Edited version of your written advice

Authorisation Number: 1013125143256

Date of advice: 16 November 2016

Ruling

Subject: GST and supply of marketing services to non-resident companies

Question

Is the supply of marketing services made by you to the non-resident companies a GST-free supply under the A New Tax system (Goods and Services Tax) Act 1999 (GST Act)?

Advice

Yes, the supply of marketing services made by you to the non-resident companies is a GST-free supply under item 2 in the table in subsection 38-190(1) of the GST Act.

Relevant facts

You are registered for the goods and services tax (GST) and you derive your income as an agent representative for international and domestic business.

As an agent you facilitate the introduction by way of advertising materials and referrals for international and domestic products for Australian businesses. Your role in this transaction is to connect business to businesses, and in return for this introduction you are rewarded by the suppliers by a way of commission, reliant on the condition of a sale.

When making your supply, you do not provide any physical labour, invoice, import accept the receipt of goods, guarantee those goods, store the goods, have control over the supply or installation of the goods.

You have provided us with two letters from two non-resident companies to whom you are making your supply. As per letters you sought potential customers for the products sold by the two companies and you are paid for this service. You advised that there is no one involved with the supply you make to the two non-resident companies.

You advised that the purchasers have to pay their GST at the time of import when declaring the goods from Customs.

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 38-190

Reasons for decision

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

Characterisation of supply

Based on the information received we consider you are making a supply of marketing services when you source potential clients for these two non-resident companies.

GST status of the supply

GST is payable on a taxable supply. A supply is a taxable supply under section 9-5 of the GST Act if:

a) the supplier makes the supply for consideration; and

b) the supply is made in the course of an enterprise that the supplies carries on; and

c) the supply is connected with Australia; and

d) the supplier is registered for GST.

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

You must satisfy all of the above for your supply to be a taxable supply and to be liable for GST.

From the information given you satisfy paragraphs 9-5(a) to (d) of the GST Act when you supply your marketing services as:

a) you make your supply for consideration;

b) you make the supply in the course of an enterprise that you carry on in Australia;

c) your supply is connected with Australia as the marketing services are done in Australia and made through a business that you carry on in Australia; and

d) you are registered for GST.

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

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

GST-free supply

Relevant to your supply of marketing services to the non-resident companies is 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.

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.

The requirement that the non-resident in item 2 is not 'in Australia' when the thing supplied is done is a requirement that the non-resident is not in Australia in relation to the supply when the thing supplied is done.

From the facts given, the two non-resident companies are not incorporated in Australia and are therefore non-residents of Australia. They do not carry on business or activities at a fixed and definite place of their own in Australia. The requirement for the 'non-resident not to be in Australia in relation to the supply' is therefore satisfied.

The next step is to consider the paragraphs in item 2. Only one of the paragraphs needs to be satisfied for the supply of marketing services to be GST-free under item 2.

Paragraph (a) of item 2

Paragraph (a) of item 2 requires that the supply of services 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.

Goods and Services Tax Ruling GSTR 2003/7 provides guidance on when a supply is a supply of work physically performed on goods and when a supply directly connected with real property.

In regard to advertising paragraph 142 in GSTR 2003/7 states:

142. The supply of advertising is about conveying the advertising message. Even though the subject matter of the advertisement may be goods or real property, this does not establish a direct connection with those underlying things. Although the advertising is caused by a need arising in relation to the goods or real property and would not occur but for the goods or real property, this does not make the supply of advertising directly connected with the goods or real property. This is because an advertising supply is directly connected with all the things necessary for the conveying of the message. Its immediate object is not to effect the sale of the goods or real property but the conveying of the message.

Your supply of marketing services satisfies paragraph (a) of item 2 since 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.

Your supply of marketing services is GST-free to the extent that it is not negated by subsection 38-190(2A) or 38-190(3) of the GST Act.

There is no need to consider paragraph (b) of item 2 since paragraph (a) of item 2 is satisfied.

Limitations of item 2

Subsection 38-190(2A) of the GST Act

Under subsection 38-190(2A) of the GST Act a supply covered by any items 2 to 4 in the table in subsection 38-190(1) of the GST Act is not GST-free if the acquisitions of the supply relates (whether directly or indirectly, or wholly or partly) to the making of a supply of residential real property situated in Australia.

From the facts given subsection 38-190(2A) of the GST Act is not applicable to your supply of marketing services.

Subsection 38-190(3) of the GST Act

An amendment was made to subsection 38-190(3) of the GST Act recently. From 1 October 2016, the amended subsection 38-190(3) of the GST Act provides that without limiting subsection 38-190(2) or (2A), a supply covered by item 2 in that table 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; and

c) for a supply other than an input taxed supply - none of the following applies:

i. the other entity would be an Australian-based business recipient of the supply, if the supply had been made to it;

ii. the other entity is an individual who is provided with the supply as an employee or officer of an entity that would be an Australian-based business recipient of the supply, if the supply had been made to it; or

iii. the other entity is an individual who is provided with the supply as an employee or officer of the recipient, and the recipient's acquisition of the thing is solely for a creditable purpose and is not a non-deductible expense.

Paragraph (b) of subsection 38-190(3) of the GST Act

Goods and Services Tax Ruling GSTR 2005/6 provides guidance on the application of paragraph (b) in subsection 38-190(3) of the GST Act. Paragraphs 59 and 61 in GSTR 2005/6 state:

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 something), 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.

Example 26 in GSTR 2005/6 provides guidance in regard to marketing and promoting services and states:

Example 26 - supply of speaking services made and provided to a non-resident company

529. A non-resident software company sells just-in-time inventory control software designed for the construction industry. To ensure the success of the release of its new software, the non-resident software company holds seminars in Australia for both current users of earlier versions of the software, and potential users of the new software, from the construction industry. The non-resident software company does not carry on business in Australia either through a place of business of its own or through an agent acting on its behalf.

530. An Australian software expert enters into an agreement with the non-resident software company to speak at various seminars to be held around Australia.

531. At the seminars the software expert promotes the new software. The expert advocates the benefits of its use and highlights the new features for the current users of previous versions to promote and encourage sales of the new version.

Item 2

532. The supply of speaking services by the Australian software expert is made to the non-resident software company. As the non-resident software company is not in Australia when the speaking services are performed, the supply of speaking services by the Australian software expert satisfies the requirements of item 2 and is, therefore, a supply covered by item 2.

Subsection 38-190(3)

533. The supply of speaking services by the Australian software expert to the non-resident software company is a supply under an agreement entered into with a non-resident. Paragraph 38-190(3)(a) is therefore satisfied.

Provided to another entity

534. Unlike the previous example, the nature of the service is not the professional development of members of the audience. Rather, the nature of the supply is promoting and marketing a new product, that is, the new software of the non-resident software company, to potential customers, the members of the construction industry attending the conference. While knowledge and information about the software capabilities flow to the audience members, this is only a by-product of the supply of speaking services and it does not alter the true nature of the service, that is, the promotion and marketing of the new software.

535. Therefore, the supply is made and provided to the non-resident software company. (See further Example 32 at paragraphs 573 to 578 about the provision of a supply to a particular entity while another entity benefits from the supply.)

536. As the supply is not provided to another entity subsection 38-190(3) does not negate the GST-free status of the supply of speaking services covered by item 2.

Based on the information received, subsection 38-190(3) of the GST Act is not applicable to you as the marketing services are provided to the non-resident companies and not to the potential customers. The potential customers are being supplied with information about the products sold by the two non-resident companies.

Summary

Your supply of marketing services to the non-resident companies is GST-free under item 2.