Edited version of your written advice

Authorisation Number: 1012875261584

Date of advice: 10 September 2015

Ruling

Subject: GST and supply of sales, marketing and support services to a non-resident company

Question

Is your supply of sales, marketing and support services (services) to the NR company GST-free supply under section 38-190 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes.

Facts:

You are registered for ABN and GST in Australia and you supply sales and marketing and support services to a non-resident company (NR).

NR's supply is provided to Australian customers electronically via a software-as-a-service online platform (Platform). The Platform is hosted on servers located in the US and Europe. NR provides digital marketing solutions to Australian customers.

NR creates and owns all intellectual property (IP) related to the digital marketing solutions and all trademarks and trade names. NR does not sell goods, does not have equipment or machinery in Australia and does not engage in construction projects.

The Sales and Marketing and Support Service Agreement (the Agreement)

The Agreement was executed overseas. Pursuant to the Agreement, you provide NR with sales and support services. The Agreement states that NR engages you as a contractor to perform services related to sales, inclusion any and all technical, marketing, promotion and advertising actions and you shall not have the authority to conclude contracts in the name of NR. You are remunerated on a cost plus basis, and do not receive commissions linked to sales made by NR to Australian customers.

Currently some of NR's employees have been seconded to Australia for a period of time and work at your Australian office. They do not have the authority to conclude contracts on NR's behalf in respect of Australian customers. They cannot negotiate with Australian customers about any specific terms such as pricing or service level. They are in Australia for the express purpose of conducting sales meetings, visiting with Australian customers and prospects and providing technical support.

You receive a Service Fee from NR for the following services:

• Identifying potential business opportunities for NR

• Distributing and disseminating information

• Engaging in promotional activity; including demonstration; and responding to inquiries for NR's services;

• Advising NR on marketing strategies and local market conditions, including the provision of information in respect of market trends, competitors, new products and services in the market;

• Provision of customer and technical support services to customers;

• Conducting marketing activities;

All contracts with Australian customers are negotiated and executed by NR's relevant personnel.

NR plays the primary roles in all contracts negotiations with support from you. Overall NR provides oversight and guidance for your sales and marketing activities.

You do not carry on any other business in Australia except the sales, marketing and support services provided to NR. You are a limited risk sales and marketing service provider. You contend that you do not carry out a material part of NR's business in Australia because you only provide sales and marketing services for NR, while NR is the entrepreneur and the owner of all significant intangible property and is the only party that provides the contracted services to the customers.

Reasoning for decisions:

A supply will be a taxable supply where the requirements of section 9-5 of the GST Act are satisfied. Section 9-5 of the GST Act states:

You make a taxable supply 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.

However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed

Based on the facts provided, your supply of services to the NR company satisfies the requirements of paragraphs 9-5(a), (b), (c) and (d) of the GST Act as:

• the supply that you make are for consideration;

• the supply is made in the course of an enterprise that you are carry on;

• the supply is performed in Australia hence it is connected with Australia; and

• you are registered for GST in Australia.

Hence, your supply of services to NR is taxable to the extent that it is not GST-free or input taxed.

Your supply of services to NR does not satisfy the input taxed provisions under the GST Act. The GST-free provisions should also be taken into consideration.

GST-free 

Of most relevance to this situation are items 2 and 3 in the table in subsection 38-190 (1) of the GST Act (Items 2 and 3) which allow certain supplies to be made GST-free.  

Under Item 2 in the table in subsection 38-190(1) of the GST Act (Item 2), a supply is GST-free where 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-residents *enterprise, but is not *registered or *required to be registered. 

Under Item 3 in the table in subsection 38-190(1) of the GST Act (Item 3), a supply is GST-free where it is: 

a supply: 

(a)     that is made to a *recipient who is not in Australia when the thing supplied is done; and

(b)   the effective use or enjoyment of which takes place outside Australia; other than a supply of work physically performed on goods situated in Australia when the thing supplied is done, or a supply directly connected with *real property situated in Australia. 

Item 2 is applicable to supplies made to non-resident recipients. Item 3 is applicable irrespective of the residency of the recipient.

Item 2:

We consider that NR carries on a business of selling digital marketing solutions to Australian customers while you are in the business of providing services for NR's supply to promote NR and its activities and to introduce potential customers in Australia to NR. Although you do not carry on any other business in Australia except the services provided to NR, we do not consider that you carry on a material part of NR's business in Australia because NR supplies different services to the Australian customers, and Australian customers enter into the contract with NR. You do not have the authority to conclude the contracts with Australian customers on behalf of NR. Hence NR is not in Australia for the purposes of Item 2 and Item 3(a).

Limitation of item 2

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 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.

The limitation does not apply because:

• Your supply is a supply under an agreement entered into with a non- resident company.

• Your supply of services is not provided to the Australian customers. These customers are acquiring the digital marketing solutions from the NR company, not your supply of marketing services.

Hence your supply of services to the NR company is GST-free under Item 2.

Item 3

Item 3(a) is addressed above.

Item 3(b) is satisfied because NR (and not the Australian customers) has the actual use or enjoyment of your supply. In addition, NR is not in Australia when you provide your supply of services, hence the use and enjoyment of your supply is outside Australia.

In conclusion, the supply of your services is GST-free under both Items 2 and 3 in the table in subsection 38-190(1) of the GST Act.

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

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

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