ATO ID 2001/577: GST and supply of software by a non-resident to a Australian resident customer via e-mail
Date of decision: 28 February 2001
Business line: Indirect Tax

Issue
Is the entity, a non-resident supplier of software, making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it supplies software to an Australian resident customer via e-mail?

Decision
Yes, the entity is making a taxable supply under section 9-5 of the GST Act when it supplies software to an Australian resident customer via e-mail.

Facts
The entity is a non-resident supplier of software. The entity sells software to an Australian resident customer via e-mail from outside of Australia. The entity has a permanent establishment with one employee in Australia. This employee has the responsibility to secure resellers of the software in Australia through promotional activities. After negotiation activities by the employee, the Australian resident customer places the purchase order directly with the entity and the entity makes the supplies to the Australian resident customer directly via e-mail. The employee in Australia does not handle any of the entity's products or invoicing activities. The entity receives payment directly from the Australian resident customer for the supply of the software. The entity is registered for goods and services tax (GST).

Reasons for decision
Summary: Section 9-5 of the GST Act provides that a taxable supply is made where: However, the supply is not a taxable supply if it is GST-free or input taxed. The entity sells software to the Australian resident customer in the course of an enterprise that it carries on. The entity receives payment directly from the Australian resident customer for the supply of the software. The entity is registered for GST. Therefore, the requirements in paragraphs 9-5(a), 9-5(b) and 9-5(d) of the GST Act are satisfied. Furthermore, the supply of software to the Australian resident customer is neither GST-free under Division 38 of the GST Act nor input taxed under Division 40 of the GST Act. Accordingly, it needs to be determined whether the supply is connected with Australia (paragraph 9-5(c) of the GST Act). Section 9-25 of the GST Act defines when a supply is connected with Australia. For the purposes of determining whether a supply is connected with Australia, section 9-25 of the GST Act makes a distinction between a supply of goods, a supply of real property and a supply of anything other than goods or real property. As the supply of software via e-mail is not a supply of goods or real property, subsection 9-25(5) of the GST Act applies in determining whether the supply is connected with Australia. Subsection 9-25(5) of the GST Act provides that a supply of anything other than goods or real property is connected with Australia if either: The entity supplies the software to the Australian customer via e-mail from outside of Australia. As such, the supply is not connected with Australia under paragraph 9-25(5)(a) of the GST Act. Therefore, it is necessary to determine whether the supply is connected with Australia under paragraph 9-25(5)(b) of the GST Act. Under paragraph 9-25(5)(b) of the GST Act, a supply is connected with Australia if the supplier makes the supply through an enterprise that the supplier carries on in Australia. Under subsection 9-25(6) of the GST Act, an entity carries on an enterprise in Australia if the enterprise is carried on through: The entity has a permanent establishment in Australia. However, for a supply to be connected with Australia under paragraph 9-25(5)(b) of the GST Act, a connection must be established between the Australian permanent establishment and the supply (paragraph 84 of Goods and Services Tax Ruling GSTR 2000/31). The permanent establishment has an employee in Australia. This employee has the responsibility to secure resellers of the software in Australia through promotional activities. Discussing the product and the addressing of potential buyers' concerns and needs constitute a substantial part of the supply of the software. The fact that the orders are not specifically made and delivered through this employee does not necessarily mean that the supply does not satisfy paragraph 9-25(5)(b) of the GST Act. It is considered that the activities of the employee in Australia established a connection between the Australian permanent establishment and the supply. Therefore, the entity is making the supply through an enterprise that it carries on in Australia and the supply is connected with Australia under paragraph 9-25(5)(b) of the GST Act. As all the requirements in section 9-5 of the GST are satisfied, the entity is making a taxable supply when it supplies software to an Australian resident customer via e-mail.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 paragraph 9-5(a) paragraph 9-5(b) paragraph 9-5(c) paragraph 9-5(d) subsection 9-25(5) paragraph 9-25(5)(a) paragraph 9-25(5)(b) subsection 9-25(6) Division 38 Division 40
Related public rulings and determinations: GSTR 2000/31
Subject references: Goods & services tax Connected with Australia Taxable supply