Edited version of your written advice

Authorisation Number: 1013069082209

Date of advice: 9 August 2016

Ruling

Subject: Goods and services Tax and supply of goods by a resident supplier to a resident distributor

Question

Is the supply of Products by an Australian entity (you) to a resident distributor a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) where the distributor imports and on-sells the Products to an end-user in Australia?

Answer

No, the supply of the Products by you to the resident distributor is not taxable supply under 9-5 of the GST Act as the supply of the Products is not connected with Australia.

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 which is registered for goods and services tax (GST).

You are inventor and developer of a Product. You have engaged a non-resident manufacturer (manufacturer) overseas for volume production of the Products. The manufacturer provides the completed Products to you on a free-on-board (FOB) basis. The manufacturer delivers the ready Products to the nominated freight forwarder overseas after it receives the payment for the Products.

You have entered into a distributor agreement (Agreement) with the resident distributor that gives exclusive rights to the resident distributor to distribute the Products.

The resident distributor is an Australian company which is registered for GST in Australia.

Under the Agreement, the distributor rights are the rights for the resident distributor to:

(a) purchase Products at prices set by the Supplier form time to time;

(b) hold itself out as an "Authorised Distributor" of the Supplier;

(c) market and sell the Products in the Territory;

(d) receive the technical information, training, support, administrative systems and materials (if any) indicated by this deed; and

(e) appoint sub-distributors to market, promote and sell the Product within the Territory.

You supply the Products to the resident distributor on FOB basis. The resident distributor takes possession of the Products from the manufacturer overseas. The resident distributor is named as the owner of the Products for Customs purposes and makes a taxable importation of the Products into Australia. The resident distributor is liable to GST on importation of the Products into Australia.

The resident distributor, on-sells the Products to end-users, in Australia. You do not install or assemble the Products in Australia.

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 Subsection 9-25(1)

Reasons for decisions

Taxable supply

GST is payable on a taxable supply. You make a taxable supply if all the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) are satisfied as follows:

(a) you make the supply for consideration;

(b) the supply is made in the course or furtherance of an enterprise that you carry on;

(c) the supply is connected with the indirect tax zone (Australia), and

(d) you are registered or required to be registered.

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

Your supply of the Products to the resident distributor will be a taxable supply if all the requirements in section 9-5 of the GST Act are satisfied.

Based on the facts given, your supply of the Products to resident distributor satisfies paragraphs 9-5(a), 9-5(b) and 9-5(d) of the GST Act as:

• you receive payments from the resident distributor for your supply of the Products;

• the supply is made in the course of your enterprise (business); and

• you are registered for GST.

We need to consider whether your supply of the Products is connected with Australia under paragraph 9-5(c) of the GST Act.

Is your supply connected with Australia?

Section 9-25 of the GST Act defines when a supply is 'connected with Australia' and makes a distinction between a supply of goods, a supply of real property and a supply of anything other than goods or real property.

From the facts provided, you are supplying the Products to the resident distributor. The products are provided outside Australia.

Subsection 9-25(3) of the GST Act provides that 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.

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 of the GST Act.

Based on the information provided, you supply the Products to the resident distributor on a FOB basis. The resident distributor is named as the owner of the goods for Customs purposes and makes taxable importation of the goods. Under the arrangement between parties, the resident distributor is liable to pay GST on importation of the Products into Australia. As such, it is the resident distributor and not you who import the Products into Australia. Therefore the supply of the Products is not connected with Australian under paragraph 9-25(3)(a) of the GST Act.

Accordingly, your supply of the Products to the resident distributor does not satisfy all the requirement of section 9-5 of the GST Act and is not taxable supply under 9-5 of the GST Act.