Edited version of your written advice

Authorisation Number: 1051362448176

Date of advice: 17 April 2018

Ruling

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

Question

Are the fees for services as an arbitrator paid to you by the non-resident entity consideration for a GST-free supply made by you under the A New Tax System (Goods and Service Tax) Act 1999 (GST Act)?

Advice

Yes, the fees for services as an arbitrator paid to you by the non-resident entity are consideration for a GST-free supply made by you 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 GST.

You were appointed to be the arbitrator of a dispute between two Australian companies by a non-resident entity. The dispute relates to claims and cross claims arising out of a subcontract. The dispute is not connected with residential property located in Australia.

As arbitrator, you had interactions with the representatives of the two companies. You were appointed to resolve their disputes and communicated by email with the parties, received their representations and issued directions and orders and ultimately an award. You never had a face to face meeting with anyone from the parties.

You are of the view that the companies are registered for GST. The parties had a contract which provided for, inter alia, an ICC arbitration to resolve disputes. Everything they did in connection with the arbitration was done for business purposes.

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 to be a taxable supply.

From the information given, your supply of arbitration services satisfies paragraphs (a) to (d) in 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 of arbitration services is connected with Australia as it was done in Australia and through a business that you carry on in Australia; and

d) you are registered for GST.

However, your supply of arbitration 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 will make your supply of arbitration services input taxed.

GST-free supply

Relevant to your supply of arbitration to the non-resident entity 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 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.

Only one of the paragraphs in item 2 needs to be satisfied for the supply to be GST-free.

From the information received, your supply of arbitration services satisfy paragraph (a) of item 2 as:

● your supply of arbitration services is made to a non-resident entity that is located outside Australia and is not in Australia in relation to your supply when you supply your services to them; and

● the supply of arbitration 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 arbitration services is GST-free under paragraph (a) of item 2 to the extent it is not negated by subsection 38-190(3) of the GST Act.

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

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(a) of the GST Act

You have agreed to provide arbitration services for the disputed between the two companies when engaged by the ICC. This paragraph is satisfied.

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

Goods and Services Tax Ruling GSTR 2005/6 (available at ato.gov.au) 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.

As arbitrator you interacted with the representatives of the companies to resolve the disputes. You communicated by email with the parties, received their representations and issued directions and orders and ultimately an award. In this instance paragraph 38-190(3)(b) of the GST Act is satisfied as you were required to provide your services to the two Australian companies in Australia.

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

The term ‘Australian based business recipient’ in requirement (i) and (ii) describes the relationship that a recipient has with a particular supply. An entity is an ‘Australian-based business recipient’ of a supply that is made to it if:

● the entity is registered for GST and carries on an enterprise in Australia; and

● the acquisition of the thing supplied is not solely of a private or domestic nature.

You are of the view that the two Australian companies are registered for GST and the acquisition of the arbitration services is in connection of the business carried on by the companies. In this instance requirement (i) in paragraph 38-190(3)(c) of the GST Act applies to your supply. You will need to hold evidence that the Australian companies are registered for GST. For example you can ask the non-resident entity or the companies to provide to you in writing the ABN of the two companies and that the companies are registered for GST.

Accordingly, subsection 38-190(3) of the GST Act will not apply to your supply. Your supply is GST-free under item 2.

Summary

Your supply of arbitration services is GST-free under item 2. The fees received from the non-resident entity are consideration for a GST-free supply.