Edited version of private advice

Authorisation Number: 1051604734044

Date of advice: 5 November 2019

Ruling

Subject: GST and supply of services to a non-resident company

Question

Is the supply of services (marketing, PR, management, support and agency), you made to the non-resident company a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

The supplies of marketing, PR and agency services you make to the non-resident company are provided to the non-resident company. The supplies of these services are GST-free under paragraph (a) of item 2 in the table in subsection 38-190(1) of the GST Act (item 2).

The supplies of management and support services you make to the non-resident company and provided to the GST registered Australian clients of the non-resident company are GST-free under paragraph (a) of item 2. You have to obtain the ABN of the Australian clients and a statement that they are registered for GST.

The supplies of management and support services you make to the non-resident company and provided to non-resident company's Australian clients that are not registered for GST or registered for GST but the acquisition of these services is not for the purposes of the Australian business, are taxable supplies under section 9-5 of the GST Act by virtue of subsection 38-190(3) of the GST Act.

Relevant facts

You are an Australian company and currently are not registered for GST.

You supply marketing services to Australian entities. You also make supplies to a non-resident company under an Agreement for a number of years. We have received a copy of the Agreement. The non-resident company operates an online music distribution service outside Australia.

You assist the non-resident company with PR and marketing the non-resident company's brand. All PR and marketing are done locally.

You supply internal management when requested. The management will come in the form of meetings with clients and managers via telephone, video or physical meetings. This will involve a roadmap for each client on how to increase global demand via playlists or events in order to increase streaming revenues.

Your supply also involves the signing of new clients and management of existing clients who upload their music to a global website. Once a contact has been made with a new artist, you will set up a meeting with the artist or their representatives. A negotiation will be made if the client is with an existing label - this will involve all the financial aspects of the deal and how you can market and expand the label.

Once the deal has been made the contract is drawn locally, sent to the non-resident company and the onboarding process will begin. This involves getting them set up on the asset and royalties systems so you can track data and financial reporting. The signing of contracts is split between the non-resident company and you. For the majority of contracts it will be agreed and signed by you. If they are more complex contract and require an advance to be paid this is usually done by the non-resident company as the invoices and funds for the advances are sent by the non-resident company.

You will provide support to current clients. This will involve streaming and revenue reports and general dialogue to discuss market discussions, opportunities, new technology and the answering of customer support tickets.

The Australian clients of the non-resident company can be either registered for GST or not registered for GST.

The annual turnover from your supplies in 2018 was above A$75,000. For the 2019 year you estimate that your turnover would be above $75,000.

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

GST is payable on a taxable supply. A supply is a taxable supply under section 9-5 of the GST Act if:

1. the supplier makes the supply for consideration; and
2. the supply is made in the course or furtherance of an enterprise that the supplier carries on; and
3. the supply is connected with Australia; and
4. 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 non-resident company 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 services to the non-resident 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 of services input taxed.

GST-free supply

Relevant to your supply of services to the non-resident company 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.

From the information given your supply of services to the non-resident company satisfies paragraph (a) in item 2 as:

·         you make your supply of services to a non-resident company who is not in Australia in relation to your supply when the supply is done; and

·         your supply of services 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

Your supply of services to the non-resident company is GST-free under paragraph (a) to the extent that the supply is not negated by subsection 38-190(3) of the GST Act.

There is no need to consider paragraph (b) as paragraph (a) is satisfied.

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.

Paragraphs (a) and (b) in subsection 38-190(3) of the GST Act

The services you supply to the non-resident company are marketing, PR, Agency, management and support.

Subsection 38-190(3) of the GST Act does not apply to the supply of marketing, PR and Agency services as these supplies are made and provided to the non-resident company. The supplies of these services are GST-free under paragraph (a) of item 2.

For the management and support services, you have an Agreement with the non-resident company and under the agreement you agreed to provide the management and support services to the Australian clients of the non-resident company .Paragraphs (a) and (b) in subsection 38-190(3) of the GST Act are satisfied in this instance as your supply of these services is made to the non-resident company and provided to the clients of the non-resident company that are located in Australia.

The next step is to consider the requirements in paragraph (c).

Paragraph (c) of subsection 38-190(3) of the GST Act

Only one of the requirements in paragraph 38-190(3)(c) needs to apply for the GST-free supply under item 2 to be negated under subsection 38-190(3) of the GST Act.

Requirements (i) and (ii)

The term 'Australian based business recipient' describes the relationship that a recipient has with a particular supply. An entity is an 'Australian-based business recipient' of a supply that is made to it if:

              i.        the entity is registered for GST;

             ii.        an enterprise of an entity is carried on in Australia; and

            iii.        the acquisition of the thing supplied is not solely of a private or domestic nature.

From the information given, the non-resident company's Australian clients can be either registered for GST or not registered for GST.

Australian client not registered for GST

Where the Australian client is not registered for GST or is registered but the acquisition of the management and support services is not for the purposes of the business carried on in Australia, requirement (i) applies to your supply of management and support services that is provided to the Australian client.

Further where the support and management services are provided to the employee of the Australian client who is not registered for GST or is registered but the acquisition of the management and support services is not for the purposes of the business carried on in Australia, requirement (ii) applies to your supply of management and support services that is provided to the employee of the Australian client.

Subsection 38-190(3) of the GST Act accordingly negates the GST-free status of your supply of services under item 2.

Australian client registered for GST

Where the Australian client is registered for GST and the acquisition of the management and support services is for the purposes of the business carried on in Australia, requirement (i) does not apply to your supply of management and support services that is provided to the Australian client. Subsection 38-190(3) of the GST Act accordingly does not negate the GST-free status of your supply of management and support services under item 2.

Further where the support and management services are provided to the employee of the Australian client who is registered for GST and the acquisition of the management and support services is for the purposes of the business carried on in Australia, requirement (ii) does not apply to your supply of management and support services that is provided to the employee of the Australian client. Subsection 38-190(3) of the GST Act accordingly does not negate the GST-free status of your supply of management and support services under item 2.

You will need to hold evidence that requirement (i) or (ii) is satisfied before treating your supply of management and support services that is made to the non-resident company and provided to the Australian client as a GST-free supply under paragraph (a) of item 2. For example you can ask the Australian client its ABN and a statement that it is registered for GST.

There is no need to consider requirement (iii) as this requirement does not apply to your supply of management and support services since the supply is not provided to the employee of the non-resident company in Australia.

Summary

Your supplies of marketing, PR and agency services under the Agreement are made and provided to the non-resident company. The supply of these services is GST-free under paragraph (a) of item 2.

Your supplies of management and support services that you make to the non-resident company and provided to the GST registered Australian clients of the non-resident company are GST-free under paragraph (a) of item 2.

Your supplies of management and support services that you make to the non-resident company and provided to the Australian clients that are not registered for GST or registered but the acquisition is not for the purposes of the Australian business, are taxable supplies under section 9-5 of the GST Act by virtue of subsection 38-190(3) of the GST Act.