Edited version of your private ruling

Authorisation Number: 1012533609508

Ruling

Subject: GST and marketing services to non-resident travel agents

Issues:

1. Do you make a taxable supply of marketing services to the Australian based travel-agents?

2. Do you make a GST-free supply of marketing services to non-resident travel agents?

Advice/Answers

1. Yes, your supply of marketing services to Australian travel agents is a taxable supply.

2. Yes, your supply of marketing services to the non-resident travel agents is a GST-free supply.

Relevant facts

You are an Australian entity and the owner of a website. You are registered for GST in Australia.

Your questions concern your marketing services to travel agents, both Australian and non-resident entities (travel agents). Once a customer buys a voucher advertised on your website, the voucher must be redeemed with the travel agents directly. The travel agents will take care of the booking and the ticketing procedures.

The following documents are found on your website: Partner Agreement and Customer Agreement.

The Partner Agreement

The Partner Agreement states that the Partner authorises you to promote and distribute vouchers on behalf of the Partner. The Partner is the seller of the vouchers and the goods and/or service to be provided by the Partner specified on the voucher as presented by you.

The Partner Agreement states that the Partner shall be responsible for all customer service and for supplying all goods and services specified in the voucher.

The Partner Agreement states that amounts retained by you are compensation for marketing, promoting, and advertising and distributing the vouchers.

The Customer Agreement

The Customer Agreement defines your services, including the information services, content and transaction capabilities on your website, and the ability to make a purchase.

When the customers purchase a voucher, they have to confirm their acceptance to your terms and conditions. After you have taken payment from the customers, you will email them to confirm the transaction to indicate your acceptance of the transaction. The Customer agreement states that you do not act as agent for the travel agents.

You deal with travel agents who are Australian based companies, and non-resident companies. The non resident travel agents are not registered or required to be registered for GST in Australia. The non resident travel agents are not registered for income tax purposes in Australia. Nor are they registered with ASIC. They usually do not have a permanent establishment in Australia via their Australian branch, representative office or agent.

The Agreement between you and a non-resident travel agent who has an Australian agent/sales representative

The Australian agent and/or sales representative act as an agent of the overseas travel agents. The role of the Australian representative would be a retainer by the non-resident travel agents and the agent is paid a retainer fee to find business for the non-resident travel agents in the Australian market. You negotiate the deal and negotiate points regarding deal creation with the Australian agent. However, your supply of marketing services and the Agreement would be with the non-resident travel agents. The Australian agent may be an authorised signatory of the non-resident travel agent.

One example of the above circumstances is XYZ. You sent us the Agreement between XYZ and you. XYZ offers accommodation and food at XYZ Resort overseas.

The Agreement was negotiated and signed between you and ABC Marketing as an Australian representative of XYZ. XYZ is an overseas resort who provides the travel services to the customers who buy the vouchers on your website.

ABC Marketing is a sales and marketing representation company delivering travel marketing services to international hotels and suppliers of tourism related products. The Agreement states that you will remit to XYZ payments received from customers after deducting your fee and the GST on that fee. Payment is made into the overseas bank account of XYZ provided in the Agreement.

You also sent us an Invoice, where you detail the summary of vouchers sold and commission you charged XYZ.

Your state that you provide a marketing service to the travel agents. If the travel agents are an Australian entity, then you charge GST on your commission. Your supply of marketing services to the travel agents does not involve work physically performed on goods situated in Australia or directly connected with real property situated in Australia.

When you are supplying to the non resident travel agents, there is no agreement between you and them which requires your marketing services to be provided to another entity in Australia.

You state that your supply of marketing services are provided to the travel agents, paid for by the travel agents, and are for the benefit of the travel agents.

Prior to advertisement of a deal, you submit a deal preview to the travel agents for review and approval. If the non-resident travel agents have an Australian representative/agent, such as in XYZ's case, any relevant feedback and approval of the deal preview is given by the Australian based representative because he is an agent of the overseas travel agent and he is paid to oversee the conduct of the marketing services in the Agreement.

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 38-190(1).

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

Reasons for decisions

Summary

The supply of your marketing services to the Australian travel agents is a taxable supply as it meets the requirements of section 9-5 of the GST Act.

The supply of your marketing services to the non-resident travel agents is GST-free. Although in some cases, the non-resident travel agents have an Australian agent/sales representative who has authorisation to negotiate the deals, review and approve advertisement of a deal, and sign the contract with you on the non-resident travel agents' behalf, the agent is not carrying on the business of the non-resident travel agents in Australia, and the non-resident travel agents are not considered to be in Australia through their agent.

Detailed reasoning

GST is payable on the supply of your marketing services if you are making a taxable supply.

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) 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 for GST.

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

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

Based on the information provided, you satisfy the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act because:

(a) you supply your marketing services to the travel agents for consideration

(b) the supply of your marketing services is in the course or furtherance of your enterprise

(c) the supply of your marketing services is connected with Australia as the services are performed in Australia and made through an enterprise that you carry on in Australia, and

(d) you are registered for GST.

The supply of your marketing services is not input taxed under the GST Act. Therefore, it remains to be determined whether the supply is GST-free.

Question 1:

In relation to your supply to the Australian travel agents, we confirm that your supply of marketing services is a taxable supply, since your supply meets the requirements of section 9-5 of the GST Act and there is no provision in the GST legislation to render the above supply GST-free.

Question 2:

Where the recipients of your supply are the non-resident travel agents, the GST status is appropriately considered under section 38-190 of the GST Act. This section provides that certain supplies of things other than goods or real property, for consumption outside Australia, are GST-free. Of relevance, is item 2 (item 2) in the table in subsection 38-190(1) of the GST Act.

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 your supply of marketing services are items 2 and 3 in the table in subsection 38-190(1) of the GST Act.

Under item 2 in the table in subsection 38-190(1) of the GST Act (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-residents *enterprise, but is not "registered or "required to be registered.
(* denotes a defined term under section 195-1 of the GST Act)

Item 2 is applicable to a supply made to a non-resident recipient.

Precondition of Item 2

Your marketing services to non-resident travel agents with no Australian agent/Australian presence

For the supply to be GST-free under Items 2 & 3 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 (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, 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, provided/ performed).

From the facts provided, your non-resident travel agents are overseas based companies. You state that they have no business presence, no employees and/or no fixed place of business in Australia. You also state that you negotiate and sign the contract directly with the non-resident travel agents. In this situation, we consider that the precondition of item 2, which deals with recipients who are not in Australia in relation to the supply, has been met.

Your marketing service to non-resident travel agents with a representative in Australia

We will now deal with the case where the non-resident travel agent retains an Australian representative as the liaison for negotiating and signing the contract and oversee the contract signed with you on behalf of the non-resident travel agent.

One example is XYZ. XYZ is an overseas resort based overseas who provides the travel services to the customers who buy the vouchers on your website.

You sent us the Agreement between XYZ and you. The parties to the Agreement are you and XYZ. XYZ offers accommodation and food at XYZ Resort overseas.

The Agreement was signed by you and ABC Marketing as an Australian representative of XYZ.

ABC Marketing is a sales and marketing representation company delivering travel marketing services to international hotels and suppliers of tourism related products.

The Agreement states that you create and sell vouchers for XYZ. Customers redeem vouchers by confirming their booking with XYZ. You do not facilitate nor are you liable for any special requests. XYZ is solely responsible for the provision of services to the voucher holders.

You will remit to XYZ payments received from customers after deducting your fee and the GST on that fee. Payment is made into the overseas bank account of XYZ provided in the Agreement. You also sent us an Invoice, where you detail the summary of vouchers sold and commission you charged XYZ.

We need to consider whether XYZ carries on business (or activities) in Australia through an agent at a fixed and definite place for a sufficiently substantial period of time.

Carries on its business through an agent in Australia

Paragraphs 250, 277, 278, and 280 of Goods and Services Tax Ruling GSTR 2004/7 (GSTR 2004/7) state:

250. We consider that if a non-resident company carries on business at or through a fixed and definite place of its own in Australia and it had carried on, or intends to carry on, its business from such premises by its servants or agents for a sufficiently substantial period of time, that company is in Australia.

277. If a non-resident company has no fixed and definite place of its own in Australia, it may still carry on business in Australia through an agent from some fixed and definite place.

278. The key issue in this kind of situation is whether the non-resident company is itself carrying on business in Australia 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.

280. The question of whether the agent is carrying on the non-resident company's business or doing no more than carrying on the agent's own business necessitates an investigation of the functions which the agent performs and all aspects of the relationship between the agent and the non-resident company.

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

281. In this regard it is necessary to weigh up various factors, including but not necessarily limited to the following, to determine whether a non-resident company can properly be regarded as carrying on business in Australia through an agent:

· Was the fixed place of business from which the agent operates originally acquired for the purposes of enabling the agent to carry on the business of the non-resident company?

· Does the non-resident company directly reimburse the agent for the cost of accommodation or staff at the fixed place of business?

· Does the non-resident company make other contributions to the financing of the business carried on by the agent?

· Is the agent remunerated by reference to transactions, for example, by commission, or by fixed regular payments or in some other way? Commission can be an indicator that the agent is carrying on its own business and not that of the non-resident. However, it is not determinative.

· What degree of control does the non-resident company exercise over the running of the business conducted by the agent?

· Does the agent reserve part of the agent's staff or accommodation for the conducting of business related to the non-resident company?

· Does the agent display the name of the non-resident company at the agent's premises or on stationery and, if so, does it indicate that the agent is an agent of the non-resident company?

· What business, if any, does the agent transact as principal exclusively on the agent's own behalf?

· Does the agent make contracts with customers or other third parties in the name of the non-resident company or otherwise in such a manner so as to bind it?

· If the agent does make contracts so as to bind the non-resident company, does the agent require specific authority in advance before binding that foreign company to contractual obligations?

Paragraph 311 of GSTR 2004/7 further provides that if the business of a non-resident company does not involve making contracts for sales, leases or similar, we consider that a non-resident company is in Australia if the agent carries on a material part of the non-resident's business.

From the facts available, XYZ has no business presence, no employees and no fixed place of business in Australia. However, XYZ retains ABC Marketing as its Australian representative. XYZ pays ABC Marketing retainer fee to find business for XYZ in the Australian market, and ABC Marketing acts as the liaison for your marketing/promotional related services to be provided to XYZ.

Paragraph 488 to 490 of GSTR 2004/7 state as follows:

Example 34 - non-resident company with an Australian agent

488. NZ Co, a New Zealand company which is not a resident of Australia, conducts a business of selling farm equipment. It engages Jack Smith, a marketing agent, to

· promote NZ Co and its activities in Australia;

· introduce potential purchase and sales opportunities to NZ Co from within Australia; and

· provide a liaison role in contract negotiations when required and resolve the administration of any contract difficulties.

489. Jack acts on behalf of fifteen companies, leases an office in Sydney and is an employer of six staff. He receives 10% of any sales that he arranges for NZ Co. Jack has no authority to determine pricing or contractual terms or to negotiate or administer contracts on behalf of NZ Co. NZ Co maintains control over all aspects of any business that the agent introduces to it .

490. These facts point to the agent having acted in the ordinary course of his business. The agent is not carrying on the business of the non-resident in Australia. NZ Co is not in Australia

We note that ABC Marketing does not carry on a business of providing resort- type accommodation for tourists. It is in the business of delivering marketing services to international hotels and resorts. ABC Marketing receives a retainer fee from XYZ to oversee the Agreement between XYZ and yourself. ABC Marketing does not act exclusively for XYZ, they also deal with other hotels, resorts and cruise businesses. Hence we consider that ABC Marketing is carrying on its own business, not XYZ's business.

We understand that ABC Marketing has the power to negotiate the Agreement and the price regarding deal creations with you, to sign the Agreement on XYZ's behalf and to give you any relevant feedback and approval of the deal preview.

Paragraph 283 of GSTR 2004/7 states:

283. If an agent has the power to make contracts on behalf of the non-resident company without seeking the company's approval before binding the non-resident to contractual obligations, this is a factor of great importance in establishing that the agent is carrying on the non-resident company's business….

Further, paragraphs 288 to 289 and 293-294 of GSTR 2004/7 state:

288. In Lalandia , a firm of English shipping agents booked freight and sold passenger tickets in England for a foreign company on a commission basis. Beyond the ordinary duties of shipping agents, the firm transacted no business and had no authority to transact business or enter into any contracts on behalf of the defendant foreign company. The rates of freight and fares were fixed by the defendant. The defendant company had no interest or concern in the agent's offices, the rent for which was paid by the agents. All the staff were servants of the agent. The only remuneration received by the agents was the customary agent's commission.

289. Langton J, in deciding that the agent was carrying on its own business rather than that of the foreign company, contrasted this case with Thames . His Honour said:

...it is important that [the agents in Thames ] receive a salary for rent and clerks and expenses, whereas [the agents in this case] receive nothing of the kind, and are merely brokers carrying on their own business and receiving a commission for work done from the defendant company and other companies.

293. The above …cases illustrate that regard must be had to other factors even if the agent has the requisite power to bind. That is, the power to bind the principal without seeking the company's prior approval, on a habitual basis for a sufficiently substantial period of time, is not an exclusive or conclusive test of presence in a foreign jurisdiction. Other factors such as those outlined at paragraph 281 must also be considered to determine whether the agent's fixed place of business is the non-resident's place of business.

294. This is consistent with the judgement of Slade J in Adams where His Honour said:

We would agree... that the existence of a power in the resident agent to bind the foreign corporation to contracts can be neither an exclusive nor conclusive test of the residence of the corporation itself. .... there are many cases in which the corporation has been held not to be carrying on business at the agency notwithstanding the existence of authority of this kind: see eg The Princess Clementine [1897] P 18, The Lalandia [1933] P 56, [1932] All ER Rep 391 and The Holstein [1936] 2 All ER 1660.

We consider that ABC Marketing only represents XYZ in relation to marketing/promoting XYZ's business in Australia. Although ABC Marketing is authorised to negotiate the Agreement and negotiate the points regarding deal creations with you, give feedback and approval of the deal previews and sign the Agreement on XYZ's behalf; ABC Marketing does not contract/sell accommodation as XYZ's agent. Hence, XYZ is not considered to be in Australia through ABC Marketing as their agent.

Since XYZ is not considered to be in Australia through ABC Marketing as their agent, it is not necessary to determine if XYZ is in Australia in relation to the supply, when the supply is done.

Accordingly, in XYZ's circumstance, the precondition to item 2 is satisfied.

The next step is to consider whether the supply of your marketing services to the non-resident travel agents also satisfies the requirements of either paragraph (a) or paragraph (b) of item 2.

Paragraph (a) of item 2

Goods and Services Tax Ruling GSTR 2003/7 (GSTR 2003/7) examines the meaning of the expressions 'directly connected with goods or real property' and 'a supply of work physically performed on goods' as used in subsection 38-190(1) of the GST Act.

Paragraph 44 of GSTR 2003/7 provides that a direct connection does not exist where the supply does not relate to the particular real property or only indirectly relates to such real property. The supply of your marketing services in relation to accommodation is not a supply directly connected with that accommodation/property (paragraphs 143-145 of GSTR 2003/7).

Your 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, whether that property is situated in Australia or outside Australia. As such, the supply of your marketing services to the non-resident travel agents satisfies the requirements of paragraph (a) of item 2.

As the supply of your marketing services satisfy the requirements of paragraph (a) of item 2, it is not necessary to consider whether the requirements of paragraph (b) of item 2 are satisfied.

Limitations of item 2

If the supply covered by item 2 is under an agreement entered into, whether directly or indirectly, with a non-resident entity and that supply is provided to another entity in Australia, or the agreement requires that it be so provided, subsection 38-190(3) of the GST Act negates the GST-free status of that supply.

Subsection 38-190(3) of the GST Act states:

Without limiting subsection 38-190(2) or (2A), 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.

Goods and Services Tax Ruling GSTR 2005/6 (GSTR 2005/6) which provides the Tax Office view on the operation of subsection 38-190(3) of the GST Act states at paragraphs 59 and 61:

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.

In this case, the supply of your marketing services is a supply under an agreement entered into with non-resident travel agents, therefore paragraph 38-190(3)(a) is satisfied. We consider that you do not supply the marketing services to another entity in Australia (for example, the purchaser of the holiday packages), nor does your Agreement with the non-resident travel agents requires you to do so. Hence the supply of your marketing services to the non-resident travel agents is GST-free under item 2.