Edited version of private advice

Authorisation Number: 1052110582026

Date of advice: 5 June 2023

Ruling

Subject: GST - free supplies and sponsorship agreements

Question 1

Is the supply made by A to B under the Agreement a composite supply of sponsorship rights to B?

Answer

Yes.

Question 2

Is the supply made by A to B under the Agreement a GST-free supply pursuant to paragraph (b) of item 4 in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes.

This ruling applies for the following period

1 March 2023 to 31 January 2028

Relevant facts and circumstances

The Parties

A (You) and B have entered into an Agreement to renew their Partnership Agreement.

A has signed the Agreement in Australia and B has signed the Agreement overseas.

B is a non-resident company and carries on business overseas manufacturing and distributing products.

B has a subsidiary in Australia, C, which is not a party to the Agreement but provides products for the event and is responsible for displays at the event in order for B to comply with B's obligations under the Agreement.

A is the promoter and organiser of the event which is held annually.

The Agreement

The Agreement sets out the sponsor rights and benefits and states that, in consideration of payment of the sponsorship fee by B, A grants for the term the following rights and benefits:

product exclusivity whereby A will not grant any sponsorship rights or benefits in respect of the event to any manufacturer, marketer, distributor or retailer of a competing product;

the rights to be recognised as the major sponsor of the event, including the right to use certain designations;

non-exclusive usage entitlements to the event logos and event imagery; and

the rights and benefits set out in Part B of Schedule 1 to the Agreement.

Part A of Schedule 1 to the Agreement lists in more detail the rights granted to B in relation to the event.

Part B of Schedule 1 lists the benefits received by B, which includes ticketing and hospitality, car parking and transport, certain experiences, digital media rights, signage, event presence etc.

The Agreement also specifies the sponsorship fee and value in kind product to be paid and provided by B to A.

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(1)

Reasons for decision

Question 1

Detailed Reasoning

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.

*to find the definition of asterisked terms, see the Dictionary, starting at section 195-1 of the GST Act

Taxable supply

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

a)    the supplier makes the supply for consideration; and

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

c)    the supply is connected with the indirect tax zone (Australia); and

d)    the supplier is registered or required to be register for GST.

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

Where a transaction comprises a bundle of features and acts, it may be necessary to characterise what is supplied to determine whether it wholly or partly meets requirement of section 9-5 of the GST Act or a provision that makes it non-taxable.

To identify whether the supply made by A to B under the Agreement is taxable supply or non-taxable supply under the GST Act, it is necessary to determine whether the supply is essentially a supply of sponsorship rights or a bundle of supplies which should be considered separately.

Mixed supply or composite supply

Goods and Services Tax Ruling GSTR 2001/8 provides guidance on how you can identify whether a supply includes taxable and non-taxable parts under the GST Act.

Goods and Services Tax Ruling 2001/8, Goods and services tax: Apportioning the consideration for a supply that includes taxable and non-taxable parts (GSTR 2001/8) uses the terms 'mixed supply' and 'composite supply' which are not used in the GST Act.

GSTR 2001/8 states that a mixed supply is a supply that must be separated or unbundled because it contains separately identifiable taxable and non-taxable parts that need to be individually recognised. A composite supply is a supply that contains a dominant part and includes something that is integral, ancillary or incidental to that dominant part. GSTR 2001/8 treats a composite supply as a supply of a single thing and states that a composite supply is either taxable or non-taxable and may also be a part of a larger mixed supply.

An identification of the essential character of what is supplied may inform whether (and to which extent) a particular transaction falls within the terms of a specific statutory provision. We must consider all of the circumstances of the transaction to ascertain its essential character.

From the facts provided, the supply made by A to B under the Agreement comprises a bundle of features and therefore we need to characterise the supply.

Characterisation of the supply in a manner consistent with the object of the particular statutory provision in issue

Where a transaction comprises a bundle of features it may be necessary to characterise what is supplied and that that characterisation should be undertaken in a manner consistent with the object of the statutory provision in issue.

Of relevance to the supply made by A to B under the Agreement is table item 4 of subsection 38-190(1) of the GST Act (Item 4).

Item 4 in states:

a supply that is made in relation to rights if

(a) the rights are for use outside the indirect tax zone; or

(b) the supply is to an entity that is not an Australian resident and is outside Australia when the thing supplied is done.

Goods and Services Tax Ruling GSTR 2003/8, Goods and services tax: supply of rights for use outside Australia - subsection 38-190(1), item 4, paragraph (a) and subsection 38-190(2) (GSTR 2003/8) discusses the types of supplies which are capable of being covered by item 4 and states that a supply is a 'supply made in relation to rights' if it fits within any of three Categories.

Category 1 is a supply identified in in paragraph 9-10(2)(e) of the GST Act i.e. the creation, grant, transfer, assignment or surrender of a right is a supply that is made in relation to rights.

While many transactions involve rights being supplied, a supply will only fit within Category 1 if the essential character or substance of the supply, or of a separately identifiable part of the supply, is one of rights. Category 1 does not cover a supply if the supply of rights is merely integral, ancillary or incidental to another dominant part of the supply where the supply is characterised by the dominant part.

Category 2 is a supply of a thing which comprises a bundle of rights that derive their value exclusively from those rights (e.g. supplies of shares).

Category 3 is a supply of services directly connected with rights (e.g. supplies of brokerage services in connection with shares). Paragraph 76 of GSTR 2003/8 states:

The Commissioner considers that the context and the broad policy to tax domestic consumption expenditure both suggest that a reasonably close relationship must exist between a service and a right for the service to be covered by item 4. If this were not the case, and a more remote connection were sufficient, services supplied between Australian residents that would ordinarily be thought of as being consumed in Australia could, because of the remote connection, be rendered GST-free. Additionally, if a more remote connection were sufficient, there would be a disparity between services that are connected with tangible property (which would only be GST-free if they are directly connected with that property) and services connected with intangible property (which may be GST-free on the basis of the more remote connection).

Based on the facts provided, we consider that many of the Rights and Benefits supplied pursuant to the Agreement fall within Category 1, i.e. the essential character or substance of the supply is one of rights. We consider that the rights granted by A to B to be recognised as the Major Partner/Major Sponsor of the Event , product exclusivity, non-exclusive usage entitlements, and many of the Rights and Benefits fall within Category 1.

Consequently, we consider that characterising what is supplied under the Agreement as a composite supply may be consistent with the object of item 4 in subsection 38-190(1) of the GST Act.

Essential character of what is supplied:

Paragraph 19A of GSTR 2001/8 states that an identification of the essential character of what is supplied may inform whether (and to what extent) a transaction falls within the terms of a particular statutory provision.

Based on the information provided, we consider that the essential character of what is supplied by A pursuant to the Agreement an exclusive right to be recognised as the Major Partner/Major Sponsor of the Events. Under the Agreement A grants to B 'the right to be recognised as the Major Sponsor of the Event.'

Having regard to the essential character and the statutory provision in issue, is the supply a mixed supply or a composite supply?

Having regard to the essential character and with regard to the statutory provision in issue, you can then determine whether the transaction is a mixed supply because it has separately identifiable parts that the GST Act treats as taxable and non-taxable, or whether it is a composite supply because one part of the supply should be regarded as being the dominant part, with the other parts being integral, ancillary or incidental to that dominant part.

As stated above, we consider that the essential character of what is supplied by A pursuant to the Agreement an exclusive right to be recognised as the Major Sponsor of the Event. We consider that the non-exclusive usage entitlements in respect of Event Logo and Event Imagery contribute to the proper performance of the contract to supply the right to be recognised as the Major Sponsor because those usage entitlements contribute to the recognition of B as the Major Sponsor.

The Rights listed the Agreement (i.e. product exclusivity, exclusive designations as major sponsor, major partner and official supplier, non-exclusive designations and logo usage) merely contribute to the proper performance of the contract to supply the exclusive right to be recognised as the only Major Sponsor/Major Partner of the Events and are therefore ancillary or incidental to the rights granted pursuant to the Agreement,

The Benefits listed in the Schedule (i.e. Premier Signage, Precinct Signage and Event Presence) also contribute to the proper performance of the contract to supply the exclusive right to be recognised as the Major Sponsor/Major Partner of the Event by announcing that fact to anyone who watches the Event either in person or via television or other media. The same reasoning applies to some of the other Benefits (e.g. Official Program benefits and Digital Media rights).

Other Benefits listed in the Schedule to the Agreement involve A supplying services rather than rights (i.e. Money Can't Buy experiences, Ticketing, Hospitality, Car Parking and Transport). Goods and Services Tax Ruling GSTR 2003/7, Goods and services tax: what do the expressions 'directly connected with goods or real property' and 'a supply of work physically performed on goods' mean for the purposes of subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GSTR 2003/7) states that the dominant supply in relation to a ticket to obtain entry into a sporting event is the presentation of the event (Para 103) and that provision of parking may be characterised as the supply of a service (Para 104).

As noted above, in GSTR 2003/8 the ATO accepts that that the supply of a service is covered by item 4 in subsection 38-190(1) if it is directly connected with a right. Applying the factors listed in paragraph 58 of GSTR 2001/8, we consider that these other Benefits contribute to the proper performance of the contract to supply the dominant part (i.e. the exclusive right to be recognised as the Major Sponsor).

For the reasons set out above we consider that the supply made by A to B is a composite supply because one part of the supply should be regarded as being the dominant part (i.e. the supply of the exclusive right to be recognised as the Major Sponsor/Major Partner of the Event) to which the other parts of the supply are integral, ancillary or incidental.

Subsection 38-190(2):

Subsection 38-190(2) of the GST Act states that a supply covered by items 1 to 5 in subsection 38-190(1) is not GST-free if it the supply of a right or option to acquire something the supply of which would be connected with Australia and would not be GST free.

In this case, the supply made by A under the Agreement is a composite supply, the dominant part of which is the right to be recognised as the Major Sponsor/Major Partner of the Event, and that the supply of the Benefits listed in clauses (d), (h), (i), (j), and (n) in Part B of Schedule 1 to the Agreement are integral, ancillary or incidental. Consequently, A does not make a supply of a right to ticketing or a right to hospitality etc. pursuant to the Agreement and therefore does not make a 'supply of a right or option to acquire something, the supply of which would be connected with Australia' as required by subsection 38-190(2). We therefore consider that subsection 38-190(2) does not apply.

Question 2

Detailed Reasoning

Paragraph (b) of item 4 in subsection 38-190(1):

Paragraph (b) of item 4 in subsection 38-190(1) of the GST Act refers to a supply that is made in relation to rights where that supply is to an entity that is not an Australian resident and is outside Australia when the thing supplied is done.

A supply that is made in relation to rights:

For the reasons set out in Question 1 we consider that the supply made by A to B pursuant to the Agreement is a composite supply, the dominant part of which is the exclusive right to be recognised as the Major Sponsor of the Event. We consider that that supply falls within Category 1 as described in GSTR 2003/8, i.e. a supply identified in paragraph 9-10(2)(e) of the GST Act (which includes the grant of a right) and is 'a supply that is made in relation to rights' for the purposes of item 4 in subsection 38-190(1) of the GST Act.

Not an Australian resident:

Section 195-1 of the GST Act states that 'Australian resident' means a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA). The Agreement states that B is a company organised under the laws of an overseas country. Section 6 of the ITAA includes a definition of 'resident of Australia' which deals separately with a person other than a company and a company. A company is a 'resident of Australia' if the company is incorporated in Australia, or not being incorporated in Australia, carries on business in Australia and has either its central management and control in Australia, or its voting power controlled by shareholders who are residents of Australia.

It was stated in the ruling request that B is not Australian resident for the purposes of the ITAA.

On that basis, we accept that B is not an Australian resident for the purposes of paragraph (b) of item 4.

Not in Australia:

In relation to when a non-resident company is in Australia for the purposes of paragraph (b) of item 4, Part III of Goods and Services Tax Ruling 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 (GSTR 2004/7) states that a company's presence can only be established through the presence of its representatives (such as a single employee or a branch and that the presence of a non-resident company in Australia through its representatives on a basis that is a proxy for determining the place of consumption requires application of principles used to determine whether courts have jurisdiction over a foreign company:

239. At common law, a foreign company is amenable to the jurisdiction of an Australian court if the company carries on business within the court's jurisdiction through its own office or through an agent acting on behalf of the company and that office or agent has a fixed and definite place within the jurisdiction and the business has continued for a sufficiently substantial period of time. A presence of this kind, in our view, would be a fair and reasonable proxy test for determining the place of consumption of a supply made to a non-resident company.

...

241. We consider, therefore, that a non-resident company is in Australia for the purposes of item 2 and paragraph (b) of item 4 if that company carries on business (or in the case of a company that does not carry on business, carries on 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.

You stated that B does not carry on business in Australia through a fixed or definite place of B's own. Reference was made to paragraph 319 of GSTR 2004/7 which states that the mere presence in Australia of an Australian subsidiary of a non-resident company does not mean that the non-resident company is carrying on business in Australia. Based on the statement in the ruling request we accept that B does not carry on business in Australia at or through a place of its own.

In relation to whether B carries on business in Australia through an agent, you stated in the ruling request:

C is not party to the Agreement and that it does not act as agent for B in Australia; and

C's role is to provide products and be responsible for on-site displays and activations in order for B to comply with its obligations in the Agreement.

We note that a clause of the Agreement which deals with assignment, sub-contracting and agency, states that B may in each year appoint an agency and/or subcontractors to administer and conduct its activation at the applicable Event and carry out promotional activities. C undertakes responsibility for on-site displays and activations at the Event either as a sub-contractor or agent appointed by B pursuant to that clause of the Agreement. We therefore consider that, notwithstanding the advice in the ruling request, that there is an issue as to whether B is in Australia for the purposes of paragraph (b) of item 4 as a result of carrying on business or its activities through an agent at a fixed and definite place for a sufficiently substantial period of time in terms of paragraph 241 of GSTR 2004/7 (above).

GSTR 2004/7 refers to Dunlop Pneumatic Tyre Company Limited v Actien-Gesellschaft fur Motor und Motorfahrzeugbau Vorm, Cudell & Co [1902] 1 KB 342 (Dunlop) where the defendant hired premises at the Crystal Palace for nine days in order to exhibit and promote sales of the defendant's goods. It was held that the defendant was carrying on business in the United Kingdom.

In Dunlop prices were quoted and orders accepted at the hired premises at the Crystal Palace. In the present case the Agreement states that B's business comprises manufacturing and distributing a product and sets out B's rights to undertake promotional activities and to display product information at the Event. However both rights are subject to the restriction that B must not distribute any products at the Event without A's prior written approval. We therefore consider that the present case is distinguishable from Dunlop and that it is unlikely that C's activities at each Event would result in B carrying on business or activities in Australia through an agent.

The fixed and definite place requirement referred to in paragraph 241 of GSTR 2004/7 is not satisfied. GSTR 2004/7 states that 'fixed' connotes a degree of permanence in the same location, that a place may be fixed even if it exists for a short time, but 'fixed place' excludes a place that is purely temporary (Para 261). The product displays and display footprints within the venue for the Event which, subject to redevelopment works and Event operational requirements, are the disposal of B for the duration of each Event have a sufficient degree of permanence to constitute a fixed and definite place.

For the reasons set out above we accept that B is not in Australia in relation to the supply made by A to B pursuant to the Agreement.

When the thing supplied is done:

Paragraph (b) of item 4 in subsection 38-190(1) requires that the relevant supply is to an entity that is outside Australia 'when the thing supplied is done'. Part IV of GSTR 2004/7 states that there is a requirement to apportion a supply (i.e. part taxable part GST-free) 'where the non-resident or other recipient of a supply is in Australia in relation to the supply for part of the time when the thing supplied is done'.

GSTR 2004/7 states that, consistent with the views expressed in Goods and Services Tax Ruling GSTR 2000/31, if the supply is the creation, grant, transfer, assignment or surrender of a right, the thing supplied is done at the time the right is created, granted, transferred, assigned or surrendered.

The Agreement states that the Term of the Agreement shall be five Events commencing from the 'Commencement Date' and 'Commencement date' is defined in the Agreement is executed by both parties.

A copy of the Agreement supplied with the ruling request appears to be a draft Agreement and not executed. A's advisor advised that an authorised representative of B who is based overseas will be signing the Agreement in outside Australia and A will be signing the agreement in Australia. On the basis of the information provided, we consider that A will not be in Australia at the time the Agreement is executed.

Subsection 38-190(2):

As stated in the reasons of decisions issue 1, the supply made by A under the Agreement is a composite supply, the dominant part of the sponsorship rights. Consequently, A does not make a supply of a right to ticketing or a right to hospitality etc. pursuant to the Agreement and therefore does not make a 'supply of a right or option to acquire something, the supply of which would be connected with Australia' as required by subsection 38-190(2). Therefore subsection 38-190(2) does not apply

Conclusion

The supply made by A to B under the Agreement is a GST-free supply pursuant to paragraph (b) in table item 4 of subsection 38-190(1) of the GST Act.