Edited version of private advice

Authorisation Number: 1051764164597

Date of advice: 7 October 2020

Ruling

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

Question

Is the supply of consulting services made by the Australian company to the non-resident company a GST-free supply under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No. The supply of consulting services made by the Australian company to the non-resident company is a taxable supply under section 9-5 of the GST Act.

Relevant facts

You are an Australian company and are registered for GST.

You provided us a copy of the Consulting Agreement (the Agreement) which you have entered into with a non-resident company. You are an independent contractor and not an employee, partner or joint venturer of the Company when performing the services listed in the Appendix in the Agreement.

You receive a consultant fee which is calculated at the rates set forth in the Appendix of the Agreement. You are also reimbursed for reasonable direct out of pocket expenses incurred in performing the services, including travel expenditures, meals and lodging at actual cost plus an administrative fee of 10% for all expenses advanced by you. For out of pocket expenses exceeding AU$XX, you will receive reimbursement provided this expense has been approved by the Company prior to you incurring the expenses.

The non-resident company is a publicly company listed on the New York Stock Exchange with operations in and outside Australia.

Your supply under the Agreement was to provide recommendations and advice on improving the Australian operations of the non-resident company. You were not required to provide the advice to other entities under the contract.

You have reviewed some of the Australian operations of the non-resident company, and have provided recommendations to the Chief Operating Officer, (COO) and the Chief Executive Officer (CEO) who are based outside Australia.

The non-resident company has subsidiaries in Australia that hold the relevant assets, etc. They have an electronic data room from which you accessed most of the data you reviewed. Some other information was sent by email to you.

You interacted with the President of the Australian operations as well as with its technical and operational staff, in order to fully understand the data they supplied to you for use in developing your report. Your interaction was by phone calls and Zoom discussions and the purpose of the interaction is to interrogate the performance of the data you have been given as well as details of the strategic plans included from the non-resident company.

You have visited the operations in Australia to provide context to the data you are reviewing and to see the physical assets.

The President of the Australian operations was not part of the weekly call you held and did not participate in the discussion of your draft report. The participants to the weekly call and discussion of your draft report were the CEO and COO of the non-resident company.

The CEO and COO of the non-resident company would forward your final report to the President of Peabody of the Australian operations for comment. The comment was provided directly to the CEO and COO and not to you.

Some Board members as part of the non-resident company discussed your review via Zoom meeting after the CEO has forwarded your report to them.

To your knowledge the non-resident company is not registered for GST.

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 consulting services to the non-resident company is a taxable supply under section 9-5 of the GST Act.

Reasoning:

A supply is a taxable supply under section 9-5 of the GST Act if:

(a)  you make the supply for consideration;

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

(c)    the supply is connected with Australia, and

(d)    you are 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.

Your supply of consulting services to the non-resident company satisfies paragraphs 9-5(a) to 9-5(d) of the GST Act as:

(a)  you make the supply for consideration; and

(b)  your supply is made in the course of an enterprise that you carry on in Australia; and

(c)   your supply is connected with Australia as the supply is done through an enterprise that you carry on in Australia; and

(d)  you are registered for GST.

Therefore, your supply of consulting services is a taxable supply unless it is a GST-free or input taxed supply.

There is no provision under the GST Act that makes your supply of consulting services an input taxed supply.

GST-free supply

Relevant to your supply of consulting services that you make to the non-resident company is item 2 in the table in subsection 38-190(1) of the GST Act (item 2).

Item 2 provides that a supply of a thing (other than goods or real property) made to a non-resident who is not in Australia when the thing supplied is done is GST-free if:

(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.

Precondition of item 2 - non-resident is 'not in Australia'

The requirement that the non-resident in item 2 is not in Australia when the thing supplied is done is a requirement that the non-resident is 'not in Australia in relation to the supply' when the thing supplied is done.

Goods and Services Tax Ruling GSTR 2004/7 (available at https://www.ato.gov.au/law/view/document?docid=GST/GSTR20047/NAT/ATO/00001 ) provides guidance on when a non-resident is 'not in Australia' for the purposes of item 2.

Company in Australia in relation to the supply

Companies, unlike individuals, may have a presence in more than one location. To work out whether a company is in Australia in relation to the supply, it is necessary to examine the role the presence of the company in Australia plays in relation to the supply.

Clearly if the supply to a non-resident company is solely or partly for the purposes of the Australian presence, for example its Australian branch, representative office or agent, the company is in Australia in relation to the supply. There is a connection between the supply and the presence in Australia that is not a minor connection.

If the supply is not for the purposes of the Australian presence, but that Australian presence is involved in the supply, the non-resident company is 'in Australia in relation to the supply', unless the only involvement is minor.

If the involvement of the Australian presence is limited to the carrying out of simple administrative tasks on behalf of the company, as a matter of administrative convenience, that involvement is minor. The connection between the supply and the presence is so minor in nature that it is reasonable to conclude that the presence of the company in Australia is not in relation to the supply.

Tasks of a simple administrative nature include:

·         payment of, or arranging for payment of, the supplier's invoice on behalf of the company;

·         passing on an e-mail to the company;

·         being a point of telephone contact to pass on messages to the company;

·         being a mailing address or delivery contact on behalf of the company;

·         being a point of contact for a visiting representative of the company; and

·         on-forwarding information to the company.

GSTR 2004/7 provides some examples on when a non-resident is in Australia in relation to a supply. Below are some of the examples:

Example 15 - representative office in Australia in relation to the supply

362. A United Kingdom company ('UK Co') has a representative office in Australia at which it carries on business. UK Co engages Aus Finance, an Australian company, to give advice on the possible acquisition of shares in an Australian company. UK Co instructs its representative office in Australia to give responses to the questions posed by Aus Finance and any other information that may be of assistance to Aus Finance. Some information is supplied in writing, and at other times the information is supplied at meetings held between Aus Finance and the Australian representative office of UK Co.

363. The role of the representative office in Australia is not limited to administrative tasks of a minor nature. UK Co is in Australia in relation to the supply. Therefore, the supply is not GST-free under item 2 or item 3.

Example 40 - supply to a non-resident company with an Australian branch

505. Interpret Aus, an Australian company, has a contract with UK Chemicals, a non-resident company, to analyse data and provide a written report for the purposes of the UK operations. Interpret Aus has never dealt with UK Chemicals before and asks UK Chemicals if it has any business presence in Australia. UK Chemicals advises that it has a branch in Western Australia, which supplies agricultural chemicals in that State. Interpret Aus checks the ASIC website and notes that UK Chemicals is registered as a foreign company. UK Chemicals is in Australia.

506. However, the Australian branch of UK Chemicals has no involvement in the supply from Interpret Aus. The Australian branch does not negotiate, discuss, give information, or have any other involvement in the supply. Also, the supply is not for the purposes of the Australian branch. Accordingly, UK Chemicals is not in Australia in relation to the supply and the supply is GST-free under item 2 provided the other requirements of that item are met.

The non-resident company is a publicly listed company with operations in and outside Australia. It has engaged you to review and provide recommendations regarding some of its Australian operations to its Chief Operating Officer.

The President of the Australian operations as well as its technical and operational staff provided you with data to assist you to write your report and also you had meetings with them to interrogate the performance of the data you were given and details of the strategic plans included from the non-resident company. You had site visits with the staff to see the physical assets and receive context to the data you are reviewing.

From the above we do not consider the involvement of the non-resident company's Australian presence in relation to your supply was minor since it was not limited to administrative tasks of a minor nature. The involvement of the Australian presence was significant that it enabled you to conduct a review of the Australian operations which is the main component of your supply of consulting services to the non-resident company. As such, we consider that the non-resident company was in Australia in relation to your supply. The precondition of item 2 is not satisfied; and thus, your supply of consulting services is not GST-free. The supply is a taxable supply under section 9-5 of the GST Act.