Edited version of your written advice

Authorisation Number: 1012739391936

Ruling

Subject: GST and supply of publications made through a resident agent in Australia

Questions

1. Does the non-resident company need to register for the goods and services tax (GST) in regard to their supply of publications in Australia under the Distribution Agreement they have with the Australian resident company?

2. If the answer to 1 is yes, do the monies that the Australian resident company collects and passes onto the non-resident company under the Distribution Agreement include GST as the non-resident company is required to be registered for GST, or should be returned excluding GST?

3. Is the non-resident company entitled to claim GST credits on the distribution fee charged by the Australian resident company?

Advice

1. Yes, the non-resident company needs to register for GST under section 23-5 of the A New Tax System (Goods and Services Tax Act) Act 1999 (GST Act) in regard to their supply of publications in Australia under the Distribution Agreement they have with the Australian resident company.

2. No, the monies that the Australian resident company collects and passes onto the non-resident company do not include GST as the Australian resident company is required to remit the GST payable on the sales of the publications to the Australian Taxation Office (ATO) under section 57-5 of the GST Act. Therefore the collected amount from the sales that the non-resident company is entitled to receive under the Distribution Agreement will be GST exclusive.

3. No, the non-resident company is not entitled to claim GST credits on the distribution fee charged by the Australian resident company because they have not made a creditable acquisition under section 11-5 of the GST Act as the supply of agency services made by the Australian resident company to them is a GST-free supply under paragraph (a) of item 2 in the table in subsection 38-190(1) of the GST Act.

Relevant fact

You are a company based outside Australia and have entered into a Distribution Agreement with an Australian resident company (resident agent) to distribute publications in Australia. You have provided us with a copy of the unexecuted Distribution Agreement. You currently are not registered for GST.

You advised the following:

• You do not have offices, employees or staff in Australia. You have an overseas subsidiary and it is not involved in the importation and your distributions of the publications to which the Distribution Agreement applies.

• The resident agent imports the publications into Australia, attends to claims and remits GST in regards to these transactions in accordance with Division 57 of the GST Act. The resident agent is registered for GST.

• The GST annual turnover of sales of the publications in Australia is above $75,000.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 11-5

A New Tax System (Goods and Services Tax) Act 1999 Section 38-190

A New Tax System (Goods and Services Tax) Act 1999 Division 57

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1

Reasons for decisions

Question 1

Under section 23-5 of the GST Act, entities including non-resident entities, are required to be registered for GST if:

• they are carrying on an enterprise; and

• their GST annual turnover meets the GST registration turnover threshold, which currently is $75,000 and $150,000 for a non-profit body.

From the information received, the Australian resident company is supplying your publications to retailers in Australia under Division 57 of the GST Act and the GST annual turnover of the supply of these publications in Australia is above $75,000.

In this instance all the requirements in section 23-5 of the GST Act are satisfied as you are carrying on an enterprise when selling the publications in Australia and you have advised that your supply of publications in Australia is above $75,000. Accordingly, you are required to be registered for GST.

Question 2

The special rules in Division 57 of the GST Act effectively makes resident agents acting for non-residents responsible for the GST consequences of what the non-residents do through their resident agents.

Under section 57-5 of the GST Act it is the resident agent and not the non-resident that is liable for GST payable on a taxable supply or taxable importations made by a non-resident through a resident agent.

Goods and Services Tax Ruling GSTR 2000/37 (available from the legal database of www.ato.gov.au ) explains the special rules in Division 57 of the GST Act. Paragraphs 97 and 98 state:

GST liability

97. Under the basic rules for GST, the supplier is liable for the GST on taxable supplies it makes and the entity making the taxable importation is liable for the GST on the importation.

98. However, if you are a resident and an agent under the general law for a non-resident principal who is registered or required to be registered, and taxable supplies or taxable importations are made by your principal through you, then the GST payable on these transactions is payable by you and not by the non-resident principal. Taxable supplies or taxable importations are made through you as an agent where you have the authority of the non-resident principal to make those transactions on its behalf.

From the information received the Australian resident company is supplying your publications to retailers in Australia under Division 57 of the GST Act. In this instance the Australian resident company is responsible to account for the GST payable on the taxable supplies that you make through them and remit the GST payable to the ATO under section 57-5 of the GST Act.

Accordingly, the money that the Australian resident company remits to you will not include GST as the money you receive will be the agreed amount that you should receive from the sales of the publications under the Distribution Agreement and for which the Australian resident company will account the GST liability with the ATO.

Question 3

Under section 11-20 of the GST Act an entity is entitled to input tax credits for any creditable acquisitions that they make.

Under section 11-5 of the GST Act an entity makes a creditable acquisition if:

a) they acquire anything solely or partly for a creditable purpose; and

b) the supply of the thing to them is a taxable supply; and

c) they provide or are liable to provide consideration for the supply; and

d) they are registered or required to be registered for GST.

The distribution fees are for the agency services supplied by the Australian resident company to you under the Distribution Agreement. Accordingly, where you satisfy all the requirements in section 11-5 of the GST Act you will be entitled to claim a GST refund for your acquisition of agency services from the Australian resident company.

From the information received you satisfy paragraphs 11-5(a), 11-5(c) and 11-5(d) of the GST Act as you acquire the agency services for your business purposes; you provide consideration to the Australian resident company for the acquisition of agency services and as discussed in question 1 you are required to be registered for GST.

According to paragraph 99 in GSTR 2000/37, the agency services supplied by a resident agent to the non-resident are a separate supply to the transactions being undertaken as resident agent considered under Division 57. The basic rules for GST apply to determine the amount of GST on these supplies.

We will now consider whether the supply of the agency services by the Australian resident company (supplier) to you is a taxable supply under the GST basic rule for the purpose of paragraph 11-5(b) of the GST Act.

Taxable supply

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.

From the information received, the supplier satisfies paragraphs (a) to (d) in section 9-5 of the GST Act as:

a) the supplier makes the supply for consideration;

b) the supply is made in the course of a business that the supplier carries on;

c) the supply is connected with Australia as it is done in Australia and made through a business that the supplier carries on in Australia; and

d) the supplier is registered for GST.

However, the supplier's supply of agency services is not a taxable supply to the extent that it is GST-free or input taxed. There is no provision in the GST Act that makes a supply of agency services input taxed.

We will now consider whether the supplier's supply of agency services is GST-free since their contract is with you, a non-resident company.

GST-free

Under section 38-190 of the GST Act certain supplies other than supplies of goods or real property for consumption outside Australia are GST-free.

Of particular relevance to the supply of agency services 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.

The non-resident is not in Australia in relation to the supply

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.

Goods and Services Tax Ruling GSTR 2004/7 discussed when an entity is not in Australia when the thing supplied is done.

Paragraph 37 of GSTR 2004/7 provides that a non-resident company is in Australia if that company carries on business (or in the case of a company that does not carry on business, carries on its activities) in Australia:

a) at or through a fixed and definite place of its own for a sufficiently substantial period of time; or

b) through an agent at a fixed and definite place for a sufficiently substantial of time.

In regard to supply of agency services by an agent to a non-resident paragraph 375 of GSTR 2004/7 states:

375. For supplies of agency services made by the agent to the non-resident company, the company is not in Australia in relation to the supply of those agency services. This is because the agent does not make the company in Australia in relation to supplies that it makes itself to the company. If the other requirements of item 2 are met, the supply of services and other things made by the agent in the course of its own business (agency services) to the non-resident company is a GST-free supply.

From the facts given, you are a non-resident and you acquire the agency services for your business purpose. Accordingly as per paragraph 375 in GSTR 2004/7, the requirement for the non-resident 'not to be in Australia in relation to the supply' is satisfied as you are not in Australia in relation to the supply of the agency services.

We will now consider the other requirements in paragraphs (a) and (b) of item 2. Only one of the paragraphs needs to be satisfied for your supply to be GST-free.

Paragraph (a) of item 2

Under paragraph (a) of item 2, a supply of a thing that is made to a non-resident who is not in Australia when the thing supplied is done, is not GST-free if the supply is connected with real property situated in Australia or is a supply of work physically performed on goods situated in Australia when the work is done.

Goods and Services Tax Ruling GSTR 2003/7 provides guidance on when a supply of work is physically performed on goods.

Paragraphs 57 to 59 of GSTR 2003/7 state:

57. The range of supplies that are directly connected with goods includes supplies of work physically performed on goods. That is, a supply of work physically performed on goods is always directly connected with goods. However, not all supplies directly connected with goods are also supplies of work physically performed on goods. A supply of work physically performed on goods requires a much closer connection with the goods; it requires a physical intervention with the goods. For example a supply of legal services in preparing an agreement for the lease of goods is directly connected with goods but it is not a supply of work physically performed on goods as there is no physical intervention with the goods.

58. A supply is a supply of work physically performed on goods where something is done deliberately to the goods to change them or to otherwise affect them in some physical way. The repair of goods is an example of work that is physically performed on goods.

59. In contrast, where activities do not change or affect goods in a physical way, there is no supply of work physically performed on goods. For example, a supply of transporting goods is not work physically performed on goods because the supply only changes the location of the goods, not the goods themselves.

Under the Distribution Agreement the supplier accepts the appointment of being the exclusive distributor of your publications to retailers in Australia. Some of the agency services are directly connected to goods like picking, packing, delivery of the publications but they are not a supply of work performed on goods. In this instance, paragraph (a) of item 2 is satisfied.

However, the supply of agency services is GST-free under paragraph (a) of item 2 to the extent that it is not negated by subsection 38-190(3) of the GST Act.

Paragraph (b) of item 2

Under paragraph (b) of item 2, a supply of a thing other than goods or real property is GST-free if the non-resident acquires the services in carrying on their business and is neither registered nor required to be registered for GST.

As discussed in question 1 you are required to be registered for GST. Paragraph (b) of item 2 is therefore not applicable.

Subsection 38-190(3) of the GST Act

Subsection 38-190(3) of the GST Act provides that a supply covered by item 2 is not GST-free if:

• it is a supply under an agreement 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.

From the information received, you are the recipient of the agency services made by the supplier. In this instance subsection 38-190(3) is not applicable to the supply of agency services. The supply of agency services to you is a GST-free supply under paragraph (a) of item 2.

For more information on subsection 38-190(3) of the GST Act refer to Goods and Services Tax Ruling GSTR 2005/6 which is available from the legal database of www.ato.gov.au

Summary

Since the supply of agency services to you is a GST-free supply, the requirement in paragraph 11-5(b) of the GST Act is not met.

You therefore have not made a creditable acquisition when you acquire the agency services from the Australian resident company.

For more information on creditable acquisition refer to Goods and Services Tax Ruling GSTR 2008/1 which is available from the legal database of www.ato.gov.au