Edited version of your written advice

Authorisation Number: 1012793145043

Ruling

Subject: GST and supply of services

Question

Whether the services you provided to the non-resident company constitute a GST-free supply pursuant to section 38-190 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Advice

Based on the information received, the services you provided to the non-resident company constitute a GST-free supply under item 2 in the table in subsection 38-190(1) of the GST Act.

Relevant fact

You carry on a business in Australia and are registered for the goods and services tax (GST).

You entered into a client agreement with a non-resident company (the Retainer). By the Retainer, the non-resident company retained you to provide services and advice to it in respect of its defence of a counterclaim brought against it by an Australian company. The services are for the sole purpose of the non-resident company.

When the Retainer was executed you were informed to take your instructions from XYZ. You initially received instructions from XYZ as authorised by the then directors of the non-resident company. At that time XYZ was the sole point of contact and continued to instruct you until XYZ's circumstances changed. From that time, you have received your instructions directly from a director of the non-resident company located overseas.

When providing instructions to you, XYZ made decisions in respect of the Proceeding rather than merely acting as a conduit through which information could be passed between the non-resident company and you.

XYZ resided in Australia at all relevant times XYZ does not carry on any business activity in Australia or has an office in Australia in connection with the non-resident company. The non-resident company did not carry on any business activities through XYZ in Australia at any time.

Relevant legislative provisions

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

Reasons for decision

Summary

Your supply of services is GST-free under item 2 in the table in subsection 38-190(1) of the GST Act.

Detailed reasoning

Section 38-190 of the GST Act is about supplies of things, other than goods or real property for consumption outside Australia. 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 acquired the thing in carrying on the non-resident's enterprise, but is not registered or required to be registered.

When the thing supplied is done

The phrase 'the thing supplied is done' has the same meaning as the expression 'the thing is done' in paragraph 9-25(5)(a) of the GST Act. Under that paragraph, a supply is connected with Australia is when the thing is done in Australia.

If the thing supplied is a service, when the service is done refers to the period of time during which the service is performed.

If a supply is the provision of advice or information and the supply involves work to create, develop or produce that information or advice to the recipient, the thing supplied is the performance of services. When the thing supplied is done includes that period of time during which the advice is prepared, produced or created as the case may be.

If the supply is an instantaneous provision of advice or information, when the thing supplied is done is the time at which the advice or information is provided.

Non-resident not in Australia

Goods and Services Tax Ruling GSTR 2004/7 provides guidance on when a non-resident is not in Australia when the thing supplied is done.

A non-resident company is in Australia if the company carries on business (or in the case of a company that does not carry on business, carries on its activities) in Australia:

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

• through an agent at a fixed and definite place for a sufficiently substantial period of time.

From the information received the non-resident company is neither carrying on a business in Australia nor any activity at a fixed and definite place of its own in Australia or through an agent at a fixed and definite place for a substantial period of time. Accordingly, the non-resident company is not in Australia when you supply your services to them.

The fact that XYZ was involved with your supply of services by providing you with advice and instructions did not make the non-resident in Australia as XYZ was not carrying any business activity on behalf of the non-resident company in Australia at the time of your supply and the services were for the sole purpose of the non-resident company.

Paragraph (a) of item 2

Based on the information received, the requirements in paragraph (a) of item 2 are satisfied because the supply of services is neither a supply of work physically performed on goods situated in Australia when the supply is done nor a supply that is directly connected with real property situated in Australia.

As the requirements of paragraph (a) of item 2 are 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

Subsection 38-190(3) of the GST Act provides that, without limiting subsection 38-190(2) or (2A) of the GST Act, a supply covered by item 2 is not GST-free if:

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

b) 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 explains the operation of subsection 38-190(3) of the GST Act.

Subsection 38-190(3) of the GST Act only applies to a supply covered by item 2. If a supply satisfies the requirements of item 2 and is, therefore, GST-free, that supply is covered by item 2.

Subsection 38-190(3) in contrast to item 2, focuses on the entity to which the supply is provided, not the entity (the non-resident) to which the supply is made. If the supply is provided (or is required to be provided) to another entity in Australia, subsection 38-190(3) of the GST Act negates the GST-free status that would otherwise apply to the supply covered by item 2.

Under subsection 38-190(3) of the GST Act, although the non-resident recipient of the supply is not in Australia, consumption of the supply is considered to be in Australia because the supply is provided to an entity in Australia.

From the facts received, XYZ and later the overseas director are involved with your supply of services by providing you with advice and instructions in regard to the proceeding in which the non-resident company is defending itself. In this instance the involvement of XYZ and the overseas director does not alter the nature of your supply which is to assist the non-resident company to defend itself in the Proceeding. The actual flow of the services is to the non-resident company and not to XYZ and the overseas company. Subsection 38-190(3) of the GST Act is therefore not applicable to your supply of services to the non-resident company. Accordingly, your supply of services is GST-free under item 2.