Edited version of private advice

Authorisation Number: 1052309503562

Date of advice: 25 September 2024

Ruling

Subject: GST -supply of eCommerce fulfillment services to a non-resident

Question

Is the supply of eCommerce fulfillment services by you to a non-resident entity, GST-free under table item 2 of subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes. The supply of eCommerce fulfillment services by you to the non-resident entity is GST-free under table item 2 of subsection 38-190(1) of the GST Act.

This ruling applies for the following periods:

Not applicable

The scheme commences on:

Not applicable

Relevant facts and circumstances

You are carrying on an enterprise of providing logistics services in Australia and registered for goods and services tax (GST).

You entered into a letter of intent with the a non-resident entity with the purpose of pursuing an agreement to allow you to offer eCommerce fulfillment services to the non-resident entity.

The fulfillment process is made up of five steps, namely:

1. Goods in

2. Warehousing

3. Picking and packing

4. Shipping

5. Returns.

The non-resident entity is not incorporated in Australia and has no physical presence in Australia as it does not hold an office in Australia, nor does it have any employees in Australia or agents that act on its behalf in Australia.

The nature of the fulfillment services is envisaged to include but not be limited to:

A. Receiving and booking in deliveries and customer returns;

B. Storing inventory; and

C. Picking, packing and despatching orders.

The non-resident entity will provide the software that will be used to execute the services.

The non-resident entity will also provide all training, documentation and support that is required to enable you to operate under the operating model of the non-resident entity.

You will be responsible for:

A. Providing fulfillment services at the agreed costs.

B. Operational planning to ensure agreed Services Level Agreement are met.

C. Inbound consignment received and put-away within 24 hours.

D. All orders received before client's cut-off time are despatched same day.

E. Adherence to Service Level Agreements will be based on monthly statistics and will exclude non-working days where these are planned and announced in advance. Consistently failure of the above service levels will result in a review of partnership agreement.

In order to perform the services, you shall, in consideration of the payment by the non-resident entity, provides all necessary warehouse space (including any additional warehouse space that may be required by the non-resident entity from time to time) and all racking and workstations and trolleys to the specification of the non-resident entity. You shall employ appropriate persons and shall replace the same from time to time as required.

Nothing in the Agreement shall be deemed to constitute a partnership, joint venture, representative or agency relationship between the parties hereto or construed or have effect as constituting any relationship of employer and employee between you and the non-resident entity.

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

You are liable to pay goods and services tax (GST) on any taxable supply you make.

Under section 9-5 of the 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 the indirect tax zone (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.

The supply of eCommerce fulfillment services made by you to a non-resident entity is for consideration; the supply is made in the course or furtherance of an enterprise of providing logistics services by you, the supply is connected with Australia as you carry on your enterprise in Australia and you are registered for GST.

Hence, the supply of eCommerce fulfillment 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 eCommerce fulfillment 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.

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 supply of eCommerce fulfillment services is neither good 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 the supply of eCommerce fulfillment services.

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. The supply of eCommerce fulfillment services is made to an 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.

Paragraphs 33 and 37 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.

Under the agreement with the non-resident entity, you will pick up the goods, pack them up and delivery them to the relevant recipients of the goods. You do not alter the goods in a physical way. The attribution of the goods remains the same after the goods are picked up for packing and delivery. Therefore, it is considered that the supply of eCommerce fulfillment 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) of item 2 is also satisfied as the non-resident entity acquires the supply of fulfillment services in carrying on their enterprise and the non-resident entity is not required to be registered for GST.

Please note that only either paragraph (a) or (b) of item 2 should be satisfied.

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, and

(c) for a supply other than input taxed supply, none of the following applies;

(i) the other entity is an Australian-based business recipient; and

(ii) an individual such as an employee or officer of an Australian-based business recipient, to whom the supply is provided; or

(iii) an individual such as an employee or officer of an entity, and the entity acquires the thing solely for a creditable purpose and is not a non-deductible expense.

Under the agreement, you are not required to provide the eCommerce fulfillment services to another entity in Australia. You are required to deliver the goods to a recipient in Australia as part of the supply of eCommerce fulfillment services to the non-resident entity. Therefore, subsection 38-190(3) of the GST Act will not negate the GST-free status under item 2 and the supply of eCommerce fulfillment services to the non-resident entity will be GST-free.