Edited version of private advice

Authorisation Number: 1052188177017

Date of advice: 10 January 2024

Ruling

Subject: GST and supplies to non-residents

Question 1

Are you making a GST-free supply under section 38-190 of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act) when you sell digital commodities to non-resident customers through an Electronic Market Place?

Answer 1

Yes, your supply of digital commodities is GST-free under section 38-190 of the GST Act to the extent that your customers are not in Australia.

Question 2

Are you making a GST-free supply under section 38-190 of the GST Act when you provide consulting services to non-resident customers?

Answer 2

Yes, your supply of services is GST-free under section 38-190 of the GST Act to the extent that your customers are not in Australia when your services are performed.

This ruling applies for the following period:

1 January 20XX to 30 June 20XX

The scheme commenced on:

1 January 20XX

Relevant facts and circumstances

You are located in Australia and carry on business activities such as providing consulting services and buying and selling digital commodities (gaming skins).

You are registered for GST with effect from 1 January 20XX.

Recipients of your consultancy services are non-residents and are not located in Australia.

Your consultancy services are not a supply of work physically performed on goods situated in Australia when the work is done and are not a supply directly connected with real property situated in Australia.

The digital commodities are supplied in the course of an enterprise carried on by you, and your turnover in the 20XX financial year for this activity was in excess of $X million.

The gaming skins are sold through an international broker via an internet marketplace. Sales are to private buyers.

The internet marketplace does not acquire legal title to the digital skins and does not become a contracting partner of a sales contract with the purchaser.

There is no agreement under section 84-60 of the GST Act between you and the internet marketplace for them to report GST on sales to Australian consumers.

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 subsection 38-190(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 38-190(3)

Reasons for decision

These reasons for decision accompany the Notice of private ruling for Company X.

This is to explain how we reached our decision. This is not part of the private ruling.

Note:

•                     Unless stated otherwise, legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act), and

•                     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.

Question 1

Are you making a GST-free supply under section 38-190 of the GST Act when you sell digital commodities to non-resident customers through an international Electronic Market Place?

Answer 1

Yes, your supply of digital commodities is GST-free under section 38-190 of the GST Act to the extent that your customers are not in Australia.

Detailed reasoning

Under subsection 38-190(1) of the GST Act, certain supplies of things, other than goods or real property, for consumption outside the indirect tax zone are GST-free.

A supply that is neither of work physically performed on goods in Australia, nor directly connected with real property located in Australia is GST-free if it is supplied to a non-resident who is not in Australia when the supply is made and:

•                     the non-resident acquires the thing in carrying on the non-resident's enterprise, but is not registered or required to be registered for GST (item 2), or

•                     the effective use or enjoyment of the supply takes place outside of Australia (item 3).

Additionally, the supply of rights is also GST-free if:

•                     the rights are for use outside of Australia, or

•                     the supply is to an entity that is not an Australian resident and is outside Australia when the supply is made (item 4).

You sell digital commodities via an international Electronic Market Place. The supplies will be GST-free under items 2; 3; or 4 of subsection 38-190(1) of the GST Act where those supplies are made to non-residents who are not in the indirect tax zone when the thing supplied is done and:

•                     the non-resident acquires the thing for their enterprise, but is not registered or required to be registered for GST (item 2), or

•                     the effective use or enjoyment of the supply takes place outside the indirect tax zone (item 3), or

•                     the rights are for use outside of Australia (item 4).

As you sell digital commodities via an international Electronic Market Place, consideration of the Electronic Distribution Platform (EDP) rules is required. Law Companion Ruling LCR 2018/2 GST on supplies made through electronic distribution platforms provides the ATO view on when supplies are made through an electronic distribution platform (EDP). Paragraph 48 states:

The EDP rules do not apply to all supplies. An operator of an EDP will only be responsible for GST where the supply is made through an EDP and the supply is:

•                     an offshore supply of low value goods. However the EDP rules do not apply if the supply is connected with Australia under other provisions (refer to paragraphs 49 and 50 of this Ruling).

•                     a supply of a digital service or digital product. If the supply is an inbound intangible consumer supply it is automatically subject to the EDP rules (refer to paragraphs 55 to 58 of this Ruling). In other situations the supply may be made subject to the EDP rules by agreement between the merchant and the EDP operator (refer to paragraphs 60 to 68 of this Ruling).

As you carry on your enterprise in Australia, the supply of the digital commodities is connected with Australia under the ordinary rules and will not be considered to be inbound intangible supplies. Accordingly, the EDP rules will not apply, unless you enter into an agreement with the international Electronic Market Place to make the supplies subject to them.

Importantly, where you make digital supplies to purchasers in Australia, the effective use or enjoyment of the supply does not occur outside Australia, and the supply will not be GST-free.

I note that presently, you are unable to provide details of sales made to Australian customers, as the international Electronic Market Place do not provide details of the customers location. As your supplies are connected to the indirect tax zone, and all the requirements in paragraphs 9-5(a) to 9-5(d) of the GST Act are satisfied, your supply of Digital products are taxable supplies, unless the supply is GST-free. You are required to identify and report taxable supplies made to recipients in the indirect tax zone.

Question 2

Are you making a GST-free supply under section 38-190 of the GST Act when you provide consulting services to non-resident customers?

Answer 2

Yes, your supply of services is GST-free under section 38-190 of the GST Act to the extent that your customers are not in Australia when your services are performed.

Detailed reasoning

Section 38-190 of the GST Act discusses when the supplies of things other than goods or real property, for consumption outside Australia are GST-free.

Specific to the supplies you make to the non-resident company is item 2 in the table in subsection 38-190(1) of the GST Act.

Item 2 provides that a supply of a thing (other than goods or real property) made to a non-resident is GST-free if it is made to a non-resident, who is not in Australia when the thing supplied is done, and:

(a)          the supply is neither 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 acquires the thing in carrying on the non-resident's enterprise but is not registered or required to be registered for GST.

Where the requirements of paragraphs (a) or (b) of item 2 are satisfied, the supply will be GST-free. However, item 2 is limited by subsection 38-190(3) of the GST Act.

Limitations of item 2 - subsection 38-190(3) of the GST Act

If the supply covered by item 2 is under an agreement entered into, whether directly or indirectly, with a non-resident entity and that supply is provided or the agreement requires that it is to be provided to another entity in Australia, subsection 38-190(3) of the GST Act negates the GST-free status of that supply.

When an Australian entity provides services to a non-resident over a period of time subsection 38-190(3) of the GST Act will not be applicable if that supply is not provided or the agreement does not require that it to be provided to another entity in Australia. Under such circumstances the services provided by the Australian company to the non-resident entity will be GST-free.