Edited version of your written advice

Authorisation Number: 1051354910001

Date of advice: 27 March 2018

Ruling

Subject: GST and supply of services to a non-resident company

Question

Is the supply of services made by the Australian company to the overseas company GST-free under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Advice

No, the supply of services made by the Australian company to the overseas company is not a GST-free supply by virtue of subsection 38-190(3) of the GST Act. The supply of services is a taxable supply under section 9-5 of the GST Act.

Relevant facts

You are an Australian company that carries on your business activity in Australia and are registered for GST.

You have entered into an Agreement with an overseas company. The Agreement relates to your provision of manpower for a project in Australia. The overseas company does not carry on any business activity in Australia.

Under the order from the overseas company, you will deploy a site support officer for the Project for a period. The officer will supervise the erection and precommissioning works of a Plant in Australia.

The owner of the Plant is a non-resident and has hired a non-resident entity to manage the whole construction process and operation. The non-resident entity does not occupy a specific place in Australia while working on the project. There are temporary offices attached to the plant for use by all contractors. The non-resident entity has engaged subcontractors to perform the work and they are not employees of the non-resident entity.

You have a staff deployed for the project and the staff takes direction from an officer/employee of the non-resident entity who has been seconded to Australia for a few weeks at a time. Your staff only interacts with the representatives of the non-resident entity while performing the work.

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.

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 or furtherance of an enterprise that the supplier carries on; and

c. the supply is connected with Australia; and

d. the supplier is registered or required to be registered for GST.

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

All of the above must be satisfied for your supply of services to the overseas company to be a taxable supply.

From the information given, your supply of services satisfies paragraphs (a) to (d) of section 9-5 of the GST Act as:

a) you make your supply for consideration; and

b) the supply is made in the course of a business that you carry on; and

c) your supply is connected with Australia as it is made through a business that you carry on in Australia; and

d) you are registered for GST.

However, your supply of 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 services input taxed.

GST-free supply

Relevant to your supply of services is item 2 in the table in subsection 38-190(1) of 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 that 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'

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.

We consider that a non-resident company is in Australia for the purposes of item 2 if that company carries on its business (or in the case of a company that does not carry on its business, carries on its activities) in Australia:

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

● through an agent at a fixed and definite place for a sufficiently substantial period of time; or

● the company has an enterprise that is carried on for the purposes of section 9-27 of the GST Act.

Law Companion Ruling LCR 2016/1 provides guidance when an enterprise is carried on in Australia for the purposes of section 9-27 of the GST Act.

Under section 9-27 of the GST Act, an entity has a GST enterprise presence if the enterprise is carried by one or more specified individuals that are in Australia, and:

● the enterprise is carried on through a fixed place in Australia; or

● the enterprise has been carried on through one or more places in Australia for more than 183 days in a 12 month period; or

● the entity needs to carry on the enterprise through one or more places in Australia for more than 183 days in a 12 month period.

The individuals who can carry on an enterprise are:

● if the entity is an individual – that individual

● an employee or officer of the entity; or

● an individual who is, or is employed by, an agent of the entity that

n has, and habitually exercises, authority to conclude contracts on behalf of the entity; and

n is not a broker, general commission agent or other agent of independent status that is acting in the ordinary course of the agent’s business as such an agent.

The first requirement for an enterprise to be carried on in Australia is that one or more individuals are in Australia. The location of an entity’s employees, officers or agents is an important consideration for section 9-27 of the GST Act. A non-resident entity that locates its employees, officers or agents outside Australia does not have a GST enterprise presence.

Where one or more relevant individuals are in Australia in carrying on an enterprise of the entity paragraph 9-27(1)(a) of the GST Act is satisfied.

From the facts given, the owner of the Plant has hired a non-resident entity to manage the whole construction process and operation. You have a staff deployed for the project and the staff takes direction from the employee/officer of the non-resident entity who has been seconded to Australia for a few weeks at a time. Your staff only interacts with representatives of the non-resident entity while performing their work.

In this instance, the overseas company is not carrying on an enterprise in Australia as they do not have staff located in Australia to manage the whole construction process and operation. It is the non-resident entity that has employees/officers in Australia and therefore will be the one carrying on an enterprise in Australia.

Accordingly, the precondition of item 2 is satisfied since the overseas company does not carry on its business activity in Australia and is not in Australia in relation to your supply. The next step is to consider the paragraphs in item 2.

Only one of the paragraphs in item 2 needs to be satisfied.

Paragraph (a) of item 2

Goods and Services Tax Ruling GSTR 2003/7 provides guidance in regard to when a supply is a supply of work physically performed on goods situated in Australia when the work is done, or is a supply directly connected with real property situated in Australia.

Paragraph 20 in GSTR 2003/7 provides that where a supply has a direct connection with goods or real property, or is a supply of work physically performed on goods, the location of goods or real property is the basis upon which the GST treatment is determined under paragraph (a) of item 2. If the real property is located in Australia, the supply of a thing is not GST-free under paragraph (a) of item 2. The place of consumption is, in effect, determined by the location of the goods or real property.

We consider that the expression ‘directly connected with’ contemplates a very close link or association between the supply and particular goods or real property. We consider that such a close link or association between the supply and particular goods or real property exists where, for example, the direct object of the supply is the goods or real property in the sense that:

● the supply changes or affects the goods or real property in a physical way or

● there is a physical interaction with the goods or real property but without changing the goods or real property

A common example of where a supply changes or affects the goods or real property in a physical way is a supply of a service that is physically performed on particular goods or real property such as the repair of goods or a building. Other examples of this kind include the construction, alteration, demolition repair or maintenance of a building or other structural improvement.

From the facts given, your staff will be deployed to supervise the erection and pre-commission works of the Plant that is being constructed at a specific property located in Australia. In this instance we consider the services provided by your staff will have a direct connection with real property in Australia and may be a supply of work physically performed on goods when supervising and precommisioning the works of the Plant.

Paragraph (a) of item 2 is not satisfied. The next step is to consider paragraph (b) of item 2.

Paragraph (b) of item 2

Under paragraph (b) of item 2, a supply is GST-free if the non-resident entity acquires its services in carrying on its business, and is neither registered nor required to be registered for GST.

The supplier must be satisfied, on reasonable grounds that the non-resident is neither registered nor required to be registered for GST before they can treat their supply as GST-free under paragraph (b) of item 2.

Where the supplier is not in a position to be aware of these circumstances, enquiries should be made of the non-resident. The Commissioner accepts that the supplier has reasonable grounds to be satisfied, if the non-resident has provided a signed written statement, declaring that they are not required to be registered and the acquisition is for business purposes. This is only accepted where the supplier has no reasons to believe the statement.

The overseas company acquires your supply for business purposes. Where the overseas company is neither registered nor required to be registered for GST, paragraph (b) of item 2 is satisfied. The supply is GST-free to the extent that it is not negated by subsection 38-190(3) of the GST Act

Subsection 38-190(3) of the GST Act

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 38-190(3)(b)) 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.

Your staff takes direction from the officer of the non-resident entity who has been seconded to Australia for a few weeks at a time and interacts only with the representatives of the non-resident entity when performing the work. Paragraph (b) in subsection 38-190(3) of the GST Act is satisfied as your staff is required to provide their services to the representatives of the non-resident entity in Australia when performing the work under the contract with the overseas company.

Paragraph 38-190(3)(c) of the GST Act.

An Australian based business recipient is a GST registered entity that carries on its enterprise in Australia and the acquisition of the thing is not solely of a private domestic nature.

From the facts given, the non-resident owner and non-resident entity are not registered for GST and therefore are not Australian based business recipient. Requirements (i) and (ii) in paragraph 38-190(3)( c) of the GST Act do not apply. The representatives to whom your staff interacts and takes direction from are employees/officers of the non-resident entity and not of the overseas company. Requirement (iii) in paragraph 38-190(3)(c) of the GST Act does not apply .

As none of the requirements in paragraph 38-190(3)(c) of the GST Act applies to your supply, subsection 38-190(3) of the GST Act therefore negates the GST-free status of your supply under item 2.

Summary

Your supply of services to the overseas company is a taxable supply under section 9-5 of the GST Act by virtue of subsection 38-190(3) of the GST Act.