Edited version of your written advice

Authorisation Number: 1051426031164

Date of advice: 6 September 2018

Ruling

Subject: GST and supply of digital products and services to non-resident individuals

Question 1

Is the supply of digital products and services (e-Books, E-programs) made by the Australian company to non-resident individuals a GST-free supply under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

The supply of the digital products and services made by the Australian company is GST-free under item 2 where the non-resident individual is located outside Australia at the time the supply transaction is made.

The supply of the digital products and services made by the Australian company is a taxable supply under section 9-5 of the GST Act where the non-resident individual is located in Australia at the time the supply transaction is made.

Question 2

If the answer to question 1 is yes, is the software that the Australian company uses to distinguish between sales within Australia and overseas sufficient proof to determine that the supply is GST-free.

Answer

Item 2 in the table in subsection 38-190(1) of the GST Act (item 2) is about GST-free supply made to a non-resident. The pre-condition for item 2 is that the supply is made to ‘a non-resident who is not in Australia’ at the time of the supply.

The evidence required to establish that you have a reasonable basis to form a reasonable belief about whether the individual is a non-resident and their location at the time of sale will depend on the facts of the case.

We will accept that your supplies are made to recipients that are non-residents if:

● the supplies do not ordinarily involve any human interaction by you (or on your behalf) with the recipient in real time in entering the transaction for the supply, and

● your usual business systems provide at least two pieces of non-contradictory evidence that support the conclusion that the recipient has their residency, usual residence, permanent address or similar term at a particular place or jurisdiction outside Australia.

Paragraph 92 in Goods and Services Tax Ruling GSTR 2017/1 provides examples what the two pieces of non-contradictory evidence could be.

In the event the 2 pieces of information collected from the Australian company’s business systems are non-contradictory we will accept its determination regarding the residency of the individual for its supply of digital products and digital services and the location of the individual at the time of the supply.

Relevant facts

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

You supply e-Books and e-Programs from your website and from an APP which you have developed and downloaded free by individuals on their mobile devices.

The purchasers are individuals who reside both in and outside of Australia. The purchases made by the individuals are for personal purposes.

When purchasing a package from your website or within the APP, the individual is required to provide their name, phone number, country, street address, suburb, state and postcode before being able to purchase the product. If the purchaser has created an account they can use the same account to purchase other products if using the same details in the account. The account is required to login to the App.

The e-books are sent directly to the individual’s email address provided when the individual signs up and there are hyperlinks in these e-Books to demonstrative online training videos to assist in following the E-Books instructions. The individual cannot ask to have their purchases be delivered to another email address.

Your challenge products are currently offered on your APP. The individuals purchase on your website and use their accounts to login to your app. Some online training packages also may have 24/7 online support which is provided from your office. The online support is included with the online training packages.

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.

Question 1

Summary

Your supply of digital products and services is GST-free under item 2 where the non-resident individual is located outside Australia at the time the purchase is made.

Your supply of digital products and services is a taxable supply under section 9-5 of the GST Act where the non-resident individual is located in Australia at the time the purchase is made.

Reason for decision

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 digital products and services to be a taxable supply.

From the information given, your supply of digital products and 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 digital products and 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 digital products and services input taxed.

GST-free supply

Relevant to your supply of digital products and services to non-resident individuals 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.

Precondition of item 2 – non-resident is 'not in Australia' when thing is done

Goods and Services Tax Ruling GSTR 2004/7 (available at ato.gov.au) provides guidance on when a non-resident is 'not in Australia' for the purposes of item 2.

In the case of supplies made to an individual we consider the physical location of the individual establishes whether that individual is in Australia when the thing supplied is done.

The thing that is done is the supply of digital products and services (e-Books and e-Programs). The digital products and services are emailed to the individuals at the time the sales transactions take place and payment is received. In this instance the individual’s presence is integral with the receipt of the digital products and services.

Where the address provided by the individual is an overseas address at the time the sales transactions occur, we consider the individual is located outside Australia. Similarly where the address provided is an Australian address at the time the sales transactions occur, we consider the individual is located in Australia.

Accordingly, where the non-resident individual is located outside Australia at the time of the supply of the digital product and services, the requirement that the non-resident individual is ‘not in Australia in relation to the supply’ is satisfied. The next step is to consider the paragraphs in item 2.

Where the non-resident individual is in Australia at the time of the supply of the digital product and services, the requirement that the non-resident is not in Australia in relation to the supply is not satisfied. The supply of the digital product and services is a taxable supply under section 9-5 of the GST Act.

Paragraph (a) of item 2

From the facts given, your supply of digital products and services satisfy paragraph (a) of item 2 as your supply of digital products and services is neither a supply of work physically performed on goods situated in Australia when the supply is done, nor a supply directly connected with real property situated in Australia

Your supply of digital products and 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, subsection 38-190(3) of the GST Act does not apply to your supply of digital products and services as you are not required to provide your supply to another entity in Australia.

Your supply of digital products and services is made and provided to the non-resident individual who has made the purchase. Your supply is therefore GST-free under item 2 where the individual is located outside Australia.

Question 2

Item 2 in the table in subsection 38-190(1) of the GST Act (item 2) is about GST-free supply made to a non-resident. The pre-condition for item 2 is that the supply is made to a non-resident and the non-resident is not in Australia at the time of the supply.

Accordingly, your first step when selling the digital products and services is to determine the residency of the individual and then where the individual is located at the time of the supply. We accept the pre-condition for item 2 is satisfied where sufficient evidence is collected regarding the residency and location of the individual at the time of supply.

Goods and Services Tax Ruling GSTR 2017/1 provides assistance in determining whether a supply is made to an Australian resident regarding supply of digital products and imported services. You can refer to the guidance provided in this ruling to determine the residency of the individuals purchasing your digital products and digital services.

The following information is from GSTR 2017/1:

22. In many cases, information gathered by your usual business systems and processes provides a reasonable basis for forming a reasonable belief about whether the recipient is an Australian consumer. If you have this information, you do not need to take additional steps to obtain information from your recipient, beyond what you need to make the supply or maintain the commercial relationship.

27. The evidence required to establish that you have a reasonable basis to form a reasonable belief about whether the recipient is an Australian consumer will depend on the facts of the case.

29. Examples of information that the Commissioner will accept to support a conclusion about whether the recipient satisfies the residency element include:

● the recipient’s billing address

● the recipient’s mailing address

● the recipient’s banking or credit card details, including the location of the bank or credit card issuer

● location-related data from third party payment intermediaries

● mobile phone SIM or landline country code

● recipient’s country selection

● tracking/geolocation software

● internet protocol (IP) address

● place of establishment of the recipient (for non-individual recipients)

● representations and warranties given by the recipient

● the origin of correspondence, and

● locations, such as a Wi-Fi spot, where the physical presence of the person receiving the service at that location is needed.

31. You must consider all the information collected through your usual business systems and processes. These must, on balance, support a conclusion about whether the recipient satisfies the residency element.

32. In the event that the information you hold about the recipient does not consistently point to one conclusion about whether the recipient satisfies the residency element, you should assess the quality and reliability of all the available information in determining whether there is a reasonable basis for a reasonable belief about whether the recipient is an Australian consumer. Further information about how to weigh up the different information is in paragraphs 74 to 84 of this Ruling.

Example 1 – residency of an individual

33. Megan purchases online security software from PC Protect, an online software provider. She pays using her German credit card and provides her German billing address. This is the only information that PC Protect’s usual business systems and processes collects which is relevant to determining whether Megan satisfies the residency element.

34. PC Protect’s usual business systems and processes provide a reasonable basis for a reasonable belief that Megan does not satisfy the residency element. Because the information collected supports a conclusion that Megan resides in Germany, the systems support a conclusion that Megan does not satisfy the residency element. PC Protect does not need to consider other aspects of the residency element to establish a reasonable basis for a reasonable belief that Megan is not an Australian consumer.

Example 3 – inconsistent information

38. Continuing from Example 1, Alex also purchases online security software from PC Protect. When Alex signed up for her account with PC Protect, she provided her home address in Australia. However, when paying for her software, Alex pays using her German credit card.

39. This is the only information that PC Protect’s usual business systems and processes collects which is relevant to determining whether Alex satisfies the residency element.

40. Given that the information is inconsistent about whether Alex satisfies the residency element, PC Protect assesses the quality and reliability of the information. Although Alex’s account indicates that she has an Australian home address, the fact that she paid with a German credit card supports a conclusion that Alex currently resides in Germany. The credit card information is more reliable because it is contemporaneous with the attribution time.

41. PC Protect’s usual business systems and processes provide a reasonable basis for a reasonable belief that Alex does not satisfy the residency element. Therefore, PC Protect does not need to consider other aspects of the residency element to establish a reasonable basis for a reasonable belief that Alex is not an Australian consumer

42. You are not limited to the business systems approach when deciding whether a recipient satisfies the residency element. You may also take other reasonable steps to obtain information about whether your recipient is an Australian consumer.

43. The requirement to take reasonable steps to obtain information about whether an entity is an Australian consumer is an objective test that will depend on the circumstances in which you make the supply to the recipient and the relationship between you and the recipient. However the requirement to take reasonable steps to obtain information will not be satisfied where no steps are taken.

Automated systems approach for determining residency element

90. Where you make supplies using fully automated systems, we accept that there is minimal scope for you to collect additional information beyond those systems that might alter your belief about whether your recipient is an Australian consumer because of the residency element.

91. We will accept that your supplies are made to recipients that are not Australian consumers under section 84-100 if:

● the supplies do not ordinarily involve any human interaction by you (or on your behalf) with the recipient in real time in entering the transaction for the supply, and

● your usual business systems provide at least two pieces of non-contradictory evidence that support the conclusion that the recipient has their residency, usual residence, permanent address or similar term at a particular place or jurisdiction outside Australia.

92. The two pieces of non-contradictory evidence may include:

● the recipient’s billing address is an address outside of Australia

● the recipient’s mailing address is an address outside of Australia

● the recipient’s banking or credit card details, including the location of the bank or credit card issuer being outside of Australia

● the recipient’s web-based country selection is for a country other than Australia

● the recipient’s location detected through tracking/ geolocation software that shows the recipient is outside of Australia

● the IP address of the device used to make the purchase indicates that the recipient is outside of Australia

● the recipient provides a mobile phone or landline country code that is for a country other than Australia, and

● other commercially relevant information which is relevant to establishing a person’s residency.

The information that you gather from the individual is their name, address, country, email address and phone contact detail. In the event the 2 pieces of information collected from your business system are non-contradictory we will accept your determination regarding the residency of the individual for your supply of digital products and services and the location of the individual at the time of the supply.