Edited version of your private ruling

Authorisation Number: 1012584424977

Ruling

Subject: Goods and services tax (GST) and international services

Question

Is GST payable on your supplies of services to the overseas company?

Answer

GST is payable on your supplies of the services, but only to the extent that they involve assisting the Australian agents of the overseas company.

Relevant facts and circumstances

You are registered for GST.

You are an Australian business.

The overseas company is not registered or required to be registered for GST.

The overseas company is an overseas based company. It does not have an arm or branch in Australia although it has agents in Australia. The agents were not set up by the overseas company to carry on its business, in Australia. The agents carry on their own businesses in Australia.

The overseas company products are a range of devices for a certain industry and are manufactured by the overseas company overseas.

You are engaged by the overseas company to provide marketing advice, solicit sales, manage agency relationships and attend trade exhibitions for the overseas company that are associated with a global industry.

An estimated certain percentage of the work is performed in relation to overseas marketing and consulting and involves considerable international travel for the benefit of the overseas company.

An estimated certain percentage of the work is performed in relation to Australian activities, which involve assisting Australian based agents of the overseas company in sales and marketing of the overseas company products.

You will not be invoicing or collecting any transactional income on behalf of the overseas company.

The payment from the overseas company to you will be for a fixed annual amount invoiced periodically with a performance bonus available each period.

You will not be a party to the sales transactions, but purely an advisor and assistant.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1)

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

A New Tax System (Goods and Services Tax) Act 1999 section 9-40

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 decision

Summary

GST is not payable on your supplies of some of the services to the overseas company because:

· you are supplying something other than goods or real property;

· you are supplying the services to a non-resident who is not in Australia;

· your supplies are neither supplies of work physically performed on goods situated in Australia when the work is done nor supplies directly connected with real property situated in Australia; and

· some of the services you supply are not provided to a third party in Australia.

Some of your supplies of services are provided to third parties in Australia. Therefore, your supplies of these services are not 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). Your supplies of these services are taxable because they meet the requirements of section 9-5 of the GST Act.

Detailed reasoning

GST is payable by you where you make a taxable supply.

You make a taxable supply where you satisfy the requirements of section 9-5 of the GST Act, which 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

c) you *carry on; and

d) the supply is *connected with Australia; and

e) 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 term defined in section 195-1 of the GST Act.)

You meet the requirements of paragraphs 9-5(a), 9-5(b) and 9-5(d) of the GST Act. This is because:

· you make the supplies for consideration;

· you make the supplies in the course or furtherance of an enterprise that you carry on; and

· you are registered for GST.

In accordance with subsection 9-25(5) of the GST Act, a supply of something other than goods or real property is connected with Australia if:

· the thing is done in Australia, or

· the supplier makes the supply through an enterprise that the supplier carries on in Australia.

You are making supplies of services. Services are not goods or real property. You make these supplies through an enterprise that you carry on in Australia. Additionally, some of your services are performed in Australia. Therefore, your supplies are connected with Australia. Hence, you meet the requirement of paragraph 9-5(c) of the GST Act.

There are no provisions in the GST Act under which your supplies are input taxed.

Therefore, what remains to be determined is whether you make GST-free supplies.

A supply of something other than goods or real property may be GST-free under section 38-190 of the GST Act where effective use and enjoyment takes place overseas.

Item 2 in the table in subsection 38-190(1) of the GST Act provides that a supply of something other than goods or real property 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 for GST.

However, 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 with a non-resident; and

(b) the supply if provided, or the agreement requires it to be provided, to another entity in Australia.

You are supplying services, which are not goods or real property.

You are supplying these services to a non-resident who is not in Australia.

Your supplies are not supplies of work physically performed on goods situated in Australia when the work is done or supplies directly connected with real property situated in Australia.

Goods and Services Tax Ruling GSTR 2005/6 provides guidance in determining who a supply a provided to.

Paragraph 61 of GSTR 2005/6 states:

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.

You supply the services under an agreement you have with a non-resident. The actual flow of your supply of a certain percentage of the services is to the overseas company. Hence, you provide the supply of these services to the non-resident entity that contracts you to supply these services.

The other certain percentage of services involves you assisting the Australian agents of the overseas company in sales and marketing. Therefore, the actual flow of the supply of these services is to the Australian agents of the overseas company. The Australian agents of the overseas company are in Australia. Hence, you provide the supply of these services to entities in Australia. These entities are not the non-resident recipient who contracts you to supply these services.

Therefore, you make GST-free supplies of the services that are performed overseas under item 2 but your supplies of the services that involve assisting the Australian agents of the overseas company are not GST-free under item 2.

There are no provisions of the GST Act under which your supplies of the service of assisting the Australian agents of the overseas company are GST-free. As all of the requirements of section 9-5 of the GST Act are met, you make taxable supplies of these services.

Paragraph 672 of GSTR 2005/6 states:

672. If a supply covered by item 2 is partly GST-free and partly taxable because of the operation of subsection 38-190(3), the supplier is required to apportion the consideration between the GST-free and taxable parts of the supply.

In accordance with paragraph 688 of GSTR 2005/6, to work out the GST payable in such situations, it is necessary to identify the taxable part of the supply. The supply is taxable to the extent that the supply is provided to 'another entity' (someone other than the non-resident recipient of the supply) in Australia. Therefore, you make a taxable supply to the extent that your services involve assisting the Australian agents of the overseas company.

In accordance with paragraph 118 of Goods and Services Tax Ruling GSTR 2001/8, you can work out the GST by dividing the GST inclusive charge for the taxable services by 11.