Edited version of your written advice

Authorisation Number: 1051497894982

Date of advice: 25 March 2019

Ruling

Subject: Supply of rights

Question

Is the supply made by Australian company (AusCo) to a non-resident company (NRCo) GST-free?

Answer

AusCo makes a supply of exclusive rights to NRCo. The supply of the exclusive rights is GST-free under paragraph in item 4 in the table in subsection 38-190(1) of the GST Act.

Relevant facts

The ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

AusCo is the promoter and organiser of events that are held annually. They are registered for the goods and services tax (GST).

AusCo has entered into an Agreement with NRCo for the events.

NRCo is a company organised under the laws of an overseas country and not registered for GST in Australia. The president of the NRCo signed the Agreement in Australia. The president of the NRCo is also the shareholder of Australian entity of the NRCo.

The Australian entity of the NRCo, which is not a party to the Partnership Agreement but provide products for the Events and is responsible for displays at the Events in order for NRCo to comply with NRCo’s obligations under the Agreement.

The Partnership Agreement sets out the Rights and Benefits and states that, in consideration of payment of the Partnership Fee by NRCo, AusCo grants to NRCo for the Term the following Rights and Benefits:

product exclusivity whereby the exclusivity relates to the Events and does not extend to other events run by AusCo, unless they specifically referred to in this Agreement;

the right to be recognised as the Official Partner of the Event, including the right to use certain Designations;

non-exclusive right to use the Event Logos and Event Imagery; and an exclusive right to use the Composite Logo set out in Schedule 1 and 2 of the Agreement;

right to include an appropriate product for the participant;

right to have its products integrated into specific locations at the venues;

presenting rights in relation to be officially referred to during each Event as mentioned in the Agreement

Part A of Schedule 1 and 2 to the Agreement lists in more detail the Rights granted to NRCo in relation to the Events, i.e. product exclusivity, the right to use the Designations, the right to use the Event Logos and Event Imagery, the right to use their product, the right to have its Product’s integration.

Part B of Schedule 1 and 2 lists the Benefits received by NRCo for different Events i.e.

Partnership announcement

Ticketing and hospitality

Meet & Greet

Behind the scenes tour

VIP guest experiences

Coin toss

Official Partner Dinner and Invitation

Advertising

Broadcast Benefits

The Partnership Agreement also specifies the Partnership Fee to be paid and provided by NRCo to AusCo.

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 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.

Detailed reasoning

Characterisation of supply

Under the Agreement, the supplies to be made by AusCo to NRCo comprise a bundle of features which we will need to characterise before determining the GST status of AusCo’s supply to NRCo.

In this case we need to determine whether the bundle of supplies should be considered separately (mixed supply) or is a supply that contains a dominant part that includes something that is integral, ancillary or incidental to that dominant part (composite supply).

Goods and Services Tax Ruling GSTR 2001/8 provides guidance on how to identify whether a supply is a mixed or a composite supply.

Paragraphs 19 to 24 in GSTR 2001/8 state the following:

Differentiating between mixed and composite supplies

19. Where a transaction comprises a bundle of features and acts, it may be necessary to characterise what is supplied to determine whether a particular provision applies in whole or in part. The characterisation should be undertaken in a manner that is consistent with the object of the particular statutory provision in issue. For example, if a provision specifically requires different treatment of two components of a transaction, this will mean that the two components must necessarily be separately recognised. However, that does not mean that the two components need to be separately recognised for all purposes of the GST Act.

19A. An identification of the essential character of what is supplied may inform whether (and to which extent) a particular transaction falls within the terms of a specific statutory provision. You must consider all of the circumstances of the transaction to ascertain its essential character.^7A

19B. Having regard to the essential character and with regard to the statutory provision in issue, you can then determine whether the transaction is a mixed supply because it has separately identifiable parts that the GST Act treats as taxable and non-taxable, or whether it is a composite supply because one part of the supply should be regarded as being the dominant part, with the other parts being integral, ancillary or incidental to that dominant part.

20. The distinction between parts that are separately identifiable and things that are integral, ancillary or incidental, is a question of fact and degree. In deciding whether a supply consists of more than one part we take the view that you adopt a commonsense approach.

21. You may choose to treat something (or things taken together) as integral, ancillary or incidental if the consideration that would be apportioned to it (if it were a separately identifiable part of a mixed supply) does not exceed the lesser of:

● $3.00, or

● 20% of the consideration for the total supply

22. If you choose not to apply this approach, then you need to make an objective assessment about whether the thing is integral, ancillary or incidental.

23. You cannot use this approach where a provision of the GST Act specifically requires you to treat a part of a supply in a particular way, regardless of its scale or connection with the supply. For example, the supply of food as part of an excursion or field trip may otherwise be considered to be integral, ancillary or incidental to the supply of the excursion or field trip, but paragraph 38-90(2)(b) specifies that such food will not be GST-free. This means that the consideration for the field trip requires apportionment.

24. A part of a supply may, on an objective assessment, be something that forms an integral, ancillary or incidental part of the supply even if the consideration for it would exceed the lesser of $3.00 or 20% of the consideration for the total supply.

Based on the information provided, we consider that the essential character of what is supplied by AusCo pursuant to the Agreement is an exclusive right for the NRCo brand to be represented as a partner of events. This exclusive right allows NRCo to exercise the leveraging, marketing, branding and other rights benefits described in the Agreement.

The rights provided in the schedule (product exclusivity, exclusive designations, logo usage and so on) merely contribute to the proper performance of the Agreement that is to supply the exclusive right for the NRCo brand to be recognised as a partner of the events by announcing that fact to anyone who watches the event either in person or via television or other media.

The benefits listed in the schedule also contribute to the proper performance of the agreement to supply the exclusive right for the NRCo brand to be recognised as a partner of the events.

Some of the benefits listed in the Agreement involve AusCo supplying services instead of rights (for example ticketing and hospitality, behind the scene tours, VIP guest experiences and so on) and in this instance we consider they contribute to the proper performance of the agreement to supply the dominant part (which is the exclusive right for the NRCo brand to be recognised as a partner of the events) by recognising NRCo as a partner to the events.

Accordingly, the supply made by AusCo to NRCo pursuant to the Agreement is a composite supply, the dominant part is the exclusive right for the NRCo brand to be recognised as a partner of the events and the supply of the benefits listed in the Schedule are integral, ancillary or incidental to the dominant part of the supply.

The next step is to determine the GST status of the supply of the exclusive right.

GST status of the exclusive right

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 of an enterprise that it carries on, and

c) the supply is connected with Australia, and

d) the supplier is registered or required to be register for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

From the information given, the supply of the exclusive right satisfies paragraphs 9-5(a) to 9-5(d) of the GST Act as:

a) AusCo makes the supply for consideration, and

b) The supply is made in the course of an enterprise that AusCo carries on, and

c) The supply is connected with Australia as the supply is made through an enterprise that AusCo carries on in Australia

d) AusCo is registered for GST.

However, the supply of the exclusive right is not a taxable supply to the extent that the supply is GST-free or input taxed.

The supply of the exclusive right is not an input taxed under the GST Act.

GST-free supply

Relevant to the supply of exclusive right is item 4 in the table in subsection 38-190(1) of the GST Act (item 4).

Item 4 provides that a supply that is made in relation to rights is GST-free if:

a) The rights are for use outside Australia, or

b) The supply is to an entity that is not an Australian resident and is outside Australia when the thing supplied is done.

Paragraph (a)

From the facts given paragraph (a) does not apply as the rights are for use in Australia.

Paragraph (b)

Thing supplied is done

If the supply is the creation, grant, transfer, assignment or surrender of a right - the thing supplied is done at the time the right is created, granted, transferred, assigned or surrendered; and

If the supply is the entry into, or release from, an obligation to do anything, or refrain from an act, or to tolerate an act or situation - when the thing supplied is done is the time at which the obligation is entered into or the release is affected.

The Agreement was signed by AusCo and NRCo in Australia. In this instance the supply of the exclusive right for NRCo to be represented as a partner for the events under the Agreement was done in Australia.

Non-resident outside Australia

The precondition for paragraph (b) is that the non-resident is not in relation to the supply.

The requirement that the non-resident in item 4 is not in Australia when the thing supplied is done is a requirement that the non-resident is not in Australia in relation to the supply when the thing supplied is done.

Company in Australia

We consider that a non-resident company is in Australia for the purposes of item 2 if that company carries on its business (or in the case of a company that does not carry on its business, carries on its activities) in Australia:

● at or through a fixed and definite place of its own for a sufficiently substantial period of time, or

● through an agent at a fixed and definite place for a sufficiently substantial period of time, or

● the company has an enterprise that is carried on for the purposes of section 9-27 of the GST Act (Law Companion Ruling LCR 2016/1 provides guidance when an enterprise is carried on in Australia for the purposes of section 9-27 of the GST Act. And is available at LCR 2016/1.

Company in Australia in relation to the supply

Even if a company is in Australia, it may not be in Australia in relation to the supply and so can still satisfy the 'not in Australia' requirement in item 2. The following principles, which explain when a company is in Australia in relation to the supply, apply to all companies whether they are incorporated in Australia or outside Australia and whether they are residents of Australia or non-residents. Companies, unlike individuals, may have a presence in more than one location. A resident company that has presence in Australia as well as offshore, may be regarded as not in Australia in relation to a particular supply that is provided to its offshore presence.

To work out whether a company is in Australia in relation to the supply, it is necessary to examine the role the presence of the company in Australia plays in relation to the supply.

Clearly if the supply to a company is solely or partly for the purposes of the Australian presence, for example its Australian branch, representative office or agent if it is a non-resident company, or the Australian head office if it is an Australian incorporated company, the company is in Australia in relation to the supply. There is a connection between the supply and the presence in Australia that is not a minor connection.

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', unless the only involvement is minor.

If the involvement of the Australian presence is limited to the carrying out of simple administrative tasks on behalf of the company, as a matter of administrative convenience, that involvement is minor. The connection between the supply and the presence is so minor in nature that it is reasonable to conclude that the presence of the company in Australia is not in relation to the supply.

Tasks of a simple administrative nature include:

● payment of, or arranging for payment of, the supplier's invoice on behalf of the company

● passing on an e-mail to the company

● being a point of telephone contact to pass on messages to the company

● being a mailing address or delivery contact on behalf of the company

● being a point of contact for a visiting representative of the company, and

● on-forwarding information to the company.

From the facts given:

● NRCo is located in China and has an Australian business which is legally independent of NRCo. The president of NRCo is a shareholder of Australia entity and was in Australia to sign the Agreement.

● The general manager of Australian entity is the key contact person in Australia regarding the product integration component under the Agreement who facilitates what products to be used and displayed at the Events and also arranges the logistics (delivery and return) of the products.

● The Australian entity of the NRCo is the receipt of all the tickets under the Agreement.

From the above we consider that the supply made under the Agreement to NRCo is not for the purposes of Australian entity of the NRCo. Though the general manager from Australian entity is the key contact person with AusCo in Australia for the product integration component under the Agreement, we are of the view he is assisting NRCo to comply with its obligations under the Agreement in terms of the product integration component at the events.

Further the fact that the president of NRCo came to Australia to sign the Agreement does not make NRCo to be carrying on its business in Australia.

Accordingly, the non-resident company is not in Australia in relation to the supply made by AusCo under the Agreement. The requirement that the non-resident is not in Australia in relation to the supply in paragraph (b) is therefore satisfied.

The supply of the right to NRCo is therefore GST-free under paragraph (b) of item 4.

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