Edited version of your written advice

Authorisation Number: 1051473897661

Date of advice: 14 March 2019

Ruling

Subject: GST and supply of services

Question

Are you required to charge GST on invoices issued to the Australian organisation for services rendered under the Services Contract under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Advice

No, you are not required to charge GST on invoices issued to the organisation for services rendered under the Services Contract because the supply of services is provided to entities located outside Australia and is therefore GST-free under item 3 in the table in subsection 38-190(1) of the GST Act.

Relevant facts

You are a company incorporated outside Australia.

You have entered into a Services Contract (contract) with an Australian organisation and agreed to supply your services to the Australian organisation under the terms and conditions of the contract.).

Under the contract you will:

● provide your services outside Australia

● the results are provided to entities located outside Australia...

● your employees receive the orders for the services from the entities located outside Australia.

The Australian organisation has a representative located outside Australia. You do not report or provide information to this representative. Your employees provide information directly to the entities located outside Australia. The entities located outside Australia may choose to share information with the Australian representative at their discretion.

Relevant legislative provisions

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

Reason 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.

Summary

Your supply of services is made to the Australian organisation and provided to entities located outside Australia. The supply is GST-free under item 3 in the table in subsection 38-190(1) of the GST Act.

Detailed reasoning

From the fact received your supply of services is made to the Australian organisation and provided to entities located outside Australia. Relevant to your supply is item 3 in the table in subsection 38-190(1) of the GST Act (item 3).

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

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.

Paragraph (a) of item 3

‘Recipient’ is defined in section 195-1 of the GST Act and means in relation to a supply, the entity to which the supply was made

Your contract is with the Australian organisation, an entity carrying on its business activity in Australia. In this instance paragraph (a) in item 3 is not satisfied since the Australian organisation is in Australia in relation to your supply.

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:

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

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

The expression ‘provided to another entity’ in subsection 38-190(4) of the GST Act, 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.

You advised that the Australian organisation has a representative located at a site outside Australia. You do not report or provide information to this representative. Your employees provide information regarding the services directly to entities that are located outside Australia. Your employees receive orders from the overseas entities.

In this instance paragraph (a) of item 3 is satisfied by virtue of subsection 38-190(4) of the GST Act since the recipient of your supply under the contract is the entities that are located outside Australia and they are the ones to whom you are providing your supply.

Paragraph (b) of item 3

Having determined that the overseas entities are the recipients of your supply it is then necessary to consider whether use or enjoyment of the supply to these overseas entities takes place outside Australia.

Effective use or enjoyment of the supply only takes place outside of Australia, if there is provision of the supply to the entity outside Australia.

You are providing your services to entities located outside Australia at the request of the Australian organisation. In this instance paragraph (b) of item 3 is satisfied as the use and enjoyment of your supply of services takes place outside Australia.

Your supply of services to the Australian organisation and provided to entities located outside Australia is GST-free under item 3.