Edited version of private advice

Authorisation Number: 1051662578171

Date of advice: 29 April 2020

Ruling

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

Question

Is the supply of IT services you make to the non-resident company a GST-free supply under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when the IT services are provided to a GST registered Australian company in Australia?

Answer

Yes the supply of IT services you make to the non-resident company is a GST-free supply under item 2 in the table in subsection 38-190(1) of the GST Act when the IT services are provided to a GST registered Australian company in Australia.

You need to obtain evidence that the Australian company is registered for GST before treating your supply of IT services made to the non-resident company and provided to the Australian company as a GST-free supply under item 2 in the table in subsection 38-190(1) of the GST Act.

Relevant facts

You are an Australian company and registered for GST.

You have entered into an agreement with a non-resident company in which you agreed to provide your IT services to the customers of the non-resident company. You have provided us with a copy of the agreement you have with the non-resident company.

Under the agreement the locations where your services are to be performed are for places in and outside Australia and any other place as when required with prior written consent from the non-resident company.

The non-resident company has agreed to pay you the compensation set forth on the Statement of Work based on Time and Material or Fixed Bid or expenses reimbursement or any other method as specified in the Statement of Work.

The non-resident company has a customer located in Australia and under the agreement you are required to provide your IT services to the Australian customer of the non-resident company. The Australian customer is a GST-registered company.

You supply your services as an independent contractor to the non-resident company.

The non-resident company does not carry on any business activity in Australia. It does not have any employees in Australia. It subcontracts you for work to be supplied to its Australian customers 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. 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 IT services to be a taxable supply.

From the information given, your supply of IT services 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 IT services 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 IT services input taxed.

GST-free supply

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

Paragraph (a) of item 2

From the facts given, your supply of IT services satisfy paragraph (a) of item 2 as:

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

·         your supply of IT 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.

However, paragraph (a) of item 2 is limited 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.

You are required under the agreement to provide your IT services to the customers of the non-resident company that are located in and outside Australia.

Customers not located in Australia

Where the customers of the non-resident company are located outside Australia, subsection 38-190(3) of the GST Act does not apply to your supply of IT services. Your supply is GST-free under paragraph (a) in item 2 in this instance.

Customers located in Australia

Where the customers of the non-resident company are located in Australia, it is relevant to consider whether subsection 38-190(3) of the GST Act applies when you provide your IT services

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

Paragraphs (a) and (b) in subsection 38-190(3) of the GST Act are satisfied as your supply of IT services is made under an agreement with the non-resident company and under the agreement you are required to provide the supply to the non-resident company's customers who are located in Australia.

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

Requirement (i)

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:

1. the entity is registered for GST; and
2. an enterprise of an entity is carried on in Australia; and
3. the acquisition of the thing supplied is not solely of a private or domestic nature.

You advised that the Australian customer to whom you provide your services is a GST Australian company. In this case, requirement (i) applies to your supply of IT services you make to the non-resident company and provide to the Australian company in Australia. In this instance subsection 38-190(3) of the GST Act does not negate the GST-free status of your supply of IT services under item 2.

Accordingly, the supply of IT services that is provided to the GST registered Australian company is GST-free under item 2. You will need to obtain evidence that the Australian company is registered for GST before treating your supply of IT services that is provided to the Australian company GST-free under item 2. For example you can obtain the ABN and a statement from the Australian company that it is registered for GST.

Requirement (ii)

An employee or officer is provided with a supply in their capacity as an employee or officer if the supply was provided to them in the performance of their duties or as part of their remuneration.

Where the supply of IT services is provided to a personnel of the GST registered Australian company, requirement (ii) applies to the supply of IT services you provide to the personnel of the GST registered Australian company. Subsection 38-190(3) of the GST Act will not negate the GST-free status of the supply. The supply of IT services is GST-free under item 2.

You will need to obtain evidence that the Australian company is registered for GST before treating your supply of IT services that is provided to the personnel of the Australian company as a GST-free supply under item 2.

Requirement (iii)

Requirement (iii) requires that the acquisition is solely for a creditable purpose and is not a non-deductible expense.

An acquisition is solely for a creditable purpose where the thing is acquired solely for business purposes and the acquisition does not relate to making supplies that would be input taxed.

Division 69 of the GST Act is about non-deductible expenses and lists supplies that are generally not creditable acquisitions for non-resident employers, for example entertainment expenses such as dinners, cocktail parties tickets for sightseeing tours.

From the information provided the non-resident company does not have any employee in Australia in relation to the supply. Requirement (iii) is not relevant.

Summary

Your supply of IT Services made to the non-resident company and provided to the non-resident company's GST registered customers located in Australia and to customers located outside Australia is GST-free under item 2.

You will need to obtain evidence that the Australian customer registered for GST before treating your supply of IT services made to the non-resident company and provided to the Australian customer as a GST-free supply under item 2.