Edited version of private advice

Authorisation Number: 1052161710352

Date of advice: 19 September 2023

Ruling

Subject: GST and supplies made by a non-resident

Question 1

Is the non-resident making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax Act) 1999 when it supplies software applications, customer support, software maintenance and consulting services to customers in Australia?

Answer

No, as the supply is not connected with the indirect tax zone, it is not a taxable supply.

Question 2

Is the non-resident making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax Act) 1999 when support services (including customer support, software maintenance and consulting services) are provided by an Australian subsidiary on behalf of the non-resident to customers in Australia?

Answer

No, as the supply is not connected with the indirect tax zone, it is not a taxable supply.

Question 3

Is the non-resident required to be registered for Australian goods and services tax under section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999?

Answer

No, the non-resident is not required to be registered for GST.

This ruling applies for the following periods:

Tax periods ending on or after 5 May 2019

Relevant facts and circumstances

The non-resident provides software as a service including software applications, customer support, maintenance and consulting services.

The non-resident engages directly with customers in Australia and the services provided by the non-resident to Australian customers is governed by a master services agreement (MSA) which is entered into by the Australian entities or their overseas parent entities. The terms of the MSA allows for the non-resident to also provide specific services under a statement of work agreement with customers.

Support services that are provided to Australian customers under a specific statement of work are outsourced to an Australian subsidiary of the non-resident,

The non-resident pays a fee to the Australian subsidiary for providing services and support to its customers and the Australian subsidiary interacts with the Australian customers in order to provide the services on behalf of the non-resident.

All software licences are provided by the non-resident directly to the Australian customers. The Australian subsidiary doesn't provide any software services to Australian customers and is not authorised to enter into contracts with Australian customers on behalf of the non-resident.

The non-resident does not employ individuals in Australia although employees are occasionally sent to Australia for short periods of time. The non-resident's employees are not in Australia for a period greater than 183 days in a 12 month period.

Electronic delivery servers used by the non-resident in the delivery of the software services are located in a country other than Australia.

The Australian customers of the non-resident are Australia-based business recipients as:

•                     they are registered for GST; and

•                     they carry on an enterprise in Australia; and

•                     the acquisition of the software and support services from the non-resident are not solely of a private nature.

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 9-25

A New Tax System (Goods and Services Tax Act) 1999 section 9-26

A New Tax System (Goods and Services Tax Act) 1999 section 9-27

A New Tax System (Goods and Services Tax Act) 1999 section 23-5

A New Tax System (Goods and Services Tax Act) 1999 Division 188

Reasons for decision

Question 1

Summary

The supplies made by the non-resident to Australian customers are not taxable supplies because they are not connected with the indirect tax zone.

Detailed reasoning

Generally, an entity makes a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax Act) 1999 (GST Act) when:

•                     it makes a supply for consideration (payment); and

•                     the supply is made in the course or furtherance of an enterprise that the supplier carries on; and

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

•                     the supplier is registered, or required to be registered for Australian GST; and

•                     the supply is neither GST-free, nor input taxed.

Supplies of software applications and associated support services by the non-resident to Australian based customers are for consideration as the customer pays for the software services. The supplies are made in the course of the business being carried on by the non-resident and the supplies are not GST-free or input taxed.

Subsection 9-25(5) of the GST Act provides the rules for when a supply of anything other than goods or real property is connected with the indirect tax zone and paragraph 9-25(5)(a) of the GST Act provides that if 'the thing is done in the indirect tax zone', it is a supply that is connected with the indirect tax zone. The Goods and Services Tax Ruling, Goods and services tax: supply of anything other than goods or real property connected with the indirect tax zone (Australia) (GSTR 2019/1) explains the operation of paragraph 9-25(5)(a) of the GST Act and states:

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.

...

58. The only circumstance in which an analysis of where a digital supply is 'done' needs to be undertaken is where the recipient of the digital supply is a non-resident who is not an Australian-based business recipient.

59. Regardless of the type of digital supply, it will not be connected with Australia if:

•                    it is supplied by a non-resident who does not make the supply through the non-resident entity's Australian GST presence

•                    the supply is not made to an Australian consumer; and

•                    the thing is done in Australia and it is supplied to an Australian-based business recipient.

Paragraph 59 of GSTR 2019/1 refers to item 1 in the table in subsection 9-26(1) of the GST Act which provides that a supply made by a non-resident is disconnected from being connected with the indirect tax zone where the supplier does not make the supply through an enterprise that is carried on in the indirect tax zone and the recipient is an Australian-based business recipient of the supply.

For Australian GST purposes, section 9-27 of the GST Act provides that an entity carries on an enterprise in the indirect tax zone if it has an employee, officer, or (in some circumstances) an agent who is located in the indirect tax zone and either:

•                     the enterprise is carried on by the employee, officer or agent through a fixed place in the indirect tax zone; or

•                     the enterprise has been (or is intended to be) carried on by the employee, officer or agent through one or more places in the indirect tax zone for more than 183 days in a 12 month period; or

The Law Companion Ruling, GST and carrying on an enterprise in the indirect tax zone (Australia) (LCR 2016/1) explains the tests in considering whether an enterprise is being carried on in the indirect tax zone and, at paragraph 24 states:

24. The location of an entity's employees, officers or agents is an important consideration for section 9-27. A non-resident entity that locates its employees, officers or agents outside Australia does not have a GST enterprise presence. Therefore, any GST obligations of the non-resident for supplies of intangibles will generally be limited to supplies made to unregistered entities in Australia

The non-resident doesn't conduct its business from any premises located in Australia and has no employees or officer located in Australia. In relation to agents, paragraph 29 of LCR 2016/1 states:

29. Section 9-27 applies only to agents that are dependent agents who have, and habitually exercise, authority to conclude contracts on behalf of their principal. It also applies to employees of those dependent agents

Although the Australian subsidiary has been engaged by the non-resident provide support services to Australian customers of the non-resident, the Australian subsidiary does not have authority to enter into contract on behalf of the non-resident. As such, the location of the Australian subsidiary is not relevant for the purposes of determining whether the non-resident is carrying on an enterprise in the indirect tax zone under section 9-27 of the GST Act.

As stated in subsection 9-26(2) of the GST Act, an Australian-based business recipient is an entity that is:

•                     the recipient of a supply; and

•                     is registered for GST; and

•                     carries on an enterprise in the indirect tax zone; and

•                     the recipient's acquisition is not solely of a private or domestic nature.

Supplies made by the non-resident to Australian-based business recipients are not taxable supplies because they are not connected with the indirect tax zone., This is because the non-resident does not carry on an enterprise from a fixed place within the indirect tax zone and its supplies are to Australian-based business customers.

Question 2

Summary

The supplies of support services by the Australian subsidiary on behalf of the non-resident to Australian customers is not a taxable supply because the supply is not connected with the indirect tax zone.

Detailed reasoning

As discussed above, a supply made by the non-resident to customers located in Australia will be a taxable supply if the requirements of section 9-5 of the GST Act are met and again, the key element is that a supply that is not connected with the indirect tax zone is not a taxable supply.

Although the non-resident outsources the support services to the Australian subsidiary, it is the non-resident which has the contractual obligation to provide the agreed services to the customers in Australia. The non-resident has engaged its Australian subsidiary to provide those services on its behalf.

The Goods and Services Tax Ruling, Goods and services tax: supplies (GSTR 2006/9) examines tripartite arrangements in depth from paragraph 114. Proposition 13 in GSTR 2006/9 provides that 'when A has an agreement with B for B to provide a supply to C, there is a supply made by B to A (contractual flow) that B provides to C (actual flow)'. In this context, the non-resident has an agreement with the Australian subsidiary whereby the Australian subsidiary provides support services to the Australian customer. This means that the Australian subsidiary is making a supply to the non-resident of the support services that the non-resident is supplying to the Australian customer. This is similar to Example 7 in GSTR 2006/9 from paragraph 171.

Even if the Australian subsidiary acts as agent of the non-resident in providing the support services, the Australian subsidiary does not have authority to bind the non-resident in any contracts. This is important because paragraph 9-27(3)(c) operates to bring in agents who are, on behalf of a non-resident, carrying on the non-resident's enterprise through a fixed place located in the indirect tax zone. The Australian subsidiary is not acting as agent of the non-resident in providing the support services, The Australian subsidiary is more like a sub-contractor providing its services to the non-resident. As such, the enterprise carried on by the Australian subsidiary is not relevant in determining whether the non-resident is carrying on an enterprise in the indirect tax zone.

Consequently, for the reasons discussed above, the supply of support services by the non-resident to the Australian customers is not connected with Australia and is not a taxable supply under section 9-5 of the GST Act.

Note: supplies made by an Australian entity in the course of its business to a non-resident may be GST-free under item 2 of the table in subsection 38-190(1) of the GST Act.

Question 3

Detailed reasoning

Section 23-5 of the GST Act provides that an entity is required to be registered for GST in Australia if it is carrying on an enterprise and its GST turnover meets the registration turnover threshold (currently $75,000). Generally, an entity has a GST turnover that meets a particular turnover threshold if its projected GST turnover is at or above the turnover threshold or:

•                     its current GST turnover is at or above the turnover threshold, and

•                     the Commissioner is not satisfied that its projected GST turnover is below the turnover threshold.

The Goods and Services Tax Ruling, Goods and services tax: meaning of GST turnover, including the effect of section 188-25 on projected GST turnover (GSTR 2001/7) explains how GST turnover is calculated for the purposes of, amongst others, the registration turnover threshold. Essentially, an entity's current GST turnover is the value of supplies made or likely to be made in the 12 months ending at the end of the current month and an entity's projected GST turnover is the value of supplies made or likely to be made in the current month and the following 11 months. However, paragraph 14 of GSTR 2001/7 explains that a range of supplies are excluded from the calculations:

14. The following supplies are excluded from the calculation of current GST turnover and projected GST turnover:

•                    supplies that are input taxed;

•                    supplies that are not for consideration (and are not taxable supplies under section 72-5);

•                    supplies not made in connection with an enterprise that you carry on;

•                    supplies that are not connected with Australia;

•                    supplies of rights or options that are connected with Australia because of paragraph 9-25(5)(c) (unless the right or option is supplied to an Australian consumer, is not GST-free and relates to the acquisition of an intangible);

•                    supplies (other than those mentioned in the immediately preceding two dot points) of a right or option to use commercial accommodation in Australia where the supplies are not made in Australia and are made through an enterprise that the supplier does not carry on in Australia;

•                    supplies made from one member of a GST group to another member of that GST group; and

•                    GST-free supplies made by a non-resident supplier that are not made through an enterprise they carry on in Australia

Any supply that is not connected with the indirect tax zone is excluded from the calculation of both current and projected GST turnover by paragraphs 188-15(3)(a) and 188-20(3)(a) of the GST Act. Therefore, any supplies made by the non-resident to Australian customers are not counted in the calculation of the non-resident's GST turnover. As the non-resident doesn't make any supplies that are connected with the indirect tax zone, it does not meet the registration turnover threshold and is not required to be registered for GST in Australia.