Edited version of private advice

Authorisation Number: 1051739674235

Date of advice: 17 August 2020

Ruling

Subject: Goods and services tax and GST-free supplies

Question

Are your Promotion Activities under the Agreement GST-free supplies under item 3 of subsection 38-190(1) of A New Tax System (Goods and Services Tax) Act 1999 (GST Act) for supplies made after May 2019?

Answer

No, your supply of Promotion Activities under the Agreement is not GST-free under item 3 of subsection 38-190(1) as your supply is being made and provided to an Australian entity that is in the indirect tax zone when the thing supplied is done. You have not provided sufficient evidence to demonstrate that your supply is being provided to a non-resident entity that is outside the indirect tax zone. Therefore paragraph 38-190(4)(b) is not satisfied. As paragraph 38-190(4)(b) is not satisfied, subsection 38-190(4) does not apply to make your supply GST-free under item 3 of subsection 38-190(1) of the GST Act.

Relevant facts and circumstances

You are registered for GST. You provide information technology solutions to customers in the corporate and government sectors.

Company A is registered for GST. Company A specialises in information technology solutions. Company A has been receiving payments from a Corporate Group for multiple years under previous incentive programs.

You acquired Company A and Company A is your wholly owned subsidiary.

The non-resident entity, Company B, is registered for GST. Company B is not a resident for Australian tax purposes.

Company C is registered for GST. Company C is a resident for Australian tax purposes.

Company B and Company C are part of the same Corporate Group referred to above.

You entered into an Agreement with Company B. This Agreement governs the use of the Corporate Group's software through the Corporate Group's global partner network.

The Agreement agrees that, among other things, you promote the sale of the Corporate Group's software products to your customers (Promotion Activities). As consideration for the Promotion Activities, you receive monetary payments (Incentive Payments).

No agency agreement (expressed or implied) exists between any of the Corporate Group's entities and you.

You have not issued any tax invoices in relation to supplies made under the Agreement. No Recipient Created Tax Invoices (RCTIs) have been issued by any of the Corporate Group's entities in relation to supplies made under the Agreement.

The Agreement was modified by a document titled 'alternative terms' commencing May 2019 (Alternative Terms). The effect of the Alternative Terms is that the contracting entity under the Agreement changed from Company B to Company C from May 2019.

In the event of a conflict between the Country-Specific Provisions in the Agreement and the Alternative Terms, the Alternative Terms will govern with respect to incentive payments per the recitals of the Alternative Terms.

You are of the view that your supplies are provided to Company B under your agreement with Company C and you have provided a Payment Remittance Notification issued by Company B to you as evidence. You did not provide any other evidence to substantiate this view.

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

In this reasoning,

·        unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

·        all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act.

Taxable supply

A supply is 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.

Based on the information provided, your supply of Promotion Activities to Company C under the Agreement satisfies all the requirements of section 9-5. Consequently, your supply will be a taxable supply, to the extent that the supply is not GST-free or input taxed.

There is nothing in the GST Act that makes your supply input taxed.

GST-free supplies used or enjoyed outside of the indirect tax zone

Section 38-190 of the GST Act provides that certain supplies of things other than goods or real property for consumption outside of the indirect tax zone are GST-free.

The supply of Promotion Activities to Company C is neither a supply of goods nor a supply of real property. Further, the supply is being made to an Australia resident. Therefore item 3 in the table in subsection 38-190(1) of the GST Act (Item 3) is relevant.

Under Item 3 a supply, other than a supply of work physically performed on goods situated in the indirect tax zone where the thing supplied is done, or a supply directly connected with real property situated in the indirect tax zone, is GST-free where it is:

a supply:

(a)    that is made to a *recipient who is not in the indirect tax zone when the thing supplied is done; and

(b)    the effective use or enjoyment of which takes place outside the indirect tax zone.

Paragraph 3(a)

Pursuant to the Alternative Terms, you make a supply to Company C, who is in the indirect tax zone when the supply is done. Therefore paragraph (a) of Item 3 is not satisfied, unless subsection 38-190(4) applies.

Subsection 38-190(4)

Subsection 38-190(4) provides the following:

(4)  A supply is taken, for the purposes of item 3 in that table, to be a supply made to a *recipient who is not in the indirect tax zone if:

(a)  it is a supply under an agreement entered into, whether directly or indirectly, with an *Australian resident; and

(b)  the supply is provided, or the agreement requires it to be provided, to another entity outside the indirect tax zone.

Under the Alternative Terms, your supply is under an agreement entered into with an Australian resident, Company C. Therefore paragraph 38-190(4)(a) is satisfied.

You have submitted that your supply is provided to another entity outside of Australia, being Company B, such that paragraph 38-190(4)(b) is satisfied. However, you have not provided sufficient evidence to demonstrate that your supply is being provided to Company B.

Therefore paragraph 38-190(4)(b) is not satisfied. As paragraph 38-190(4)(b) is not satisfied, subsection 38-190(4) does not apply such that paragraph (a) of Item 3 is not satisfied. Consequently, your supplies of Promotion Activities under the Agreement are not GST-free under item 3 of subsection 38-190(1).