Edited version of private advice

Authorisation Number: 1051766758866

Date of advice: 5 November 2020

Ruling

Subject: GST and the supply of mass SMS services

Question

Is the supply of mass SMS services made by the non-resident company to offshore business owners a GST-free supply under section 38-570 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) where the SMSs are provided to the portable device of the individual located in Australia?

Answer

No, the supply of mass SMS services made by the non-resident company to offshore business owners is not a GST-free supply under section 38-570 of the GST Act where the SMSs are provided to the portable device of the individual located in Australia as the requirements in section 38-570 of the GST Act are not satisfied.

Relevant facts

You are a company incorporated outside Australia and registered for GST.

You supply mobile messaging services and specialise in delivering application to person (A2P) messaging solutions. You do not carry on an enterprise in Australia through a fixed place of business or for more than 183 days in a 12 month period in Australia. Further your activities are not carried on by any of the particular individuals who are in in Australia.

You supply mobile messaging services (SMS services) to Australian and overseas business customers under agreements you enter with them. The purpose of your SMS services is to make it possible for enterprises to communicate through SMS with their customer base wherever they are currently located. The customers make the payment directly to you for your supply of SMS services through their usual billing arrangement with you.

Regarding your supply of SMS services made to Australian and overseas customers, the messages are sent to recipients in Australia and offshore. You do not have any contract with local Australian telecommunication carriers for your supply of SMS Services in Australia. Instead you contract an Australian company to assist you in your supply of SMS services to your customers in Australia.

Supply to offshore business customers

You make supplies to offshore business customers of mass SMS services through your software as a service platform. The offshore customers are companies and they are not carrying on any business activity in Australia; they are not registered or required to be registered for GST.

However, the offshore businesses are engaged in Australia, for example, when some messages are received and/or sent by the holder of the portable device located in Australia through local Australian carriers (such as Telstra, Optus) or base stations and they are thereby required to access Australian traffic to enable delivery of the SMS. Your arrangement is with the overseas business and not with the individual holder of the portable device from/to which SMS messages are sent.

You contract with overseas carriers to deliver or receive mass SMSs for overseas businesses. You contract with an Australian company who in turn contracts with the local Australian carriers to enable delivery of the SMS message when the holder of the portable device is in Australia.

The contracts the Australian company has with local telecommunication carriers enable the delivery of SMS messages while the holder of the portable device is in Australia or overseas. The Australian company on-charges costs it has incurred with the local Australian telecommunication carriers to you for the SMS delivery services.

You have provided us with a copy of an agreement you have with an offshore business customer) and a copy of an invoice you have issued to an overseas customer.

The invoice issued to the overseas customer provides that there is a rental fee under the heading 'subscriptions'. Under the Traffic Charges is a list of the number of SMS made from each of the networks that was used to send the messages and the amount payable. The total payment is in EUR and no VAT was paid.

The Agreement with the offshore business provides that the offshore business licenses its product to the client and this product is used by the client to link into Networks worldwide. The client has a bulk message account with you and the client is billed according to the number of messages sent to countries listed in the agreement and as per price stipulated in the Agreement for each country.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 38-570

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.

Section 38-570 of the GST Act provides the requirements to be satisfied for telecommunications supplies made under arrangements for global roaming in Australia to be GST-free supplies.

Section 38-570 of the GST Act states the following:

1)    A *telecommunication supply is GST-free if:

(a) the supply is to enable the use in the indirect tax zone of a portable device for sending and receiving signals, writing, images, sounds or information by an electromagnetic system while the device is linked to:

(i) an international mobile subscriber identity; or

(ii) an IP address; or

(iii) another internationally recognised identifier;

containing a home network identity that indicates a subscription to a telecommunications network outside the indirect tax zone; and

(b) the supply is covered by subsection (2) or (3).

Supply by non-resident telecommunications supplier

2)    This subsection covers the supply if:

(a) the supply is made to the subscriber in connection with the subscription; and

(b) the billing of the subscriber for the supply is to an address outside the indirect tax zone; and

(c) the supply is made by a *non-resident that:

(i) *carries on outside the indirect tax zone an *enterprise of making *telecommunication supplies; and

(ii) does not *carry on in the indirect tax zone such an enterprise.

Supply by Australian resident telecommunications supplier

3)    This subsection covers the supply if:

(a) the supply is made by an *Australian resident that is:

(i) a carrier, or a carriage service provider, as defined in the Telecommunications Act 1997; or

(ii) an internet service provider as defined in Schedule 5 to the Broadcasting Services Act 1992; and

(b) the supply is provided to the user in the indirect tax zone of the device; and

(c) the supply is made to a *non-resident that:

(i) *carries on outside the indirect tax zone an *enterprise of making *telecommunication supplies; and

(ii) does not *carry on in the indirect tax zone such an enterprise.

The precondition for section 38-570 is that the telecommunication supply is to be made by a telecommunication supplier.

Goods and Services Tax Determination GSTD 2012/10: when are telecommunication supplies made under arrangements for global roaming in Australia by an Australian resident telecommunication supplier GST-free under subsection 38-570(1) and subsection 38-570(3) of the A New Tax System (Goods and Services Tax) Act 1999? (GSTD 2012/10) provides guidance on the application of section 38-570 of the GST Act.

According to paragraph 3 in GSTD 2012/10, a 'telecommunication' supplier means a carrier or a carriage service provider as defined in the Telecommunications Act 1997 or an Internet service provider as defined in Schedule 5 to the Broadcasting Services Act 1992.

GSTD 2012/10 further states the following amongst other things:

9. Telecommunication supplies include the supply of:

·         telephone calls;

·         transmission element of international data exchange;

·         call back services;

·         the provision of leased lines, circuits and global networks;

·         e-mail and Internet access;

·         satellite transmissions;

·         the related transfer or assignment of the right to use capacity for the transmission, emission or reception; and

·         the provision of access to global information networks.

10. However, telecommunication supplies do not include the following supplies delivered through telecommunication media:

·         licences to use intellectual property such as computer software; and

·         consultancy services provided via the Internet.

11. The definition of a telecommunication supply captures the means of communication, but not the content, where the supply of that content involves a different type of supply. For example, a separate charge for a pay-per-view sporting event is not consideration for a telecommunication supply.

12. Subsection 38-570(1) refers to a telecommunication supply made under arrangements for global roaming in Australia.

13. For the purposes of paragraph 38-570(1)(a), a telecommunication supply must enable the use of a portable device in Australia while the device is linked to:

·         an International Mobile Subscriber Identity number in the case of phone roaming; or

·         an Internet Protocol (IP) address in the case of Internet roaming; or

·         another internationally recognised identifier;

containing a home network identity that indicates a subscription to a telecommunication network outside Australia.

15. Under paragraph 38-570(1)(b) the supply must also satisfy the requirements of subsection 38-570(2) or subsection 38-570(3). Subsection 38-570(2) (supply made by non-resident telecommunication supplier), although referred to, is not discussed in this Determination.

16. Subsection 38-570(3) applies to the supply made by an Australian resident telecommunication supplier under a global roaming arrangement.

17. The supply must be made by an Australian resident carrier, or carriage service provider or internet service provider and provided to the user in Australia of the portable device described in subsection 38-570(1).

The Explanatory Memorandum for the Tax Laws Amendment (2010 GST Administration Measures No. 3) Bill 2010 states the following regarding section 38-570 of the GST Act:

2.22 New section 38-570 means that telecommunication supplies made under arrangements for global roaming in Australia are GST-free. Specifically, the supply by an Australian resident telecommunication supplier (a carrier or carriage service provider as defined in the Telecommunications Act 1997 or an Internet service provider as defined in Schedule 5 to the Broadcasting Services Act 1992) made to a non-resident telecommunication supplier and provided to a subscriber of the non-resident telecommunication supplier while roaming in Australia, is GST-free. Further, the supply by the non-resident telecommunication supplier of global roaming in Australia, made to its subscriber visiting Australia, is also GST-free.

2.23 Subsection 38-570(1) describes a telecommunication supply under a global roaming arrangement that will be GST-free. Such a supply is to enable the use of a portable device (such as a mobile phone or laptop computer) in Australia while the device is linked to an International Mobile Subscriber Identity number (in the case of phone roaming), an Internet Protocol address (in the case of Internet roaming), or another internationally recognised identifier containing a home network identity which indicates that the subscription is to a telecommunication network outside Australia. The supply is made by either a non-resident telecommunication supplier or an Australian resident telecommunication supplier. [Schedule 2, item 1, subsection 38-570(1)]

2.24 Subsection 38-570(2) describes the supply by the non-resident telecommunication supplier under a global roaming arrangement. This supply is made to the subscriber (the visitor to Australia) in connection with their subscription to a telecommunication network outside Australia, the supply is billed to the subscriber's address outside Australia and the supply is made by a non-resident telecommunication supplier that carries on the enterprise of making telecommunication supplies outside Australia and not in Australia . [Schedule 2, item 1, subsection 38-570(2)]

Example 2.1

UK Phone Ltd, a telecommunication supplier in the United Kingdom carries on outside Australia an enterprise of making telecommunication supplies and does not carry on in Australia such an enterprise (a non-resident telecommunication supplier).

Charlie (a subscriber) resides in the United Kingdom and has a contract with UK Phone Ltd (a subscription). Under that contract, UK Phone Ltd supplies Charlie with telecommunication services including mobile phone and Internet services in the United Kingdom and global roaming in Australia. Charlie is billed to his address in the United Kingdom.

To supply Charlie (and its other customers) with global roaming in Australia, UK Phone Ltd enters into a wholesale agreement with an Australian telecommunication supplier, Aus Phones Plus, to provide access to its Australian network to subscribers of UK Phone Ltd roaming in Australia.

While in Australia and global roaming on an Australian network, Charlie uses his smart phone under contract with UK Phone Ltd to make and receive phone calls and emails, use SMS, access the Internet and picture messaging etc.

Despite Charlie being physically located in Australia and global roaming on an Australian telecommunication network, the supply of global roaming is GST-free (both the supply by the non-resident telecommunication supplier and the supply by the Australian resident telecommunication supplier). This is because:

·         Charlie is using a portable device in Australia for sending and receiving signals, writing, images, sound and information and the device is linked to an international mobile subscriber number containing a home network identity that indicates a subscription to a telecommunication network in the United Kingdom (that is, outside Australia) - paragraph 38-570(1)(a);

·         The supply is made to Charlie in connection with his subscription to UK Phone Ltd - paragraph 38-570(2)(a);

·         Charlie is billed for the supply to his address in the United Kingdom - paragraph 38-570(2)(b);

·         UK Phone Ltd carries on outside Australia an enterprise of making telecommunication supplies and does not carry on in Australia such an enterprise - paragraph 38-570(2)(c);

·         Aus Phones Plus is an Australian resident carriage service provider and provides Charlie, the user in Australia of the device, with telecommunication supplies - subparagraph 38-570(3)(a)(i) and paragraph 38-570(3)(b); and

·         Aus Phones Plus makes the supply to UK Phone Ltd, a non-resident telecommunication supplier - paragraph 38-570(3)(c).

While in Australia, Charlie's smart phone is damaged and he acquires a replacement. Charlie inserts his Subscriber Identity Module (SIM) card into that phone so that he is able to continue to access his subscription to UK Phone Ltd. The supply of global roaming is still GST-free (both the supply by the non-resident telecommunication supplier and the supply by the Australian resident telecommunication supplier). This is because:

·         Charlie is using a portable device in Australia for sending and receiving signals, writing, images, sound and information and the device is linked to an international mobile subscriber number containing a home network identity that indicates a subscription to a telecommunication network in the United Kingdom (and so on).

Example 2.2

NZ Telco carries on outside Australia an enterprise of making telecommunication supplies and does not carry on in Australia such an enterprise. A New Zealand resident company, NZ Co, has a mobile phone agreement with NZ Telco that enables employees of NZ Co to utilise mobile services in New Zealand and global roam in Australia (the supply by the non-resident telecommunication supplier).

Hayley, an employee of NZ Co, uses her mobile phone in Australia to call an Australian business contact, make calls to New Zealand and receive calls from Australia and New Zealand. The calls made and received involve usage of Aus Telco's Australian network as permitted under the international roaming agreement between NZ Telco and Aus Telco (the supply by the Australian resident telecommunication supplier).

The supply by the non-resident telecommunication supplier made by NZ Telco to NZ Co and the supply by the Australian resident telecommunication supplier made by Aus Telco to NZ Telco and provided to Hayley in Australia are both GST-free. This is because:

·         Hayley is using a portable device in Australia for sending and receiving signals, writing, images, sound or information and the device is linked to an international mobile subscriber number containing a home network identity that indicates a subscription to a telecommunication network in New Zealand (that is, outside Australia) - paragraph 38-570(1)(a);

·         The supply is made to NZ Co in connection with its subscription to NZ Telco - paragraph 38-570(2)(a);

·         NZ Co is billed for the supply to its address in New Zealand - paragraph 38-570(2)(b);

·         NZ Telco carries on outside Australia an enterprise of making telecommunication supplies and does not carry on in Australia such an enterprise - paragraph 38-570(2)(c);

·         Aus Telco is an Australian resident carrier and provides Hayley with telecommunication supplies in Australia - subparagraph 38-570(3)(a)(i) and paragraph 38-570(3)(b); and

·         Aus Telco makes the supply to NZ Telco, a non-resident telecommunication supplier - paragraph 38-570(3)(c).

Example 2.4

Cheap Fones Pty Ltd carries on in Australia an enterprise of making telecommunication supplies. Edwin, a United Kingdom resident who is currently in Australia, enters into a telecommunication contract with Cheap Fones Pty Ltd (an Australian resident telecommunication supplier) to provide him with mobile telephone services, including global roaming, while he is in Australia. The supply of telecommunication services by Cheap Fones Pty Ltd to Edwin is not covered by new section 38-570 and is subject to GST.

Although Edwin is a non-resident, he is a subscriber of an Australian resident telecommunication supplier. There is no supply between a non-resident telecommunication supplier and its subscriber and consequently no supply made by an Australian resident telecommunication supplier to a non-resident telecommunication supplier to provide a subscriber of the non-resident telecommunication supplier with access to the Australian resident telecommunication supplier's network in Australia. The supply made by Cheap Fones Pty Ltd is a taxable supply (assuming the requirements of section 9-5 are satisfied).

If Edwin were to visit an Internet café in Australia to access Internet services, the supply of Internet access to Edwin by the Internet café would also be a taxable supply as it is not a supply between a non-resident telecommunication supplier and its subscriber.

From the facts given, your software enables your overseas customer to send and receive mass SMS internationally including Australia. You have not entered into an agreement with an Australian telecommunication supplier for global roaming in Australia and instead you have contracted your subsidiary company to supply you with the global roaming.

After considering all the facts given, you do not satisfy the requirements in section 38-570 of the GST Act as:

·         referring to the Agreement you have with the overseas business, the overseas business is not subscribing to a telecommunication network under the agreement. In the agreement you are supplying your customer with SMS services when you allow your customer to use your software to send and receive bulk SMS internationally through your server. In return you will invoice them for the number of SMS sent and a monthly fee for the use of your software.

·         you are not a telecommunication supplier as your business is not a carrier or carriage service provider as defined in the Telecommunications Act 1997 or an Internet service provider as defined in Schedule 5 to the Broadcasting Services Act 1992.

·         You have not entered into an agreement with an Australian telecommunication supplier for the global roaming in Australia hence the requirement in subsection 38-570(3) of the GST Act is not satisfied.

In this instance your supply of SMS services is not GST-free under section 38-570 of the GST Act.