Edited version of private advice

Authorisation Number: 1051925354328

Date of advice: 30 November 2021

Ruling

Subject: GST and supplies made through an EDP

Question 1A

In respect of the Online Services Licenses supplied by entity A through the Marketplace of entity B to Australian business customers / Australian registered partners, does the agreement between the parties constitute an effective agreement as referred to in paragraph 84-60(1)(b) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Paragraph 84-60(1)(b) of the GST Act does not specify the requirements that must be satisfied in an agreement in order for it to be an agreement that comes within that provision.

The only specific requirement posed under subsection 84-60(1) of the GST Act in an agreement is the one specified in paragraph 84-60(1)(d) of the GST Act.

Accordingly, whether the agreement is intended to be applicable only to a certain group of entities is a contractual matter for the parties to the agreement to decide.

If the agreement is contractually not intended to be applicable to entity A (and supplies made by entity A through the Marketplace of entity B), then it is our view that the agreement is not an agreement for the purpose of paragraph subsection 84-60(1)(d) of the GST Act and accordingly subsection 84-60(1) of the GST Act does not apply to the supply made by entity A. This is because it is our understanding that the following condition is intended to be applicable to those entities that are incorporated in Australia and entity AA is not incorporated in Australia.

All supplies made by you through the Marketplace of entity B (other than GST-free or input taxed supplies) will be treated as if they were inbound intangible consumer supplies made through Marketplace for the purposes of Section 84-60(1) of the GST.

Question 1B

Can you confirm that the Online Services Licenses supplied by entity A through the Marketplace of entity B are not to be treated as inbound intangible consumer supplies in respect of which entity B would otherwise be considered to be the supplier under subsection 84-55(1)(a) of the GST Act?

Answer

Supplies of Online Services Licenses by entity A through the Marketplace of entity B will not be treated as inbound intangible consumer supplies when they are supplied to a recipient who is not an Australian consumer. Given this, entity B will never be treated as a supplier under subsection 84-55(1) of the GST Act in relation to this supply.

Question 2A

If the answers to questions 1A and 1B are in the positive can you please confirm that where entity A is considered to be the supplier of the Online Services Licenses, the supply of the Online Services Licenses to Australian business customers / Australian registered partners is not connected with the indirect tax zone under subsection 9-25(5) of the GST Act or alternatively not connected under subsection 9-26(1) of the GST Act.

Answer

The supply of Online Services Licences to Australian business customers / Australian registered partners may not be connected with Australia. Please refer to the reason for decision for details.

Question 2B

Can you confirm that in the circumstance where entity A supplies the Online Services Licenses to Australian business customers / Australian registered partners who acquire the licenses solely or partly for the purpose of an enterprise that they carry on and not solely for a creditable purpose the supplies made by entity A qualify as taxable supplies under Section 84-5 of the GST Act in respect of which the GST is payable by the recipient under subsection 84-10(1)(a) of the GST Act and not payable by the supplier under subsection 84-10(1)(b) of the GST Act?

Answer

The supply of Online Services Licenses to Australian business customers / Australian registered partners will be taxable supply provided the supply satisfies the requirements of section 84-5 of the GST Act and the purpose test under subsection 84-5(1A) of the GST Act. Please refer to the reason for decision for details.

This ruling applies for the following period:

Not applicable

The scheme commences on:

Not applicable

Relevant facts and circumstances

Entity A is a non-resident and carries on an enterprise of supplying Online Services Licenses.

Entity A is not registered or required to be registered for Goods and Services Tax (GST).

Online Services are sold by entity A for consideration by way of license. The Online Services may be supplied to the following classes of customers:

•         businesses in Australia; or

•         businesses outside Australia.

Australian business customers / Australian registered partners can buy Online Services Licenses from entity A through the Marketplace of entity B.

Australian registered partners are authorised resellers of Online Services Licenses.

Entity A understands that entity B is registered for GST in Australia.

Entity A has entered into the Marketplace Sellers Agreement with entity B to supply the Online Services Licenses through the marketplace of entity B.

Australian business customers / Australian registered partners that wish to procure products on the Marketplace of entity B are required to enter into an agreement with entity B.

When Australian business customers / Australian registered partners purchase an Online Services License on the Marketplace of entity B they pay the relevant Online Access Fee to entity B.

At the end of each month entity B will pay the collected Online Access Fees to entity A after deduction of any fees due to entity B related to entity A marketplace content.

As entity A is the owner of the intellectual property of the Online Services, the Online Services sold through the marketplace of entity B are licensed directly by entity A to the contracting Australian business customers / Australian registered partners.

Contractual Context

The Marketplace Sellers Agreement provides the following:

•         You are responsible for your Marketplace content. You will establish the pricing, license rights and other terms governing entity B Marketplace customers use of your marketplace content. Except as provided this Agreement, entity B obtains no rights under this Agreement from you to your Marketplace Content.

•         You will be the seller of record for your Marketplace Content. Except as expressly set forth in this Agreement, we are not involved in any underlying transaction between you and any supplier.

•         You hereby appoint us as your payment processing agent for the limited purpose of receiving payments on your behalf from Subscribers or authorised resellers.

•         At the end of each month, we will pay to you all previously unpaid Transaction Proceeds that we have fully collected as of the date that is x business days before the date of payment. We will deduct from each payment any Fees due to us related to Your Marketplace Content and the associated Transactions.

•         The following applies only if you are incorporated or organized under the laws of Australia and subject to A New Tax System (Goods and Services Tax) Act 1999 (Cth) ("the "GST Act"):

­   All supplies made by you through the Marketplace of entity B (other than GST-free or input taxed supplies) will be treated as if they were inbound intangible consumer supplies made through the Marketplace of entity B for the purposes of Section 84-60(1) of the GST Act.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 - subsection 9-25(5),9-26(1), 9-26(2)

A New Tax System (Goods and Services Tax) Act 1999 - section 84-5, 84-55,84-60,84-65

Reasons for decision

Section 84-65 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides the meaning of an inbound intangible consumer supply.

Subsection 84-65(1) of the GST Act states:

A supply of anything other than goods or *real property is an inbound intangible consumer supply if the *recipient is an *Australian consumer, unless:

(a) the thing is done wholly in the indirect tax zone; or

(b) the supplier makes the supply wholly through an *enterprise that the supplier *carries on in the indirect tax zone.

(terms marked with asterisks (*) are defined in section 195-1 of the GST Act)

A supply is made wholly through an enterprise that the supplier (merchant) carries on in Australia if:

•         the supplier carries on an enterprise in Australia, and

•         the supply is made wholly through that enterprise.

Subsection 84-55(1) of the GST Act states:

if an inbound intangible consumer supply is made through an electronic distribution platform, the operator of the platform, instead of the supplier, is treated for the purposes of the GST law:

a) as being the supplier of, and as making the supply; and

b) as having made the supply for the consideration for which it was made; and

c) as having made the supply in the course or furtherance of an enterprise that the operator carries on.

Note: As a consequence, GST on the supply is payable by the operator of the electronic distribution platform.

Accordingly, generally under section 84-55 of the GST Act an EDP operator will be liable for GST for supplies of inbound intangible consumer supplies made through an EDP.

In this case, entity A makes the supply of Online Services Licenses through the marketplace of entity B to Australian business customers/Australian registered partners (and not to Australian consumers) and therefore this supply will not satisfy the definition of an inbound intangible consumer supply.

However, it needs to be determined whether section 84-60 of the GST Act applies to the supplies made by entity A. This is because by way of operation of section 84-60 of the GST Act, the responsibility for the GST liabilities can be shifted to the EDP operator for certain other supplies if certain requirements are satisfied.

If a supply is either done in Australia or made through an enterprise carried on by the supplier in Australia, the supply will be subject to the general GST law where the supplier will be liable for GST provided the supply is satisfied the requirements of a taxable supply.

Under subsection 9-25(7) of the GST Act, an entity is not an Australian consumer if the entity is registered or acquire the thing supplied to them solely or partly for the purpose of an enterprise the entity carries on.

The requirements in subsection 84-60(1) of the GST Act are as follows:

•         the supply is made by means of electronic communication (it is a digital supply)

•         the supply is made through the EDP

•         the supply is covered by a written agreement entered into between the merchant and the EDP operator before the supply is made for the supply to be treated as if it were an inbound intangible consumer supply made through the platform, and

•         the EDP operator is registered for GST in Australia.

The Agreement cannot, however, under subsection 84-60(2) of the GST Act extend the EDP operator's role if:

•         the supply is GST-free or input taxed; or

•         the operator will not be treated under section 84-55 as being the supplier and making the supply as if it were an inbound intangible consumer supply.

The extension of the EDP rules under subsection 84-60(1) of the GST Act is intended to include certain supplies made by merchants from Australia through an EDP which may not otherwise satisfy the requirements of inbound intangible consumer supplies in section 84-55 of the GST Act.

Does subsection 84-60(1) of the GST Act apply to the agreement between entity A and entity B?

Under the Marketplace Sellers Agreement between entity A and Entity B the supply made by entity A through the EDP operated by entity B is a software product called Online Services Licenses. The Online Services (that are sold by way of providing a licence) are sold for consideration to businesses in and outside Australia.

Entity B is also registered for GST.

Under the agreement, if a merchant who is incorporated or governed by the Australian laws and subject to GST Act, entity B will treat those supplies as inbound intangible consumer supplies for the purposes of subsection 84-60(1) of the GST Act. Subsection 84-60(1) of the GST Act does not specify that a merchant who wishes to make their supplies through an EDP should be incorporated or organized under the laws of Australia. However, it is our understanding that under the agreement it is a contractual requirement for merchants who wish to use the EDP of entity B that they be incorporated into Australian laws.

Supplies made by Australian merchants through an EDP will rarely be inbound intangible consumer supplies as they are generally either done in Australia or made through an enterprise carried on in Australia. For these supplies, the Australian merchants are liable for GST under the existing GST rules subject to the special rules under section 84-60 of the GST Act that apply to supplies covered by an agreement between the merchant and the operator of the EDP. (Refer to paragraph 1.117 of explanatory memorandum to Tax and Superannuation Laws Amendment (2016 Measures No.1) Act 2016)

The special rules in section 84-60 of the GST Act allow merchants and operators to jointly agree for the inbound consumer supply rules to apply more widely where this is more convenient or commercially desirable for the parties. In some cases, this agreement may occur through, for example, the standard terms and conditions that the operator of an EDP requires merchants to accept before making use of the platform. (Refer to paragraph 1.121 of explanatory memorandum to Tax and Superannuation Laws Amendment (2016 Measures No.1) Act 2016)

It is our understanding that the requirement under agreement is intended to be applicable to supplies made by merchants from Australia through the EDP of entity B which would be treated as inbound intangible consumer supplies under subsection 84-60(1) of the GST Act. As explained above, these supplies will be treated as inbound intangible consumer supplies only if there is a written agreement between the merchants and the EDP operator and the other requirements of subsection 84-60(1) of the GST Act are satisfied.

EDP operators may require merchants to accept certain terms and conditions before the merchants make use of their platforms. The GST Act does not provide guidance on the manner in which the terms and conditions of the agreement between EDP operators and merchants should be drafted. As such the ATO cannot comment on the effectiveness of the wordings of the agreement. The GST Act (under paragraph 84-60(1(d) merely requires that the supply is covered by a written agreement entered into between the merchant and the EDP operator before the supply is made for the supply to be treated as if it were an inbound intangible consumer supply made through the platform,

If under the agreement, the supplies made by entity A were not intended to be covered for the purposes of paragraph 84-60(1)(d) of the GST Act, then it is our view that the rules in section 84-55 of the GST Act will not extend to these supplies made by entity A to make them inbound consumer supplies.

Entity B is not the supplier of Online Services Licenses

As stated in subsection 84-55(1) of the GST Act, the operator of the platform, instead of the supplier, is treated for the purposes of the GST law as the supplier of the thing supplied where (among other things) the supply is the supply of an intangible consumer supply.

As mentioned above, the supplies made by entity A do not satisfy the definition of an intangible consumer supply as the recipients of their supplies are not Australian consumers.

Accordingly, in the circumstances presented in this request for a private binding ruling, entity B will never be considered as the supplier under subsection 84-55(1) of the GST Act.

Supplies connected with Australia

Goods and Services Tax Ruling GSTR 2019/1: 'supply of anything other than goods or real property connected with the indirect tax zone (Australia)', (GSTR 2019/1) discusses when a supply of anything other than goods or real property (an intangible) is connected with Australia under subsection 9-25(5) of the GST Act.

Paragraphs 29 and 30 of GSTR 2019/1 state:

29. A supply of an intangible may be connected with Australia under paragraph 9-25(5)(a) if the 'thing' being supplied is 'done' in Australia.

30. However, it is not necessary to determine if paragraph 9-25(5)(a) applies if other provisions are easier to satisfy. This is likely to be the case where the recipient is either:

•         an Australian consumer - this is because if the recipient is an Australian consumer the supplies are connected under paragraph 9-25(5)(d), or

•         an Australian-based business recipient - this is because if the recipient is an Australian-based business recipient the supply is disconnected under table items 1 and 2 of section 9-26.

Item 1 in the table in subsection 9-26(1) of the GST Act would be more relevant to determine whether the supply of SAAS Services Licenses to Australian business customers/Australian registered partners would be connected with Australia.

Item 1 in the table in subsection 9-26(1) of the GST Act provides that a supply of anything other than goods or real property is not connected with Australia if:

a) the thing supplied is done in Australia; and

b) the recipient of the supply is an Australian-based business.

Subsection 9-26(2) of the GST Act provides that an entity is an Australian-based business recipient if:

a) the entity is registered; and

b) an enterprise of the entity is carried in Australia; and

c) the entity's acquisition of the thing supplied is not solely of a private or domestic nature.

Paragraph 32 of GSTR 2019/1 explains that the 'Thing' is defined to mean anything that can be supplied or imported. 'Thing' includes but is not limited to a service, advice, information, a right or a digital product. It does not matter if the supply is provided electronically.

Paragraph 35 of GSTR 2019/1 explains where a thing is 'done' depends on the nature of the thing being supplied. Depending on what is supplied, 'done' can mean various things including performed, executed, completed or finished.

We consider that the supply of Online Services Licenses would be done in Australia and the recipients of the supplies are Australian-based businesses. Therefore, the supply would satisfy the requirements of item 1 in the table in subsection 9-26(1) of the GST and will not be connected with Australia.

Reverse charges

Section 84-5 of the GST Act states the following:

A supply is a taxable supply (except to the extent that it is *GST-free or *input taxed) if:

(a) the supply is for *consideration; and

(b) the *recipient of the supply is *registered, or *required to be registered; and

(c) the supply is covered by the third column of this table.

------

Item 1 in the table in subsection 84-5(1) of the GST Act provides that an offshore supply of anything other than goods or real property will be taxable if the supply is not connected with Australia and the recipient of the supply satisfies the purpose test in subsection 84-5(1A) of the GST Act.

Section 84-10 of the GST Act states:

The GST on a supply that is a * taxable supply because of section 84-5:

(a) is payable by the * recipient of the supply; and

(b) is not payable by the supplier.

Paragraphs 81 to 84 of GSTR 2019/1 explain the requirements of a supply which will satisfy the reverse charge rules.

81. A supply of intangibles is a taxable supply under Subdivision 84-A, and subject to GST if all of the following requirements are met:

•         the supply is for consideration

•         the recipient is registered, or required to be registered

•         the supply meets the 'reverse charge connection requirement', and

•         the supply meets the 'reverse charge purpose requirement'.

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

83. The 'reverse charge connection requirement' means the supply must be either:

•         not connected with Australia

•         connected with Australia because of paragraph 9-25(5)(c) (about rights or options to acquire another thing), or

•         connected with Australia only because of paragraph 9-25(5)(d) (about supplies to Australian consumers) where the supplier has obtained information indicating that the recipient is a business recipient and applied section 84-100.

84. The 'reverse charge purpose requirement' means the recipient of the supply must:

•         acquire the thing supplied solely or partly for the purpose of an Australian GST presence, and

•         not acquire the thing supplied solely for a creditable purpose.

Where a supply is disconnected because it is made to an entity that is an Australian-based business recipient of the supply, that entity is responsible for determining if they have a GST liability in relation to the supply under the reverse charge rules in Division 84. (Refer to paragraph 2.64 of explanatory memorandum to Tax and Superannuation Laws Amendment (2016 Measures No.1) Act 2016)

The supply of Online Services Licenses will be made for consideration and we assume that the recipients of the supply, Australian business customers/Australian registered partners are registered for GST as Australian-based busines recipients.

Since the recipients of the supply are not Australian consumers, we consider that the supply of Online Services License will not be connected with Australia and will satisfy the 'reverse charge connection requirement'.

Item 1 in the table in subsection 84-5(1) of the GST Act provides that an offshore supply of anything other than goods or real property will be taxable if the supply is not connected with Australia and the recipient of the supply satisfies the purpose test in subsection 84-5(1A) of the GST Act.

It is our view that a supplier may not be able to determine whether the purchaser will be acquiring the thing that supplied to them in carrying on their enterprise in Australia and not for a creditable purpose unless the supplier obtain sufficient information about the purchase by the recipient. Under the reverse charge rules, the liability of GST is shifted to the recipient of the supply and the recipient of the supply will have the responsibility to determine whether the reverse charges will apply to the supply under Division 84 of the GST Act.

Although the purpose test under subsection 84-5(1A) of the GST Act must be met by the recipient of the supply, entity A as the supplier of Online Services Licenses may consider the supply as a taxable supply under subsection 84-5(1) of the GST Act if they can determine that the Australian business customers/Australian registered partners will satisfy the purpose test. When all the requirements as explained in paragraph 81 of GSTR 2019/1 are met, then the Australian business customers/Australian registered partners as recipients will be liable to pay the GST under subsection 84-10(1)(a) of the GST Act and not payable by entity A as supplier under paragraph 84-10(1)(b) of the GST Act.