Edited version of your written advice

Authorisation Number: 1012723868504

Date of advice: 28 October 2015

Ruling

Subject: GST and port charges

Question 1

Are the following fees consideration for GST-free supplies of transport and related matters under subsection 38-355(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

a) Terminal Handling Charge (THC);

b) ISPS Security Levy (SEC);

c) Import Delivery Order Fee (DOC); and

d) Equipment Handover Charge (EHC)

Answer

Yes. The fees form part of the consideration for a GST-free supply of international transport when charged to the recipient of the GST-free international transport and are therefore GST-free under item 5 in subsection 38-355(1) of the GST Act.

Relevant facts and circumstances

XX is a privately owned overseas based company that provides shipping services worldwide.

YY is a wholly owned subsidiary of XX and acts as XX's agent in Australia and Country X under a formal agency agreement. YY is registered for GST in Australia.

XX contracts (both through its Australian agent and independently) for international shipping of goods to Australia with Australian resident and non-resident clients under the terms and conditions set out in 'Terms and Conditions of the Contract of Carriage'.

XX provides both Port-to-Port carriage and Combined Transport carriage. These types of transport services are defined in the Standard Terms and Conditions. Regardless of the type of carriage agreed with the customer, neither XX nor YY import the goods into Australia. Importation is the responsibility of the customer in all circumstances.

Port-to-Port carriage is the carriage of goods by sea from the Port of Loading to the Port of Discharge. Combined Transport, however, is carriage that extends beyond the Port of Loading and the Port of Discharge and includes inland transport, being either or both the collection of the goods from the Place of Receipt or the delivery of the goods to the Place of Delivery (e.g. customer's premises or warehouse).

YY, as the Australian agent of XX, looks after all of the Australian based aspects of XX's international shipping operations, such as arranging the docking and unloading of the vessels at Australian ports, delivery of the goods where the Place of Delivery is in Australia, preparation of the necessary Australian import documentation and the inspection of shipping containers returned in Australia.

The pricing of carriage and shipping services can be either negotiated by XX directly with the customer or approved by XX where negotiated by YY. Fees for shipping services can be either a single all inclusive price or invoiced as separate components depending on the terms of the agreement with the customer.

Where agreed between XX and the customer, YY can invoice the customer for cost elements separate to the cost of freight but nonetheless related to the provision of transport services of goods to Australia, such as:

• Terminal Handling Charge (THC): the recovery of a charge incurred by XX that incorporates the discharge of the container by the Stevedore and storing into the stack for pick-up.

• ISPS Security Levy (SEC): the recovery of a levy paid by YY which is applied against the carriers for security to both the Stevedore and Port Operator.

• Import Delivery Order Fee (DOC): the recovery of costs incurred by YY in preparing the necessary Import Delivery Orders which is prepared by YY staff and provided to the Notify Party listed on the Bill of Lading to inform that party of the arrival of the goods in Australia.

• Equipment Handover Charge (EHC): the recovery of costs incurred by YY for inspecting the box once returned to YY and returning the inspected box to circulation.

The amounts are invoiced with an itemised account comprising a number of separate charges relating to costs incurred by YY and XX in Australia and in the course of providing international transport to Australia e.g. port and unloading costs, documentation costs and costs relating to the return of containers. YY states that this itemisation is undertaken as a means to calculate the consideration.

While these fees are itemised separately by YY, they are still invoiced under the Contract of Carriage between the customer and XX for the provision of international shipping services. YY does not have any separate agreement with the customer, nor does YY agree to provide any additional services to the customer beyond those necessary to fulfil XX's obligations under the Contract of Carriage.

You consider that the correct interpretation of these facts is as follows:

(a) YY charges these fees as agent for XX under a Contract of Carriage which governs a GST-free supply of international transport within the meaning of section 38-355(1) of the GST Act.

(b) The consideration paid by the customer to YY is paid to YY as agent of XX and is consideration for XX's GST-free supply of international transport.

(c) All services provided by YY beyond the provision of international transport services, including the inspection of returned containers, are incidental to the supply of international transport by XX and should not be subject to GST.

YY prepares invoices in relation to the Australia-based portions of the international transport supplies as agent for XX. These invoices are addressed by YY to the Consignee as listed on the Bill of Lading or the Notify Party as listed on the Bill of Lading where a Consignee is not listed.

YY facilitates the Australia-based activities of the supplies of international transport of goods to Australia that are regularly made by XX. All port and/or transport services undertaken by YY are undertaken as agent for XX.

Relevant legislative provisions

A New Tax System (Goods and Service Tax) Act 1999 section 38-355

Reasons for decision

Summary

All specified fees are consideration for GST-free supplies of transport under section 38-355(1) of the GST Act when charged to the recipient of the underlying supply of GST-free international transport.

Detailed reasoning

The international transport of goods can be GST-free where it meets the requirements of item 5 in subsection 38-355(1) of the GST Act (Item 5).

38-355 Supplies of transport and related matters

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

Item 5 is limited by subsection 38-355(2) of the GST Act under which the transport of goods to and from Australia can only be GST-free under Item 5 where either:

• the transport was supplied by the same transport supplier that transported the goods from or to Australia, or

• the transport is supplied to a recipient that is a non-resident and is not in Australia at the time.

In the present case, XX, as per the 'Terms & Conditions of the Contract of Carriage' is named as the 'carrier'. You submit that YY is XX's agent in Australia by way of a formal agency agreement. Further, you state that XX does not directly make supplies in Australia with regards to international shipping services. Instead YY manages the Australian based parts of its international carriage agreements as agent for XX.

It is accepted that YY is XX's agent for the purpose of supplying international transport. Therefore YY's acquisitions and supplies that are connected with the international transport that XX makes are acquisitions and supplies made by XX through YY. This means that any peripheral supplies beyond the port of discharge, for example land transport to the place of consignment can be GST-free if the requirements of Item 5 are met where they are made through YY as the supplies will be '… done by the supplier of the transport of the goods from or to Australia …' as required under subsection 38-355(2) of the GST Act.

Where the recipient of the supply of transport is also the recipient of the peripheral supplies, in this case the supplies made in return for THC, SEC, DOC and EHC, the supplies will be GST-free up to the place of consignment as required by Item 5(b).

Place of consignment is defined in section 195-1 of the GST Act:

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

(aa) if the supplier of the goods is to deliver the goods to a place in the indirect tax zone--the place in the indirect tax zone 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 the indirect tax zone by an entity supplying a transport service to an entity that is to import the goods into the indirect tax zone;

the place in the indirect tax zone 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.

Specific supplies and charges

THC, SEC and EHC are charged to cover costs incurred by XX in supplying the transportation of goods under the contract of carriage from the place the goods are received by XX to the place the goods are handed over to the consignee. As such these charges will be for a GST-free supply to the extent the supply of transport is a GST-free supply under item 5.

DOC is charged in relation to the arrival of goods in Australia, being a fee for compiling documentation to ensure that shipments can transit to the correct recipients after landing. The services are supplied in relation to the arrival of goods and are incidental to the supply the supply of transport. As such these charges will be for a GST-free supply to the extent the supply of transport is a GST-free supply under item 5.

As YY and XX generally do not hold or have access to the sales contract relevant to the freighted goods, they will not be able to determine where the place of consignment is under their contractual relationship with the customer. In these circumstances, the ATO allows the YY/XX to assume that the place of consignment under paragraphs (aa) or (ab) of the definition of the place of consignment should be at least at the port of discharge specified on the relevant Bill. The ATO accepts that the port of discharge in these circumstances is the 'terminal gate' and therefore transport activities carried out up to and at the port of discharge (terminal gate) are supplied at or prior to the place of consignment and are therefore GST-free under item 5.

This means that services paid for by the above fees will be GST-free if the goods are released to the customer at the port of discharge, as the transport related activities are made at, or prior to, the place of consignment and they form part of the GST-free supply of international transport under item 5.