Edited version of your written advice

Authorisation Number: 1051378600242

Date of advice: 30 May 2018

Ruling

Subject: Goods and services tax (GST) and supply of IT support services to non-resident

Question

Is GST payable on your supply of IT support services to company X which consist of assisting third parties (the third parties) based in Australia?

Answer

If the third parties are registered for GST, your supply of the IT support services to company X is GST-free, in which case GST would not be payable.

If the third parties are not registered for GST, GST applies to the supply of the IT support services to entity X.

Relevant facts and circumstances

You are registered for GST.

You are an Australian resident located in Australia.

You will be supplying IT support services to company X. These services involve assisting third parties (providees) with their IT issues. Company X will pay you fees for these services.

Company X has contractual relationships with various Australian entities, which provide supplies to Australian businesses (which are also the providees of your IT services).

Company X is in a foreign country and is not a resident of Australia. Company X does not have a branch/presence in Australia. Company X is not registered or required to be registered for GST in Australia.

The providees are based in Australia and they carry on enterprises in the (Australian) indirect tax zone. The IT support services that you will supply would not be utilised by the providees for private or domestic 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 9-25

A New Tax System (Goods and Services Tax) Act 1999 section 9-26

A New Tax System (Goods and Services Tax) Act 1999 section 9-27

A New Tax System (Goods and Services Tax) Act 1999 section 11-15

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

Reasons for decision

Summary

If the providees are registered for GST, your supply of IT support services to company X is GST-free under item 2 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), in which case GST is not payable.

If the providees are not registered for GST, your supply of the IT support services to company X is not GST-free under item 2, in which case GST will apply as all of the requirements of section 9-5 of the GST Act would be met.

Detailed reasoning

GST is payable on taxable supplies

Section 9-5 of the GST Act states:

You make a taxable supply if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an

*enterprise that you *carry on; and

(c) the supply is *connected with the indirect tax zone; and

(d) you are *registered, or *required to be registered.

However, the supply is not a *taxable supply to the extent that it is

*GST-free or *input taxed.

(*Defines a term defined in section 195-1 of the GST Act)

The ‘indirect tax zone’ means Australia.

You meet the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act, that is:

● you supply the IT services for consideration (the fees for these services)(paragraph 9-5(a)); and

● you supply these services in the course or furtherance of an enterprise that you carry on (paragraph 9-5(b)); and

● your supply of these services is connected with Australia (paragraph 9-5(c)); and

● you are registered for GST (paragraph 9-5(d) of the GST Act)

There are no provisions of the GST Act under which your supply of these services is input taxed.

Therefore, what remains to be determined is whether your supply of these services is GST-free.

The relevant provision dealing with GST-free supplies is item 2 in the table in subsection 38-190(1) of the GST Act (item 2). Item 2 provides that a supply of something other than goods or real property, to a non-resident is GST-free provided that the non-resident 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 the indirect tax zone when the work is done nor a supply directly connected with real property situated in the indirect tax zone; 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.

However, there are a number of exclusions from GST-free treatment under item 2, as set out in subsections 38-190(2), 38-190(2A) and 38-190(3) of the GST Act.

Your supply of IT support services is not a supply of goods or real property.

Your customer is not in Australia

Paragraph 31 of Goods and Services Tax Ruling GSTR 2004/7 interprets the meaning of ‘recipient is not in Australia’, for the purposes of item 2 and 3 in the table in subsection 38-190(1) of the GST Act. It states:

31. The requirement that the non-resident in item 2, or the recipient in item 3, is not in Australia when the thing supplied is done is a requirement, in our view, that the non-resident or recipient is not in Australia in relation to the supply when the thing supplied is done.

Paragraph 41 of GSTR 2004/7 provides guidance on determining whether a non-resident company is in Australia in relation to a supply. It states:

41. A non-resident company is in Australia in relation to the supply if the supply is solely or partly for the purposes of the Australian presence, for example, its Australian branch. 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, except where the only involvement is minor.

You advised that company X does not have a presence in Australia. As such, you make a supply of IT support services to a non-resident who is not in Australia.

Company X is a non-resident who acquires your services in carrying on their enterprise, but is not registered or required to be registered for GST. Therefore, the alternative requirement at paragraph (b) at item 2 is met. It is no longer necessary to determine whether the alternative requirement at paragraph (a) is met.

As your supply of IT support services is covered by item 2, the supply would be GST-free unless any of the exclusions apply.

First exclusion provision to consider – subsection 38-190(2)

Subsection 38-190(2) of the GST Act provides an exclusion from GST-free treatment under item 2 in certain situations where the thing supplied is a right or option. This exclusion is not relevant to your supply of IT services to company X.

Second exclusion provision to consider – subsection 38-190(2A)

Subsection 38-190(2A) of the GST Act provides an exclusion from GST-free treatment of a supply covered by item 2 (and other particular items in the table) in certain situations where the recipient’s acquisition of the thing supplied relates to the making of a supply or real property situated in Australia. This exclusion does not apply to your supply of IT support services to company X.

Third and final exclusion provision to consider – subsection 38-190(3)

Subsection 38-190(3) of the GST Act provides an exclusion from GST-free treatment of a supply covered by item 2 where a supply is made to a non-resident but provided to a third party in Australia (subject to certain exceptions). It states:

Without limiting subsection (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 the indirect tax zone; 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 entities 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:

(ii) the other 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.

Paragraphs 223 to 225 of Goods and Services Tax Ruling GSTR 2005/6 explain the distinction between the contractual flow of a supply and the actual flow of the supply (which is to the providee). They state:

223. This view is supported by the construction of subsection 38-190(3). Paragraph 38-190(3)(a) requires that the supply covered by item 2 is under an agreement entered into with a non-resident. That paragraph establishes the contractual arrangements for the supply - an agreement with a non-resident. Paragraph 38-190(3)(b) looks to the provision of the supply and whether it is provided to another entity in Australia - that is, the actual flow of that supply. These paragraphs contrast the recipient of the supply under the agreement - a non-resident, and the entity that is provided with the supply - another entity.

224. Therefore the expression a supply is 'provided to another entity' means that in the performance of a service (or in the doing of some other thing supplied), 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.

225. 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 entertained, the actual flow of that service is to another entity, each employee.

In accordance with paragraph 100 of GSTR 2005/6, if a supply is provided to a resident individual who is physically in Australia when the thing supplied is done, the supply is provided to that individual in Australia.

Paragraph 405 of GSTR 2005/6 states:

405. We consider that a supply is provided to a company, partnership, corporate limited partnership or trust in Australia to the extent that the supply is for the purposes of the entity's Australian presence.

Paragraphs 596 to 602 of GSTR 2005/6 set out a scenario where a non-resident company (Mumbai Technology) contracts an Australian company (Help Line Co) to provide a computer helpline service to third parties (Mumbai’s customers), which comprises of maintaining in working order the computer systems of Mumbai’s customers. Paragraph 600 of GSTR 2005/6 states:

(i) Provided to another entity

600. What is being supplied is a service of fixing computer problems of Aus Customer. While staff of Aus Customer receive individual attention and advice, the supply is a service of maintaining in working order, the computer system of Aus Customer. The supply by Help Line Co to Mumbai Technology of support services is provided to Aus Customer, another entity.

In accordance with paragraphs 223 to 225 of GSTR 2005/6, the contractual flow of your supply of IT support services is to company X, which is the non-resident recipient of the supply. The actual flow of the supply is to the entity receiving assistance in relation to their IT systems – the providee. Therefore, you are providing your supply to the providee. The providee is ‘another entity’ for the purposes of paragraph 38 190(3)(b) of the GST Act. You are providing your supplies to entities in Australia.

Your arrangement is similar to the scenario in paragraphs 596 to 602 of GSTR 2005/6 in the sense that your non-resident customer (company X) is contracting you to assist third parties maintain their IT systems in working order.

Therefore, your supply of IT support services to company X is not GST-free under item 2 unless a scenario referred to in subparagraph 38-190(3)(c)(i), 38-190(3)(c)(ii) or 38-190(3)(c)(iii) of the GST Act is present. The last two of these scenarios are not relevant to your case as the providees of your services are not individuals who are being provided with your services as employees or officers of the entities in Australia or of company X. Rather, the providees are receiving the provision of the services pursuant to the terms of certain contracts.

The first scenario exists if the providee would have been an Australian-based business recipient if they had instead purchased the services from you, that is, if:

● the providee is registered for GST; and

● an enterprise of the providee is carried on in the indirect tax zone (this is the case); and

● had the providee acquired your services, the acquisition would not have been solely of a private or domestic nature (this requirement is met).

Therefore, if the providees are registered for GST, your supply of IT support services to company X is GST-free under item 2, in which case GST is not payable.

If the providees are not registered for GST, your supply of the IT support services to company X is not GST-free under item 2, in which case GST will apply as all of the requirements of section 9-5 of the GST Act would be met.