Edited version of your written advice

Authorisation Number: 1012771900404

Ruling

Subject: GST and goods sourced overseas

Question 1

Does V make a taxable supply when it sells goods to an overseas client and has its overseas suppliers ship the goods directly to the client?

Answer

No.

Question 2

Does V make a taxable supply when it sells goods to an Australian client and has its overseas suppliers ship the goods directly to the client?

Answer

No.

Relevant facts and circumstances

V is registered for GST. V sources goods overseas and arranges for them to be sold to various customers overseas and in Australia. These customers are not related in any way to V and are completely at arms-length.

V enters into contracts to sell goods to customers then places orders with suppliers and pays for the goods in full, including shipping costs. The overseas suppliers then ship the goods directly to V's customers. V then issues the customer with an invoice with a CIF price that includes shipping.

Most orders are shipped to overseas customers. The overseas customers sell the goods to their own customers which may be overseas or in Australia. When overseas customers sell to Australia, the Australian customer is the importer and deals directly with customs in relation to the import duties and GST where applicable.

Some orders are shipped directly from the supplier to an address of V's in the overseas. V then arranges for shipping to customers in overseas and in a small number of cases directly to customers in Australia. In the latter cases the customer is the importer and pays the import duties and GST where applicable directly to customs.

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 9-25

Reasons for decision

Summary

V does not make a taxable supply when it sells goods to an overseas client and has its overseas suppliers ship the goods directly to the client.

Detailed reasoning

GST is payable on a taxable supply. You make a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act (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.

One of the requirements for a supply to be a taxable supply is the supply is connected with Australia. For goods a supply is connected with Australia where it meets the requirements of either subsection 9-25(1), 9-25(2) or 9-25(3) of the GST Act.

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.

V is making a supply of goods to its overseas customer and these goods are not sourced in Australia nor are they brought to Australia; therefore the supply cannot meet the requirements of either of the relevant subsections above. The supply will not be subject to GST as the supply is not connected with Australia and cannot meet the requirement for a taxable supply in paragraph 9-5(c) of the GST Act.

Question 2

Summary

V does not make a taxable supply when it sells goods to an Australian client and has its overseas suppliers ship the goods directly to the client.

Detailed reasoning

A modern common scenario for imported goods is where an Australian entity such as V sells goods to another Australian entity (C) with C agreeing to take on responsibility for the goods in Australia, including Customs clearance and sometimes delivery. This often occurs in tandem with the Australian vendor sourcing and purchasing the goods from an overseas company (A) prior to the sale to C and subsequent importation.

In this situation subsection 9-25(1) of the GST Act cannot apply to the sale between V and C as V does not deliver or make the goods available in Australia to C. Note that the ATO concedes that 9-25(1) cannot apply in all cases where delivery is performed by V; e.g. a sale of imported goods concluded on DAP terms is not automatically connected with Australia simply because of the delivery component of the contract.

The Goods and Services Tax Ruling GSTR 2000/31, at paragraph 49 states:

49. Where the recipient imports the goods into Australia, the supply of goods is not connected with Australia under subsection 9-25(1) because the goods are not delivered, or made available, in Australia to the recipient of the supply.

GSTR 2000/31 is the ATO's published policy on how section 9-25 of the GST Act should be interpreted.

Subsection 9-25(2) of the GST Act does not apply as it deals with exports.

Subsection 9-25(3) of the GST Act cannot apply as V does not import the goods into Australia, C does. If V later install or assemble the goods that C imported, the supply would be connected with Australia, however you have advised that this does not occur.

As with V's sale to the overseas client, the sale to the Australian client is not subject to GST as the requirement for a taxable supply to be connected with Australia cannot be met.