Edited version of your private ruling

Authorisation Number: 1012526557173

Ruling

Subject: GST and supply of legal services

Question

Is the supply of legal services which you have provided to the non-resident entities GST-free under item 2 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Advice

Yes. Based on the information received you have made the supply of legal services to the lawyers of the non-resident entities who are located overseas and provided the legal services to the non-resident entities who were not in Australia at the time of the supply. In this instance your supply of legal services is GST-free under item 2 in the table in subsection 38-190(1) of the GST Act.

Relevant facts

· You are an Australian company and registered for the goods and services tax (GST). You carry on your business of legal services in Australia.

· In 2xxx Company XYZ (plaintiff) commenced legal proceedings against the non-resident entities for breach of contract and for engaging in misleading and deceptive conduct following the failure of the non-resident entities to perform the service for which they were contracted. The plaintiff's claim was heard in Australia.

· In 2xxx, the lawyers of the non-resident entities who are located outside Australia have engaged you for your legal services and to represent the non-resident entities in the hearing (copy of your letter of engagement and emails relating to the engagement received). You were engaged to assist and instruct in the defence of the non-resident entities for the court case.

· The non-resident entities do not have a place of business or a residence in Australia. They also have no statutory registrations in Australia (taxation of any kind, ASIC and so on).

· The non-resident entities were not in Australia at any time during the course of the court proceedings. The lawyers of the non-resident entities were not in Australia at any time of your supply.

Relevant legislative provisions

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

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

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1

Reasons for decision

Detailed reasoning

GST is payable on a taxable supply. To be a taxable supply, the supply must meet the conditions under section 9-5 of the GST Act. This section 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 for GST.

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

From the information received, you satisfy paragraphs 9-5(a) to 9-5(d) of the GST Act when you supply your legal services:

(a) you make the supply for consideration; and

(b) the supply is made in the course of an enterprise (business) that you carry on;

(c) the supply of the legal services is connected with Australia as you are making the supply through a business that you carry on in Australia and the supply of legal services is done in Australia; and

(d) you are registered for GST.

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

Your supply of legal services is not input taxed under any provision in the GST Act. The next step is to consider whether the supply of legal services is GST-free as they are made and provided to non-residents of Australia.

GST-free

Under section 38-190 of the GST Act certain supplies other than supplies of goods or real property for consumption outside Australia are GST-free.

Of particular relevance to the supply of legal services is item 2 in the table in subsection 38-190(1) of the GST Act (Item 2).

Item 2 appears as follows:

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

For a supply to be within the scope of Item 2, the supply must be made to a non-resident who is not in Australia when the thing supplied is done. The expression 'not in Australia' requires that the non-resident is not in Australia in relation to the supply.

From the facts given, we consider you have made your supply of legal services to the lawyers of the non-resident entities since they are the ones that retained your services and the lawyers have requested you to provide the legal services to the non-resident entities. As the lawyers are non-residents and were not in Australia at the time of your supply, your supply of legal services satisfies the GST-free requirements in paragraph (a) of Item 2 as:

· the non-residents were not in Australia in relation to the supply when the supply of legal services was made; and

· the supply of legal services is neither a supply of work physically performed on goods situated in Australia nor a supply directly connected with real property situated in Australia.

Further, your supply of legal services may also be GST-free under paragraph (b) of Item 2 if the lawyers acquire your legal services for their business purposes and are not registered or required to be registered for GST.

Limitations

Subsection 38-190(2) of the GST Act

Subsection 38-190(2) of the GST Act provides that a supply covered by any of the items 1 to 5 in the table in subsection 38-190(1) of the GST Act 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.

From the facts given, subsection 38-190(2) of the GST Act is not applicable as the supply is not a supply of a right or option to acquire something the supply of which would be connected with Australia and would not be GST-free.

Subsection 38-190(2A) of the GST Act

Subsection 38-190(2A) of the GST Act provides that a supply covered by any of items 2 to 4 in the table in subsection 38-190(1) of the GST Act 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 Subdivision 40-B or 40-C.

From the facts given, subsection 38-190(2A) of the GST Act is not applicable as the supply of legal services does not relate to the making of a supply of real property situated in Australia.

Subsection 38-190(3) of the GST Act

Subsection 38-190(3) of the GST Act provides that a supply covered by Item 2 is not GST-free if:

· it is a supply under an agreement entered into, whether 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.

Based on the information received, subsection 38-190(3) of the GST Act is not applicable as the non-resident entities were not in Australia at any time when you provided your supply of legal services to them.

For more information on Item 2 and subsection 38-190(3) of the GST Act refer to Goods and Services Tax Rulings GSTR 2004/7 and 2005/6 (available at www.ato.gov.au).

Summary

The supply of legal services which you have made to the lawyers of the non-resident entities and provided to the non-resident entities is GST-free under item 2 in the table in subsection 38-190(1) of the GST Act.