Edited version of your written advice

Authorisation Number: 1013136245476

Date of advice: 8 December 2016

Ruling

Subject: GST and supply of services to non-resident entities

Question

Based on the information given, was your supply of filming services in Australia to the non-resident company a GST-free supply under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Advice

Yes. Based on the information received, your supply of filming services in Australia by to the non-resident company was a GST-free supply under item 2 in the table in subsection 38-190(1) of the GST Act.

Relevant facts

You carry on your business activity in Australia and are registered for the goods and services tax (GST).

You were contacted by the director and producer of a company located outside Australia in regard to filming services in Australia.

The overseas company is not registered for GST.

You received instructions from the director, who was in Australia the whole time you did the filming.

There was no other third party involved in the filming in Australia.

The producer/production company owned the copyright of the documentary film after it was produced.

You invoiced the overseas company for your services and equipment and the price included GST.

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

From the information received you agreed to be involved in the filming of a documentary in Australia and to provide the copyright of the documentary to the non-resident company after receipt of payment. In the invoice you gave to the non-resident company you have itemised the cost for your services and for the use of equipment; the prices included GST.

We consider you made a supply of filming services to the non-resident company. In the invoice you itemised the price for the use of your services and equipment to the non-resident company. In this instance, it was a business decision you made when providing detail of the expenses you incur for filming the documentary in the invoice since the non-resident company has acquired through your filming services the documentary and not the listed expenses in the invoice. The itemised items do not change the nature and character of your supply to the non-resident company which is filming and providing the copyright of the filmed documentary to the non-resident company after receipt of payment.

Accordingly, your supply to the non-resident company is a supply of filming services. We will now determine the GST status of your supply.

GST status of your supply of filming services

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 all requirements in paragraphs 9-5(a) to 9-5(d) of the GST Act when you supplied your filming services as:

a) you made your supply for consideration;

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

c) your supply was connected with Australia as the supply of filming services was 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 filming 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 filming services input taxed.

GST-free supply

Relevant to your supply of filming services to the non-resident company 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.

Under paragraph 37 in GSTR 2004/7, we consider that a non-resident company is in Australia if that company carries on business (or in the case of a company that does not carry on business, carries on its activities) in Australia:

a) at or through a fixed and definite place of its own for a sufficiently substantial period of time, or

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

We consider that it would be reasonable for a supplier to conclude that a non-resident company is in Australia if:

● the company is registered with the Australian Securities and Investment Commission (ASIC); or

● the company has a permanent establishment in Australia for income tax purposes.

Suppliers should be aware that even if a company is not registered with ASIC, it may still be in Australia on an application of the test at paragraph 37 in GSTR 2004/7. Similarly, even if a company does not have a permanent establishment in Australia for income tax purposes, it may still be in Australia on application of the test to its particular circumstances.

The representative of a company may take on a variety of forms and capacities. For example, a company may be represented by anyone from a single employee to a branch of the company. It is therefore necessary, to identity the type of presence by a representative of a non-resident company in Australia that makes a company in Australia.

To work out whether a company is in Australia in relation to the supply, it is necessary to examine the role the presence of the company in Australia plays in relation to the supply.

Clearly if the supply to a company is solely or partly for the purposes of the Australian presence, for example its Australian branch, representative office or agent if it is a non-resident company or the Australian head office if it is an Australian incorporated company, the company is in Australia in relation to the supply. There is a connection between the supply and the presence in Australia that is not a minor connection.

If the supply is not for the purposes of the Australian presence, but that Australian presence is involved in the supply, the company is in Australia in relation to the supply, unless the only involvement is minor.

If the involvement of the Australian presence is limited to the carrying out of simple administrative tasks on behalf of the company, as a matter of administrative convenience, that involvement is minor. The connection between the supply and the presence is so minor in nature that it is reasonable to conclude that the presence of the company in Australia is not in relation to the supply.

From the facts given, the non-resident company is not incorporated in Australia and is therefore a non-resident of Australia. The non-resident company is not carrying on business or activities at a fixed and definite place of its own in Australia. The director of the non-resident company was in Australia when you did the filming of the documentary in Australia. The presence of that person did not make the non-resident company to be in Australia since your supply was not for the purposes of the director's presence 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 needed to be satisfied for the supply of photography 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.

Your supply of filming services satisfy paragraph (a) of item 2 since the filming of the documentary is neither a supply of work physically performed on goods situated in Australia when the work was done, nor a supply directly connected with real property situated in Australia.

Your supply of filming services is GST-free to the extent that it is not negated by subsection 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.

For more in information on 'when a supply is a supply of work physically performed on goods and when a supply is directly connected with real property' refer to Goods and Services Tax Ruling GSTR 2003/7 available at www.to.gov.au

Limitations of item 2 - subsection 38-190(3) of the GST Act

Subsection 38-190(3) of the GST Act before 1 October 2016

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.

Current 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.

Where a non-resident company has an employee it is first necessary to consider the impact, if any, of the presence in Australia on the 'not in Australia requirement' in item 2.

To determine whether a supply is provided to an employee it is essential to examine the nature of the supply closely. By examining what is really being supplied and how that supply is carried out. It is possible to establish to whom the service or other thing is provided, that is the employer or another entity the employee. If the supply is provided to the employee it is then necessary to consider if the employee's presence at a particular location is integral to the provision of that supply.

Where an employee is involved with the provision of a supply, the weight to be given to that fact differs according to the circumstances of the supply in question. For example if a supply of entertainment services is made to a non-resident company and in the performance of that service the employees are the entities that are entertained, the actual flow of that service is to another entity, each employee. The supply is made to the non-resident company (the employer) and provided to another entity (each employee).

Contact with a supplier is of little relevant in circumstances where the employee's involvement with the provision of the supply is simply to facilitate the provision of the supply to the non-resident employer. This is the case where, for example, an employee of a non-resident interacts with a law firm in circumstances where the firm is providing legal advice concerning a business venture of the non-resident employer. The actual flow of the supply is to the non-resident company and not to the employee of the non-resident company who is present to help facilitate the provision of the supply to the non-resident company.

From the information received, you received instructions from the director of the non-resident company who was in Australia the whole time you did the filming. The fact that the director was in Australia and involved with the supply did not change the nature of your supply which was filming the documentary in Australia. The actual flow of filming the documentary was to the non-resident company and not to the director since the non-resident company owned the copyright of the documentary after the filming was done. Accordingly subsection 38-190(3) of the GST Act is not applicable to the supply.

Summary

Your supply of filming services was GST-free under paragraph (a) of item 2.