Edited version of your private ruling

Authorisation Number: 1012461981793

Ruling

Subject: GST free and agency relationships

Question 1

Are the supplies made by you to a non resident entity (NRE) GST-free according to subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Answer

Yes. The supplies made by you to NRE are GST-free according to section 38-190(1) of the GST Act.

Question 2

If the answer to Question 1 is yes, does subsection 38-190(3) of the GST Act apply to negate the GST-free treatment that should otherwise be available?

Answer

No. Subsection 38-190(3) of the GST Act does not apply to negate the GST-free treatment that should otherwise be available under subsection 38-190(1) of the GST Act. The supplies made by you to NRE will still be considered GST-free.

Question 3

Are you entitled to a refund of previously paid GST?

Answer

You will be entitled to a refund of previously paid GST where the error falls within the time limits and/or period of review.

Relevant facts and circumstances

The private ruling application provided the following facts:

§ You partner with a non resident company (NRE).

§ NRE creates and distributes these products internationally.

§ You market NRE's products through your own business to consumers in Australia and globally.

§ NRE does not market their products directly.

§ You find consumers to purchase these products and you receive a commission through NRE

§ You invoice the consumer who then pays you the total amount for the product.

§ You then keep your commission and past on the rest of the amount to NRE via an international wire transfer.

§ NRE then distributes the product directly to the consumer.

§ You do not handle/distribute any products.

§ NRE does not have any offices or personnel located in Australia;

§ You stated in your private ruling application that you act as an Agent on NRE's behalf

§ You provide marketing and promotion services.

In a request for further information, you provided the following response:

§ NRE is a non-resident entity according to taxation purposes

§ The fixed place of business from which you operate was not originally acquired for the purposes of enabling you to carry on the business of NRE

§ NRE does not reimburse you for the cost of accommodation or staff at your fixed place of business.

§ NRE does not make other contributions to the financing of the business carried on by you.

§ NRE has guidelines regarding Solicited and Unsolicited Sales and includes a Compliance Guide.

§ You reserve part of your staff and accommodation exclusively for the business relating to NRE. You act as an agent on their behalf.

§ You do not display the name NRE at your premises or on your stationery.

§ You do not make contracts with customers or other third parties in the name of NRE or otherwise in such a manner so as to bind it.

§ If you make contracts as to bind NRE, you require specific authority in advance before binding NRE to contractual obligations.

You provided a copy of the 'Agreement'. Section 4 of the Agreement states the following:

SECTION 4. Independent Distributor shall be an independent contractor and not an employee, agent, partner, or franchisee of NRE. NRE is not responsible for withholding, and will not withhold or deduct from Independent Distributor's bonuses and commissions, if any, FICA, or taxes of any kind.

Relevant legislative provisions

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

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

Reasons for decision

Question 1

Summary

The supplies made by you to NRE are GST-free according to section 38-190(1) of the GST Act.

Detailed reasoning

Section 38-190 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) defines certain supplies other than goods or real property for consumption outside of Australia as GST-free.

Item 2 in the table in subsection 38-190(1) of the GST Act (Item 2) states:

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

A supply that is made to a non-resident:

The third column in item 2 in subsection 38-190(1) of the GST Act refers to 'a supply that is made to a non-resident'.

'Non-resident' is defined in section 195-1 of the GST Act as an entity that is not an 'Australian resident'. Section 195-1 defines 'Australian resident' as a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA). Subsection 6(1) of the ITAA states that, in the case of a company, 'resident of Australia' means a company that is incorporated in Australia, or which, not being incorporated in Australia, has either its central management and control in Australia, or its voting power controlled by shareholders who are residents of Australia.

You have advised that NRE is a 'non-resident' entity according to taxation purposes.

The recipient is not in Australia:

The requirement that the recipient is not in Australia when the thing supplied is done is discussed in Goods and Services Tax Ruling 2004/7 (GSTR 2004/7).

Under paragraph 37 of GSTR 2004/7, a non-resident company is in Australia if that company carries on business (or in the case of a company that does not carry on business, carries on its activities) in Australia:

(a) at or through a fixed and definite place of its own for a sufficiently substantial period of time; or

(b) through an agent at a fixed and definite place for a sufficiently substantial period of time

Fixed and definite place of its own

In relation to the reference in paragraph 37(a) of GSTR 2004/7 to a company having a 'place of its own' paragraph 253 of GSTR 2004/7 states:

A non-resident company clearly has a place of business of its own if it leases or owns a place at which it conducts business through its servants or agents. However, a place of its own is not limited to such a place. A non-resident company occupies a place as a place of its own if it has a right to be there. Evidence of that right is generally to be found in the fact that the company's employees or agents occupy that place for the purposes of its business.

From the facts provided, NRE does not have any offices or personnel located in Australia.

We therefore consider that NRE is 'not in Australia' according to the test set out in paragraph 37(a) in GSTR 2004/7.

Through an agent

In relation to the test in paragraph 37(b) of GSTR 2004/7, i.e. whether the non-resident incorporated entities to which you supply services are 'in Australia' by reason of carrying on business in Australia 'through an agent at a fixed and definite place for a sufficiently substantial period of time', paragraph 278 of GSTR 2004/7 states:

The key issue in this kind of situation is whether the non-resident company is itself carrying on business through a duly appointed agent, or whether the business being conducted is the agent's own business, the non resident company merely being one of its customers.

Paragraph 281 of GSTR 2004/7 lists ten factors that indicate whether a non-resident company can properly be regarded as carrying on business in Australia through an agent.

From the information provided, we do not consider you to be an agent for NRE for the purposes of paragraph 37(b) of GSTR 2004/7. We consider that you are carrying on your own business and not that of the NRE for the following reasons:

§ The fixed place of business from which you operate from was not originally acquired for the purposes of enabling you to carry on the business of NRE

§ NRE does not directly reimburse you for the cost of accommodation or staff at the fixed place of business.

§ NRE does not make other contributions to the financing of the business carried on by you.

§ You are remunerated by commission. Commission is an indicator that you are carrying on your own business and not that of NRE.

§ You do not display the name NRE at your premises or on your stationery.

§ You do not make contracts with customers or other third parties in the name of the NRE or otherwise in such a manner so as to bind it.

§ You require specific authority in advance before binding that NRE to contractual obligations.

Further, Section 4 of the NRE's Agreement states that you 'shall be an independent contract and not an employee, agent, partner, or franchisee of NRE.'

SECTION 4. Independent Distributor shall be an independent contractor and not an employee, agent, partner, or franchisee of NRE. NRE is not responsible for withholding, and will not withhold or deduct from Independent Distributor's bonuses and commissions, if any, FICA, or taxes of any kind.

In our view, NRE does not carry on business in Australia through an agent at a fixed and definite place for a sufficiently substantial period of time. We therefore consider that NRE is 'not in Australia' according to the test set out in paragraph 37(b) in GSTR 2004/7.

Therefore, in relation to any supply of marketing and promotional services by you to NRE, we are satisfied that those services are supplied to a non-resident who is not in Australia when the thing supplied is done for the purposes of Item 2 in subsection 38-190(1) of the GST Act.

Paragraphs (a) or (b) of Item 2

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

For the purposes of paragraph (a) of Item 2, the supply must be analysed to determine whether it is properly characterised as a supply of work physically performed on goods or is directly connected with real property situated in Australia. This is examined in Goods and Service Tax Ruling GSTR 2003/7.

From the information that you have provided, the nature of your supply to NRE is the supply of marketing and promotional services. The supply is neither a supply of work physically performed on goods situated in Australia nor a supply directly connected with real property situated in Australia.

Therefore, the supply of marketing and promotional services to NRE is a supply covered under paragraph (a) of Item 2 in subsection 38-190(1) of the GST Act.

Question 2

Summary

Subsection 38-190(3) of the GST Act does not apply to negate the GST-free treatment that should otherwise be available under subsection 38-190(1) of the GST Act. The supplies made by you to NRE will be considered GST-free supply.

Detailed reasoning

Subsection 38-190(3) of the GST Act deals with supplies used or enjoyed outside Australia and appears as follows:

Without limiting subsection (2) or (2A), 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

Goods and Services Tax Ruling GSTR 2005/6 (GSTR 2005/6) provides guidance on the application of subsection 38-190(3) of the GST Act.

Paragraph 38-190(3)(a):

In our view, paragraph 38-190(3)(a) is satisfied. You have provided a copy of the agreement between you and the NRE. You have advised that NRE is a 'non-resident' entity according to taxation purposes.

Paragraph 38-190(3)(b):

Paragraph 38-190(3)(b) applies where the supply is provided, or the agreement requires it to be provided, to another entity.

'Another entity' is an entity, as defined in subsection 184-1(1) of the GST Act, other than the non-resident entity to which the supply is made. The term entity includes individual, companies, partnerships and trusts.

The term 'provided' is used in subsection 38-190(3) to differentiate from the term 'made' in item 2. The word provided focuses on the doing of the thing to be supplied and the flow of the actual services or thing required to be supplied under the contractual arrangements. This is explained in Goods and Services Tax Ruling GSTR 2005/6 (GSTR 2005/6):

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.

Character of the supply

GSTR 2005/6 states:

66. Before it can be determined whether a supply is provided (or is required to be provided) to another entity, it is essential that the supply be properly characterised as the supply of a service, right or some other thing. It is only when the supply is properly characterised that it is possible to determine whether that supply is provided to another entity.

The ruling request it was submitted that the only supplies made by you in relation to which subsection 38-190(3) needed to be considered were marketing and promotion services.

The Commissioner has provided examples in GSTR 2005/6, in particularly examples 26 and 34, which are relevant to the above supplies made by you. In summarising these examples, the commissioner takes the view that, although the customers of the non-resident clients may obtain some benefit from these marketing and promotional services; this benefit is incidental to the supply and should not alter the GST treatment under subsection 38-190(3).

Based on those examples we consider that the supplies made by you pursuant to NRE Agreement, are supplies of services.

Exact nature of the supply

GSTR 2005/6 also states:

69. It is also necessary to establish the exact nature of the supply to determine to which entity that service or thing is provided. That is, it is necessary to establish what is really being supplied.

70. A clear understanding of the exact nature of the supply is essential to determining whether that supply is provided to another entity. It is only by having regard to what is in substance and reality being supplied that it is possible to identify to which entity that supply is provided.

71. The exact nature of a supply in any given situation depends on the facts and circumstances of the supply and the agreement made between the parties. In this regard, it is necessary to look at the whole arrangement for the supply (including the contractual arrangements) and the way in which the supply is carried out.

In relation to marketing and promotion services supplied by you, we consider that the reasoning set out in Example 26 in GSTR 2005/6 in relation to promotion of new software applies:

534…While knowledge and information…flow to audience members, this is only a by-product of the supply of speaking services and it does not alter the true nature of the service, that is, the promotion and marketing of the new software.

Therefore, subsection 38-190(3) of the GST Act does not apply to negate the GST-treatment that is available under Item 2. The supplies of marketing and promotional services to NRE will be considered a GST-free supply.

Question 3

Summary

You will be entitled to a refund of previously paid GST where the error falls within the time limits and/or period of review.

Detailed reasoning

For tax periods starting before 1 July 2012

Time limits on GST refunds

For tax periods starting before 1 July 2012, your entitlement to an outstanding indirect tax refund (other than an entitlement relating to overpaid indirect tax on an importation) will expire four years from the end of the tax period to which the refund relates unless either of the following applies:

§ you notify us of your entitlement to the refund during the four year period

§ we notify you of your entitlement to the refund during the four year period.

To ensure you can claim any outstanding indirect tax refund you are entitled to in relation to a tax period, you must do either of the following within four years of the end of that tax period:

§ lodge your refund claim in an activity statement

§ notify us of your entitlement to the refund.

For tax periods starting on or after 1 July 2012, the time limit for claiming indirect tax refunds is replaced by a period of review in which the assessment may be amended.

How to claim a GST refund

If you have an entitlement to an outstanding indirect tax refund or GST credit for a purchase, you can claim it by doing one of the following:

§ lodging your original activity statement for the tax period to which the refund or credit relates - if you have not already done so

§ revising your activity statement for the tax period to which the refund or credit relates

§ taking the refund or credit into account in your next activity statement - although, in the case of a refund (or a credit that you partially claimed in an earlier activity statement) this is subject to any time limit or correction limit outlined in Correcting GST mistakes (NAT 4700) that may apply.

Correction limits

If you discover you have made a mistake on an earlier activity statement, subject to the correction limits outlined in the table below, you can make these corrections on your current activity statement or on any later one.

These corrections may be needed where any of the following applies:

§ you made clerical mistakes - for example, double counted your taxable sales

§ you incorrectly recorded a GST-free sale as taxable on an earlier activity statement

§ you mistakenly classified GST-free sales as taxable, that is, you incorrectly included GST in the price charged to a customer - in these cases, you will generally only be entitled to make a correction to decrease your GST if

o your customer is not registered for GST, and

o you have refunded them the amount of any GST you have overpaid.

You can make these corrections on your next activity statement, only if their net effect (that is the total GST effect of all the errors) is within the correction limits outlined in the following table. The correction limits correspond to the size of your business.

Correction limits are the net effect of the total of all errors occurring in earlier activity statements. They are the maximum amount of corrections you can make on a later activity statement. They are not worked out on a 'per activity statement' or 'per mistake' basis.

For tax periods starting on or after 1 July 2012

Period of review

For tax periods and fuel tax return periods commencing on or after 1 July 2012, a four year period of review applies where we may amend an assessment (that is, GST, LCT, WET or fuel tax credit amounts on the activity statement or claim form for a fuel tax return period).

The period of review starts on the day on which we first give notice of the assessment (in most cases, this will be the same day you lodge your activity statement) and ends four years from the day after the notice of assessment is given. After the period of review ends, an amendment will only be made by us in limited circumstances, to give effect to an application already received, where an assessment has been disputed or where there is fraud or evasion.

The period of review to amend an assessment will replace the four year time limits for the recovery of unpaid amounts and the entitlement to unclaimed refunds that apply to tax periods and fuel tax return periods commencing before 1 July 2012.

How to apply for an amendment

You may apply for an amendment using a revised activity statement or by making a request in writing.

Applying for an amendment using a revised activity statement

Where you apply for an amendment using a revised activity statement (paper RBAS), or lodge electronically via electronic lodgment service (ELS), electronic commerce interface (ECI), Standard Business Reporting (SBR) or portal, a notice of amended assessment will not issue when:

§ we amend the assessment in full as a result of the application (that is, we fully accept your amounts), and

§ the amendment is made during the period of review.

The application for amendment will be taken to be the notice of amended assessment issuing on the day we adjust your running balance account. Treating your application as a notice of amended assessment reduces compliance costs and the volume of paperwork you receive.

Applying for an amendment in writing

Where you write to us during the period of review and this amendment application is accepted, this application will not be treated as a notice of amended assessment. We will issue a notice of amended assessment.

Your written amendment application must be in the approved form. A written notice, provided during the period of review will satisfy the requirement of an approved form if it contains:

§ your ABN

§ your full name and postal address

§ your agents full name and registered tax agent number

§ your daytime phone number (if convenient)

§ the tax period or fuel tax return period to be amended

§ specific details of what is being amended and what the amendment related to

§ the reason for the change or an explanation of how the mistake was made

§ the amount of the amendment to be added or subtracted

§ copies of any documents supporting the application for amendment

§ the relevant signed and dated declaration by yourself or your agent.

Correcting mistakes

Under the assessment system you are still able to correct minor errors in prior tax periods, in the current tax period.

Where the error falls outside the time and correction limits that the Commissioner determines, you need to amend the relevant earlier assessment by requesting an amendment.