Edited version of your written advice

Authorisation Number: 1051498521108

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) under the 5 years Partnership and Supply Agreement GST-free?

Answer

Under the 5 years Partnership and Supply Agreement 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).

They have entered into an Agreement with in which AusCo agreed to supply rights and benefits to NRCo. The parties may extend the agreement for a further five years by mutual agreement in writing.

The Agreement was signed in Australia.

NRCo is a company organised under the laws of an overseas country and not registered for GST in Australia. NRCo sells its products in Australia via its distributor. It does not have a subsidiary company in Australia. The distributor clears the customs, distributes the products to other wholesalers, stores the products and so on for NRCo in Australia.

The NRCo has an agency in Australia that handles the on-site activation for NRCo under the Agreement.

NRCo does not have any employees in Australia in relation to the supply that AusCo is to make to NRCo under the Agreement.

Under the Agreement:

● AusCo is the promoter and organiser of the events. NRCo is a supplier of the products.

● AusCo has offered and NRCo has accepted to become an official partner of the Events in respect of the Marketing Rights Products. In addition, NRCo has agreed to supply the Supply Rights Products at each of the Events during the Term.

● In respect of equipment, NRCo agrees to provide the following supplies:

1. branded product to be used in the consumption of the Supply Rights Products, with all designs to be approved in writing by AusCo in advance (and with such approval not to be unreasonably withheld, conditioned or delayed); and

2. any other consumables and similar supplies in quantities reasonably requested by AusCo to assist with the display, sale and service of the Supply Rights Products, or to assist with any product activations by NRCo, to be agreed by the parties from time to time.

● AusCo will be solely responsible for the payment of any GST that is imposed under the GST Act on any taxable supply that is made by either party pursuant to this Agreement.

Partnership fees and VIK Products

NRCo will:

● Pay the annual Partnership Fess to AusCo; and

● In addition to the Partnership fee and during each year of the Term provide to AusCo with set amount (exclusive and net of all applicable taxes and deductions) worth of NRCo’s products, at NRCo’s or its nominated distributor’s then current wholesale rates and at no costs to AusCo (VIK products). AusCo may use these products in connection with the conduct or promotion of the Event or for other purposes. The specific NRCo products to be provided by NRCo to AusCo as VIK products will be agreed in writing between the parties. In each year of the Term, AusCo will inform NRCo in writing which VIK products will be delivered overseas and which VIK Products will be delivered to Australia. Subject to clauses 6.3(d) and 6.3(f) of the agreement, title and risk in the VIK Products will pass to AusCo on acceptance of such products or deemed acceptance of the products by AusCo.

● A percentage of royalty on the net sales of co-branded products (exclusive of any applicable taxes) made by NRCo within the Territory. The co-branded product is only available overseas.

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

Partnership announcement

Ticketing and hospitality

Partner suite

Meet & Greet

Partner Naming Day

Vehicle transfer service

Invitations to Official Partner Dinner

Invitations to The Legends Lunch

Digital and Social Exposure

Content and Production

Event Archived Footage

Event Chef Series Integration

Event Lounge

Event Film Festival

Product Activations

Event Superbox

Event Founder’s Club Membership

Bar Activation On-Site at the Event

Bar Activation at the Founder’s Club

Court Signage and Exposure

Media backdrop

Event Merchandise

The right to produce and sell co-branded products

Exposure in Official Event Program

Exposure on Event collateral

On-site Exposure and Engagement TVC and other

Broadcast Benefits

Other Benefits

Event Corporate Challenge

Event Party Overseas

Event Roadshow Overseas

1573 Arena

Men’s Final viewing party

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

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 to be represented as a partner of the 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 rights for the NRCo 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 rights for the NRCo 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, legend meet and greet, invitations to the official partner dinner 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 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 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 representative of the 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 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 paragraph (b) of item 4 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. 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 a company organised under the laws of an overseas country and not registered for GST. NRCo sells its products in Australia via its distributor. It does not have subsidiary company in Australia. The representative of the owner of the NRCo signed the agreement in Australia while the owner was still overseas.

● An agency for NRCo in Australia, handles the on-site activation for NRCo in Australia including the partner suite that they used for hospitality for their guests from overseas.

● NRCo do not have any employees in Australia in relation to the supply that AusCo is to make to NRCo under the Agreement

● NRCo is the receipt of all the Event series tickets under the Agreement.

From the above facts, we gather that an agency of NRCo in Australia is the entity assisting NRCo in the distribution of their product to comply with its obligations under the Agreement in terms of product distribution at the Events.

Further to the fact that the Agreement was signed in Australia 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 company 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