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Edited version of private advice
Authorisation Number: 1051646389609
Date of advice: 12 March 2020
Ruling
Subject: GST and sale of assets to non-resident
Question
Were the supplies made by the Australian entity to the non-resident entity under the Intellectual Property Asset Sale Agreement (Sale Agreement) taxable supplies under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Answer
No. The supplies made by the Australian entity to the non-resident entity under the Intellectual Property Asset Sale Agreement (Sale Agreement) were GST-free supplies under paragraph (b) of item 4 in the table in subsection 38-190(1) of the GST Act.
Relevant facts
You are an Australian resident that is registered for GST.
You own several Intellectual Property Assets (IP Assets) and derive your income by supplying a licence for the use of the IP Assets to a business.
You (vendor) have entered into an Intellectual Property Asset Sale Agreement (Sale Agreement) with a non-resident company (purchaser) in which you agreed to sell the IP Assets listed in Schedule 1 in the Sale Agreement.
The purchaser is a company that is incorporated outside of Australia and is a non-resident of Australia. The purchaser is not registered for GST and does not have any subsidiary companies in Australia.
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. Under section 9-5 of the GST Act a supply is a taxable supply if:
a) the supplier makes the supply for consideration; and
b) the supplier makes the supply through a business that it carries on; and
c) the supply is connected with Australia; and
d) 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.
When the vendor supplied the IP Assets to the purchaser, the supply of these IP Assets satisfied paragraphs 9-5(a) to 9-5(d) of the GST Act as:
a) the vendor made the supply for consideration; and
b) the vendor made the supply through a business that it carries on in Australia; and
c) the supply of the IP Assets was connected with Australia as it was made through a business that the vendor carries on in Australia; and
d) the vendor is registered for GST.
However, the supply of the IP Assets is not a taxable supply to the extent that it is GST-free or input taxed.
The supply of the IP Assets is not an input taxed supply under the GST law.
GST-free supply
The supply of the IP Assets was a supply that was made in relation to rights since the vendor had assigned the exclusive licence rights that it had received for using these IP assets to the purchaser under the Sale Agreement.
Relevant to the supply of the IP Assets to the purchaser is item 4 in the table in subsection 38-190(1) of the GST Act (item 4).
Under item 4 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.
From the information given, the purchaser of the IP Assets was a non-resident company that was not in Australia in relation to the supply when the supply of rights (that is the IP Assets) was made.
In this instance paragraph (b) in item 4 was satisfied. The vendor's supply of the IP Assets to the purchaser was GST-free under paragraph (b) of item 4.