Edited version of your written advice

Authorisation Number: 1013130396030

Date of advice: 24 November 2016

Ruling

Subject: GST and the supply of online advertising services

Question

Is the supply of online advertising services by an Australian entity (you) to the overseas customers subject to goods and services tax (GST)?

Answer

No, your supply of online advertising services to the overseas customers is GST-free under item 2 (a) in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

Relevant facts and circumstances

You are an Australian entity which is registered for goods and services tax (GST).

You supply online advertising services through your website to customers in Australia and overseas to market their brands in Australia and overseas.

You have the overseas customers who advertise on your website to promote their own products to reach the market primarily in their own country.

Customers pay you either upfront or in monthly instalments for purchasing the advertising package.

You directly deal with the overseas customers in relation to your supply of online advertising services and not an associate located in Australia.

You have various overseas customers for which the vast majority are not registered for GST nor required to be registered for GST in Australia.

The customers enter in to an agreement with you through discussions with your brand executives and by signing the agreement.

You do not have an agreement with the overseas customers to provide your online advertising services to another entity 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 38-190

A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-190(1)

A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-190(3)

Reasons for decisions

Taxable 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 the indirect tax zone (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 their 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 online advertising services as:

a) you make your supply for consideration (fund received from the head office);

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 online advertising 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 online advertising 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 online advertising services input taxed.

GST-free supply

Relevant to your supply of online advertising services to the overseas customer 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'

For the supply of your services to be GST-free under Item 2, there is a precondition that the non-resident must not be in Australia in relation to the supply when it is performed/provided.

Goods and Services Tax Ruling GSTR 2004/7 discusses when an entity is not in Australia when the thing supplied is done. Paragraph 37 of GSTR 2004/7 provides that a non-resident company is in Australia if that company carries on business (or in the case of company that does not carry on business, carries on its activities) in Australia through:

a) a fixed and definite place of its own for a sufficiently substantial period of time; or

b) an agent at a fixed and definite place for a sufficiently substantial period of time.

In addition, if a non-resident company is determined to be in Australia on the basis of the above test, it is necessary to determine if the company is in Australia in relation to the supply, when the supply is done (that is, performed/provided).

From the facts provided, the supply of your services are made and provided to overseas customers who are non-resident entities. You advise that the overseas customers are not in Australia in relation to your supply of the services, nor do they have any other representatives acting on their behalf in Australia in relation to those services. Accordingly, it is considered that the overseas customers are 'not in Australia' in relation to the supply of your services in for the purposes of Item 2.

Paragraphs (a) and/or (b) of Item 2

The next step is to consider the paragraphs in Item 2. Only one of the paragraphs needs to be satisfied for the supply of online advertising 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 online advertising services satisfy paragraph (a) of Item 2 since the supply is neither a supply of work physically performed on goods situation in Australia when the work is done, nor a supply directly connected with real property situated in Australia.

Your supply of online advertising 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 online advertising 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.

Based on the facts provided, the supply of your online adverting services is not provided to an entity in Australia, and there is no agreement(s) with the overseas customers to provide these services to another entity in Australia. Accordingly, subsection 38-190(3) of the GST Act does not exclude the supply of your advertising services from being GST-free under Item 2.

In summary, the supply of your online advertising services to the overseas customers is GST-free under Item 2 and no GST payable on this supply.