Edited version of your written advice

Authorisation Number: 1051387284903

Date of advice: 21 June 2018

Ruling

Subject: GST and supply of sales managing services to an overseas company

Question 1

Will the Australian company (you) be liable to pay GST for the funds received from the overseas company when your director will be outside Australia to provide the sales managing services to distributors who reside outside Australia under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Advice

No, you will not be liable to pay GST for the sales managing services you make to the overseas company when your director will be outside Australia to provide the sales managing services to distributors who reside outside Australia.

The supply of sales managing services to the overseas company will be GST-free under item 2 in the table in subsection 38-190(1) of the GST Act.

Question 2

Will you be liable to pay GST for the funds received from the overseas company when your director will be in Australia to provide the sales managing services to distributors who reside outside Australia under the GST Act?

Advice

No. You will not be liable to pay GST for the sales managing services you make to the overseas company when your director will be in Australia to provide the sales managing services to distributors who reside outside Australia.

The supply of sales managing services to the overseas company will be GST-free under item 2 in the table in subsection 38-190(1) of the GST Act.

Question 3

Will you be liable to pay GST for the funds received from the overseas company when your director will be outside of Australia to provide the sales managing services to a distributor who resides in Australia under the GST Act?

Advice

No. you will not be liable to pay GST for the sales managing services you make to the overseas company when your director will be outside Australia to provide the sales managing services to a distributor who resides in Australia.

The supply of sales managing services to the overseas company will be GST-free under item 2 in the table in subsection 38-190(1) of the GST Act.

Question 4

Will you be liable to pay GST for the funds received from the overseas company when your director will be in Australia to provide the sales managing services to a distributor who resides in Australia under the GST Act?

Advice

No. you will not be liable to pay GST for the sales managing services you make to the overseas company when your director will be in Australia to provide the sales managing services to a distributor who resides in Australia.

The supply of sales managing services to the overseas company will be GST-free under item 2 in the table in subsection 38-190(1) of the GST Act.

Question 5

Will you be liable to pay GST for the funds received from the overseas company when your director is on leave in Australia?

Advice

The fund for the director’s annual leave forms part of the consideration of the supply of sales managing services which you will make to the overseas company. As advised in questions 1 to 4 the supply of sales managing services is GST-free and therefore you are not liable to pay GST for your supply to the overseas company.

Question 6

If ATO determines that you are liable for paying GST, please advise what method of calculation is required from the ATO to calculate GST liability when lodging BAS statements?

Advice

Not applicable as you will make a GST-free supply to the overseas company when your director provides the sales managing services to the distributors.

Relevant facts

You are an Australian company and registered for the goods and services tax (GST).

You are in the process of entering into an Agreement with an overseas company and have provided us with a draft of the Agreement.

Under the agreement your employee will provide sales managing services to distributors of the overseas company located in and outside of Australia and report to the overseas company. The Australian distributor is registered for GST.

Your employee will be in and outside Australia when providing the sales managing services to the distributors.

The overseas company will pay all the expenses you incur to hire that employee and expenses to be incurred by the employee while providing the sales managing services (for e.g wages, leave entitlement, insurance etc) and a bonus based on performance.

The overseas company does not have an Australian registered office.

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 decisions

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.

Questions 1 to 4

Summary

When your director will provide the sales managing services to distributors located outside Australia, your supply of services to the overseas company will be GST-free under paragraph (a) of item 2 when your director is in or outside Australia to provide the services to the overseas distributors.

When your director will provide the sales managing services to the Australian distributor your supply of services to the overseas company will be GST-free under paragraph (a) of item 2 when your director is in or outside Australia to provide the services to the Australian distributor.

Detailed reasoning

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 sales managing services to be a taxable supply.

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

a) you make your supply for consideration (funding and incentive bonus (where applicable) received from the overseas company); 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 sales managing 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 sales managing services input taxed.

GST-free supply

Relevant to your supply of sales managing 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.

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

Paragraph (a) of item 2

From the facts given, your supply of sales managing services to the overseas company will satisfy paragraph (a) of item 2 as:

● your supply will be made to a company incorporated outside Australia and it does not have an office in Australia. The overseas company is therefore not in Australia in relation to your supply at the time your supply is done; and

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

As paragraph (a) is satisfied there is no need to consider paragraph (b) of item 2.

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.

From the facts given, you satisfy paragraphs (a) and (b) in subsection 38-190(3) of the GST Act as you have an agreement with a non-resident company and under the agreement you are required to provide your sales managing services to distributors who are located in and outside Australia.

When you provide your services to distributors located outside Australia subsection 38-190(3) of the GST Act will not apply to your supply. Your supply of sales managing services made to the overseas company and provided to these overseas distributors will be GST-free under paragraph (a) of item 2 when your director provides the services in or outside Australia to these overseas distributors.

We will now consider paragraph (c) in subsection 38-190(3) of the GST Act for the supply to be provided to the Australian distributor.

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

Requirement (i)

The term ‘Australian based business recipient’ 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:

a) the entity is registered for GST;

b) an enterprise of an entity is carried on in Australia; and

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

The overseas company has an Australian distributor that is registered for GST. When your director will provide the services to the Australian distributor while they are in or outside Australia, requirement (i) will apply to your supply of services made to the overseas company and provided to the Australian distributor since the acquisition of your director’s services by the GST registered Australian distributor will be for its business purposes.

In this instance subsection 38-190(3) of the GST Act will not negate your GST-free supply of sales managing services to the overseas company under paragraph (a) in item 2 when provided to the GST registered Australian distributor.

Requirement (ii)

Where your director will be providing the services to the employee of the GST registered Australian distributor requirement (ii) will apply as the acquisition of your director’s services will be for the business purposes of the Australian distributor.

In this instance subsection 38-190(3) of the GST Act will not negate your GST-free supply of sales managing services to the overseas company under paragraph (a) in item 2 when provided to the employee of the GST registered Australian distributor.

Requirement (iii)

Requirement (iii) is not relevant as from the facts given your director is not required to provide the services to an employee of the overseas company who is located in Australia.

Summary

When your director will provide their sales managing services to distributors located outside Australia, your supply of services made to the overseas company will be GST-free under paragraph (a) of item 2 when your director is in or outside Australia to provide the services.

When your director will provide their sales managing services to the Australian distributor your supply of services to the overseas company will be GST-free under paragraph (a) of item 2 when your director is in or outside Australia to provide the services.

Question 5

The funding of the annual leave for your director forms part of the consideration you will receive for your supply of sales managing services to the overseas company. As advised in questions 1 to 4 your supply of sales managing services to the overseas company is GST-free and therefore this part of the funding is also GST-free.

Question 6

Not applicable as you will make a GST-free supply to the overseas company when your director provides the sales managing services to the overseas and Australian distributors.