Edited version of your written advice

Authorisation Number: 1012723884379

Ruling

Subject: GST and supply of services to a non-resident

Question

Will the goods and services tax (GST) apply to the supply of services made by the Australian entity to the non-resident entity?

Advice

No, GST will not apply to the supply of services made by the Australian entity to the non-resident entity as based on the facts given, the supplies of services are GST-free supplies 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).

Relevant fact

You are an Australian entity and registered for GST. You have an independent contractor agreement (agreement) with a company located overseas. You have provided us with a copy of the executed agreement.

Schedule A details the role and responsibilities to be carried out under the agreement:

• Your role is to build relationships and make sales. You will be persuasive in developing new sources of business, including corporate, team and club, service organisations, retail and hospitality as well as maintaining existing overseas customers. You are to have daily interaction with the sales and marketing team, and the senior management of the non-resident company and interaction with retail programs, tourism partners, customers, resort partners, and media.

• The goals of the non-resident company are to increase visitation to their Resort by XX% over the next XX year, double summer revenues and visitation by XXX and exceed customers' expectations with high service levels when in the resort.

You advised your services to the non-resident company are provided in and outside Australia. For items which mention the development and management of relationships, these services are performed in Australia and for the benefit of the Australian company. The ultimate aim is to encourage Australian residents to book trips to the non-resident company's resort.

In providing the services, you are not directly involved in bookings and sales. A person wishing to book a trip with the non-resident company must transact directly with the non-resident company or a travel agent.

You advised that the non-resident company is involved in the provision of resort facilities and recreational activities and does not have a permanent establishment in Australia. The non-resident company does not have a subsidiary or representative in Australia when you make your supply to them. The non-resident company is not registered for GST.

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 38-190

Reasons for decision

GST is payable on a taxable supply. You make a taxable supply under section 9-5 of the GST Act 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.

All of the above requirements must be satisfied for a supply to be a taxable supply under section 9-5 of the GST Act.

From the information received, you will satisfy paragraphs 9-5(a) and 9-5(d) of the GST Act when you supply your services to the non-resident company as:

a) you make your supply of services to the non-resident company for consideration; and

b) the supply is made in the course of a business that you carry on; and

c) the supply is connected with Australia as the supply is made through a business which you carry on in Australia; and

d) you are registered for GST.

However, your supply of services to the non-resident company is not a taxable supply to the extent that it is GST-free or input taxed.

There is no provision under the GST Act that will make your supply of services input taxed. We will now consider the GST-free provision under the GST Act.

GST-free Supply

Relevant to your supply of services to the non-resident company is item 2 in the table in subsection 38-190(1) of the GST Act (item 2).

Under item 2, a supply that is made 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 a supply to be within the scope of item 2, the supply must be made to a non-resident who is not in Australia when the thing supplied is done. The expression 'not in Australia' requires that the non-resident is not in Australia in relation to the supply.

From the facts given, the non-resident company is a non-resident who is not in Australia at the time of your supply. They do not carry on any business activity in Australia. In this instance, your supply to the non-resident company satisfies the GST-free requirements in paragraph (a) of item 2 as:

• the non-resident company is not in Australia in relation to the supply when the supply is made; and

• the supply is neither a supply of work physically performed on goods situated in Australia nor a supply directly connected with real property situated in Australia.

Further, your supply of services will satisfy paragraph (b) of item 2 where the non-resident company is not required to be registered for GST since the non-resident company acquires your services for their business purposes and currently are not registered for GST.

Limitations

Your supply to the non-resident company is GST-free under item 2 to the extent that they are not negated by the limitations discussed below.

Subsection 38-190(2) of the GST Act

Subsection 38-190(2) of the GST Act provides that a supply covered by any of the items 1 to 5 in the table in subsection 38-190(1) of the GST Act is not GST-free if it is the supply of a right or option to acquire something the supply of which would be connected with Australia and would not be GST-free.

From the facts given, subsection 38-190(2) of the GST Act is not applicable as the supply of services is not a supply of a right or option to acquire something the supply of which would be connected with Australia and would not be GST-free.

Subsection 38-190(2A) of the GST Act

Subsection 38-190(2A) of the GST Act provides that a supply covered by any of items 2 to 4 in the table in subsection 38-190(1) of the GST Act is not GST-free if the acquisition of the supply relates (whether directly or indirectly, or wholly or partly) to the making of a supply of real property situated in Australia that would be input taxed under Subdivision 40-B or 40-C of the GST Act.

From the facts given, subsection 38-190(2A) of the GST Act is not applicable as the acquisition of your services does not relate to the making of a supply of real property situated in Australia that would be input taxed under Subdivision 40-B or 40-C of the GST Act.

Subsection 38-190(3) of the GST Act

The scope of item 2 is limited by subsection 38-190(3) of the GST Act which provides that a supply covered by item 2 is not GST-free if:

• it is a supply under an arrangement entered into, whether directly or indirectly with a non-resident; and

• 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 (available at www.ato.gov.au) provides guidance on the application of subsection 38-190(3) of the GST Act.

Subsection 38-190(3) of the GST Act applies if there is a supply of something, being a supply that is made to a non-resident and covered by item 2, and the same supply is provided, or is required to be provided to another entity in Australia.

The focal point in working out whether a supply is provided to another entity is the facts and circumstances of the doing of the thing supplied. By the supplier examining what it is required to do and in what circumstances, the supplier is able to objectively determine to whom the supply is provided.

Accordingly, a supply is provided to another entity if the contractual flow is to one entity (the non-resident recipient) while the actual flow of that supply (for example, the doing of the thing supplied) is in whole or in part, to another 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 entity) and the actual flow of the supply is to another entity. For example, if a supply of entertainment services is made to a non-resident company and in the performance of that service the employees are entertained, the actual flow of that service is to another entity, each employee.

Based on the facts provided, subsection 38-190(3) of the GST Act is not applicable as you are not providing your services to entities in Australia (travel agents, wholesale agents, retailers and so on) when you supply them with information about the non-resident company's resort and how to acquire the supplies made by the non-resident company.

Summary

Your supply of services to the non-resident company is GST-free under item 2 and therefor GST is not applicable to your supply.