Edited version of private advice

Authorisation Number: 1012685672171

Ruling

Subject: GST and facilitating the supply of goods

Question 1

Are you making a GST-free supply when facilitating transactions between two companies operating outside Australia?

Answer

No, the supply is not connected with Australia and therefore outside the GST system.

Relevant facts and circumstances

You are facilitating transactions between two companies operating outside Australia for the supply of goods. The series of events would be as follows:

• the goods are supplied from overseas direct to another country;

• You raise the invoice for the goods on an Australian company. This Australian company is a subsidiary company of the overseas recipient;

• You are paid by the overseas recipient through its related Australian company whom you have billed;

• You pay the overseas supplier;

• what remains with you is the sum of its cost of facilitating the transaction and exchange gain/loss (if any).

You submitted that if the goods were undelivered that the overseas recipient would follow up with you rather than deal directly with the supplier. You consider the supply made in the transaction to be a supply of goods.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-25

Reasons for decision

Summary

Your supply is not connected with Australia.

Detailed reasoning

Character of supply

Initially, in finding the correct GST treatment for the transaction in question, the underlying supply (or supplies) needs to be characterised.

The Commissioner notes there is a distinction between a subcontracting arrangement and an arranging service. In a subcontracting arrangement, a supplier contracts with a customer for the supply of something. The first supplier then contracts with a second supplier (the subcontractor) for the provision of the thing to the customer.

However, the Commissioner considers a supply can only be characterised as 'a supply of arranging for a supply' to be made to the customer (or another entity) if that is what the first supplier has been contracted to supply. If the first supplier arranges for a second supplier to contract with the customer to supply the required thing, the first supplier is responsible for arranging for the second supplier to supply that thing.

Further, if the first supplier arranges for a second supplier to supply a particular thing to a customer, the customer typically has no legal recourse against the first supplier for the second supplier's failure to supply the thing. If the second supplier fails to supply that thing, the customer usually only has legal recourse in respect of that failure against the second supplier. If the first supplier promises to arrange for the supply of a thing and that promise is not carried out, the customer then usually has legal recourse against the first supplier for breach of its promise to arrange for the supply by the other supplier.

You have indicated however, in this case, that the customer will have some recourse against you rather than the overseas supplier if the overseas supplier fails to deliver etc. Further your diagrammatic representation of the transactions does not indicate any direct contractual relationship between the overseas recipient and overseas supplier. Therefore we consider this supply to be one of goods, with your profit coming from a 'mark-up' component.

GST treatment of supply

A supply of anything, to be drawn into the GST system, must be connected with Australia'. For goods, subsections 9-25(1), (2) and (3) of the A New Tax System (Goods and Services Tax) Act 1999 set out the requirements for a supply to be connected with Australia:

Supplies of goods wholly within Australia

(1) A supply of goods is connected with Australia if the goods are delivered, or made available, in Australia to the *recipient of the supply.

Supplies of goods from Australia

(2) A supply of goods that involves the goods being removed from Australia is connected with Australia.

Supplies of goods to Australia

(3) A supply of goods that involves the goods being brought to Australia is connected with Australia if the supplier either:

(a) imports the goods into Australia; or

(b) installs or assembles the goods in Australia.

Your supply fails to meet the requirements of any of the three subsections above, therefore the supply is 'not connected with Australia' and outside the GST system. GST will not apply to this transaction.