Edited version of your private ruling

Authorisation Number: 1012527061598

Ruling

Subject: GST and supply of international freight transport services

Question

Is an Australian company (you) making a taxable supply of freight forwarding services (including the international transport, customs clearance, unloading and delivery of goods to Australia) to a non-resident entity (NR Ltd), under items 5 and 5A in the table in subsection 38-355(1) of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act)?

Answer

No. Your supply of freight forwarding services to NR Ltd is GST-free under items 5 and 5A in the table in subsection 38-355(1) of the GST Act as it is part of a GST-free supply of transport of goods from outside Australia, to the place of consignment in Australia.

Relevant facts and circumstances

Background

An Australian company (you) is registered for GST in Australia. You are an Australian Freight Forwarding company.

An unrelated Australian entity (X-entity) engaged NR Ltd to provide a transportation service. NR Ltd is to provide suitable marine transportation vessels for the supply of materials from outside Australia, by ship and to also provide suitable road transport vehicles to deliver the goods to the building site in Australia.

NR Ltd has in turn engaged you to supply freight and logistics services to them. You have no written agreement in relation to these supplies between your entity and NR Ltd. However, you have provided copies of tax invoices as supporting documentation of the supplies that you provide.

The goods being supplied

The goods in question are structural materials being supplied and transported from outside Australia. X-entity is the recipient of this supply of materials. You advise that another non-resident company (NR-Supplier) is the supplier of the materials. There is no contract provided as supporting documentation for this supply of materials. However, you advise that NR-Supplier have engaged NR Ltd to transport the materials to the project site.

You have provided numerous copies of Bills of lading in relation to supplies of these materials which originate from various places outside Australia and are all listed as being shipped to Australia as 'freight prepaid'.

You advised that NR-supplier engaged NR Ltd to bring these goods (materials) to Australia on a delivery duty paid (DDU) basis.

We note that this ruling does not address the GST implications of the supply and importation of the goods (materials).

The services provided by you

You are making supplies of freight and logistics services to NR Ltd. You provide these services from the vessel to the place of consignment.

You have no written agreement in relation to these supplies between your entity and NR Ltd. However, you have provided copies of tax invoices as supporting documentation of the supplies that you provide to NR Ltd.

As part of your supply, you handle the customs clearance and do not invoice the buyer separately for these services; they are included in the overall fee as part of your freight and logistics services, for which you invoice NR Ltd.

You also incur port charges, and you do not invoice separately for these charges either.

You provide for the delivery and transport by road or sea of the goods from the vessel outside Australia as a subcontractor for NR Ltd. As stated previously, it is a contract requirement that the goods be transported to the project site in Australia.

Your present company operations and proposed change of company structure

Your entity is considering a change of company structure in which NR Ltd may become a shareholder and own a XX% share in your entity.

You advise that you and NR Ltd are not part of a group structure. Both entities are independently owned and operated and neither entity is a branch office of the other.

You are self-funded through your own revenues and will remain so after the change of company structure.

You are not considered to be an agent of NR Ltd for the following reasons:-

· NR Ltd do not exercise any control over the running of your entity,

· NR Ltd do not reimburse you for any costs incurred at your place of business,

· NR Ltd does not make any contributions to the financing of your business,

· You do not make contracts with customers or third parties in the name of
NR Ltd, and do not have authority to do so.

None of the preceding points will change after the company restructure. You will continue to be a self-funded entity operating independently of NR Ltd.

Additional information provided by phone

The original request indicated that the goods are supplied on a DDU basis. However the Bills of lading provided refer to 'freight prepaid'. You have clarified that the meaning of 'freight prepaid' as what's generally written when it has already been billed and is not required to be costed here at import. You informed that this supports the fact that the fees are included in your supply to
NR Ltd, which is then on-charged by NR Ltd to NR-Supplier.

The supplier, NR-Supplier, is the entity responsible for importing the goods. NR-Supplier as part of their overall contract with X-entity undertakes to supply the goods and have them delivered to the client's site in Australia. NR-Supplier engages NR Ltd to transport the goods and deliver them to the site in Australia on their behalf.

NR Ltd in turn engages you to complete the final transport of the goods from the vessel to Australia and to deliver the goods to the project site in Australia. X-entity is only responsible for customs duty payments, if any.

You confirmed that any customs clearance, port charges, delivery charges, transport charges (by road or sea) are paid by you and form part of your overall supply to NR Ltd. You further advised that these charges are then on-charged to the NR-Supplier by NR Ltd as they form part of the total supply of the goods.

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 subsection 38-355(1),

A New Tax System (Goods and Services Tax) Act 1999 subsection 38-355(2),

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

Explanatory Memorandum to the Tax Laws Amendment (2010 GST Administration Measures No.3) Bill 2010.

Reasons for decision

Taxable supply:

GST is payable on a taxable supply.

Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) you make a taxable supply if:

(a) you make the supply for consideration;

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

(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.  

From the facts provided, you satisfy the requirements of the taxable supply under paragraphs
9-5(a) to 9-5(d) of the GST Act as follows:

you supply the freight forwarding services in return for consideration by way of payments;

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

(b) the supply is connected with Australia as you are carrying on your enterprise (business) in Australia; and

(c) you are registered for GST.

The supply of freight forwarding services by you to a non-resident entity is not input taxed under any provisions of the GST Act or any other legislation. The next step is to determine whether the supply is GST-free.

GST-free supply

Section 38-355 of the GST Act specifies the general rules for the GST-free supplies of international transport of goods and related matters. The purpose of this section is to allow only certain aspects of the supply of transportation of goods to be GST-free. It is not the intention of the legislation to exempt all costs of transport of goods from the imposition of GST.

Items 5 and 5A in the table in section 38-355 of the GST Act (Items 5 and 5A) allow for the
GST-free transport of goods in certain circumstances as follows:

38-355 Supplies of transport and related matters

(1)

The third column of this table sets out supplies that are GST-free:

Supplies of transport and related matters
Item	Topic	These supplies are GST-free ...
5	Transport etc. of goods	subject to subsection (2), the *international transport of goods:
		(a)	from their *place of export in Australia to a destination outside Australia; or
		(b)	from a place outside Australia to their *place of consignment in Australia; or
		(c)	from a place outside Australia to the same or another place outside Australia.
5A	Loading or handling etc.	subject to subsection (2):
		(a)	loading or handling of goods, the *international transport of which is covered by item 5, during the course of the international transport; or
		(b)	supply of a service, during the course of the international transport of goods covered by item 5, that facilitates the international transport.

(2) Paragraphs (a) and (b) of item 5, and item 5A, in the table in subsection (1) do not apply to a supply to the extent that the thing supplied is done in Australia, unless:

(a) the *recipient of the supply:

(i) is a *non-resident; and

(ii) is not in Australia when the thing supplied is done in Australia; or

(b) the supply is done by the supplier of the transport of the goods from or to Australia (whichever is relevant).

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

In relation to the importation of goods, Item 5(b) in the table in subsection 38-355(1) of the GST Act ensures that the supply of the international transport from outside of Australia to the port or airport of final destination in Australia continues to be GST-free. However the GST-free treatment may extend beyond this point if the place of consignment includes any further leg of Australian transport.

Hence, the term 'place of consignment' is important in as much as it defines the limits of the
GST-free status afforded to international transport. The term is defined in section 195-1 of the GST Act:

place of consignment of goods means:

(a) if the goods are posted to Australia - the place in Australia to which the goods are addressed; or

(aa) if the supplier of the goods is to deliver the goods in Australia - the place in Australia to which the goods are to be delivered under the contract for the supply of the goods; or

(ab) if:

(i) neither paragraph (a) nor (aa) applies; and

(ii) the goods are to be transported into Australia by an entity supplying a transport service to an entity that is to import the goods into Australia;

the place in Australia to which the goods are to be delivered under the contract for the supply of the transport service; or

(b) in any other case - the port or airport of final destination as indicated on the *transportation document.

The term 'transportation document' is also defined in section 195-1 of the GST Act as follows:

transportation document includes the following:

(a) a consignment note;

(b) a house bill of lading;

(c) an ocean bill of lading;

(d) a house air waybill;

(e) a master air waybill;

(f) a sea waybill;

(g) a straight line air waybill;

(h) a sub-master air waybill;

(i) other similar documents.

In addition, the Explanatory Memorandum to the Tax Laws Amendment (2010 GST Administration Measures No.3) Bill 2010 (EM) provides guidance for a transportation document. Paragraphs 1.18 to 1.20 of the EM state:

1.18 The primary agreement for the importation of goods refers to the agreement under which goods are delivered into Australia under the contract for the supply of the goods or where a local entity brings the goods to Australia, the primary agreement is the agreement for the transport of the goods to Australia.

1.19 If goods from outside Australia are supplied to a local purchaser on 'delivered duty paid', 'delivered duty unpaid' or under 'cost, insurance and freight' terms, the primary agreement will be the supply agreement for the sale of the goods to the local purchaser. In contrast, the primary agreement under terms of trade involving 'free on board' will generally be the agreement between a transport company and a local importer in which the goods are transported from a foreign port or airport to the local importer.

1.20 The place where an Australian transport supplier delivers goods in Australia is the place of consignment for inbound goods from overseas if they can show that this is the final place in Australia to which the goods are required to be transported under the contract or arrangement for the international transport of the goods.

As the definition of 'transport documentation' refers to a document, the 'place of consignment' for goods transported into Australia will be determined with reference to a written agreement for the transport of goods to Australia. An agreement may be a verbal one as well as a written one for the initial provision of transport services, it could be an e-mail request to pick goods up outside Australia and deliver to a place in Australia - it does not have to be a formal written agreement. The bills of lading also set out terms and may indicate a place of consignment.

Once the place of consignment is decided, it will determine both:

· the extent to which transport services and other services associated with bringing goods to Australia will be GST-free; and

· the extent of the transport and other service costs that need to be included in calculating the value of a taxable importation (VoTI) needed to determine the GST liability on import.

In relation to the inbound transport for the importation of goods, the ATO fact sheet entitled GST and international freight transport states:

Transport suppliers who bring the goods to Australia

The supply of international transport is GST-free for transport suppliers who bring the goods to Australia. These suppliers will be the entity that has been contracted to transport the goods to Australia. For transport undertaken within Australia, this will not necessarily be the entity that physically carries out the service. Supplies of loading, handling and other services that facilitate the international transport of goods by these suppliers, are also GST-free.

Subcontractors who do not bring the goods to Australia

The majority of subcontractors who only provide transport services within Australia as part of an international transport supply will make a taxable supply. This is because they will be contracted to an entity that is in Australia when they make the supply.

However, subcontractors who have contributed to the provision of international transport within Australia will make a GST-free supply if their services are made to a non-resident who is not in Australia when the services are provided. Supplies of loading, handling and other services that facilitate the international transport of goods, are also GST-free when made to a non-resident who is not in Australia when the services are provided.

Any transport services that occur after arrival at the place of consignment are not international transport…

You are arranging for the shipping of the goods from overseas to Australia. You do not have a formal written agreement with the non-resident entity (being NR Ltd) which requests you to provide the freight forwarding services. Similarly you do not have any other agreements with either the supplier (overseas) or the buyer (in Australia) of the goods.

You have provided a copy of an agreement between the buyer and the non-resident freight forwarder (NR Ltd), which state that the goods are to be delivered as part of the supply of international transport services, and list the place of consignment as the project site in Australia.

You have also provided transportation documentation in the form of Bills of lading which state that the port of discharge is in Australia. However the Bills of lading do not include details of the additional requirement that you deliver the goods to the project site.

Although we do not have an overarching agreement between the supplier (NR-Supplier) and the buyer (X-entity) for the supply of the goods, we have other supporting documentation, which we have taken into account. We agree with your assertion that the final destination of the goods under the documentation provided is the project site, in Australia. Accordingly we consider this is the place of consignment for this supply.

You arrange for the customs clearance of the goods into Australia and advise that your involvement in the transportation of the goods ends when the goods are delivered to the project site in Australia (which is considered the place of consignment in Australia).

You invoice NR Ltd for your freight forwarding services and in turn NR Ltd invoices NR-Supplier for their supply. You are supplying the freight forwarding services to NR Ltd (which is a
non-resident entity that is not in Australia), and your supply forms part of the overall supply of the international transport of goods from overseas to its place of consignment in Australia.

Accordingly, you are making a GST-free supply of the international transport of goods under paragraph (b) of Item 5. In addition, the loading and handling component of your supply is
GST-free under paragraph (b) of Item 5A.

Please note although this supply is GST-free it must be included in the calculation of the VoTI.

Additional Information regarding proposed change in company structure

Your entity is considering a change of company structure in which NR Ltd may become a shareholder and own a XX% share in your entity.

You advise that you will continue to be a self-funded entity which will operate independently to NR Ltd. You have advised that you are not an agent or representative in Australia of NR Ltd, and will not be an agent or representative of their entity after your change in company structure.

Subsection 38-355(2) of the GST Act stated above will negate the GST-free status of your freight forwarding services to the extent that the services are done in Australia unless:

(a) the recipient of the supply is a non-resident who is not in Australia when the thing supplied is done; or

(b) the supply is done by you (as a transport supplier) forms part of an overall supply of the transport of goods to Australia.

The recipient of your supply is NR Ltd, who is a non-resident entity that is presently not in Australia when you supply your freight forwarding services.

As a result of your change in company structure, NR Ltd must remain a non-resident entity (with no place of business or representative in Australia) and they must not be present in Australia when your supply is provided to them, for paragraph 38-355(2)(a) of the GST Act to apply.

However, if you enter into an arrangement with an entity to supply freight forwarding services in Australia as part of your overall supply of the transport of goods to Australia (that is, to the place of consignment in Australia), paragraph 38-355(2)(b) of the GST Act will apply, and the supply will not be excluded from being GST-free under Items 5 and 5A.

Where your future supplies satisfy all of these criteria, your supplies of freight forwarding services will continue to be GST-free.

Other Information

All publications mentioned in this ruling are available on our website at www.ato.gov.au