Edited version of private advice

Authorisation Number: 1051858345675

Date of advice: 5 July 2021

Ruling

Subject: GST and supply of services performed outside Australia

Question

Is your supply of services to the Australian entity GST-free under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) where the services are performed outside Australia on a Fly In Fly Out (FIFO) arrangement?

Answer

Yes. Your supply of services to the Australian entity is GST-free under item 3 in the table in subsection 38-190(1) of the GST Act where the services are performed outside Australia on a FIFO arrangement.,

Relevant facts and circumstances

The Australian entity entered into a contract with a non-resident entity as a subcontractor in relation to a project outside Australia.

Under its contract with the non-resident, the Australian entity is to provide services which comprise the following:

You have provided relevant clauses of your agreement which detail the obligations of the parties.

You entered into a verbal agreement with the Australian entity as a sub-subcontractor for the project. Under the agreement, you are to:

•                    Operate specialised plant;

•                    Supervise and train other subcontractors (those who subcontract with the Australian entity, and others who subcontract with the non-resident); and

•                    Provide advice directly to the Principal Contractor.

Your services are performed outside Australia on a FIFO arrangement. No services are provided in Australia under the agreement.

You directly receive instructions and directions from the non-resident primarily.

You have some interaction with the Australian entity regarding the services provided as the Australian entity also provides advice and procedural documentation to the non-resident.

The Australian entity does not have any employee or officer outside Australia at the time you provide the services.

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

Summary

Your supply of services to the Australian entity is GST-free under item 3 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act where the services are performed outside Australia on a FIFO arrangement.

Detailed reasoning

GST is payable on a taxable supply.

Section 9-5 of the A New Tax System (Goods and Services tax) Act 1999 (GST Act) 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.

(* denotes a term defined under section 195-1 of the GST Act)

Your supply of services to the Australian entity is made for consideration and in the course of your enterprise. The supply is connected with the indirect tax zone as it is made through an enterprise that you carry on in Australia. You are registered for GST. All the requirements in paragraphs 9-5(a) to 9-5(d) are satisfied; thus, the supply is a taxable supply unless it is GST-free or input taxed.

There is no provision in the GST Act under which your supply of services would be input taxed; thus, what remains to be determined is whether your supply would be GST-free.

Item 3 in the table in subsection 38-190(1) of the GST Act (item 3) provides that a supply of anything, other than goods or real property, is GST-free if:

a.            the supply 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

Item 3 does not apply to a supply of work physically performed on goods situated in the indirect tax zone when the thing supplied is done, or a supply directly connected with real property situated in the indirect tax zone.

Paragraph (a) of item 3

For the purpose of Item 3, subsection 38-190(4) of the GST Act provides that a supply is made to a recipient who is not in the indirect tax zone if:

a.            the supply is made 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.

You entered into a verbal agreement with an Australian resident entity, for the supply of services. It must then be determined whether the supply of the services is provided to another entity in the indirect tax zone.

A supply is provided to another entity if, in the performance of a service (or in the doing of something), the actual flow of that supply is to an entity that is not the recipient. The contractual flow is to the recipient and the actual flow of the supply is to another entity and thus the other entity is the providee.

The exact nature of a supply in any given situation depends on the facts and circumstances of the supply and the agreement made between the parties. In this regard, it is necessary to look at the whole arrangement for the supply (including the contractual arrangement) and the way in which the supply is carried out.

You make the supply of services which involve operation of a specialised plant and of supervision and training of other contractors outside Australia on a FIFO arrangement. There are no services performed in Australia. You directly receive instructions and directions from the non-resident. While you make the supply of services to the Australian entity, you provide the supply to other entities outside Australia. The supply is not provided to another entity in Australia.

Accordingly, you make the supply to a recipient who is not in Australia when the thing supplied is done. Paragraph (a) of Item 3 is satisfied.

Paragraph (b) of Item 3

Paragraph (b) of Item 3 requires the place of effective use or enjoyment of a supply to be determined (that is, whether the place is outside Australia). As paragraph (b) refers to the 'effective' use or enjoyment of the supply, it is necessary to inquire as to the entity that has the actual use or enjoyment of the supply.

Goods and Services Tax Ruling GSTR 2007/2 examines the circumstances in which the effective use or enjoyment of a supply takes place outside Australia for the purposes of paragraph (b) of Item 3.

Paragraphs 45 and 46 of GSTR 2007/2 contain our view that a supply is for consumption, and thus used or enjoyed, outside Australia if there is provision of the supply to the providee entity outside Australia. On the other hand, effective use or enjoyment of a supply does not take place outside Australia, if there is provision of the supply to the providee entity in Australia.

As we determined that you provide the supply of your services to entities outside Australia, the effective use or enjoyment of the supply takes place outside Australia. There is no provision of the supply to a providee entity in Australia. Therefore, paragraph (b) of Item 3 is satisfied.

Accordingly, the supply of services that you make to the Australian entity is GST-free under item 3 where the services are performed in outside Australia on a FIFO arrangement.