Edited version of private advice

Authorisation Number: 1051758471485

Date of advice: 29 September 2020

Ruling

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

Question

Is the supply of services made by the Australian companyto the non-resident company under the Master Agreement a GST-free supply under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when these services were provided to the personnel of an Australian business in Australia and to the employees of the non-resident company when they were in Australia?

Answer

Yes, the supply of services made by the Australian companyto the non-resident company under the Master Agreement is a GST-free supply under item 2 in the table in subsection 38-190(1) of the GST Act when these services were provided to the personnel of an Australian business in Australia and to the employees of the non-resident company when they were in Australia.

Relevant facts

You are an Australian company and registered for GST.

You have a Master Agreement with a non-resident company in which you agreed to provide your services to the personnel of an Australian business and to the employees of the non-resident when they were in Australia in relation to your supply.

The non-resident company is not registered for GST and is of the view it is not required to be registered for GST.

The Australian business is the customer of the non-resident company and is acquiring the supply of the services for business purposes. The Australian business is registered for GST.

The supply of services made to the non-resident company is neither a supply of work performed on goods located in Australia nor a supply that is directly connected with real property in Australia.

You invoiced the non-resident company for your supply of services made under the agreement.

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.

Summary

Your supply of services made to the non-resident company under the Master Agreement and provided to its employees when they were in Australia in relation to your supply and to the personnel of the Australian business in Australia is a GST-free supply under item 2 in the table in subsection 38-190(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 the above must be satisfied for your supply of services to the non-resident company to be a taxable supply.

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

GST-free supply

Relevant to your supply of 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 services satisfies paragraph (a) of item 2 as:

·         your supply of 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 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.

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 services is made under an Agreement with the non-resident company and under the Agreement you are required to provide the supply to the employees of the non-resident company when they were in Australia and to the personnel of the Australian business in Australia.

Paragraph (c) of 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:

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.

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.

Under the Agreement you are required to provide your services to the personnel of the GST registered Australian business and the business is acquiring the services for business purposes. In this case, requirements (i) and (ii) apply to your supply of services made to the non-resident company and provided to the personnel of the Australian business in Australia. In this instance subsection 38-190(3) of the GST Act does not negate the GST-free status of your supply of services under item 2.

Accordingly, your supply of services that is made to the non-resident company and provided to the personnel of the Australian business in Australia is GST-free under item 2.

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

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 cocktail parties, tickets for sightseeing tours.

From the information provided the non-resident company had employees in Australia in relation to your supply and you were required to provide your services to these employees. Since the employees acquired your services for the non-resident company's business purposes, Requirement (iii) applies to the supply of services you provided to the non-resident company's employees in Australia. In this instance subsection 38-190(3) does not negate the GST-free status of your supply of services under item 2.

Accordingly, your supply of services that is made to the non-resident company and provided to its employees in Australia is GST-free under item 2.

Summary

Your supply of services made to the non-resident company and provided to its employees when they were in Australia in relation to your supply and to the personnel of the Australian business is GST-free under item 2.