Edited version of private advice

Authorisation Number: 1052046067081

Date of advice: 2 November 2022

Ruling

Subject: GST - international supply of market research services

Question

Are the market research services you supply under your agreement with Y 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 (GST Act)?

Answer

Yes. Therefore, GST is not payable on your supply of these services.

This ruling applies for the following period

DD MM 20YY to DD MM 20YY

The scheme commences on:

DD MM 20YY

Relevant facts and circumstances

You are registered for GST.

XG is a multinational group of companies with branches in Australia and overseas. Its Australian branches are operated by XAUS, a GST-registered company.

XAUS designs, engineers and imports certain sorts of goods and offers goods to the Australian market.

XOS (the parent company of XAUS) has hired Y, a wholly overseas based company, to perform market research services. These market research services relate to conducting consumer workshops in various countries around the world. Y will write up a global report on research findings and give this to XOS.

At the consumer workshops, consumers will give their feedback on a product XAUS is developing. The consumers will own a number of products of interest.

In order for Y to supply its services to XOS (as referred to above), it will hire other market research companies that are based in Australia and other countries to assist it. Y has entered into an independent/separate contract with you, under which you will be assisting Y by organising the Australian part of the project.

You are not a party to the contract between Y and XOS, nor have you entered into a contract with XAUS.

You are not a related entity to Y.

You will organise a number of paired-depth face to face interviews with consumers at a central location in Australia with XAUS employees in attendance. You will be on site continuously with XAUS employees for a few days. Y will not be in attendance except via remote video conferencing over the internet.

Whilst most of your communication is routed through Y, you send some emails directly to XG, but it is mostly emails dealing with small things such as sharing the fieldwork schedule and providing updates.

You will produce a full report on the Australian market. You will send this report directly to Y who will then do the following 2 things:

-Integrate it into a global report covering Australia and a number of other countries.

-Provide input and feedback on your Australian report together with XAUS.

You will present the research findings (the Australian Report), via video conferencing, to both Y and XAUS.

Y does not have a presence in Australia in any capacity at the time you undertake your work under the contract with Y and present your research to Y.

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

You are making a GST-free supply as:

• you are supplying intangibles; and
• your customer is a non-resident who is not in Australia; and
• your supply of services to Y is not a supply of work physically performed on goods situated in Australia when the work is done, nor a supply directly connected with real property situated in Australia; and
• you are not likely to be providing your services to a third party who is in Australia; and
• the exclusions in subsection 38-190(2) and 38-190(2A) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) do not apply to your case.

Detail reasoning

A supply of an intangible (something other than goods or real property) to a non-resident who is not in the indirect tax zone (e.g. Australia) is GST-free under item 2 in the table in subsection 38-190(1) of the GST Act if (item 2):

(a)          the supply is not a supply of work physically performed on goods situated in Australia when the

work is done, nor a supply directly connected with real property situated in Australia; or

(b)          the non-resident recipient acquires the thing in carrying on their enterprise but is not registered or

required to be registered for GST.

You are supplying services to a non-resident who is not in Australia (i.e. Y). The supply is not a supply of work physically performed on goods situated in Australia when the work is done, nor is it a supply directly connected with real property situated in Australia. Therefore, the requirements of paragraph (a) in item 2 are met.

However, if a supply of a service is made to a non-resident but provided to a third party in Australia, the supply may be excluded from GST-free treatment under item 2 due to subsection 38-190(3) of the GST Act, which states:

Without limiting subsection (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 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, 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.

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

Subsection 9-26(2) of the GST Act defines 'Australian based business recipient'. It states:

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

(a)          the entity is *registered; and

(b)          an enterprise of the entity is *carried on in the indirect tax zone; and

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

(Registered means registered for GST)

The following addresses whether or not the supply of your services meets the requirements of subsection 38-190(3) of the GST Act.

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

You are supplying market research services under an agreement you have entered into with a non-resident. Therefore, the requirement of paragraph 38-190(3)(a) of the GST Act is met.

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

Your market research services involve collecting market information and reporting on these findings. These market research services concern a XG product currently under development. XAUS is involved in the development of this product.

Considering the arrangement with Y, although XAUS gets an indirect benefit from the services you perform, our view is that you are more likely to be supplying and providing your services only to Y.

Although you present the findings of your market research to XAUS (in addition to Y) and XAUS (in addition to Y) provides feedback on, and input into, your Australian report, these are more likely to be steps in the process of assisting Y with preparing the global report, which XOS has hired Y to provide to it.

Therefore, the requirement of paragraph 38-190(3)(b) of the GST Act is not likely to be met. This means that subsection 38-190(3) of the GST Act would not negate the GST-free status of your supply

Goods and Services Tax Ruling 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 A New Tax System (Goods and Services Tax) Act 1999 provides guidance on determining whether a supply made to a non-resident is provided to a third party who is in Australia.

GSTR 2005/6 has not been updated to reflect an amendment to the GST Act, being the insertion of paragraph 38-190(3)(c).

Where the requirements of subsection 38-190(3) of the GST Act are not satisfied, the GST-free status of your supply is not negated.

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

Even if you were considered to be providing you services to a third party (i.e. XAUS), which is based in Australia - and your supply met paragraph 38-190(3)(b) of the GST Act, XAUS is registered for GST and operating a business in Australia and it is not utilising the services for private or domestic purposes. Therefore, XAUS would have been an Australian based business recipient of your supply if you had made your supply to it. Hence, subparagraph 38-190(3)(c)(i) of the GST Act would've applied if XAUS was a providee.

This means that even if XAUS was considered a providee, your supply would still not meet the requirements of subsection 38-190(3) of the GST Act (as subparagraph 38-190(3)(c)(i) would have applied and you are not making an input taxed supply).

Given that paragraph 38-190(3)(c) is not satisfied, subsection 38-190(3) of the GST Act would not operate to prevent your supply of services to Y from being GST-free under item 2.

No other exclusions from GST-free treatment under item 2 apply.

Therefore, you are making a GST-free supply of market research services to Y.

GST is payable on taxable supplies. In accordance with section 9-5 of the GST Act, a GST-free supply is not a taxable supply. Hence, GST is not payable on your supply of market research services to Y as it is a GST-free supply.