Edited version of private advice

Authorisation Number: 1052262801352

Date of advice: 10 September 2024

Ruling

Subject: GST - export of services

Question

Is your supply of marketing services to a non-resident entity, GST-free under section 38-190 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, your supply of marketing services will be GST-free under table item 2 of subsection 38-190(1) of the GST Act.

This ruling applies for the specified period.

Not applicable

Relevant facts and circumstances

The non-resident entity is not registered or required to be registered for GST in Australia.

You currently operate as a sole trader in Australia. You are currently not registered for GST but you are planning to incorporate and register for GST.

You have provided a copy of the contract between you and the non-resident entity, whereby the non-resident entity wishes to market the product through you.

The contract is currently between you and the non-resident entity, however after the Australian entity is incorporated and registered in Australia, the Australian entity will appear on the contracts instead of you.

The Australian entity will be an independent entity from the non-resident entity (i.e. not related entities).

The product will be manufactured overseas and imported into Australia.

The non-resident entity does not have an Australian presence/branch (other than you, who operates as a representative under the contract).

You only supply marketing services to the non-resident entity. Once the customer has submitted the purchase order you no longer have any dealings with the customer.

The customer submits a purchase order to non-resident entity and will pay the non-resident entity directly. You are not involved in processing or taking payments from customers. The non-resident entity will issue all tax invoices to the customer directly. You will receive a statement of commissions from the non-resident entity and will be paid directly by the non-resident entity for your services.

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

Question

Is your supply of marketing services to a non-resident entity, GST-free under section 38-190 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Summary

The supply of marketing services to the non-resident entity who is not in Australia at the time of the supply will be GST-free under table item 2 of subsection 38-190(1) of the GST Act.

Detailed reasoning

Taxable supplies

GST is payable on taxable supplies. Under section 9-5 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act), you make a taxable supply if:

(a)   you make the supply for consideration; and

(b)   the supply is made in the course or furtherance of an enterprise that you carry on; and

(c)   the supply is connected with Australia; and

(d)   you are registered or required to be registered.

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

Your supply will satisfy the requirements of section 9-5 of the GST Act because:

•         you will make the supply of services of marketing the product to customers in Australia for commission;

•         you will make the supply of services in the course or furtherance of your enterprise.

•         the supply of services is connected with Australia because you will make the supply through an enterprise that you carry on in Australia; and

•         you are currently not registered for GST but you will be registered once you incorporate the Australian entity and begin making supplies.

Hence, the supply of services by you to the non-resident entity will be a taxable supply to the extent that it is not GST-free or input taxed. The supply of services does not satisfy the input taxed provisions under the GST Act. However, it is relevant to consider whether the supply will be GST-free.

Note: if you are not registered or required to be registered, your supplies of marketing services will not be a taxable supply under section 9-5 of the GST Act.

GST-free supplies

Section 38-190 of the GST Act lists supplies of things other than goods or real property for consumption outside Australia that are GST-free. The services you supply are neither goods nor real property and therefore come within the scope of subsection 38-190(1) of the GST Act. In particular, table item 2 of subsection 38-190(1) of the GST Act (item 2) is relevant to your circumstances.

Under item 2, a supply is GST-free where it is:

a supply that 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.

The requirement that the non-resident is not in Australia when the thing supplied is done means that the non-resident or recipient is not in Australia in relation to the supply when the thing supplied is done. In your circumstances, the supply is made to the offshore entity that does not have an Australian presence and therefore this requirement is met.

'Physically performed on goods situated in Australia'

Under item 2, it is only where the connection between the supply and the goods is a direct one that the location of goods is regarded as the place where consumption occurs. The addition of the adverb 'directly' to the phrase 'connected with' implies a more emphatic connection between the supply and goods. The inference is that the supply is so closely aligned with goods that it is appropriate to treat the location of the goods as the place where consumption occurs.

Paragraph 33 to 38 of 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:

33. We consider that such a close link or association between the supply and particular goods or real property exists where, for example, the direct object of the supply is the good or real property in the sense that:

•         the supply changes or affects the goods or real property in a physical way; or

•         there is a physical interaction with the goods or real property but without changing the goods or real property; or

•         the supply establishes the quantity, size, other physical attributes or the value of the goods or real property; or

•         the supply affects (or its purpose is to affect) or protects the nature or value (including indemnity against loss) of the goods or real property; or

•         the supply affects, or is proposed to affect, the ownership of the goods or real property including any interest in, or right in or over goods or real property.

...

37. A common example of a supply of this kind is a supply of a service that is physically performed on particular goods or real property such as the repair of goods or a building.

...

Paragraph 39 of GSTR 2003/7 further provides examples of supplies where there is a physical interaction with the goods or real property but without changing the goods or real property include supplies of services of the following kind:

•         transport services - the removal of goods from one place to another;

•         security services in relation to goods or real property; and

•         storage services for goods.

In your circumstances, you market the products in Australia for the non-resident entity, however, you do not alter the products in a physical way. The attributes of the product remains the same after importation and you do not have any further involvement in the transaction after the PO (purchase order) has been submitted to the non-resident entity. Additionally, you do not take title and risk to the product and as such, your supply of services is not a supply of work physically performed on goods situated in Australia and satisfies the requirements of paragraph (a) of item 2.

Paragraph (b) is also satisfied as the non-resident entity is not registered or required to be registered in Australia.

Limitation of item 2

However, a supply covered by item 2 will not be GST-free if the provisions of subsection 38-190(3) of the GST Act are met. Subsection 38-190(3) of the GST Act provides that the supply will not be 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 Australia.

The supply of marketing services by you to OIL is an agreement entered into directly with a non-resident entity under the contract. Therefore, paragraph (a) of subsection 38-190(3) of the GST Act is satisfied.

The supply of services is not provided to another entity in Australia as the non-resident entity does not have any Australian presence. Furthermore, you only supply services to the non-resident entity and you do not provide any services directly to the customer located in Australia in your own capacity. After the product has been marketed to the customer, the non-resident entity will handle delivery and payment directly with the customer. Therefore, as your supply of services is not provided to another entity in Australia, it is not excluded from being GST-free under item 2 by subsection 38-190(3) of the GST Act.

Conclusion

Consequently, your supply of services for commission to the non-resident entity will be GST-free under item 2.