Edited version of private advice

Authorisation Number: 1052040360105

Date of advice: 5 October 2022

Ruling

Subject: GST and services provided to a non-resident

Question

Are you making a GST-free supply under section 38-190 of the A New Tax System (Goods and Services Tax) Act 1999 when you provide legal services to a non-resident?

Answer

Yes, your supply is GST-free as it satisfies the requirements of at least one of the items in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999.

This ruling applies for the following periods:

All tax periods ending on or after 30 September 20XX and before 1 October 20XX

Relevant facts and circumstances

You are a barrister practising in New South Wales and are registered for GST.

You have been engaged by solicitors based in New South Wales to act for a client in legal proceedings currently underway in Australia. Under the costs agreement with the solicitors, you issue invoices to the solicitors even though you are representing the client.

The client is a non-resident, foreign company that is not registered in Australia. The non-resident company does not carry on a business (or undertake activities):

•         at or through a fixed and definite place of its own for a sufficiently substantial period of time; or

•         through an agent at a fixed and definite place for a sufficiently substantial period of time.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 38-190

Reasons for decision

Summary

Your supply of legal services is GST-free under both item 2 and item 3 of the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Explanation

Generally, section 38-190 of the GST Act provides that a supply that is not goods or real property may be GST-free in certain circumstances. The table in subsection 38-190(1) of the GST Act provides five different scenarios where a supply may be GST-free. If a supply satisfies the requirements of one of the items in the table and it is not excluded by any other provision in section 38-190 of the GST Act, it will be GST-free. Most relevant to the supply of legal services are item 2 and item 3 in the table in subsection 38-190(1) of the GST Act. There are a number of public rulings that explain the operation of section 38-190 of the GST Act including:

•         GSTR 2005/6 Goods and services tax: the scope of subsection 38-190(3) and its application to supplies of things (other than goods or real property) made to non-residents that are GST-free under item 2 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999

•         GSTR 2004/7 Goods and services tax: in the application of items 2 and 3 and paragraph (b) of item 4 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999:

o   when is a 'non-resident' or other 'recipient' of a supply 'not in Australia when the thing supplied is done'?

o   when is 'an entity that is not an Australian resident' 'outside Australia when the thing supplied is done'?

•         GSTR 2007/2 Goods and services tax: in the application of paragraph (b) of item 3 the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 to a supply, when does the 'effective use or enjoyment' of the supply 'take place outside Australia'?

Item 2 in the table in subsection 38-190(1) of the GST Act provides that a supply is GST-free where the supply is made to a non-resident who is not in the indirect tax zone (Australia) when the thing supplied is done and:

•         the supply is not physically performed on goods located in Australia and is not directly connected with real property situated in Australia; or

•         the non-resident acquires the thing in carrying on its enterprise, but is not registered or required to be registered for GST.

Whether an entity such as a company is a 'non-resident' is a question of fact. Section 195-1 of the GST Act defines a non-resident with reference to the Income Tax Assessment Act 1936. That is, if an entity is not an Australia resident for the purposes of income tax, it is a non-resident for the purposes of the GST Act. Generally, a non-resident company is considered to be in Australia if it carries on business (or conducts its activities) in Australia:

•         at or through a fixed and definite place of its own for a sufficiently substantial period of time; or

•         through an agent at a fixed and definite place for a sufficiently substantial period of time.

Although you may be considered an agent of your client when representing it in litigation matters, GSTR 2004/7 explains that the key issue is whether the non-resident company is itself carrying on business in Australia through an agent, or whether the business being conducted is the agent's own business, the non-resident company merely being one of its customers. Paragraph 281 of GSTR 2004/7 states:

281. In this regard it is necessary to weigh up various factors, including but not necessarily limited to the following, to determine whether a non-resident company can properly be regarded as carrying on business in Australia through an agent:

•         Was the fixed place of business from which the agent operates originally acquired for the purposes of enabling the agent to carry on the business of the non-resident company?

•         Does the non-resident company directly reimburse the agent for the cost of accommodation or staff at the fixed place of business?

•         Does the non-resident company make other contributions to the financing of the business carried on by the agent?

•         Is the agent remunerated by reference to transactions, for example, by commission, or by fixed regular payments or in some other way? Commission can be an indicator that the agent is carrying on its own business and not that of the non-resident. However, it is not determinative.

•         What degree of control does the non-resident company exercise over the running of the business conducted by the agent?

•         Does the agent reserve part of the agent's staff or accommodation for the conducting of business related to the non-resident company?

•         Does the agent display the name of the non-resident company at the agent's premises or on stationery and, if so, does it indicate that the agent is an agent of the non-resident company?

•         What business, if any, does the agent transact as principal exclusively on the agent's own behalf?

•         Does the agent make contracts with customers or other third parties in the name of the non-resident company or otherwise in such a manner so as to bind it?

•         If the agent does make contracts so as to bind the non-resident company, does the agent require specific authority in advance before binding that foreign company to contractual obligations?

The discussion in GSTR 2004/7 and specifically paragraph 281 show that your client is not in Australia when you provide your legal services to it. This is because the company is not carrying on a business or undertaking business type activities in Australia either on its own or through an agent. Your services, whilst they may include acting as an agent for the client in litigation matters, do not involve you carrying on the business activities of the non-resident company.

As your services are not physically performed on goods and are not directly connected with real property located in Australia, your services satisfy the requirements for item 2 in the table in subsection 38-190(1) of the GST Act.

However subsection 38-190(3) of the GST Act negates the GST-free status of a supply that is covered by item 2 in the table in subsection 38-190(1) of the GST Act if the supply:

•         is made under an agreement entered into (directly or indirectly) with a non-resident; and

•         the supply is provided, or the agreement requires it to be provided, to another entity in Australia; and

•         the other entity would not be an 'Australian-based business recipient' of the supply, if the supply had been made to it.

Even though you have entered into a costs agreement with an Australian solicitor, your services are provided to the non-resident client and therefore, subsection 38-190(3) of the GST Act does not apply. Although Example 19 in GSTR 2005/6 relates to legal services provided to an individual in relation to an immigration matter, it highlights that the services of a barrister are generally provided to the client even though the barrister is engaged by the solicitor.

Example 19 - Australian barrister engaged by an Australian solicitor who is acting as agent of a non-resident individual

472. An Australian solicitor acting as agent for a non-resident individual engages an Australian barrister to supply legal services to the non-resident individual on an immigration matter. The individual is not in Australia when the legal services are performed and the supply is not directly connected with real property situated in Australia.

Item 2

473. The supply of legal services by the barrister is made to the non-resident individual (principal) through the solicitor, as agent for the non-resident. The presence in Australia of the solicitor does not mean that the non-resident individual is in Australia for the purposes of item 2.84 The supply by the barrister to the non-resident individual meets the requirements of item 2.

Subsection 38-190(3)

474. The supply of legal services by the barrister to the non-resident individual is a supply under an agreement entered into indirectly with a non-resident (that is, through the resident agent). Paragraph 38-190(3)(a) is therefore satisfied.

Provided to another entity

475. What is being supplied is advice on immigration matters concerning the non-resident individual. The barrister has been engaged by the Australian solicitor to provide advice to the non-resident individual. The legal services are provided to the non-resident, not the agent. The supply by the barrister to the non-resident individual is both made and provided to the non-resident, through the solicitor as agent. The supply by the barrister is neither made nor provided to the solicitor.

476. Subsection 38-190(3) does not apply to the supply of the legal services provided by the barrister.

Your supply of legal services to the non-resident company satisfy the requirements of item 2 of the table in subsection 38-190(1) of the GST Act and is not excluded by subsection 38-190(3) of the GST Act. Therefore, your supply is GST-free.

Item 3 in the table in subsection 38-190(1) of the GST Act provides that a supply is GST-free where:

•         the supply is neither of work physically performed on goods situated in Australia nor directly connected with real property situated in Australia; and

•         the supply is made to a recipient who is not in Australia when the thing supplied is done; and

•         the 'effective use or enjoyment' of the thing takes place outside of Australia.

As your supply of legal services is neither work physically performed on goods situated in Australia nor directly connected with real property situated in Australia and your client is not in Australia when you provide those services, the supply will be GST-free under item 3 in the table in subsection 38-190(1) of the GST Act where the effective use or enjoyment of those services takes place outside of Australia. GSTR 2007/2 explains in detail when the effective use or enjoyment takes place outside of Australia and, at paragraph 118 states:

118. If a company, partnership, corporate limited partnership or trust does not have a presence in Australia (this is, it only has a presence outside Australia), the supply is provided to that entity outside Australia and effective use or enjoyment of the supply takes place outside Australia. Paragraph (b) of item 3 is satisfied and the supply is GST-free under item 3 if the other requirements of item 3 are satisfied.

As all of the requirements of item 3 in the table in subsection 38-190(1) are satisfied, your supply of legal services is GST-free.