Edited version of private advice

Authorisation Number: 1051607104295

Date of advice: 13 November 2019

Ruling

Subject: GST and supplies connected with Australia

Question 1

Is the payment received by the Australian branch of Entity A from their Offshore Head Office consideration for a supply of services under paragraph 9-5(a) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No

Question 2

Is the supply of information technology services (Services) by Entity A to Clients who carry on an enterprise in the Indirect Tax Zone (Australia) a taxable supply under section 9-5 of GST Act?

Answer

Yes

Question 3

Is Entity A entitled to claim an input tax credit under section 11-20 of the GST Act for acquisitions it makes for the enterprise Entity A carries on in Australia?

Answer

An entity is entitled to an input tax credits for any creditable acquisition it makes.

In this case the Commissioner is satisfied that the acquisition of marketing, promoting and consulting services by Entity A is a creditable acquisition and as such Entity A is entitled to an input tax credit.

However whether any remaining acquisitions made by Entity A will be entitled to an input tax credit will need to be determined on a case by case basis.

This ruling applies for the following periods:

1 July 20XX to 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

Entity A is a non-resident company that carries on an enterprise of supplying information technology services to Clients in the Indirect Tax Zone (Australia). The services include facilitating debit and credit card transactions by way of providing transaction and information processing, fraud management, risk management and dispute resolution services (together the Services).

Entity A receives consideration for its services and Entity A is registered for GST.

The head office of Entity A (or Head Office) is not located in Australia.

Entity A established a branch in Australia. For the purposes of this private ruling response we refer to the branch in Australia as the "Australian Branch".

The Australian Branch acts as a client relationship office for Entity A. Its activities involve sourcing clients in Australia for Entity A. The Australian Branch also conducts market research to find potential Clients, promotes Entity A and assists in negotiating contracts and contractual terms.

The Australian Branch also provides client development services which involves the Australian Branch liaising with Clients in Australia and providing technical assistance/training to maintain local client relationships as well as exploring new client opportunities.

A sample of the Agreement that Entity A enters with Clients has been provided.

The Agreement identifies the particular services provided by Entity A to Clients.

The Agreement also shows that "Notices" are to be directed to an Australian postal address and relevant individuals in Australia.

Entity A through its Australian Branch enters into contracts to acquire marketing, promoting and consulting services. These acquisitions include GST.

The costs that are associated with the Australian Branch, which includes the acquisitions of marketing, promoting and consulting services, are funded through a process of the Head Office transferring funds to its Australian Branch.

The Australian Branch does not bear any operational or legal risk separate to Entity A.

Entity A has relevant individuals based in Australia. The enterprise of Entity A is carried on in Australia for the purposes of subsection 9-27 of the GST Act.

Entity A does not make any supplies that are input taxed.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 9-5

A New Tax System (Goods and Services Tax) Act 1999 11-20

Reasons for decision

Question 1

Goods and Services Tax Ruling, GSTR 2006/9: Supplies (GSTR 2006/9) sets out the Commissioners view regarding the meaning of 'supply'. This ruling focuses on examining various arrangements in which supplies are made and discusses a number of propositions that are considered relevant in analysing a transaction. In particular GSTR 2006/9 states:

Proposition 7: an entity cannot make a supply to itself

95. The proposition that an entity cannot make a supply to itself flows from the proposition 'supply usually, but not necessarily, requires something to be passed from one entity to another'. It also seems self evident in a transaction based tax.

96. An exception to this proposition is provided in Division 54 which allows an entity to register its branches separately for GST. Paragraph 54-40(2)(c) deems all transfers of anything by the GST branch to the parent entity (including other GST branches of the parent), that would have been supplies made by the branch if it were an entity, to be supplies made by the branch as a separate entity. This has effect for working out the parent's additional net amount in relation to the branch. Without this specific provision a 'supply' from the branch to the parent entity would not be a supply for GST purposes as they are not separate entities.

In this case the payment received by the Australian Branch from the offshore Head Office is not consideration for a supply of service by the Australian Branch to the Head Office. As the Australian Branch of Entity A is not a separate legal entity to Entity A it cannot make a supply to itself.

Question 2:

A supply will be considered a taxable supply where the requirements of section 9-5 are met. Section 9-5 states:

You make a taxable supply if:

(a)  you make the supply for * consideration; and

(b)  the supply is made in the course or furtherance of an * enterprise that you * carry on; and

(c)  the supply is * connected with the indirect tax zone; and

(d)  you are * registered, or * required to be registered.

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

Entity A meets paragraphs 9-5(a), (b) and (d) of the GST Act as Entity A:

·                     receives consideration for supply of information technology services

·                     makes the supply in the course of an enterprise that it carries on and

·                     is registered for GST.

In addition there are no facts supporting the supply in question is GST-free or input taxed.

Accordingly if Entity A's supply is connected with Australia under paragraph 9-5(c) of the GST Act, Entity A makes a taxable supply of the Services.

Entity A supplies services. A supply of anything other than a supply of goods or real property is connected with Australia under section 9-25(5) of the GST Act. This subsection states:

(5) A supply of anything other than goods or *real property is connected with the indirect tax zone if:

(a) the thing is done in the indirect tax zone; or

(b) the supplier makes the supply through an *enterprise that the supplier *carries on in the indirect tax zone; or

(c) ...

We consider that supply of services by Entity A is connected with Australia pursuant paragraph 9-25(5)(b) of the GST Act.

The supply of the services is connected with Australia under paragraph 9-25(5)(b) because Entity A:

·                     carries on an enterprise in Australia under section 9-27 of the GST Act (Australian GST presence); and

·                     makes the supply through that enterprise

In this case you have stated that Entity A carries on an enterprise in Australia within the meaning given by section 9-27 of the GST Act (Australian GST presence). Therefore what remains to be considered is whether the supply made by Entity A is through its Australian GST presence.

Supply through the Australian GST presence

According to paragraph 14 in Draft Goods and Services Tax Ruling, Goods and services tax: supply of anything other than goods or real property connected with the indirect tax zone (Australia) (GSTR 2019/D2), for a supply to satisfy paragraph 9-25(5)(b), the supply must also be made 'through' an Australian GST presence. There needs to be a connection between the Australian GST presence and the supply. A supply may be connected with an entity's enterprise carried on in more than one jurisdiction. This means that a supply that is connected with an entity's Australian GST presence can still satisfy paragraph 9-25(5)(b), even if the supply can also be said to be connected with the entity's place of business in another country.

Additionally paragraph 18 of GSTR 2019/D2 states:

18. There are no specific criteria which must be satisfied to determine whether a particular supply is connected with an Australian GST presence. Each case is to be determined on an overall assessment of the individual facts and circumstances of the supply. If one or more of the following factors are established in any particular case it would be a strong indicator that the supply is connected with an Australian GST presence:

·                     where the relevant individuals of the Australian GST presence

-       exercise an authority to sign, negotiate, conclude or accept contracts and purchase orders for the supply

-       make important decisions leading to the making of the supply or performance of the supply

-       perform the activities that facilitate the making of the supply

-       use equipment and/or infrastructure in performing or making the supply.

·                     if the supply is a service, the service is performed or delivered by the Australian GST presence

·                     if the supply is the grant, creation, assignment, transfer, surrender or licence of a right, that supply is facilitated by the relevant individuals of the Australian GST presence

·                     in relation to the supply, the Australian GST presence has its own accounts, and revenue for the supply is booked or recorded in those accounts.

In this case relevant individuals of the Australian GST presence have an involvement in negotiating the terms of the Agreement in respect of the Services supplied by Entity A. Further, it is evident from the Agreement that the Australian GST presence has an ongoing role in respect of the Services made as notices are to be served to the Australian GST presence. Therefore in accordance with paragraph 18 the Commissioner considers that there is sufficient evidence to establish that the supply is connected with the Australian GST presence.

On this basis, the supply of the Services is connected with Australia under paragraph 9-25(5)(b) because there is a sufficient connection between the enterprise being carried on by Entity A in Australia and the supply of Entity A's Services.

As the requirements of 9-5 have therefore been satisfied, the supply by Entity A will be a taxable supply.

Question 3:

Generally an entity is entitled to an input tax credits on any creditable acquisition it makes. An entity makes a creditable acquisition where:

·                     it acquires anything solely or partly for a creditable purpose, and

·                     the supply of the thing to the entity is a taxable supply, and

·                     the entity provides, or is liable to provide consideration for the supply, and

·                     the entity is registered, or required to be registered for GST.

Amongst other requirements under subsection 11-15 of the GST Act and entity will make an acquisition for a creditable purpose to the extent that:

·                     it is acquired in carrying on its enterprise, and

·                     it is not acquired to make supplies that would be input taxed

In this case Entity A through its Australian Branch enters into contracts to acquire marketing, promoting and consulting services which include GST. In addition Entity A does not make supplies that would be input taxed such that it is denied creditable purpose under paragraph 11-15(2)(a) of the GST Act..

On this basis the Commissioner is satisfied that in respect of its acquisition of marketing, promoting and consulting services, Entity A is entitled to an input tax credit.

However whether any remaining acquisitions made by Entity A will be entitled to an input tax credit will need to be determined on a case by case basis.