Edited version of your written advice

Authorisation Number: 1051193753035

Date of advice: 21 February 2017

Ruling

Subject: GST and a supply from a resident to a non-resident

Question 1

Is the supply by Entity A to Entity B GST-free under subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes. The supply is GST-free under item 3 of subsection 38-190(1) of the GST Act.

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.

Entity A and Entity C are both companies incorporated outside of Australia.

Entity A is not registered for GST and does not have its central management and control in Australia, nor have its voting power controlled by shareholders who are residents of Australia.

Entity C is registered for GST.

Entity A entered into a contract with Entity C for a project operating in Australia.

Entity A is a subsidiary of an entity incorporated outside of Australia and has a branch in Australia. Entity A is registered for GST.

To fulfil its obligations to Entity C under the contract Entity B subcontracted a portion of the Australian component of the works to Entity A. The balance of the Australian component of the works is undertaken by Entity B itself.

Entity B prepares and provides various manuals, procedures and training materials (the Deliverables) and information to the Entity C outside of Australia.

To fulfil its obligations to Entity C, Entity B operates a team of people outside of Australia.

Entity B prepares the Deliverables by gathering on-site data in relation to operational safety risks and procedures through:

● the subcontract arrangement between Entity B and Entity A and

● Entity B employees that are sent from outside of Australia to Australia from time to time, given the highly specialised nature of the works required by Entity C.

At all times, the data collected by the Entity A and Entity B employees is repatriated to Entity B outside of Australia where it is analysed and interrogated to prepare the Deliverables. This is a complicated process in which the Deliverables are constantly being refined as existing processes are modified and/or new processes are developed and adopted.

In these circumstances, Entity B prepares and directly provides the Deliverables to Entity C outside of Australia. The Deliverables are virtual manuals that are hosted and stored on a third party website with the server being located outside of Australia.

Entity C instructs both Entity B and Entity A employees on a daily basis. Entity B does not engage in any operational management of the employees or exercise control over the tasks performed by Entity A.

The Deliverables are customised to Entity C's needs for its internal use, rather than for the benefit of distributing the Deliverables to an external third party.

For the avoidance of doubt, Entity B and Entity A do not physically perform work on the equipment at any time.

Relevant legislative provisions

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

Reasons for decision

There are no provisions in the GST Act that would result in the supplies being input taxed but consideration needs to be given to whether the supplies are GST-free under section 38-190 of the GST Act.

GST-free

Section 38-190 of the GST Act provides that certain supplies of things other than goods or real property, for consumption outside of the indirect tax zone (Australia) are GST-free.

The supply made by Entity A to Entity B is neither a supply of goods nor a supply of real property therefore, item 3 in the table in subsection 38-190(1) of the GST Act (Item 3) is relevant.

Under Item 3, a supply, other than a supply of work physically performed on goods situated in Australia where the thing supplied is done, or a supply directly connected with real property situated in Australia, is GST-free where it is:

(a) a supply that is made to a recipient who is not in the indirect tax zone when the thing supplied is done; and

(b) the effective use or enjoyment of which takes place outside the indirect tax zone.

In this circumstance, Entity A will make a supply to Entity B who is not in Australia when the supply is done and satisfy paragraph (a) of item 3 in the table in subsection 38-190(1) of the GST Act. The requirement that 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 is also satisfied.

Effective use and enjoyment

Paragraph (b) of item 3 requires that the place of effective use or enjoyment of a supply to be determined (that is, whether the place is outside Australia). Goods and Services Tax Ruling GSTR 2007/2 examines the circumstances in which the effective use or enjoyment of a supply takes place outside Australia for the purposes of paragraph (b) of Item 3.

The supply is the preparation and provision of Deliverables and information by Entity B (either directly, or through its subcontract with Entity A) to Entity C is the entity that has the actual/effective use or enjoyment of the Deliverables and information. The Deliverables and information are customised to Entity C's needs for its internal use, and Entity C takes ownership of the Deliverables and information once it is completed and provided to it. The supply will satisfy item 3 in the table in subsection 38-190(1) of the GST Act as the supplies are made to Entity B a recipient who is outside of Australia when the things supplied is done and where they are present in Australia it is not in relation to the supply by Entity A, and the effective use and enjoyment takes place outside of Australia.

Therefore, item 3 of subsection 38-190(1) of the GST Act is satisfied and the supply by Entity A to Entity B is GST-free.