Edited version of private advice

Authorisation Number: 1052177822892

Date of advice: 9 October 2023

Ruling

Subject: GST - exported marketing consulting services

Question

Is your supply of marketing consulting services to X 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) (item 2)?

Answer

Yes. Therefore, the remuneration for these services does not attract GST.

This ruling applies for the following period:

X/10/20XX to X/10/20XX

The scheme commences on:

X October 20XX

Relevant facts and circumstances

You are registered for GST.

You carry on a marketing consulting business in Australia under the name (trading name)

You entered into a contract with an overseas based food company (X) under which you are supplying marketing consulting services in relation to a particular brand of beverage. X does not have a branch in Australia.

X owns the brand but gave Y, a GST-registered Australian distributor, the sole rights to produce and sell products of that brand in Australia and an overseas country. X sells Y the crucial ingredient to make the products. This ingredient is a beverage base produced overseas. The beverage base is shipped to a co-manufacturer in Australia where the products are produced. Y owns the relationship with the co-manufacturer. However, X would be involved in the initial phases to ensure quality, safety and flavour profiles are all to standard and approve.

Your role as country manager is to work closely with Y.

An example of a marketing campaign is as follows:

Y agreed with a retailer to range some new products under the brand in concerned (developed by X) and as part of that deal, X invested around (a certain amount of money) in an advertising campaign which includes point of sale (POS) marketing such as (something) and the advertisements in the retailer's magazine. The funding for the advertising campaign is paid in increments whenever a new activity is happening. X will work with you and Y on any potential new product development (NPD) for this market.

It's a collaboration with regards to go to market (GTM) strategies. You would liaise with X and Y on this. For example, you are currently reformulating a particular blend based on negative feedback from Foodservice and quick service restaurants (QSR) customers such as (name of company). Once a new recipe is ready, a GTM strategy will be planned out and it will be determined how much money X will need to invest for a successful launch.

You only assist and advise on the X products (sold under the X brand); and not any of the other brands that Y works with. In collaboration with X, you agree on marketing spend amounts (to be incurred by X) and strategies and you then work with Y on execution into market.

You are required under your contract with X to strengthen its brand position in assigned markets.

Your contract with X requires you to develop an annual operating plan and strategic plan and deliver it to X.

Key activity deliverables under your contract with X include achieving monthly and annual sales of the beverage base that meet or exceed the annual operating plan expectations.

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 9-5

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

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
• the recipient of your supply is a non-resident who is not in Australia in relation to your supply; and
• your supply of services to X 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
• the exclusions in subsections 38-190(2), 38-190(2A) and 38-190(3) of the GST Act do not apply to your case.

Detailed 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 (Australia) is GST-free under item 2 if:

(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.

However, there are some exclusions from GST-free status of supplies covered by item 2.

Working out whether your customer is in Australia for the purposes of item 2

You are supplying marketing consulting services to a non-resident.

To determine whether X is in Australia, for the purposes of item 2, we need to consider 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:

• when is a 'non-resident' or other 'recipient' of a supply 'not in Australia when the thing supplied is done'?
• when is 'an entity that is not an Australian resident'outside Australia when the thing supplied is done'?

In order for a non-resident customer be considered to be in Australia for the purposes of item 2, they must be in Australia 'in relation to the supply'. Paragraphs 37 to 41 of GSTR 2004/7 explain this further. Paragraphs 37 to 40 state:

37. A non-resident company is in Australia 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:

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

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

38. We consider that it would be reasonable for a supplier to conclude that a non-resident company is in Australia if:

• the company is registered with ASIC; or
• the company has a permanent establishment in Australia for income tax purposes.

39. However, a non-resident company to which the supplier makes a supply may be able to demonstrate to the supplier that, even though it is registered with ASIC or has a permanent establishment, on application of the test (at paragraph 37) to its particular circumstances, the non-resident company is not in Australia.

40. Suppliers should be aware that even if a company is not registered with ASIC, it may still be in Australia on an application of the test (at paragraph 37). Similarly, even if a company does not have a permanent establishment in Australia for income tax purposes, it may still be in Australia on application of the test to its particular circumstances.

There are two broad types of circumstances where a non-resident customer, being a company, is considered to be in Australia, for the purposes of item 2. Paragraph 41 of GSTR 2004/7 explains this as follows:

41. A non-resident company is in Australia in relation to the supply if the supply is solely or partly for the purposes of the Australian presence, for example, its Australian branch. If the supply is not for the purposes of the Australian presence but that Australian presence is involved in the supply, the company is in Australia in relation to the supply, except where the only involvement is minor.

Paragraphs 351 and 352 of GSTR 2004/7 provide guidance on the 'involvement of a minor nature' concept. They state:

351. If the involvement of the Australian presence is limited to the carrying out of simple administrative tasks on behalf of the company, as a matter of administrative convenience, that involvement is minor. The connection between the supply and the presence is so minor in nature that it is reasonable to conclude that the presence of the company in Australia is not in relation to the supply.

352. Tasks of a simple administrative nature include:

• payment of, or arranging for payment of, the supplier's invoice on behalf of the company;
• passing on an e-mail to the company;
• being a point of telephone contact to pass on messages to the company;
• being a mailing address or delivery contact on behalf of the company;
• being a point of contact for a visiting representative of the company; and
• on-forwarding information to the company.

Example 16 in GSTR 2004/7 provides an example where a supply of an intangible would be considered to be for the purposes of a branch a non-resident company has in Australia. It states:

Example 16 - supply for the purposes of the branch in Australia

364. Program Aus is contracted to supply a customer-specific computer program to Asia Co, a non-resident company which has a branch in Australia.

365. The computer program is for use by Asia Co, including its branch in Australia. As the supply is for the purposes of the Australian branch of Asia Co, Asia Co is in Australia in relation to the supply. It makes no difference whether Program Aus sends the program to the branch directly or whether Program Aus sends the program to Asia Co and then Asia Co sends it on to the branch. It is not relevant whether the program is also for use by the head office or other branch operations outside Australia. Therefore, as Asia Co is in Australia in relation to the supply the supply is not GST-free under item 2 or item 3.

Example 13 of GSTR 2004/7 provides another example where a non-resident customer, being a company is considered to be in Australia in relation to the supply. It states:

Example 13 - branch in Australia in relation to the supply

359. A United States company ('US Co') has a branch in Australia. US Co engages a legal firm in Australia ('Aus Legal') to represent it in legal action against an Australian company. US Co sends a director to Australia to provide information to Aus Legal. The director uses an office at the Australian branch and uses employees of the branch to liaise with Aus Legal and to supervise the legal proceedings generally.

360. The involvement of the branch in Australia in relation to the supply is not limited to administrative tasks of a minor nature. US Co is in Australia in relation to the supply. Therefore, the supply is not GST-free under item 2 or item 3.

Example 13 from GSTR 2004/7 demonstrates that a non-resident customer, being a company, may be considered to be in Australia due to the level and nature of interactions the supplier has with the customer's Australian based staff and whether these interactions are significant.

The recipient of your supply, in a contractual sense, is X

X does not have a branch in Australia. Therefore, X is not in Australia in relation to your supply of services to it.

Work physically performed on goods situated in Australia and supplies directly connected with real property situated in Australia.

The supplies that you make to X are not supplies of work physically performed on goods situated in Australia when the work is done, nor are they supplies directly connected with real property situated in Australia. Therefore, the requirements of paragraph (a) in item 2 are met.

Subsection 38-190(2) of the GST Act

In accordance with subsection 38-190(2) of the GST Act, a supply covered by item 2 is not GST-free if it is 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.

You are not supplying a right or option in return for the remuneration paid to you. Therefore, subsection 38-190(2) of the GST Act does not negate the GST-free status of the supplies that you make.

Subsection 38-190(2A) of the GST Act

In accordance with subsection 38-190(2A) of the GST Act, a supply covered by item 2 is not GST-free if the acquisition of the supply relates to the making of a supply of real property situated in Australia that would be input taxed under Subdivision 40-B or 40-C.

X's acquisition of your services does not relate to the making of a supply of real property that is situated in Australia. Therefore, subsection 38-190(2A) of the GST Act does not negate the GST-free status of the supplies in question that you make.

Subsection 38-190(3) of the GST Act

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.

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

You are supplying marketing consulting services to X, a non-resident company. Therefore, the requirement of paragraph 38-190(3)(a) of the GST Act is met.

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

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 the 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).

Paragraphs 59 to 62 of GSTR 2005/6 explain the meaning of 'provided to an entity'. They state:

The meaning of 'provided to another entity'

59. The word 'provided' is used in subsection 38-190(3) to contrast with the term 'made' in item 2. In the context of section 38-190, the contrasting words indicate that if a non-resident contracts for a supply to be provided to another entity, the place of consumption should be determined with regard to the entity to which the supply is provided, not the entity to which the supply is made.

60. The example in the Explanatory Memorandum accompanying the Bill⁹ that introduced subsection 38-190(3) illustrates this. In that example, non-resident parents contract for the supply of education services to be provided to their children in Australia. The contractual flow of the services is to the parents, while the actual flow of the services is to the children. The supply is made to the parents (non-residents) and provided to another entity, each child, in Australia.

61. Thus the expression 'provided to another entity' means, in our view, that in the performance of a service (or in the doing of something), the actual flow of that supply is, in whole or part, to an entity that is not the non-resident entity with which the supplier made the agreement for the supply. The contractual flow is to one entity (the non-resident recipient) and the actual flow of the supply is to another entity.

62. For example, if a supply of entertainment services is made to a non-resident company and in the performance of that service the employees are the entities that are entertained, the actual flow of that service is to another entity, each employee (see above where the meaning of 'another entity' is discussed). The supply is made to the non-resident company (the employer) and provided to another entity (each employee).

In accordance with GSTR 2005/6, if a supplier interacts with a given entity in the course of performing their service, this is an indicator that the party the supplier interacts with at that time is the providee, although the other circumstances would need to be considered also. In some cases, a supplier may interact with a second party in the course of the performing the services, but the second party may just be facilitating the provision of a supply by the supplier to a third party.

Based on the following circumstances, we consider that you provide your marketing consulting services to X and also to Y which is another entity based in Australia,

• Your role as country manager is to work closely with Y.
• You would liaise with X and Y with regards to GTM strategies.
• In collaboration with X, you agree on marketing spend amounts (to be incurred by X) and strategies and you then work with Y on execution into market.
• Your marketing consulting services relate to the marketing of a product (name of beverage under particular brand name) in Australia that Y has the sole rights to produce and sell in Australia and the marketing that your services relate to will directly generate sales for Y.
• You are required under your contract with X to strengthen X's brand position in assigned markets.
• Your contract with X requires you to develop an annual operating plan and strategic plan and deliver it to X.
• Key activity deliverables under your contract with X include achieving monthly and annual sales of beverage base (known as such and such) that meet or exceed the annual operating plan expectations. X is the seller of the beverage base.

Therefore, the requirement of paragraph 38-190(3)(b) of the GST Act is met.

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

Your supply is not an input taxed supply.

Y is a GST-registered Australian business operator and it is not utilising your services for private or domestic purposes. Therefore, it would have been an Australian based business recipient of your supply of marketing consulting services if Y had been the recipient of this supply (in accordance with section 9-26 of the GST Act). Therefore, the requirements of paragraph 38-190(3)(c) of the GST Act are not met.

As not all of the requirements of subsection 38-190(3) of the GST Act are met, the GST-free status of the supplies of services is not negated by subsection 38-190(3) of the GST Act.

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

Therefore, you are making a GST-free supply of the services to X under item 2.

GST is payable on taxable supplies. In accordance with section 9-5 of the GST Act, a supply is not a taxable supply to the extent that it is GST-free.

Hence, GST is not payable on your supply of marketing consulting services to X.