Edited version of your private ruling

Authorisation Number: 1012512258107

Ruling

Subject: GST and supply to non-resident entity

Question

Is your supply of services to the non-resident entity taxable supply?

Answer

No, your supply of services to the non-resident entity is not a taxable supply.

Relevant facts and circumstances

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

You are a wholly owned subsidiary of a non-resident entity that was established in Australia to assist with marketing the business of the non-resident entity. The non-resident entity is not registered for GST.

The non-resident entity provides online products and services that include business information, knowledge databases and advertising platforms (the non-resident entity's business) to customers worldwide. The databases and online services are hosted outside Australia.

You entered into an agreement with the non-resident entity under which you will:

· proactively promote, sell and market specified products;

· actively make phone calls, and perform face to face meetings to promote and sell the products; and

· will ensure that your customers comply with the non-resident entity's terms and conditions and that the relevant licence fees are fully enforced and priced.

The agreement further provides that the non-resident entity:

· will receive orders from you as soon as they are closed;

· will invoice the customer and collect all monies received from the sales generated under the agreement;

· will fulfil all orders direct to clients; and

· will bear all credit risk associated with invoicing of clients.

You use a Customer Relationship Management (CRM) tool which is used worldwide by the non-resident entity. In Australia, a sales staff member will engage with a potential customer and log into the CRM tool. The sales person will then take the deal through several stages in the CRM system until a sale is agreed and contracts are signed. The contracts are standardized by the non-resident entity and are part of the CRM tool. The terms and conditions are unable to be varied without consent from the non-resident entity. As such, you merely act as an agent for the non-resident entity in entering into the contracts.

You provide some customer service, but only as a follow up from a sale to ensure the customer is happy with the product and service. Anything further is referred to the non-resident entity.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 section 38-190.

Reasons for decision

GST is payable on a taxable supply.

Section 9-5 of the A New Tax System (Goods and Services tax) Act 1999 (GST Act) provides that 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, a supply is not a taxable supply to the extent that it is GST-free or input taxed.

In this case, you make the supply of your services to the non-resident entity for consideration and in the course of your enterprise. The supply is connected with Australia and you are registered for GST. The requirements in paragraphs 9-5(a) to 9-5(d) of the GST Act are satisfied. Therefore, the supply of your services to the non-resident entity is a taxable supply unless it is GST-free or input taxed.

The supply of your services to the non-resident entity is not input taxed under any provision of the GST Act. Thus, what remains to be determined is whether the supply is GST-free.

The table in subsection 38-190(1) of the GST Act provides a list of supplies (other than supplies of goods and real property) that would be GST-free if certain conditions are met.

Under item 2 in the table in subsection 38-190(1) of the GST Act (item 2), a supply made to a non-resident who is not in Australia when the thing supplied is done is GST-free if:

(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.

Non-resident entity not in Australia

Goods and Services Tax Ruling GSTR 2004/7 explains when a non-resident entity is not in Australia when the thing supplied is done for the purpose of item 2.

The strict literal interpretation of the 'not in Australia' requirement merely requires a presence of the entity in Australia when the thing supplied is done for that requirement not to be satisfied. Paragraph 184 of GSTR 2004/7 contains our view that the expression 'not in Australia' requires that the non-resident (or other recipient) is not in Australia in relation to the supply. This means that a non-resident (or other recipient of a supply) may satisfy the 'not in Australia' requirement if that entity is in Australia but not in relation to the supply.

Paragraphs 319 and 320 of GSTR 2004/7 provide that if a non-resident entity has a subsidiary in Australia, the mere presence of that subsidiary does not mean that the non-resident company is carrying on a business in Australia. If the subsidiary is acting as agent of the non-resident company and carrying on the business of the non-resident company in Australia at some fixed place of business for a sufficiently substantial period of time, the non-resident company is 'in Australia'.

If the business of a non-resident company involves the making of contracts for sales, leases or similar, the authority of the agent to conclude contracts in Australia on behalf of the non-resident is an important factor in establishing whether the non-resident is carrying on business in Australia.

Based on the information provided, the services that you provide to the non-resident entity under the agreement consist mainly of promoting, selling and marketing the products of the non-resident entity. In entering into contracts with prospective customers, your involvement is limited to completing the contracts standardised by the non-resident entity. You are unable to vary the terms and conditions of the contracts unless you obtain consent from the non-resident entity.

As such, we consider that you do not carry on the business of the non-resident entity in Australia.

Accordingly, the non-resident entity is not in Australia when you supply your services.

Supply of work physically performed on goods or directly connected with real property (paragraph (a) of item 2)

The non-resident entity supplies online business information, knowledge databases and advertising platforms which you promote, sell and market. Therefore, the supply of your services is not a supply of work physically performed on goods situated in Australia, nor a supply directly connected with real property situated in Australia.

The condition in paragraph (a) of item 2 is satisfied.

Non-resident is not registered or required to be registered (paragraph (b) of item 2)

As the condition in paragraph (a) of item 2 is satisfied, it is no longer necessary if the requirement in paragraph (b) of item 2 is satisfied.

Supply provided to another entity (subsection 38-190(3))

Subsection 38-190(3) of the GST Act provides that a supply covered by item 2 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.

In this case, you entered into an agreement to provide your services to the non-resident entity. The agreement does not require you to provide your services to another entity in Australia. You provide some customer service, but only as a follow up from a sale to ensure the customer is happy with the product and service. Anything further is referred to the non-resident entity.

Therefore, subsection 38-190(3) of the GST Act does not apply.

Conclusion

The supply of your services to the non-resident entity is not a taxable supply. It is GST-free under subsection 38-190(1) of the GST Act.