Edited version of your private ruling

Authorisation Number: 1012456008441

Ruling

Subject: GST and acquisition of services by a non-resident from an Australian company

Question:

Is the acquisition of agency (ad) sales services by a non-resident company ('NRCo') from an Australian company ('AusCo') a creditable acquisition?

Answer:

No, NRCo is not making a creditable acquisition of the agency (ad) sales services from AusCo because the supply of these services to NRCo is GST-free. There is also no creditable acquisition if the recipient of the supply is not registered (and not required to be registered) for GST.

Relevant facts:

A non-resident company (NRCo) is carrying on an enterprise(s) at an overseas location.

NRCo operates certain media channels.

NRCo advises that it does not carry on any enterprise of its own in Australia, and has no office or permanent establishment in Australia.

NRCo is currently not registered for goods and services tax (GST) in Australia, but advised that it can voluntarily register for GST.

NRCo supplies its channels on certain platforms in Australia.

NRCo has the rights to sell advertising time in relation to its channels and engage an Australian company (AusCo) to supply services to NRCo of selling advertising (time) on the channels for transmission solely within Australia. he services supplied by AusCo to NRCo will be referred to as 'agency (ad) sales services' in this ruling.

AusCo is an Australian company and is registered for GST.

NRCo advised that AusCo supplies its agency (ad) sales services directly to NRCo (and not another entity). AusCo does not have any dealings (or limited dealings as outlined later) and does not provide its services to any agent, representative, related entity, or any other entity, in Australia.

NRCo provides consideration (commission fee) to AusCo for their supply of the agency (ad) sales services to NRCo.

Under the arrangement with AusCo, NRCo does not supply the actual advertising time to AusCo for AusCo to supply the advertising time in its own right to customers. AusCo will supply the actual advertising time to the customers as an agent on behalf of NRCo. AusCo, as the advertising sales agent, contracts, invoices and collects the advertising revenue in AusCo's name (this would be as agent). AusCo then issues an advertising sales commission invoice to NRCo based on the advertising revenue, and deducts the commission fee from the advertising revenue collected before remitting the net revenue to NRCo.

AusCo would enter into an agreement to supply the actual advertising time with the customers (that is, as the ad sales agent/representative, AusCo will contract with customers on behalf of NRCo).

NRCo has provided an advertising (ad) sales agreement (the 'Agreement') in relation to the supply of AusCo's services to NRCo. This Agreement provides (amongst other things) that:

· Parties to the Agreement are AusCo and NRCo (addressed overseas), and is referred to as the 'Supplier' in the Agreement).

· The Supplier supplies the channels on certain platforms throughout Australia. The Supplier has the rights to sell the advertising time and wishes to enter an arrangement with AusCo for advertising sales on the channels for transmission solely within Australia.

· Appointment of Sales Representation -

- The Supplier appoints AusCo as its representative to make advertising sales for the Supplier within Australia. AusCo will inform potential clients.

- The Supplier appoints AusCo as its exclusive advertising sales representative for certain types of advertising sales.

- The Supplier appoints AusCo as its non-exclusive advertising sales representative for other types of advertising sales.

· AusCo may conduct supplementary market research to assist advertising sales for the Supplier and the Supplier will pay a share of the costs of the research.

· Inventory Management - AusCo is entitled to sell up to a stated number of minutes for local paid advertising secured by AusCo in accordance with the terms of the Agreement. If AusCo does not secure local paid advertising for all the stated minutes, all unsold minutes are available for the Supplier to manage at its discretion.

· The parties will hold formal meetings at which AusCo shall provide a full report highlighting all relevant information.

· AusCo obligations include (amongst others):

- AusCo agrees to use best commercial endeavours to maximise advertising sales on behalf of the Supplier and to maximise the advertising sales revenue either through direct sales to advertisers or through the sale of advertising to advertising agencies.

- AusCo and the Supplier will agree between themselves the rate structure, packaging structure and selling strategies of advertising sales on behalf of the Supplier.

- AusCo acknowledges that the Supplier controls the number of available advertising sales minutes in the channels, the location of minutes and the nature and the type of the advertising sales.

- AusCo agrees to consult with the Supplier to establish acceptable advertising/category guidelines and will not make any sale which the Supplier directs AusCo not to make.

- AusCo will appoint a manager who will have day to day responsibility for the relationship with the channels.

· Allocation of revenue:

- AusCo will pay the Supplier the net revenue from advertising sales.

- The commission on the advertising sales revenue earned in the relevant period will be retained by AusCo from net revenues paid to the Supplier.

- AusCo will provide the Supplier a regular statement that includes a breakdown of advertising sales revenue received, the net revenue and the commission retained by AusCo.

· The Supplier rights and obligations are outlined in clause X, and include the Supplier giving all assistance to AusCo that AusCo reasonably requires to make the advertising sales. The assistance includes:

- Providing regular briefings to AusCo's advertising sales team;

- Making available the services of the Chief Executive and/or other senior representative(s);

- Providing reasonable sales support to AusCo at the Supplier's cost (eg. media packs, information and market research);

- Providing dubs and tapes of programs on the channels as required;

- Making talents available (subjected to certain conditions); and

- Providing program information and updates.

- The Supplier is responsible for all handling, dubbing and transmission costs associated with advertising material appearing on its channels.

· Clause X provides that 'any notice given under the Agreement must be in writing addressed to the intended recipient at the address shown…', for the Supplier:

Attention: XX

Address: NRCo, C/- address in Australia.

· The Agreement was executed in Australia and signed for and on behalf of NRCo by XXX.

· The standard operating procedures outlined in the Agreement provides (amongst other things):

- The procedures are directed to AusCo (the local ad sales firm acting on behalf of NRCo).

- NRCo's 'business operations' located overseas is composed of certain operations. There is a dedicated team working on the Australian feeds (only).

- General Guidelines:

The business operations team located overseas handles inventory management for Australia. It takes into consideration orders for inventory from international, regional and local sales representatives.

Media orders are documents received from AusCo authorising the ordering of commercials. They are transmitted from AusCo, via email, to NRCo's business operations.

All communications regarding any and all local ad sales orders will flow between NRCo's business operations and AusCo.

- Work Flow for orders:

AusCo's salesperson confirms order with agency/advertiser; Agency submits a media order, copy instructions and materials to AusCo; AusCo prepares certain forms and transmits to NRCo's business operations, via email, the media order and forms. The material is sent by the best agreed file delivery; NRCo located overseas performs certain checks and confirms all orders via email to AusCo; and so forth.

- Certain instructions and procedures:

Agency submits the material to AusCo, AusCo will send the materials overseas via best agreed file delivery method.

All clips must reach the overseas country per the schedule.

Each piece of media is to be ingest as a clip, clip names should match booking order information provided to NRCo's business operations.

Clips can be combined into parcels for transmission to the overseas country.

A copy of an invoice issued by AusCo to NRCo (addressed overseas) for the sales commission paid to AusCo is provided.

AusCo submits that the supply of the agency (ad) sales services by AusCo in accordance with the Agreement is GST-free.

Additional information

NRCo confirmed that the assistance as referred to in clause X of the Agreement is provided by NRCo in/from overseas to AusCo. The lists of activities in clause X of the Agreement are provided in/from overseas. NRCo has its ad sales, marketing, communications (for liaising with talents), and programming teams in the overseas country. NRCo's ad sales representative will fly to Australia for meetings with potential clients if required. The associated work and costs for certain goods in relation to the ad sales are carried out by NRCo in the overseas country.

NRCo advised that the person named on the Agreement for the service of written notices to you, XX, is an employee of a related company in Australia ('ReCo'). However, there are no advertising (ad) sales employees in Australia. XX and their team are responsible for coordination work between the overseas country and Australia if there are any promotional activities, or when talents visit Australia. XX (and their team) does not have any relation to the (ad sales) Agreement except that they receive regular sales forecasts from NRCo, which they will feedback to NRCo located overseas.

Relevant legislative provisions:

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

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 11-5

A New Tax System (Goods and Services Tax) Act 1999, Section 11-15

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

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

Reasons for decision

Subsection 7-1(2) of The A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that the entitlement to input tax credits arise on creditable acquisitions. Thus, NRCo will be entitled to claim input tax credits for any creditable acquisitions that it makes.

We note that only one entity can make a creditable acquisition on a supply, and it is whichever entity that is the recipient of the supply from AusCo that is entitled to claim the input tax credit on the creditable acquisition that it makes, provided all the requirements are satisfied as addressed below.

Section 11-5 of the GST Act states that you make a creditable acquisition 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.

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

For the acquisition of the agency (ad) sales services from AusCo to be a creditable acquisition, all the requirements of section 11-5 of the GST Act must be satisfied. These requirements are outlined as follows:

(a)   Acquired for creditable purpose

Section 11-15 of the GST Act provides that you acquire a thing for a creditable purpose to the extent that you acquire the thing in carrying on your enterprise. However, you do not acquire a thing for a creditable purpose to the extent that the acquisition relates to making input taxed supplies or is of a private or domestic nature.

The facts indicate that NRCo carries on a business of supplying channels on certain platforms in Australia and sells advertising time in relation to its channels. NRCo acquires the agency (ad) sales services from AusCo in relation to carrying on of this business. The acquisition of the agency (ad) sales services from AusCo is not for making any input taxed supplies (such as financial supplies or supplies of residential premises) and is not for private/domestic purposes.

Accordingly, NRCo's acquisition of the agency (ad) sales services from AusCo will be solely for a creditable purpose, and paragraph (a) of section 11-5 of the GST Act is satisfied.

(b)   Is there a taxable supply to you?

GST is payable on a taxable supply under section 9-5 of the 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)

Note that the term 'you' in section 9-5 of the GST Act above refers to the supplier (in this case AusCo).

NRCo advises that AusCo (the supplier) is an Australian company which supplies the agency (ad) sales services to NRCo in accordance with the Agreement. AusCo issues invoice(s) to NRCo and NRCo provides commissions (payments) to AusCo for their services. AusCo would have supplied these services in the course of carrying on its business in Australia (and is connected with Australia as the services are performed in Australia or provided through an enterprise in Australia). AusCo is registered for GST. On the basis of these facts, the supply of the services by AusCo to NRCo satisfies the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act.

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

There are no provisions under the GST legislation in which the supply of the agency (ad) sales services by AusCo to NRCo could have been input taxed. We need to determine whether the supply satisfies the GST-free provisions.

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 the services by AusCo to NRCo is item 2 in the table in subsection 38-190(1) of the GST Act (Item 2).

Under 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-resident's *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, for services this is when the services are 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 (such as a courtesy call or checking on the progress of the supply).

Further, paragraphs 347 to 352 of GSTR 2004/7 state:

347. Even if a company is in Australia, it may not be in Australia in relation to the supply and so can still satisfy the 'not in Australia' requirement in item 2 or item 3 or paragraph (b) of item 4. The following principles, which explain when a company is in Australia in relation to the supply, apply to all companies whether they are incorporated in Australia or outside Australia and whether they are residents of Australia or non-residents. Companies, unlike individuals, may have a presence in more than one location. A resident company that has a presence in Australia as well as offshore, may be regarded as not in Australia in relation to a particular supply that is provided to its offshore presence.

348. To work out whether a company is in Australia in relation to the supply, it is necessary to examine the role the presence of the company in Australia plays in relation to the supply.

349. Clearly if the supply to a company is solely or partly for the purposes of the 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, the company is in Australia in relation to the supply. There is a connection between the supply and the presence in Australia that is not a minor connection.

350. 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', unless the only involvement is minor.

351. If the involvement of the Australian presence is limited to the carrying out of simple administrative tasks on behalf of the company, as a matter of administrative convenience, that involvement is minor. The connection between the supply and the presence is so minor in nature that it is reasonable to conclude that the presence of the company in Australia is not in relation to the supply.

352. Tasks of a simple administrative nature include:

· payment of, or arranging for payment of, the supplier's invoice on behalf of the company;

· passing on an e-mail to the company;

· being a point of telephone contact to pass on messages to the company;

· being a mailing address or delivery contact on behalf of the company;

· being a point of contact for a visiting representative of the company; and

· on-forwarding information to the company.

We also note that for supplies of services made by an entity (such as an agent) to a non-resident company, the non-resident company will not be in Australia in relation to the supply of those agency (or related) services. This is because the entity (that is, the agent) does not make the non-resident company in Australia in relation to the supplies that it (the agency) makes itself to the company.

NRCo is a non-resident company that carries on an enterprise in/from an overseas country. NRCo does not carry on any enterprise of its own in Australia, and have no office or permanent establishment in Australia. AusCo supplies the agency (ad) sales services directly to NRCo located overseas, and bills NRCo for their services. NRCo also advised that AusCo has no (or limited) dealings with, and does not provide its agency (ad) sales services to, any agent, representative, a related entity, or any other entity, in Australia.

NRCo informs that the person named on the Agreement for the service of written notices to NRCo, XX, is an employee of ReCo. However, NRCo has advised that there are no advertising (ad) sales employees in Australia. XX and their team are responsible for coordination work between the overseas country and Australia if there are any promotional activities or talent visits in Australia. XX (and their team) does not have any relation to the (ad sales) Agreement except that they receive regularly sales forecast from AusCo, which they will feedback to NRCo.

NRCo also confirmed that the assistance as referred to in clause X of the Agreement is provided by NRCO (that is, the entity in/from overseas, and not an entity in Australia) to AusCo. The lists of activities in clause X of the Agreement are provided in/from the overseas country. This is because NRCo has its ad sales, marketing, communications (for liaising with talents), and programming teams located in the overseas country. NRCo's ad sales representative will fly to Australia for meetings with potential clients if needed. Further, the associated work and costs of goods in relation to the ad sales are carried out by NRCo in the overseas country.

The standard operating procedures specifically for AusCo in the Agreement also indicate that the business operations team in the overseas country handles inventory management (being the advertising minutes) for Australia. This team takes into consideration orders for international, regional and local sales representatives. All communications regarding any and all local ad sales orders will flow between NRCo's business operations and AusCo. There are also instructions for AusCo to submit the media orders and any relevant instructions and materials via email and/or best file delivery methods to business operations located overseas.

Further, for AusCo's supply of agency (ad) sales services to NRCo, AusCo (as agent) does not make NRCo (the non-resident company) in Australia in relation to the supplies that it makes itself to NRCo.

On the basis of these facts provided in relation to NRCo, the precondition that the non-resident entity (NRCo) is not in Australia in relation to AusCo's supply of agency (ad) sales services, when the services are performed, is satisfied.

We note that if the situation arises where NRCo supplies their services solely or partly for the purposes of an Australian presence, or if the supply is not for the purposes of the Australian presence but that Australian presence is more involved in the supply (except for minor involvement), the condition that the non-resident is not in Australia in relation to the supply when the thing is done will not be satisfied, and may not be GST-free.

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 (in relation to the supply) 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'. 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. In contrast, where activities do not change or affect goods in a physical way, there is no supply of work physically performed on goods.

Furthermore, paragraph 44 of GSTR 2003/7 confirms that supplies of marketing and advertising services are not directly connected with goods or real property.

NRCo advised that AusCo supplies the services of selling advertising time on its channels (that is agency (ad) sales services), and in return NRCo will provide consideration (by way of commission payments) to AusCo for these services. The Agreement states that NRCo appoints AusCo as its representative to make advertising sales in Australia for NRCo. These agency (ad) sales services do not involve work physically performed on goods nor is the supply directly connected with real property situated in Australia.

Accordingly, the supply of the agency (ad) sales services by AusCo to NRCo satisfies paragraph (a) of Item 2.

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

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 provided 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 acquires AusCo's agency (ad) sales services in carrying on its business. NRCo is also not currently registered for GST, and if NRCo has determined that it is not required to be registered for GST in Australia, the supply of AusCo's services to NRCo will also satisfy the requirements in 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.

Subsection 38-190(2) of the GST Act states that a supply covered by Items 1 to 5 in subsection 38-190(1) is not GST-free if it is the supply of a right or option to acquire something the supply of which would be connected with Australia and would not be GST-free. On the basis of the facts provided, subsection 38-190(2) of the GST Act does not apply as the supply of agency (ad) sales services by AusCo to NRCo does not involve a supply of a right or option.

Subsection 38-190(2A) of the GST Act provides that a supply covered by Item 2 is not GST-free if the acquisition of the supply relates (whether directly or indirectly, or wholly or partly) to the making of a supply of real property situated in Australia that would be input taxed under subdivisions 40-B or 40-C of the GST Act. Subdivision 40-B of the GST Act deals with the supply of premises by way of lease, hire or licence; and Subdivision 40-C of the GST Act deals with the sale of residential premises and the supply of residential premises by way of long-term lease.

As stated above, GSTR 2003/7 confirms that the supply of marketing and advertising services is not directly connected with goods or real property, although its subject matter may be goods or real property. However, the supply of marketing/advertising services may be indirectly related to the making of the underlying supply of goods or real property in Australia.

The facts indicate that NRCo does not supply the actual advertising time to AusCo for AusCo to supply the advertising time in its own right to customers. In accordance with the Agreement, NRCo has appointed AusCo as its representative to make advertising sales in Australia for NRCo. AusCo will supply advertising time to the customers as an agent on behalf of NRCo. AusCo is not supplying NRCo with marketing/advertising services of certain goods or real property in Australia, but is supplying its agency (ad) sales services in order for NRCo to supply the actual marketing/advertising time (services) to its customers. The supply of the agency (ad) sales services to sell advertising time (services) by AusCo to NRCo does not relate to making input taxed supplies of real property, and therefore subsection 38-190(2A) of the GST Act does not apply to these services.

Subsection 38-190(3) of the GST Act states that a supply covered by Item 2 in subsection 38-190(1) of the GST Act is not GST-free if it is a supply under an agreement entered into, 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.

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 on the application of subsection 38-190(3) of the GST Act in relation to Item 2. Paragraphs 59, 61 and 65 of GSTR 2005/6 state:

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.

65. We consider that an agreement requires that a supply be provided to another entity in Australia if it is an express or implied term of the agreement that the supply is to be provided to another entity in Australia.

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.

In relation to when another entity benefits from the supply, if the nature of the supply is such that the supply is only provided to an entity outside Australia, subsection 38-190(3) of the GST Act does not apply. This outcome is not altered even if another entity in Australia benefits from a supply provided to another entity outside Australia. Similarly, if a supply is provided to an entity in Australia, and another entity outside Australia benefits from that supply this does not alter the outcome that the supply is provided to an entity in Australia. This can occur with, for example, the supply of advertising services. However, we must determine the nature of the supply having regard to all the facts and circumstances of the supply, and then whether that supply, as properly described, is provided to another entity in Australia. Examples of advertising services are given in Examples 23, 32 and 33 in GSTR 2005/6.

The facts indicate that the relevant NRCo entity is a non-resident company that carries on an enterprise in an overseas country. NRCo does not carry on any enterprise of its own in Australia, and have no office or permanent establishment in Australia. AusCo supplies the agency (ad) sales services directly to NRCo (located overseas), and invoices NRCo for their services. NRCo also advises that AusCo has no (or limited) dealings with, and do not provide its agency (ad) sales services to, any agent, representative, a related entity, or any other entity, in Australia.

The facts indicate that NRCo's ad sales Chief Executive or a senior representative(s) may come to Australia if needed for meetings with potential clients. Where a recipient is a non-resident company with an employee(s) in Australia it is necessary to consider whether the supply is provided to the employee(s). We consider that a supply is provided to an employee of a non-resident company, if the supply is of a kind that must be rendered or received by an employee, such as training services, or the supply is personal to the employee. Given the nature of the supply of AusCo's agency (ad) sales services to NRCo, it is not considered that these services are rendered to or personal to the Chief Executive or representative(s) who visits Australia occasionally, and subsection 38-190(3) of the GST Act does not apply in this circumstance.

There are also some employees (XX and their team) in Australia of ReCo. However, NRCo has confirmed that there are no advertising (ad) sales employees in Australia. These employees of ReCo do not have any relation to the (ad sales) Agreement that NRCo has with AusCo, except that XX receives regular sales forecast from AusCo, which they will feedback to NRCo located overseas. These facts indicate that ReCo's involvement, in relation to AusCo's supply of the agency (ad) sales services to NRCo, is minor.

NRCo confirmed that the assistance to be given to AusCo as referred to in clause X of the Agreement is provided by NRCo (that is, the entity in/from overseas, and not an entity in Australia). The lists of activities in clause X of the Agreement are provided in/from overseas. This is because NRCo has its ad sales, marketing, communications (for liaising with talents), and programming teams in the overseas country. Further, the associated work and costs of goods in relation to the ad sales are carried out by NRCo overseas.

The standard operating procedures specifically for AusCo in the Agreement also indicate that the business operations team overseas handles inventory management (being the advertising minutes) for Australia. This team takes into consideration orders for international, regional and local sales representatives. All communications regarding any and all local ad sales orders will flow between NRCo's Business Operations and AusCo. There are also instructions for AusCo to submit the media orders and any relevant instructions and materials via email and/or best file delivery methods to the business operations located overseas.

On the basis of these facts provided, the supply of the agency (ad) sales services by AusCo to NRCo is not provided (and the Agreement does not require the services to be provided) to another entity in Australia. Therefore, subsection 38-190(3) of the GST Act does not apply to exclude the supply of agency (ad) sales services from being GST-free.

We note that given that NRCo has provided us with the Agreement in relation to the supply of AusCo's services to NRCo, and AusCo issues an invoice to NRCo for their services, it is taken that the recipient is referred to as the 'Supplier' in the Agreement. For completeness, if the Agreement was entered into with a non-resident entity and AusCo provides their services (or the agreement requires the services to be provided) to another overseas entity, subsection 38-190(3) of the GST Act will not apply to exclude the supply from being GST-free. However, subsection 38-190(3) of the GST Act will apply in situations where the supply is provided to another entity in Australia.

Accordingly, subsections 38-190(2), 38-190(2A) and 38-190(3) of the GST Act do not exclude the supply of the agency (ad) sales services by AusCo to NRCo from being a GST-free supply under Item 2.

To summarise, the supply of the agency (ad) sales services under the Agreement by AusCo to NRCo in return for the commission is GST-free under Item 2, and therefore paragraph (b) of section 11-5 of the GST Act is not satisfied.

(c)    Consideration for the acquisition

Under subsection 9-15(1) of the GST Act, a payment will be consideration for a supply if the payment is in connection with, in response to, or for the inducement of a supply of anything. In determining whether a payment is consideration under subsection 9-15(1) of the GST Act, the test is whether there is sufficient nexus between the supply and the payment made.

From the facts provided, AusCo issues invoices to NRCo for their agency (ad) sales services, and NRCo will provide or be liable to provide the commission payment(s) for the acquisition of these agency (ad) sales services from them. Accordingly, NRCo will satisfy paragraph (c) of section 11-5 of the GST Act.

Note that the tax invoice should be issued to the recipient of the supply.

(d)   Are you registered or required to be registered for GST?

Under section 23-5 of the GST Act, you are required to be registered for GST if you are carrying on an enterprise, and your GST turnover is at, or above, the registration turnover threshold of AU$75,000. However, if you carry on an enterprise but have a GST turnover of less than AU$75,000, you can choose to register of GST.

NRCo advised that it is currently not registered, but it may voluntarily register for GST in Australia. Given that we do not have full details of all NRCo's business activities, we have not considered whether NRCo is required to be registered for GST in Australia for the purposes of this private ruling, so NRCo will need to determine whether NRCo have exceeded the registration turnover threshold in relation to any supplies connected with Australia. Accordingly, the requirements of paragraph (d) of section 11-5 of the GST Act will not be satisfied unless NRCo becomes registered or are required to be registered for GST.

To summarise, NRCo has not satisfied all the requirements of section 11-5 of the GST Act for a creditable acquisition and are not entitled to claim input tax credit(s) in relation to the acquisition of the agency (ad) sales services from AusCo because the supply of these services to NRCo is GST-free. There is also no creditable acquisition if the relevant NRCo entity (recipient of the supply) is not registered (and not required to be registered) for GST.