Edited version of your written advice

Authorisation Number: 1051453677334

Date of advice: 12 November 2018

Ruling

Subject: GST and supply of services that are done overseas

Question 1

Is the supply of services you made to an Australian company connected with Australia under section 9-25 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when the supply is done outside Australia?

Answer

Yes, the supply of services you made to the Australian company is connected with Australia under paragraph 9-25(5)(b) of the GST Act when the supply is done in Country B.

Question 2

If the supply is connected with Australia under section 9-25 of the GST Act, is the supply of services you made by to the Australian company a GST-free supply under subsection 38-190(1) of the GST Act.

Answer

Yes, the supply of services you made to the Australian company is a GST-free supply under item 3 in the table in subsection 38-190(1) of the GST Act.

Relevant facts

You are a company incorporated in Australia and registered for the goods and services tax (GST).

You have entered into an Agreement with an Australian company in which you agreed to supply services that will be done outside Australia. You have provided us with a copy of the Agreement.

You will send your staff and equipment overseas to provide the services and you also contract other Australian entities to assist you in the performing of the services outside Australia.

Your staff will report to a representative of the Australian company. Under the instruction of the Australian company, the representative will allocate task to your staff.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 subsection 9-25(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.

Question 1

Characterisation of supply

Before determining whether the supply of services is connected with Australia we first need determine the character of the supply since under the Agreement you supply equipment and personnel.

After considering all the information we consider that when you are making a supply of services to the Australian company with the equipment being integral to the supply of services.

Connected with Australia

Relevant to the supply of services made by GHB is subsection 9-25(5) of the GST Act.

Under subsection 9-25(5) of the GST Act, a supply of things other than goods or real property (such as services) is connected with Australia if:

a) it is done in Australia; or

b) the supplier makes the supply through an enterprise that the supplier carries on in Australia; or

c) it is a right or option to acquire another thing that would be connected with Australia; or

d) the recipient of the supply is an Australian consumer. An Australian consumer is a resident of Australia that is not registered for GST or an Australian resident that is registered for GST and the acquisition is for private purposes.

Only one of the paragraphs needs to be satisfied for the supply of services to be connected with Australia.

Goods and Services Tax Ruling GSTR 2000/31 provides guidance on when a supply is connected with Australia. Regarding paragraph (b) in subsection 9-25(5) of the GST Act paragraph 84 states:

84. For a supply to be connected with Australia under paragraph 9 25(5)(b), a connection must exist between the Australian permanent establishment and the supply. If the supplier carries on an enterprise through a permanent establishment in Australia any supply made in the course or furtherance of this enterprise will be a supply made through the permanent establishment for the purposes of paragraph 9-25(5)(b). This will be the case even if the supply can also be said to be connected with a place of business in another country.

You are a company incorporated in Australia and a resident of Australia. You have entered into an Agreement with the Australian company and have sent your equipment and personnel overseas in order to provide the services outside Australia. You contract other Australian entities to assist in your provision of services outside Australia. In this instance a connection exists between you and the supply of services to be done outside Australia.

Paragraph (b) in subsection 9-25(5) of the GST Act is therefore satisfied as you are supplying your services through a business that you carry on in Australia.

Question 2

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 be a taxable supply.

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

a) you make the supply of services for consideration; and

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

c) the 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 to the Australian company 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 services input taxed.

GST-free supply

Relevant to your supply of services to the Australian company is item 3 in the table in subsection 38-190(1) of GST Act (item 3).

Under item 3, a supply of a thing other than a supply of work physically performed on goods situated in Australia when the thing supplied is done or a supply directly connected with real property situated in Australia is GST-free if:

a) the supply is made to a recipient who is not in Australia when the thing supplied is done; and

b) the effective use or enjoyment of which takes place outside Australia.

All the requirements in item 3 must be satisfied for the supply to be treated as GST-free under that item.

Item 3 applies irrespective of whether the recipient is a resident or non-resident of Australia.

Paragraph (a) of item 3

For the supply of services to be GST-free under item 3 there is a condition that the recipient must not be in Australia in relation to the supply when it is done. A recipient, in relation to a supply, is the entity to which the supply was made.

Where the supply of services is made to an Australian company in Australia, the requirement in paragraph (a) of item 3 is not satisfied.

If a supply is made to a recipient who fails the ‘not in Australia’ requirement in paragraph (a) of item 3, it is necessary to consider whether subsection 38-190(4) of the GST Act applies.

Subsection 38-190(4) of the GST Act extends the scope of item 3 by treating a supply that is made to a recipient who is in Australia in relation to the supply as being made to a recipient who is not in Australia if:

● the supply is made under an agreement entered into, whether directly or indirectly, with an Australian resident; and

● the supply is provided, or the agreement requires it to be provided, to another entity outside Australia.

Subsection 38-190(4), by means of the expression ‘provided to another entity’, seeks to identify the entity to which the item 3 supply actually flows. For example, if a supply of a service is made to an Australian resident recipient who is in Australia in relation to the service and that service is rendered to or received by another entity at the time it is performed, the supply is provided to that other entity. If that other entity is outside Australia, subsection 38-190(4) of the GST Act treats the supply as being made to a recipient who is not in Australia. Paragraph (a) of item 3 is satisfied in this instance.

From the information received your staff who went overseas to provide the services would report to the representative of the Australian company. The representative would allocate the work tasks to your staff. In this instance paragraph (a) of item 3 is satisfied since your staff providing the services to the representative outside Australia when you make your supply of services to the Australian company.

Paragraph (b) of item 3

Goods and Services Tax Ruling GSTR 2007/2 (available at ato.gov.au) provides guidance for paragraph (b) in item 3.

Paragraph (b) of item 3 requires the place of effective use or enjoyment of a supply to be determined (that is, whether the place is outside Australia). As paragraph (b) refers to the ‘effective’ use or enjoyment of the supply, it is necessary to inquire as to the entity that has the actual use or enjoyment of the supply.

A supply is made to a recipient and provided to another entity if in the performance of a service (or in the doing of something) the actual flow of that supply is to an entity that is not the recipient entity with which the supplier made the agreement for the supply. That is, while the contractual flow of the supply is to the recipient entity, the actual flow of the supply is to another entity. If a supply is made to a recipient and provided to another entity, the entity that actually uses or enjoys the supply is that other entity. For example, if a supply of travel services is made to a company (recipient) and the travel is undertaken by an employee of the recipient, the supply is provided to the employee and it is the employee that actually uses or enjoys the supply.

From the information received you supply services to the Australian company and your staff provides them to the representative of the Australian company who is located outside Australia. In this instance the representative is the relevant entity to determine whether the use or enjoyment of your supply of services takes place outside Australia. The representative is located outside Australia and therefore the use and enjoyment of your supply of services is outside Australia. Paragraph (b) of item 3 is satisfied.

Other requirements in item 3

The other requirements in item 3 are satisfied as the supply of services is neither a supply of work physically performed on goods situated in Australia when the work is done nor directly connected with real property situated in Australia.

Summary

Your supply of services made to the Australian company and provided to the representative outside Australia is therefore GST-free under item 3.