Edited version of private advice

Authorisation Number: 1051787433884

Date of advice: 08 December 2020

Ruling

Subject: Goods and services tax and supply of services made to a non-resident and provided to an Australian company

Question

Do you need to include GST when invoicing the non-resident company for your supply of the services that are listed in Appendix 1 in the Agreement (Listed Services) to the non-resident company and provided to an Australian company in Australia?

Answer

No, you do not need to include GST when invoicing the non-resident company for your supply of the Listed Services to the non-resident company and provided to an Australian company in Australia. The supply of the Listed Services is a GST-free supply under item 2 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Relevant facts

You are an Australian company that is registered for GST.

You entered into a Product Service Agreement (Agreement) with a company located outside Australia (non-resident company), under which you agreed to supply the services listed in Appendix 1 of the Agreement. You are paid for your services as per the Payment Schedule in Appendix 2 of the Agreement. We have received a copy of the Agreement.

The non-resident company is not registered for GST and has no presence in Australia.

You act as an independent contractor and not as an employee of the non-resident company when performing your services under the Agreement.

The Agreement is for an Australian project (Project). The Project relates to the sale of an electronic transformer made by the Australian distributor of the non-resident company to a GST registered Australian company.

The Australian distributor imported the electronic transformer from overseas and when the importation was cleared it was transported to the logistics of the Australian company. The transformer will be installed by the Australian company in Australia.

Your role in the Project is to provide (1) project assistant services (2) pre-delivery logistics, testing and release services and (3) after sales and product support services (all 3 together 'Listed Services') to the Australian company under the Agreement with the non-resident company.

None of the Listed Services is a supply of work physically performed on the transformer.

Regarding the Listed Services you advise the following:

•  You are not required to go to the site when performing all the services listed under 'Project Services'. All services were performed at the freight forwarder's premises before delivery and release.

•  You have performed all the services for Item A and B in Appendix 2.

•  The aftersales service & product support is made only as requested by the non-resident company and only within the warranty period. The After sales Service and Product Support is an assessment and management service. The basis of the work is on-site assessment of the transformer and reporting, customer support and warranty management.

•  You are responsible to assess the maintenance of the transformer while it is under warranty but does not include repairing the transformer. Any work that must be done on the transformer falls outside the Agreement and is based on the report you have provided after an assessment is done.

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

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

a)    the supply is for consideration; and

b)    the supply is made through a business that the supplier carries on; and

c)    the supply is connected with Australia; and

d)    the supplier is registered for GST.

However, the supply is not a taxable supply to the extent that the supply is GST-free or input taxed.

When you supply the Listed Services paragraphs (a) to (d) in section 9-5 of the GST Act are satisfied as:

a)    you make the supply for consideration; and

b)    the supply is made through a business that you carry on; and

c)    the 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.

Therefore, your supply of the Listed Services is a taxable supply unless it is GST-free or input taxed.

Your supply of the Listed Services is not an input taxed supply.

GST-free supply

Relevant to your supply of the Listed Services to the non-resident company is item 2 in the table in subsection 38-190(1) of the GST Act (item 2).

Under item 2 a supply of anything other than goods or real property to a non-resident who is not in Australia in relation to the supply when the supply is done is GST-free if:

a)    the supply of the thing is neither a supply of work performed on goods located in Australia nor a supply that is directly connected with real property in Australia; or

b)    the non-resident acquires the thing while carrying on its business overseas and the non-resident is not registered and is not required to be registered for GST.

Paragraph (a) of item 2

Goods and Services GSTR 2003/7 provides guidance on when a supply is a supply of work physically performed on goods and when a supply is directly connected with real property.

The following are relevant paragraphs from GSTR 2003/7:

21. Under items 1, 2 and 3 it is only where the connection between the supply and the goods or real property is a direct one that the location of goods or real property is regarded as the place where consumption occurs. The addition of the adverb 'directly' to the phrase 'connected with' implies a more emphatic connection between the supply and goods or real property. The inference is that the supply is so closely aligned with goods or real property that it is appropriate to treat the location of the goods or real property as the place where consumption occurs.

22. We consider, therefore, that the expression 'directly connected with' contemplates a very close link or association between the supply and goods or real property. (This is discussed further at paragraphs 113 to 134 of the Explanations section of the Ruling.)

23. The goods or real property must, in our view, be particular goods or real property for this very close connection to exist. A supply that is connected with goods or real property in general, rather than with particular goods or real property, does not have a sufficiently close connection with goods or real property for that connection to be a direct one.

57. The range of supplies that are directly connected with goods includes supplies of work physically performed on goods. That is, a supply of work physically performed on goods is always directly connected with goods. However, not all supplies directly connected with goods are also supplies of work physically performed on goods. A supply of work physically performed on goods requires a much closer connection with the goods: it requires a physical intervention with the goods. For example, a supply of legal services in preparing an agreement for the lease of goods is directly connected with goods but it is not a supply of work physically performed on goods as there is no physical intervention with the goods.

68. In many cases it is self-evident that a supply is a supply of work physically performed on goods. However, sometimes a supply must be analysed to determine whether it is properly characterised as 'a supply of work physically performed on goods'. If the supply includes work physically performed on goods but that work is ancillary to some other dominant part of the supply that is not work physically performed on goods, then that supply is not characterised as a supply of work physically performed on goods. This depends on the particular facts of each supply.

69. For example, a supply of a report on the results of testing and analysing samples of goods is characterised as a supply of information or advice if the dominant part of the supply is the analysis of data to enable a professional opinion to be provided. The supply is not characterised as a supply of work physically performed on goods. The testing and analysis of samples of goods enables the information to be compiled and is ancillary to the supply of that information.

From the information given paragraph (a) in item 2 is satisfied when you make your supply of the Listed Services as:

•  the supply of the Listed Services is made to a non-resident company that is not in Australia in relation to the supply when the supply is done; and

•  From the information given the performed Listed Services has a direct connection with the transformer; however, none of these Listed Services are characterised as a supply of work physically performed on the transformer. In this instance the supply of the Listed Services is neither a supply of work performed on goods located in Australia nor a supply that is directly connected with real property in Australia.

Your supply of the Listed Services to the non-resident company is GST-free to the extent that it is not negated by subsection 38-190(3) of the GST Act.

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.

If subsection 38-190(3) of the GST Act applies, a supply covered by item 2 is negated from being GST-free and will be a taxable supply under section 9-5.

Paragraph 38-190(3)(b)) of the GST Act

Goods and Services Tax Ruling GSTR 2005/6 provides guidance on the application of paragraph (b) in subsection 38-190(3) of the GST Act. Paragraphs 59 and 61 in GSTR 2005/6 state:

59. The word 'provided' is used in subsection 38-190(3) to contrast with the term 'made' in item 2. In the context of section 38-190, the contrasting words indicate that if a non-resident contracts for a supply to be provided to another entity, the place of consumption should be determined with regard to the entity to which the supply is provided, not the entity to which the supply is made.

61. Thus the expression 'provided to another entity' means in our view that in the performance of a service (or in the doing of something), the actual flow of that supply is, in whole or part, to an entity that is not the non-resident entity with which the supplier made the agreement for the supply. The contractual flow is to one entity (the non-resident recipient) and the actual flow of the supply is to another entity.

You have an agreement with the non-resident company where you both agree that the Listed Services 1 are to be provided to the Australian company. In this instance paragraphs (a) and (b) in subsection 38-190(3) of the GST Act are satisfied as you are required to provide the Listed Services to another entity in Australia under the Agreement.

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

An entity is an 'Australian-based business recipient' of a supply that is made to it if:

•  the entity is registered;

•  the enterprise of the entity is carried on in Australia; and

•  the acquisition of the thing supplied to the entity 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.

The Australian company is registered for GST and the acquisition of the Listed Services would be for its business purposes. As such, the Australian company would be an Australian business recipient when you make the supply to it. Subparagraph 38-190(3)(c)(i) of the GST Act applies in relation to the supply of the Listed Services.

Where the Listed Services are provided to the employees or officers of the Australian company at the request of the non-resident company, subparagraph 38-190(3)(c)(ii) of the GST Act applies to your supply.

As subparagraphs (i) and (ii) apply, subsection 38-190(3) of the GST Act does not negate the GST-free status of the supply. The supply of the Listed Services is GST-free under item 2.

Subparagraph 38-190(3)(c)(iii) of the GST Act is not relevant as you are not required to provide the Listed Services to the employees or officers of the non-resident company in Australia.

Summary

Your supply of the Listed Services is a GST-free supply under item 2 when it is made to the non-resident and provided to the Australian company in Australia.