Edited version of private advice

Authorisation Number: 1051864685046

Date of advice: 13 July 2021

Ruling

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

Question 1

Was the supply of consultancy services you made to company A a GST-free supply under section 38-190 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, the supply of consultancy services you made to company A was a GST-free supply under table item 2 in subsection 38-190(1) of the GST Act.

Question 2

Is the supply of consultancy services you make to company B a GST-free supply under section 38-190 of the GST Act?

Answer

Yes, the supply of consultancy services you make to company B is a GST-free supply under table item 2 in subsection 38-190(1) of the GST Act.

Relevant facts

You are a consultant specialising in a specific industry, specifically in the area of distributing and marketing of goods in the Asia Pacific region. Your business is in Australia and you are registered for GST

Supply to Company (A)

Company A is a non-resident company that is privately owned and sells their products to distributors including Australian distributors. In 2015 you entered into an Agreement to supply consultancy services to company A. You do not interact with any Australian registered entities beyond your consultancy role at Company At.

The specific nature of the services you made and provided were:

·         Provide recommendations on the optimal route to market company A's brands in each market in the APAC

·         Provide advice to company A and act as liaison between company A's Management and local distributor on matters relating to their direct relationship - including:

o   Negotiation and monitoring of contract

o   Development & monitoring of Marketing Plans

o   Overseeing processing of financial payments between parties (Roust and distributors)

·         Provide market intelligence to company A on each market - with a view to providing context to the marketing recommendations and plans

The nature of the relationship between Company A and the distributors was that company A would sell to the distributors its owned brands and the distributors would manage the marketing and selling of these brands within the designated market.

Your consultancy had no direct relationship with the distributors and you were not a party to any of the financial transactions between these two parties.

The services you provided to company A were:

·         Recommendations and proposals on ways to improve their business in APAC

·         Reports and market intelligence on the APAC markets and specifically on the categories in which company A operated in

·         Performance reports on company A's brands on a monthly basis - as provided to you by distributors

Most of your services were provided via e-mail or via teleconference presentations, and on the infrequent occasion information was supplied via face-to-face meetings (usually outside Australia).

The supply of your services was usually given to the CEO, Finance Director, Global Marketing team and the owner of company A and they are all located outside Australia.

You also acted as a disseminator of information from company A to the distributors - around global marketing initiatives.

You were in contact with the Australian distributor when supplying your services to company A. You do not know for certain whether the Australian distributor is registered for GST since you only provided consulting advice to company A with information you have obtained from the distributor and other sources. The reasons for your contacts were typically:

• Seek information on the performance of company A's brands and general market intelligence so you could relay this back to company A
• Disseminate information received from company A directly that related to global marketing plans or initiatives. You were responsible for passing this information on to the distributors
• Act as a 'go between' on any issues relating to the transactions between distributor and company At
• Work with the distributor marketing team on the marketing plans for them to execute in marketing the company A's brands.

You are presented with the global brand advertising and marketing plans by company A which outlines how they are going to go to the market. In response the distributors develop same with their sales and marketing team due to the different conditions in Australia.

Throughout the year you seek information from the distributors on the performance of the brand against the marketing plans in place and reports same to company A. You may then provide guidance to adjust the plans in accordance with the directions from company A regarding changes that might be required to the plan to ensure that it is in line with the global objective. You do not develop or design marketing plan for the distributors.

Annually you present to company A a summary of the marketing plans for each of the markets for their approval and feedback.

Company A had no registered entity in Australia and was therefore not registered for GST as it did not trade in Australia. Apart from the direct sale of their products imported by the Australian distributor from overseas, there was no business activity that company A undertook in Australia either directly or via any agents

Company A had no other representation or employee in Australia (or APAC) at any time when you supplied your services to company A.

You were paid for the said services and received incentives based on the performance of the brands in the region.

Supply to company B

You ceased your role at company A and had an Agreement company B, a company located outside Australia. In the Agreement you agreed to provide consultancy services to company B regarding company B's products. You have provided us with a copy of the executed contract you have with company B.

Company B is a privately owned overseas business and it sells its products to distributors including Australian distributors. However, you do not interact with any Australian registered entities beyond your consultancy role with company B.

You commenced with company B as a consultant for them to build their business and relationships in the APAC region. The scope of this service was very similar to that provided to company A, specifically:

• Provide market intelligence and proposals on each of the markets in APAC - including distributor landscape and recommendations, category performance, pricing and potential market entry or market development plans
• Provide monthly performance reports monitoring performance and provide updates on in market initiatives.

The services that you provide are sent direct to company B's employees based outside Australia, including the Global Managing Director, the Global Marketing team and the Finance Director.

Company B is not a registered business in Australia and is not registered for GST. Other than the export of company B's brands directly to an Australian importer, company B does no other business activity in Australia. Company B has no employee or representative based in Australia.

You are in contact with the Australian distributor, and all appointed company B's distributors in the APAC region. You do not know for certain whether the Australian distributor is registered for GST since you only provide consulting advice to company B with information you have obtained from the distributors and other sources.

The scope of your contacts with the distributors are varied, but typically done for one of the following reasons:

• Seek information on the performance of ISP brands and general market intelligence so taxpayer could relay this back to company B
• Disseminate information directly that related to global marketing plans or initiatives received from company B. You are responsible for passing this information on to the distributors
• Act as a 'go between' on any issues relating to the transactions between distributor and company B
• Work with the distributor marketing team on the marketing plans for them to execute in marketing company B's brands.

You are presented with the global brand advertising and marketing plans of company B which outlines how they are going to go to the market. In response the distributors develop same with their sales and marketing team due to the different conditions in Australia.

Throughout the year you seek information from the distributors on the performance of the brand against the marketing plans in place and reports same to company B. You may then provide guidance to adjust the plan in accordance with the directions from company B regarding changes that might be required to the plan to ensure that it is in line with the global objective. You do not develop or design marketing plan for the distributors.

Annually you present to company B a summary of the marketing plans for each of the markets for their approval and feedback.

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.

Question 1 and 2

Detailed reasoning

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

a)    the supply is made for consideration; and

b)    the supply is made in the course of the enterprise that the supplier carries on; and

c)    the supply is connected with Australia; and

d)    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.

When you supply your consultancy services to companies A and B you satisfy paragraphs (a) to (d) in section 9-5 of the GST Act as:

a)    you make your services for consideration; and

b)    you make your services through an enterprise that you carry on; and

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

d)    you are registered for GST.

Your supply of consultancy services is a taxable supply unless it is GST-free or input taxed.

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

GST-free supply

Relevant to your supply of consultancy services to companies A and B is table item 2 in subsection 38-190(1) of the GST Act (item 2).

Item 2 provides that a supply of anything other than goods or real property to a non-resident who is not in Australia in relation to the supply is GST-free if:

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

b)    the non-resident is neither registered nor required to be registered for GST and the acquisition is for the purpose of the overseas business carried on by the non-resident.

From the information given your supply of consultancy services to companies A and B satisfies paragraph (a) of item 2 as:

·         Companies A and B are businesses located overseas. They do not have any presence or employees in Australia and do not carry any activities in Australia. They only sell their goods to the distributors who will import them into Australia. In this instance companies A and B as non-resident of Australia are not in Australia in relation to your supply at the time your services are done.

• Your supply of consultancy 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.

Accordingly, your supply of consultancy services is GST-free under paragraph (a) of item 2 and subject to subsection 38-190(3) of the GST Act.

Subsection 38-190(3) of the GST Act

Subsection 38-190(3) of the GST Act was amended in 2016 and the date of effect of the new subsection 38-190(3) is 1 October 2016. Since the private ruling is from 2015, we will consider the previous and current subsection 38-190(3) of the GST Act

Subsection 38-190(3) of the GST Act before 1 October 2016

Subsection 38-190(3) provides that, without limiting subsection 38-190(2), a supply covered by item 2 in the 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.

Subsection 38-190(3) of the GST Act from 1 October 2016

The newsubsection 38-190(3) of the GST Act states:

Without limiting subsection (2) or (2A), a supply covered by table item 2 is not GST-free if:

(a)  it is a supply under an agreement enter 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 the indirect tax zone; 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 had the supply been made to it;

(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.

(* is a defined term in section 195-1 of the GST Act)

Since you interact with the Australian distributor it is relevant to consider whether subsection 38-190(3) of the GST Act applies to your supply.

You advised that you liaise with the Australian distributor and the reason for doing so is mainly to obtain information on the marketing and sales made by the distributor so that you can input these information in your monthly and annual reports to companies A and B. The collected information enables you to provide marketing recommendations and plans to companies A and B.

From the above, we do not consider subsection 38-190(3) of the GST Act applies to your supply of consultancy services to companies A and B since you are gathering information and not providing your supply of consultancy services to the Australian distributor when contacting the Australian distributor. The information gathered enable you to supply your services to companies A and B.

Your supply of consultancy services to companies A and B is therefore GST-free under paragraph (a) of item 2.