Edited version of your written advice

Authorisation Number: 1012965362625

Date of advice: 16 February 2016

Ruling

Subject: GST and supplies made to an Australian entity

Question 1

What is the goods and services tax (GST) status of the supply you made to the Australian entity in transaction 1 as per tax invoice issued to the Australian entity?

Answer

In transaction 1 you make a supply of goods. The supply of goods you make to the Australian entity is not subject to GST because the supply of goods is not a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). Accordingly, all items invoiced in the tax invoice for this transaction should not have GST included in the price.

Question 2

What is the GST status of the supply you make to the Australian entity in transaction 2 as per tax invoice issued to the Australian entity?

Answer

In transaction 2 you make a supply of services to the Australian entity and your supply of services is a taxable supply under section 9-5 of the GST Act.

You are only liable for GST on the item 'local shipping and charges' in this tax invoice. The amount for the item 'GST on imported goods' does not form part of the consideration for your supply of services and, therefore no GST is applicable to that item.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are an Australian entity and registered for GST.

Transaction 1

1. An Australian entity places an order of goods with you.

2. You place an order for the goods with an overseas supplier under your name and request for the goods to be shipped to the Australian entity's address.

3. The supplier invoices you for the costs of goods ordered 'GST-free' in the supplier's currency. You pay the invoice to the supplier.

4. Whilst the goods are still at sea on their way to Australia, you invoice the Australian entity for cost of goods 'GST-free' in supplier's currency and add a commission to the invoice for advertising and promotion. The Australian entity pays the invoice to you.

5. The supplier ships the goods to the Australian entity's address.

6. When the goods arrive in Australia, the Australian entity clears the goods and pays any import duty, GST etc.to the Australian Customs and Border Protection Service (Customs).

You have provided us with a copy of the export invoice you have received from the overseas supplier and a copy of the invoice you issued to the Australian entity.

In your invoice, you ask the Australian entity to pay for the ordered goods, international freight and a commission.

Transaction 2

1. The Australian entity places an order in its name with the overseas supplier, uses its order number and requests the goods to be shipped to your address.

2. When the Australian entity places their order with the supplier, the supplier invoices the Australian entity for the order and the Australian entity makes the payment directly to the supplier.

3. You place an order in your own name with the overseas supplier by using the Australian entity's order number. You request for the goods to be sent to your address. At the time you place your order with the supplier, you pay for your order.

4. The supplier consolidates the orders and sends the invoice for the orders to you and the issued invoice is under your name. Both orders are shipped to your address.

5. When the goods arrive in Australia, you clear the goods from Customs and pay any import duty, GST etc.

6. You have verbal authority from the Australian entity to undertake entry for home consumption of the imported goods on their behalf.

7. You invoice the Australian entity for their share of the cost to bring the goods into Australia along with a commission for advertising and promotion.

You have provided us with a copy of the Customs Entry and a copy of the tax invoice for transaction 2. You are stated as 'the owner' of the goods in the Customs Entry.

You request the Australian entity to pay for 'local shipping and charges' and 'GST on imported goods' in your tax invoice. You advised that the item 'GST on imported goods' in the tax invoice is a reimbursement of the Australian entity's cost in bringing the goods into Australia and no GST is included for this item.

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

Note: Where the term 'Australia' is used in this document, it is referring to the 'indirect tax zone' as defined in subsection 195-1 of the GST Act.

Question 1

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 the indirect tax zone (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 has to be satisfied for a supply to be a taxable supply.

We will now apply section 9-5 of the GST Act to the supply made in this transaction.

Paragraph 9-5(a) of the GST Act

Section 9-15 of the GST Act provides that a payment is consideration for a supply if the payment is 'in connection with', 'in response to' or 'for the inducement' of a supply. Thus, there must be a sufficient nexus between a particular payment and a particular supply for the payment to be consideration for that supply.

In this transaction you make a supply of goods and in your invoice, you ask the Australian entity to pay for the ordered goods, international freight and a commission. In this instance it is considered that the three items that you invoice to the Australian entity are payments made 'in connection with' the supply of goods you make to the Australian entity since there is sufficient nexus between the invoiced amount and the supply of goods. The three invoiced amounts are therefore the total consideration for the supply of goods.

Accordingly paragraph 9-5(a) of the GST Act is satisfied as you are making your supply of goods for consideration.

Paragraph 9-5(b) of the GST Act

This paragraph is satisfied as you make the supply of goods in the course of a business that you carry on in Australia.

Paragraph 9-5 (c) of the GST Act

A supply of goods is connected with Australia if:

• the goods are delivered or made available in Australia to the recipient of the supply (subsection 9-25(1) of the GST Act);

• the supply of goods involves the goods being removed from Australia (subsection 9-25(2) of the GST Act);

• the supply of goods involves the goods being brought to Australia and the supplier either imports the goods into Australia or installs or assembles the goods in Australia (subsection 9-25(3) of the GST Act).

In this transaction:

• you sell to the Australian entity goods that are brought to Australia; and

• when the goods arrive in Australia, the Australian entity clears the goods through Customs under their name and pays the import duty, GST and any other applicable fees.

As the goods are brought to Australia, subsection 9-25(3) of the GST Act is relevant to this transaction.

Under subsection 9-25(3) of the GST Act, 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.

Goods and Services Tax Ruling GSTR 2000/31 provides guidance on when a supply is connected with Australia and is available from the legal database of www.ato.gov.au

Paragraph 141 in GSTR 2000/31 states:

141. If a supply of goods involves the goods being delivered, or made available, to the recipient outside of Australia and the recipient subsequently imports the goods into Australia, the supply is not connected with Australia. The supply is not a taxable supply under section 9-5. However, the importation is a taxable importation and the recipient is liable to ay GST on the taxable importation.

Goods and Services Tax Ruling GSTR 2003/15 is about importation of goods in Australia and paragraph 224 in GSTR 2003/15 states:

224. The supplier therefore imports goods into Australia for the purposes of subsection 9-25(3) if it causes the goods to be brought to Australia and it also completes the customs formalities. This is the case where a supplier enters the goods for home consumption or for warehousing. However, a supplier does not import goods where the customs formalities for the importation of the goods are completed by the recipient of the supply.

Since the Australian entity completes the customs formalities, they are the importer of the goods in Australia. Accordingly, your supply of goods to the Australian entity is not connected with Australia under paragraph 9-25(3)(a) of the GST Act as you are not importing the goods into Australia.

Further as you are not importing the goods in Australia, your supply of goods to the Australian distributor is also not connected with Australia under subsection 9-25(1) of the GST Act as you did not deliver or make the goods available to the Australian distributor in Australia.

Paragraph 9-25(3)(b) of the GST Act is not applicable as you do not install of assemble the imported goods (listed in the tax invoice) in Australia.

The requirements in paragraph 9-5(c) of the GST Act is not satisfied as your supply of goods is not connected with Australia.

Paragraph 9-5(d) of the GST Act

This paragraph is satisfied as you are registered for GST.

Summary

Your supply of goods in this transaction to the Australian entity is not a taxable supply under section 9-5 of the GST Act since paragraph 9-5(c) of the GST Act is not satisfied. All items invoiced in the tax invoice should therefore not have GST included since the supply of goods is out of the scope of the GST system and therefore, no GST is payable on the supply.

Transaction 2

Characterisation of supply

In this transaction the goods that you and the Australian entity have ordered and paid are amalgamated and shipped to you in Australia. After clearing the goods from Customs, you deliver to the Australian entity the goods they ordered and invoice the Australian entity for local shipping and charges (which includes a commission) and for the GST paid on the importation of the goods.

In this instance we consider you have made a supply of services to the Australian entity when you clear the goods from Customs and deliver the relevant goods to the Australian entity.

Consideration for your supply of services

You request the Australian entity to pay for 'local shipping and charges' and 'GST on imported goods' in your tax invoice. You advised that the item 'GST on imported goods' in the tax invoice is a reimbursement of the Australian entity's cost in bringing the goods into Australia and no GST is included for this item.

In regard to reimbursement, paragraphs 48 and 49 in Goods and Services Tax Ruling GSTR 2000/37 state:

Agency relationship and disbursements

48. Agents may incur expenses on a client matter both as an agent of the client and as a principal in the ordinary course of providing their services to the client. For example, in most cases, even though agreements between solicitors and clients may not use the term agent or agency, it is clear that the clients have authorised the solicitors to act on their behalf in the particular matter. When the solicitor acts as an agent for the client, the general law of agency applies so that the solicitor is 'standing in the shoes' of the client.

49. If a disbursement is made by a solicitor and incurred in the solicitor's capacity as a paying agent for a particular client, then no GST is payable by the solicitor on the subsequent reimbursement by the client. This is because the goods or services to which the disbursement relates are supplied to the client, not to the solicitor, by a third party. Also, the reimbursement forms no part of the consideration payable by the client for the supply of services by the solicitor. However, if goods or services are supplied to the solicitor to enable the solicitor to perform services supplied to the client, GST is payable by the solicitor on any reimbursement by the client of expenses incurred on those goods or services, whether the reimbursement is separately itemised or included as part of the solicitor's overall fee. This is because the reimbursement is part of the consideration payable by the client for services supplied by the solicitor.

You have verbal authorisation from the Australian entity to clear the goods they have ordered from Customs on their behalf and you are seeking reimbursement of the share of the cost to bring the goods into Australia after clearing the goods and paying any relevant fees to Customs.

In this instance, we consider you act as a paying agent for the Australian entity when you clear and pay the relevant fees to Customs in regard to the goods ordered by the Australian entity. When you seek reimbursement of the Australian entity's share of the cost to bring their goods into Australia, we consider this reimbursement does not form part of the consideration for the supply of services you make to the Australian entity.

Accordingly, the consideration for your supply of services in the tax invoice is the local shipping and charges (which includes the commission).

GST status of your supply of services

From the information received, you satisfy all the requirements in section 9-5 of the GST Act as:

• you make the supply for consideration (local shipping and charges);

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

• the supply is connected with Australia as the services are done in Australia and through a business that you carry on in Australia;

• you are registered for GST; and

• there is no provision in the GST Act that makes your supply GST-free or input taxed.

Accordingly, your supply of services to the Australian entity is a taxable supply under section 9-5 of the GST Act and you will be liable to pay GST on the consideration related to the local shipping and charges.