Edited version of your written advice

Authorisation Number: 1012789519104

Ruling

Subject: GST and supplies made to a non-resident

Question

Are you liable for the goods and services tax (GST) for the supplies you make to the non-resident company under the agreement you have with it

Advice

Based on the information received, you make the following supplies to the non-resident company:

1. Supply of custom clearance services which is GST-free 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);

2. Supply of transport services which is GST-free under paragraph (b) of Item 5 in the table in subsection 38-355(1) of the GST Act;

3. Supply of storage services which is GST-free under item 2 in the table in subsection 38-190(1) of the GST Act; and

4. Supply of delivery services (with the packing service being integral to the dominant supply of the delivery services), which is a taxable supply under section 9-5 of the GST Act.

You are therefore liable for GST on the taxable supply of delivery services made to the non-resident company.

Relevant fact

You are an Australian company and registered for GST.

You have entered into an agreement with a company based overseas (NR) and under the agreement you are to:

• provide the freight forward service within Australia;

• arrange the distribution of the goods in Australia according to the order from NR.

NR has contracts with overseas companies (seller) that sell goods to Australian customers. NR will organise for the international transport of the goods to Australia and for their delivery to the customers in Australia. NR has contracted you to handle the goods in Australia and to deliver them to the customers.

When the goods arrived in Australia, you cleared and entered the goods in Australia. Once the goods are cleared, you transport the goods to your warehouse. You store the goods randomly in your warehouse, based on your filing system, in order to deliver them efficiently. The goods can be in your warehouse from 1 day to a few weeks depending on the orders from the Australian customers.

Once the goods are in Australia, the overseas seller sells the goods online. After an online sale is made you are notified and provided with detail where to deliver the goods.

You pack the goods and contact a third party for delivering the goods to the customer.

You charge NR for all services you do in Australia, that is customs clearance, transport to warehouse, warehousing, packing, transport to customers.

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 38-355

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

Reasons for decision

Characterisation of supply

Before we determine the GST status of your supply to NR we need to establish the characteristics of the supply made under the agreement.

Goods and Services Tax Ruling GSTR 2001/8 amongst other things describes the characteristics of supplies that contain a combination of separately identifiable taxable and non-taxable parts, which is referred to as mixed supplies. GSTR 2001/8 also describes the characteristics of supplies that appear to have more than one part but that are essentially supplies of one thing, which is referred to as composite supplies.

Based on the information received, we consider you make the following supplies:

1) supply of custom clearance services;

2) supply of transport services;

3) supply of storage services; and

4) supply of delivery services (with the packing service being integral to the dominant supply of the delivery services).

GST status of the supplies

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.

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 satisfy paragraphs 9-5(a) to 9-5(d) of the GST Act when you supply all of the above services as:

a) you make the supply for consideration; and

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

c) the supply is connected with Australia as the services are done in Australia; and

d) you are registered for GST.

However your supplies of services are not taxable supplies to the extent that they are GST-free or input taxed.

Input taxed

There is no provision under the GST Act that makes your supplies of services input taxed.

GST-free

Division 38 of the GST sets out supplies that are GST-free for GST purposes.

Relevant to your supply of transport services is item 5 in the table in subsection 38-355(1) of the GST Act. For the other supplies item 2 in the table in subsection 38-190(1) of the GST Act and subsection 38-190(3) of the GST Act are relevant.

Item 5 in the table in subsection 38-355(1) of the GST Act (item 5)

Item 5 specifies the circumstances where the supply of international transport of goods is GST-free.

Paragraph (b) of item 5 provides that a supply of international transport of goods, subject to subsection 38-355(2) of the GST Act, is GST-free from a place outside Australia to their place of consignment in Australia.

The term 'place of consignment of goods' is defined in section 195-1 of the GST Act as:

Place of consignment of goods means:

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

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

the place in Australia 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.

(* denotes a defined term in section 195-1 of the GST Act).

Subsection 38-355(2) of the GST Act provides that paragraphs (a) and (b) of item 5 and item 5A in the table in subsection 38-355(1) of the GST Act do not apply to a supply to the extent that the thing supplied is done in Australia, unless:

a) the recipient of the supply is a non-resident and is not in Australia when the thing supplied is done; or

b) the supply is done by the supplier of the transport of the goods from or to Australia (whichever is relevant).

Transport services

From the information received, NR is contracted by the non-resident seller to supply the international transport of the goods to Australia and, you are contracted by NR to supply the international transport of the goods within Australia, that is, to transport the goods after they are cleared from Customs to your warehouse for storage.

In this instance, your supply of international transport of the goods within Australia forms part of the international transport of the goods to Australia. Since your transport services are made to a non-resident, who is not in Australia at the time of your supply, your supply of transport services is GST-free under paragraph (b) of item 5.

Item 2 in the table in subsection 38-190(1) of the GST Act (item 2)

Item 2 provides that a supply of a thing (other than goods or real property) made to a non-resident is GST-free if it is a supply that is made to a non-resident, who is not in Australia when the thing supplied is done, and:

(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 GST.

Accordingly, where the provisions in either (a) or (b) above are met, the supply will be GST-free if the non-resident is not in Australia when the thing supplied is done (that is, when the services are performed).

Limitations of item 2 - subsection 38-190(3) of the GST Act

If the supply covered by item 2 is under an agreement entered into, whether directly or indirectly, with a non-resident entity and that supply is provided or the agreement requires that it be so provided to another entity in Australia, subsection 38-190(3) of the GST Act negates the GST-free status of that supply.

Precondition of item 2 - non-resident is 'not in Australia'

Goods and Services Tax Ruling GSTR 2004/7 provides guidance on when a non-resident is 'not in Australia' for the purposes of item 2.

Under paragraph 37 of GSTR 2004/7, we consider 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 period of time.

In addition, if a non-resident company is determined to be in Australia on the basis of the above test, it is necessary to determine if the company is in Australia in relation to the supply when the supply is done (that is, when the services are performed).

From the information provided, NR does not carry on any business through a representative in Australia and does not have any presence in Australia in relation to your supply. As such, NR is 'not in Australia' in relation to your supply of custom clearance, storage and delivery services (including packing) when these supplies are performed.

The supply of your services must also satisfy the requirements of either paragraph (a) or paragraph (b) of item 2 for the supply to be GST-free and is not negated by subsection 38-190(3) of the GST Act.

Customs clearance

From the information provided, when you supply custom clearance services the requirements in paragraph (a) of item 2 are satisfied as:

• the supply of customs clearance is made to a non-resident who is not in Australia when the thing supplied is done; and

• the supply of customs clearance 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.

As the requirement of paragraph (a) of item 2 is satisfied, there is no need to consider if the requirement of paragraph (b) of item 2 is met. However, item 2 is limited by subsection 38-190(3) of the GST Act.

From the information received subsection 38-190(3) of the GST Act is not applicable as you are not required to provide the custom clearance services to another entity in Australia.

Your supply of custom clearance services to NR is therefore GST-free under paragraph (a) of item 2.

Storage services

As discussed above, NR is not in Australia when you supply your storage services. We will now consider the paragraphs in item 2.

Paragraph (a) of item 2

Goods and Services Tax Ruling GSTR 2003/7 examines the meaning of the expressions 'directly connected with goods or real property' and 'a supply of work physically performed on goods' as used in subsection 38-190(1) of the GST Act.

Paragraphs 39 and 54 of Goods and Services Tax Ruling GSTR 2003/7 provide that while the supply of storage services for goods is directly connected with goods, it is not directly connected with real property. This is because the dominant part of the supply is the use and enjoyment of the storage of goods. The real property only provides the setting for the dominant part of the supply of storage services.

Although your supply of storage services is directly connected with goods, from the facts given, your supply is not considered to be a supply of work physically performed on goods situated in Australia.

Accordingly, your supply of storage services in Australia is neither a supply of work physically performed on goods nor directly connected with real property situated in Australia. Therefore, your supply of storage services to the non-resident company satisfies the requirements of paragraph (a) of Item 2.

As the requirement of paragraph (a) of item 2 is satisfied, there is no need to consider if the requirement of paragraph (b) of item 2 is met. However, item 2 is limited by subsection 38-190(3) of the GST Act.

Subsection 38-190(3) of the GST Act is not applicable as you are not required to provide the storage services to another entity in Australia.

Your supply of storage services is GST-free under paragraph (a) of item 2.

Delivery Services

From the information provided, NR is 'not in Australia' in relation to your supply of the delivery services (including packing) when the supply is performed.

Paragraph (a) and/or (b) of item 2

Goods and Services Tax Ruling GSTR 2003/7 examines the meaning of the expressions 'directly connected with goods or real property' and 'a supply of work physically performed on goods' as used in subsection 38-190(1) of the GST Act.

Paragraph 59 of GSTR 2003/7 provides that 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.

Hence, your supply of delivery services (including packing) is not considered to be a supply of work physically performed on goods situated in Australia. Furthermore, the supply of delivery services (including packing) is not a supply directly connected with real property situated in Australia. As such, paragraph (a) of item 2 is satisfied.

As the requirement of paragraph (a) of item 2 is satisfied, there is no need to consider if the requirement of paragraph (b) of item 2 is met. However, item 2 is limited by subsection 38-190(3) of the GST Act.

Subsection 38-190(3) of the GST Act

Goods and Services Tax Ruling GSTR 2005/6 which provides the ATO view on the operation of subsection 38-190(3) of the GST Act states at paragraphs 59 and 61:

59. The word 'provided' is used in subsection 38-190(3) to contrast with the term 'made' in item 2. In the context of section 38-190, the contrasting words indicate that if a non-resident contracts for a supply to be provided to another entity, the place of consumption should be determined with regard to the entity to which the supply is provided, not the entity to which the supply is made.

61. Thus the expression 'provided to another entity' means, in our view, that in the performance of a service (or in the doing of some thing), the actual flow of that supply is, in whole or part, to an 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 recipient) and the actual flow of the supply is to another entity.

GSTR 2005/6 states that it is necessary to establish the exact nature of the supply to determine to which entity that service or thing is provided. In relation to delivery or freight services paragraph 75 states:

75. In the case of delivery or freight services where goods from one entity are addressed for delivery to another entity, we accept that the delivery or freight services are provided to that addressee entity…

Further, paragraph 119 of GSTR 2005/6 provides:

119. In the case of delivery or freight services which are provided to an entity other than an individual in the circumstances described at paragraph 75, we accept those services are provided to that entity in Australia, if the goods are addressed to that entity in Australia. Alternatively, if the goods are addressed to that entity outside Australia, we accept those services are provided to that entity outside Australia. This outcome is not dependent upon the residency status of the entity to which the goods are addressed…

In your case, you have a contractual obligation to NR, a non-resident company, to pack and deliver those goods to the seller's customers located in Australia. The exact nature of the supply is to deliver the goods to specific customers at locations within Australia. It is the customers who are availing themselves of the delivery services. Although the contractual flow of your delivery services is to a non-resident company, the flow of the actual services is to specific customers at particular locations in Australia. That is, the supply of the delivery services (including packing) is provided to the Australian customer, which is another entity in Australia.

Therefore, subsection 38-190(3) of the GST Act excludes the delivery services (including packing) from being GST-free under item 2 because this supply is provided to an entity in Australia.

Your supply of delivery services (including packing) is not GST-free under any other provisions of the GST legislation.

Accordingly, as all the requirements of section 9-5 of the GST Act are satisfied, your supply of the delivery services (including packing) is a taxable supply.

Summary

In summary, your supplies of transport, customs clearance and storage services are GST-free and your supply of delivery services (including packing) to NR is a taxable supply. You are therefore liable for GST on your supply of delivery services.