment stock (e.g. imported books) becomes payable only when ownership passes to the vendor under the attribution rules in Division 29 of the GST Act. The ATO ruled that GST payable under section 13-5 of the GST Act is payable when goods delivered on consignment are entered for home consumption (regardless of the fact that the entity which enters those goods for home consumption is not the legal owner of the goods at that time) and that the attribution rules in Division 29 of the GST Act have no application to GST payable on a taxable importation:

The basic rules apply to both the taxable importation of consignment goods and the taxable supply of consignment goods. Section 33-15 of the GST Act describes how and when GST on taxable importations is payable. Section 29-5 of the GST Act describes the attribution of GST on taxable supplies. The rules have a different application depending on whether there is a taxable supply or a taxable importation. The attribution rules in section 29-5 apply to taxable supplies but not to taxable importations. They describe which tax periods GST should be attributable. GST on taxable importations is not attributed to tax periods. It is required to be paid by the importer to the Commonwealth at the same time as customs duty is paid, or within a further time in circumstances specified in the regulations. Each of these sets of rules apply whether goods are consignment goods or not.

For the taxable supply of consignment goods Division 29 of the GST Act will apply, and GSTA TPP 053 states that the ATO takes the view that where there is a 'sale or return' basis supply the GST liability for a taxable supply only arises in the tax period in which the supply is certain.

Consequently the issue is whether the supply made by NRCO to AUSCO, when property in and title to products previously delivered to AUSCO on consignment passes to AUSCO, is a taxable supply as defined in section 9-5 of the GST Act:

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.

(e) 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 requirement in paragraph 9-5(a) of the GST Act is satisfied because AUSCO is obliged by the draft Agreement to pay NRCO the full price for the products. Paragraph 9-5(b) of the GST Act is satisfied because 'enterprise' is defined to include an activity or series of activities in the form of a business and NRCO supplies the products to AUSCO in the course of carrying on NRCO's business. What remains to be determined is whether NRCO's supply of the products to AUSCO is connected with Australia, and NRCO's requirement to be registered for GST.

Connected with Australia

Subsections 9-25(1) to 9-25(3) of the GST Act state the connected with Australia rules in relation to the supply of goods:

9-25 Supplies connected with Australia

Supplies of goods wholly within Australia

(1) A supply of goods is connected with Australia if the goods are delivered, or made available, in Australia to the *recipient of the supply.

Supplies of goods from Australia

(2) A supply of goods that involves the goods being removed from Australia is connected with Australia.

Supplies of goods to Australia

(3) A supply of goods that involves the goods being brought to Australia is connected with Australia if the supplier either:

(a) imports the goods into Australia; or

(b) installs or assembles the goods in Australia.

Subsection 9-25(1) of the GST Act states that a supply of goods is connected with Australia if the goods are delivered or made available, in Australia, to the recipient of the supply. Goods and Services Tax Ruling GSTR 2000/31 states:

118. In the context of subsection 9-25(1) the phrase 'delivered, or made available' takes the meaning that the goods are either physically delivered, or if not physically delivered, physically made available in Australia.

119. Made available refers to the situation where goods are not actually delivered to the recipient but rather the supplier makes the goods physically available to the recipient in Australia. For example, a supplier may make goods available for collection by the recipient. This is the case where a supplier of sand sells a load of sand to a customer and the customer takes away the sand which the supplier makes available.

120. Thus, goods are 'delivered' in Australia if the goods are actually physically delivered in Australia. Goods are made available in Australia if the goods are physically available for the recipient in Australia. Both 'delivered' and 'made available' look at the place where the physical goods are at the relevant time.

GSTR 2000/31 also states:

49. Where the recipient imports the goods into Australia, the supply of goods is not connected with Australia under subsection 9-25(1) because the goods are not delivered, or made available, in Australia to the recipient of the supply.

129. A supply of goods that involves the recipient importing the goods into Australia is not connected with Australia under subsection 9-25(1) as the goods are not delivered, or made available, in Australia to the recipient of the supply. Also, the supply of goods is not connected with Australia under paragraph 9-25(3)(a) because the supplier does not import the goods. However, the recipient importer will make a taxable importation.

In a contract of sale a party's obligation to complete the Custom's formalities is established by adopting a particular Incoterm. According to ICC Incoterms 2000, the seller under DDP terms is responsible for Customs formalities on importation, whereas under FOB, CIF or DDU terms, the buyer is responsible (Para 145 of GSTR 2003/15). FOB and CIF (which refers to 'Cost, insurance and freight') terms are similar to CFR.

Example 2 in GSTR 2003/15 provides an example where there is a supply by a non-resident and the acquisition by a resident entity under FOB or CIF terms, and it was the purchaser that imports the goods:

Example 2 - Supply by non-resident, acquisition by resident manufacturer

143. A non-resident supplier causes goods to be brought to Australia for the purpose of filling an order and completing a sale to an Australian manufacturer. The Australian manufacturer also causes the raw materials to be brought to Australia to use in its factory, by placing the order with the non-resident supplier. In this case, causing the goods to be brought into Australia does not of itself identify the entity that imports the goods. The entity that imports the goods in these circumstances is the entity that also completes the customs formalities and pays the GST, thus completing the importation. If the purchaser attends to the customs formalities, such as in the case of a contract on FOB or CIF terms, the purchaser is the entity that imports the goods.

NRCO advises that the supply of the products to AUSCO is on an Incoterms CFR basis, and that AUSCO is responsible for the Customs formalities on importation. As AUSCO is the recipient of the supply made by NRCO to AUSCO when AUSCO subsequently finds a purchaser for those products and AUSCO pays NRCO for those products, and AUSCO is the importer on record for Customs purposes (i.e completes the Customs formalities) and pays all charges associated with duty and GST on importation of the products into Australia, subsection 9-25(1) of the GST Act does not apply.

Subsection 9-25(2) of the GST Act does not apply because the supply of products by NRCO to AUSCO does not involve the products being removed from Australia.

Subsection 9-25(3) of the GST Act states that a supply of goods that involves the goods being brought to Australia is connected with Australia if the supplier either imports the goods into Australia or installs or assembles the goods in Australia. GSTR 2003/15 states:

222. For supplies of goods to Australia, paragraph 9-25(3)(a) provides that a supply is connected with Australia if the supplier imports the goods into Australia.

223. Both a supplier and an acquirer of goods may cause the goods to be brought into Australia. The word 'import' must, therefore, in the context of paragraph 9-25(3)(a), also encompass completing the customs formalities. In that way it can be established which entity imports the goods into Australia, that is, the entity that not only causes the goods to be brought to Australia but also attends to the customs formalities.

224. The supplier, therefore, imports goods into Australia for the purposes of subsection 9-25(3) if it causes the goods to be brought to Australia and it also completes the customs formalities. This is the case where a supplier enters the goods for home consumption or for warehousing or transhipment. However, a supplier does not import goods where the customs formalities for the importation of the goods are completed by the recipient of the supply.

Examples 12 and 13 in GSTR 2000/31 respectively distinguish between goods supplied on a DDP basis (which obliges the supplier to complete the Customs formalities and import the goods into Australia so that the supply is connected with Australia under subsection 9-25(3) of the GST Act) and goods supplied on a FOB basis (which obliges the recipient to complete the Customs formalities and import the goods into Australia so that the supply is not connected with Australia under subsection 9-25(3) of the GST Act):

Example 12 - Goods imported into Australia by supplier

140. US Co, a US company sells a tractor to Tract Co, an Australian earthmoving operator, on a DDP basis. US Co has to import the tractor into Australia. The supply made by US Co to Tract Co is a supply connected with Australia as the tractor (goods) is brought to Australia and it is US Co (the supplier) that imports it into Australia.

141. If a supply of goods involves the goods being delivered, or made available, to the recipient outside of Australia and the recipient subsequently imports the goods into Australia, the supply is not connected with Australia. The supply is not a taxable supply under section 9-5. However, the importation is a taxable importation and the recipient is liable to pay GST on the taxable importation.

Example 13 - Goods imported into Australia by recipient

142. If in Example 12 US Co sells the tractor to Tract Co on an FOB basis, the tractor is imported into Australia by the recipient and the supply of the tractor is not connected with Australia under paragraph 9-25(3)(a). As the tractor is not delivered, or made available, in Australia to Tract Co, the supply of the tractor is not connected with Australia under subsection 9-25(1). However, the supply is a taxable importation made by Tract Co and Tract Co is liable to pay GST on the taxable importation.

Paragraph 54 of GSTR 2000/31 also confirms that paragraph 9-25(3)(a) of the GST Act does not apply to a supply of goods that involves goods being brought to Australia where the recipient imports the goods into Australia, which would be the case for goods supplied on a FOB or CIF basis.

In the present case, NRCO has delivered the products to AUSCO on consignment, AUSCO enters the products for home consumption (by completing the Customs' formalities), AUSCO finds a customer in Australia willing to purchase the products from AUSCO, and AUSCO pays and buys the products from NRCO. The supply of the products to AUSCO is on an Incoterms CFR basis, and AUSCO is responsible for the Customs formalities on importation.

As NRCO (supplier) does not complete the customs formalities for the importation of the products, which are completed by AUSCO (the recipient of the supply) in accordance with the terms of supply under CFR terms (which is similar to FOB and CIF terms in the examples above), and NRCO does not install or assemble the products in Australia, subsection 9-25(3) of the GST Act does not apply.

For the reasons set out above we consider that the requirement in paragraph 9-5(c) of the GST Act that the supply is connected with Australia is not satisfied in relation to products delivered to AUSCO on consignment and subsequently purchased by AUSCO and, therefore NRCO does not make a taxable supply under section 9-5 of the GST Act in respect of those products.

GST registration

For information and completeness, we will address NRCO's requirement to register for GST.

Section 23-5 of the GST Act states that an entity is required to be registered if it is carrying on an enterprise, and it has a GST turnover that meets the registration turnover threshold ($75,000 for businesses and $150,000 for non-profit organisations). The calculation of the GST turnover excludes supplies that are not made in connection with the entity's enterprise, and supplies that are not connected with Australia.

As stated above, in the circumstance when NRCO has delivered products to AUSCO on consignment and AUSCO enters the products for home consumption, AUSCO finds a customer in Australia willing to purchase the products from AUSCO, and AUSCO pays NRCO for the products, the supply by NRCO to AUSCO is not connected with Australia. This supply of the products by NRCO to AUSCO will not be included in determining NRCO's requirement to register for GST.

However, in the circumstance when products delivered by NRCO to AUSCO on consignment are subsequently sold by NRCO to one of NRCO's Asia Pacific customers, NRCO makes a supply of products to that customer which may be connected with Australia pursuant to subsection 9-25(2) of the GST Act (i.e. a supply of goods that involves the goods being removed from Australia). Consequently, the issue for NRCO to assess is whether NRCO could eventually exceed the $75,000 registration turnover threshold and be obliged to register for GST in Australia.

Conclusion

To summarise, the supply in respect of products delivered to AUSCO on consignment and subsequently purchased by AUSCO from NRCO is not a taxable supply under section 9-5 of the GST Act.