Edited version of your private ruling

Authorisation Number: 1012568695230

Ruling

Subject: GST and supplies of software and support services by a non-resident company

Question 1

Are the supplies of the software licences/programs ('software'), software maintenance and support services by a non-resident company ('you') to customers in Australia a taxable supply?

Answer 1:

No, the supplies of the software (including software maintenance) via electronic delivery and the support services provided from outside Australia to the Australian consumers are not connected with Australia, and therefore are not taxable supplies under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (Act).

Question 2:

Are you required to be registered for goods and services tax ('GST') in Australia in the circumstances described?

Answer 2:

No, you are not required to be registered for GST in relation to the supplies of software, software maintenance and support services (described above) which are not connected with Australia (unless you make any other supplies which are connected with Australia and your GST turnover is more than $75,000).

Relevant facts and circumstances

A non-resident company ('you') incorporated overseas.

You have operated through a permanent establishment in Australia since {date}. That is, you had one employee who worked from home, an Australian bank account, and you are registered with ASIC as a foreign company operating in Australia. An Australian entity (AusE) is acting as your resident agent and it lodged Australian income tax returns and is registered for goods and services tax ('GST').

All Australian customers are currently billed through the permanent establishment and GST is paid on these sales.

Your primary business is the supply of electronic software applications. Consulting, installation, systems integration, and training (for your software products) are among your professional (support) services offerings.

You are in the process of closing down the permanent establishment in Australia. The sole employee was made redundant. The bank account will be closed, ASIC will be notified that the company has ceased operating as a foreign company in Australia and AusE will no longer be your resident agent.

For the purchase of any software licenses, software maintenance and/or support services, the Australian customers will have to deal directly with you (or a related entity) in the overseas countries. There will be/is no software installation, maintenance or consulting (support) services physically provided by you or any related parties in Australia.

You currently have an Australian business number (ABN) and are registered for GST. As part of the exit from Australia, you intend to deregister for GST and cancel your ABN.

Additional information

You are a subsidiary of another overseas company (OSCo).

You advise that all Australian invoices raised to customers are by you, which is the correct entity for the product(s) being sold.

You clarified that you sell a certain type of software application(s). You charge for annual maintenance on those software sales and provide technical professional/consulting (support) services to these customers as part of this maintenance.

The software, software maintenance and support services are by electronic delivery in most circumstances. The software applications, upgrades, and modifications are supplied via electronic delivery (such as electronic download or via the internet/online). Product order forms are completed by customers and sent to you to process. You then provide electronic delivery of the software. Software maintenance and professional/consulting (support) services to customers are provided by a globally distributed workforce. You advise that the maintenance is predominately carried out online.

You do not have a workforce in Australia and have no physical presence in Australia. The electronic delivery servers that you use are located in the OSCo offshore office and are controlled by OSCo staff in an overseas country.

The license and support agreement (Agreement) provides (amongst other things):

The Agreement is between you (XX) and the Licensee.

License

XX grants the Licensee a limited, non-exclusive, non-sublicensable, non-transferable, perpetual license to use the software solely for Licensee's internal business purposes and not for any commercial or other purposes. Licensee may only use the number of copies of the Software expressly authorized by XX.

Generally, XX will make software licensed under a product order form available to Licensee by electronic download. In the event that the Software is shipped to Licensee, such shipment will be according to CIP, Incoterms 2000.

Restrictions

Licensee will not: (a) rent, lease, loan, sell, copy (except as permitted above), or distribute the software in whole or in part; (b) use the software or any portion thereof as a component of or a base for products or services prepared for commercial sale, sublicense, lease, access or distribution; (c) remove, alter, obfuscate, and/or otherwise deface any XX trademarks or notices on the software; (d) allow any third party to access or use the software; or (e) modify, decompile, disassemble, reverse engineer or emulate the functionality of and/or create derivative works of the software.

Fees

Licensee shall pay all fees. All fees are non-refundable.

Support; Maintenance

If ordered under a product order form, annual Maintenance & Support services related to the software are provided (discussed below).

Intellectual Property Rights

The software contains and/or embodies patents, copyrighted material, trade secrets, inventions and other intellectual property of XX. All right, title and ownership interests in the Software and Hosting Environment remain with XX and its licensors, as applicable.

Exhibit X - Maintenance & Support / Exhibit X - Definitions

Maintenance & Support Services

Support consists of assistance during service hours with respect to the software, including, but not limited to (i) clarification of functions and features of the software; (ii) access to and clarification of the documentation;; and (iii) error verification, analysis and reasonable resolution efforts by telephone and/or internet. Support furthermore includes access to the XX customer extranet, online support, access to the technical consulting forum (if applicable) and online status inquiry via the internet.

Maintenance consists of the delivery of fixes and the provision of generally available Service Packs via the internet, along with any related online documentation.

Additional Options - XX offers additional Maintenance & Support options as set out in Article X below.

Article X Additional Maintenance & Support Options

XX offers additional Maintenance & Support options. Fees for these options will consist of an increased annual Maintenance & Support fee and will be indicated on the appropriate product order form.

- Advance Support - support Monday to Sunday, 24 hours a day.

- Continuity Support - a dedicated support engineer will be assigned to Licensee; technical support visits; workshop in an overseas country; on-site support.

- New Release Subscription - right to receive the subsequent new version releases of the licence software.

(Each service is explained in detail in this Article).

Exhibit X - Definitions

"Service Pack" means a set of the software which contains bug fixes and stability enhancements only.

"Software" means the object code of the computer program(s) as specified in the applicable product order form and which excludes third party software.

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 9-25

A New Tax System (Goods and Services Tax) Act 1999, Section 23-5

A New Tax System (Goods and Services Tax) Act 1999, Section 188-10

A New Tax System (Goods and Services Tax) Act 1999, Division 84

Reasons for decision

Issue 1 - Connected with Australia

GST is payable on a taxable supply. Section 9-5 of the A New Tax System (Goods and Service 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.

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

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

A supply is taxable if all the requirements of section 9-5 of the GST Act are satisfied.

One of the requirements for a taxable supply under paragraph 9-5(c) of the GST Act is that the supplies are connected with Australia.

For the purposes of determining whether the supplies are connected with Australia, section 9-25 of the GST Act makes a distinction between a supply of goods, a supply of real property and a supply of anything other than goods or real property.

Characterisation of the supply

The facts indicate that you supply the software (licence), software maintenance and support services via electronic delivery in most circumstances. The software applications, upgrades, and modifications are supplied via electronic delivery, such as electronic download or via the internet/online. The software maintenance is provided via the internet/online, and support services to customers are provided by a globally distributed workforce predominately online (such as via telephone or the internet). You advise that you have no workforce in Australia, and have no physical presence in Australia.

Supply of software (including licence and software maintenance) via electronic delivery

Your supply of the software (including license and software maintenance such as updates and upgrades) needs to be characterised as either a supply of goods or a supply of things other than goods (or real property).

Section 195-1 of the GST Act defines the term 'goods':

  goods means any form of tangible personal property.

Goods and Services Tax Ruling GSTR 2003/8 discusses the characterisation of software as a supply of right, a supply of software (as intangible property), a supply of a service, or a supply of goods. Paragraphs 83 and 84 of GSTR 2003/8 state:

Computer software

83. Computer software is a specific example of intellectual property. Computer software can be described as 'computer programs consisting of encoded instructions designed to cause a computer to perform a particular task or to produce a particular result'. A computer program is, in substance, knowledge or information, that is, it is intellectual property. However, the carrying medium for a computer program, for example, a disk, is tangible property.

84. A supply of computer software may involve only a grant of rights (for example, rights to copy programs) or an assignment of rights (for example, assignment of the copyright in a program) or it may also include a supply of goods, such as a disk.

In addition, paragraphs 89 and 90 of GSTR 2003/8 state:

89. …, computer software supplied in intangible form, for example by downloading it from the internet, is not a supply of goods as there is no tangible property supplied. The inclusion of a 'clickwrap licence' in similar terms to the common form of 'shrinkwrap licence' … will not, in itself, mean that the supply is a supply of rights. Where the software downloaded is standard or 'off-the-shelf' software, what is supplied is the computer program, subject to restrictions on its use. If the essential nature of the transaction is the supply of the computer program, subject to restrictions on its use, the fact that a 'licence' relating to the supply of the software is couched in terms of a licence 'to use' the software will not in itself mean that the substance of the supply is a supply of a right to use the software. Similarly, incidental copyright rights, such as the right to copy for downloading purposes, do not change the essential nature of the supply

90. A supply of rights in relation to the copyright in the program itself, which allows the licensee to modify, adapt or copy or otherwise do, for commercial purposes, what would ordinarily be the exclusive right of the copyright owner, is a supply that is made in relation to rights.

The facts indicate that you predominantly supply the software via electronic delivery, which is in an intangible form, to the customers. You supply the customers with the computer program subject to various restrictions on its use, but do not supply any rights to the copyright or any other intellectual property rights to the customers (as outlined in the Agreement). Accordingly, your supply of the software (licence to the software and any upgrades) via electronic delivery is a supply of a computer program (intangible property), not a supply of a right, for GST purposes.

Your supply of the software (including licence, upgrades and so on) via electronic delivery is not considered a supply of goods, as there is no tangible property supplied. Furthermore, it is clear that the supply of the software is not a supply of real property. Hence, it is a supply of a thing other than goods or real property.

Supply of software (including software maintenance/upgrades) embodied on CDs/disks

The software and maintenance (updates and upgrades) of the software supplied on a tangible medium such as CDs/disks satisfy the definition of goods in section 195-1 of the GST Act above.

In the limited circumstances, where the software (including updates and upgrades of the software) is shipped to the customers (Licensee in the Agreement) on CDs/disks, the software (including updates and upgrades) are treated as a supply of goods.

Supply of software support services (professional/consulting services)

In relation to the supply of software support services (such as technical professional/consulting advice and information provided as part of the maintenance and support) to customers via the telephone or internet/online, these services do not meet the definition of goods above, and is considered to be a supply of a thing, other than goods or real property.

Supplies connected with Australia

Supply of software (including maintenance) via electronic delivery and support services

Subsection 9-25(5) of the GST Act states:

A supply of anything other than goods or *real property is connected with Australia if:

(a) the thing is done in Australia (paragraph 9-25(5)(a));

(b) the supplier makes the supply through an *enterprise that the supplier *carries on in Australia (paragraph 9-25(5)(b)); or

(c) all of the following apply:

(i) neither paragraph 9-25(5)(a) nor (b) applies in respect of the thing;

(ii) the thing is a right or option to acquire another thing; and

(iii) the supply of the other thing would be connected with Australia (paragraph 9-25(5)(c)).

You only need to satisfy one of the paragraphs in subsection 9-25(5) of the GST Act for a supply to be connected with Australia.

Goods and Services Tax Ruling GSTR 2000/31 discusses when a supply is connected with Australia.

Paragraph 9-25(5)(a) of the GST Act provides that a supply of anything other than goods or real property is connected with Australia if the thing is done in Australia.

Thing is defined to mean anything that can be supplied or imported such as a service, advice, information or a right. It is the subject of the supply. Under paragraph 9-25(5)(a) of the GST Act the connection with Australia requires that the 'thing' being supplied is 'done' in Australia. The meaning of 'done' depends on the nature of the 'thing' being supplied. 'Done' can mean, for example, performed, executed, completed or finished depending on what is supplied.

The supply of a service is done where the service is performed. The supply of advice and information is done where it is prepared, produced or created, as the case may be. If the advice or information is an instantaneous supply of advice or information, that advice or information is done where the advice or information is provided. A thing can be done where it is provided, prepared, or where an agreement is made, as the case may be.

Paragraph 9-25(5)(b) of the GST Act provides that a supply of a thing other than goods or real property is also connected with Australia if the supplier carries on an enterprise through a permanent establishment in Australia, and the supply is made through that permanent establishment. A connection is established between the Australian permanent establishment and the supply.

Further, paragraph 9-25(5)(c) of the GST Act provides that a supply of a thing other than goods or real property is connected with Australia if the supply is of a right or option to acquire something that would be connected with Australia.

From the facts provided, you are a non-resident company incorporated in the overseas country. You supply software, software maintenance and support services to Australian consumers via electronic delivery in most circumstances. The software applications, upgrades, and modifications are supplied via electronic delivery, such as electronic download or via the internet/online.

Product order forms are completed by customers and sent to you to process. You then provide electronic delivery of the software. For the purchase of any software licences, software maintenance and/or support services, the Australian customers will have to deal directly with you (or a related entity) in the overseas countries. There will be/is no software installation, maintenance or consulting (support) services physically provided by you or any related parties in Australia.

You advise that the maintenance is predominately carried out online. The software maintenance and professional/consulting (support) services to customers are provided by a globally distributed workforce. However, there is no workforce in Australia and you have no physical presence in Australia. The electronic delivery servers that you use are located in the OSCo offshore office and are controlled by OSCo staff in an overseas country.

On the basis of these facts, the supplies of the software (including maintenance) via electronic delivery and the support (professional/consulting) services are not done in Australia, and you are not making supplies through an enterprise in Australia. Further, the supplies are not of a right or option to acquire something that would be connected with Australia. Accordingly, the supplies of the software (including maintenance) via electronic delivery and support services to the Australian consumers are not connected with Australia. As the supplies are not connected with Australia, paragraph 9-5(c) of the GST Act is not satisfied.

The supplies of the software (including maintenance) via electronic delivery and support services by you to the Australian consumers do not satisfy all the requirements of a taxable supply under section 9-5 of the GST Act, and therefore are not subject to GST.

Supply of software (including software maintenance/upgrades) embodied on CDs/disks, and any services performed in Australia.

We acknowledge that your supplies of the software are predominantly by electronic means. For completeness, in the event that you supply the software via CDs/disks (which is a supply of goods), the supply may be connected with Australia.

A supply of goods is connected with Australia if the supply involves those goods being brought to Australia and the supplier either imports the goods into Australia (paragraph 9-25(3)(a) of the GST Act), or installs or assembles the goods in Australia (paragraph 9-25(3)(b) of the GST Act). However, paragraph 9-25(3)(a) of the GST Act does not apply to a supply of goods that involves goods being brought to Australia where the recipient imports the goods into Australia.

For further information of the importation of goods refer to Goods and Services Tax Ruling GSTR 2003/15, which is available on the ATO website at www.ato.gov.au

We also acknowledge that you do not have a workforce in Australia and have no physical presence in Australia. You advise that the software support (professional/consulting) services are provided from outside Australia. However, in the event that an entity (such as a representative) comes to Australia to perform the services on your behalf, the supplies of these support services are done in Australia, and therefore are connected with Australia.

Summary - Issue 1

The supplies of the software (including maintenance) via electronic delivery and support services provided from outside Australia to the Australian consumers are not connected with Australia, and do not satisfy all the requirements of a taxable supply under section 9-5 of the GST Act.

However, in the event that the supplies of the software (including maintenance) are embodied on CDs/disks and imported to (or installs in) Australia by you (instead of the recipient), and any support services are performed in Australia, these supplies will be connected with Australia.

Issue 2 - GST registration

Section 23-5 of the GST Act provides that an entity is required to be registered for GST if it is carrying on an enterprise and its GST turnover meets the registration turnover threshold.

Section 188-10 of the GST Act provides that your GST turnover meets the registration turnover threshold if:

a) your current GST turnover is at or above $75,000 and the Commissioner is not satisfied that your projected GST turnover is below $75,000; or

b) your projected GST turnover is at or above $75,000.

Your current GST turnover is the sum of the values of all supplies made in a particular month plus the previous 11 months. Your projected GST turnover is the sum of the values of all supplies made in a particular month plus the next 11 months.

In calculating current GST turnover and projected GST turnover, the following supplies (amongst others) are not included in the calculation:

a) supplies that are input taxed (which includes financial supplies, residential rent and sale of residential premises).

b) supplies that are not for consideration.

c) supplies that are not made in connection with an enterprise that you carry on.

d) supplies that are not connected with Australia.

In working out your projected GST turnover, paragraph 188-25(a) of the GST Act requires that you disregard any supply made or are likely to be made, by you by way of transfer of ownership of a capital asset of yours.

The supplies of the software (including maintenance) via electronic delivery and support services provided from outside Australia to the Australian consumers are not connected with Australia, and are excluded from the calculation of your GST turnover. For any supplies that are connected with Australia (if applicable), these supplies will be included in your GST turnover calculations.

Accordingly, you are not required to be registered for GST in relation to the supplies of software, software maintenance and support services (described above) which are not connected with Australia (unless you make any other supplies which are connected with Australia and your GST turnover is more than $75,000).

Additional information - Reverse charging

Division 84 of the GST Act is a special rule under the GST Act that deals with supplies of 'things other than goods or real property' that are made outside Australia to a recipient in Australia. Under section 84-5 of the GST Act a supply may be treated as a taxable supply as follows:

84-5 Intangible supplies from offshore that are taxable supplies under this Division

(1) A supply of anything other than goods or *real property that is:

(a) a supply not *connected with Australia; or

(b) a supply that is connected with Australia because of paragraph 9-25(5)(c);

is a taxable supply if:

(c) the *recipient of the supply acquires the thing supplied solely or partly for the purpose of an *enterprise that the recipient *carries on in Australia, but not solely for a *creditable purpose; and

(d) the supply is for *consideration; and

(e) the recipient is *registered or *required to be registered.

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

An entity acquires a thing for a creditable purpose to the extent that it acquires it in carrying on its enterprise. It does not acquire the thing for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed (such as financial supplies, or residential rent/premises), or the acquisition is of a private or domestic nature.

Accordingly, whether all the requirements in subsection 84-5(1) of the GST Act are satisfied, will depend on the circumstances of each recipient of the supply.

The GST on a supply that is treated as a taxable supply under section 84-5 of the GST Act is payable by the recipient of the supply and is not payable by the supplier. Accordingly, the charge for GST is reversed and you (as the supplier) would not be liable to pay GST on a taxable supply under section 84-5 of the GST Act.