ATO ID 2004/824: GST and supply of goods by a non-resident supplier to a resident distributor where the non-resident supplier is responsible for the installation of goods when the resident distributor on-sells the goods to an end-user
Date of decision: 21 June 2004
Business line: Indirect Tax

Issue
Is the entity, a non-resident, making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when:

Decision
Yes, the entity is making a taxable supply under section 9-5 of the GST Act as the supply of goods and installation services is connected with Australia.

Facts
The entity is a non-resident that is registered for goods and services tax (GST). The entity has entered into a distribution agreement with an Australian distributor. The distributor purchases the entity's goods and imports them into Australia. Under the terms of the agreement, the entity ships the goods on a free-on-board basis (FOB). The distributor is named as the owner of the goods for Customs purposes and makes a taxable importation of the goods. The distributor on-sells the goods to end-users in Australia however, the entity's Australian branch installs the goods for the end-user. There is no additional consideration paid to the entity's branch by either the distributor or the end-user for the installation of the goods. The cost of the installation is embedded in the price paid by the distributor to the entity for the goods. There is no agency relation between the distributor and the entity. The entity's branch is not registered as a GST branch under Division 54 of the GST Act. There is no separate agreement executed directly between the non-resident supplier and the end-user. The entity's supply of goods is not a GST-free supply or an input taxed supply.

Reasons for decision
Summary: Under section 9-5 of the GST Act, an entity makes a taxable supply if: However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. The entity supplies goods to its Australian distributor for consideration. The supply is in the course of an enterprise that it carries on and it is registered for GST. Furthermore, the supply is not GST-free or input taxed. Therefore, if the entity's supply is connected with Australia, it will be a taxable supply under section 9-5 of the GST Act. Section 9-25 of the GST Act defines when a supply is 'connected with Australia' and makes a distinction between a supply of goods, a supply of real property and a supply of anything other than goods or real property. The entity is supplying goods, inclusive of installation services, to the distributor. Subsection 9-25(3) of the GST Act provides that a supply of goods that involves the goods being brought to Australia is connected with Australia if the supplier either: Under the terms of the agreement, the entity ships the goods on a FOB basis and the distributor is named as the owner of the goods for Customs purposes and makes taxable importation of the goods. As such, it is the distributor and not the entity who imports the goods into Australia and paragraph 9-25(3)(a) of the GST Act does not apply. Although the distributor subsequently supplies the goods to an end-user, it is the entity's Australian branch that actually installs the goods for the end-user. There is no additional consideration paid to the entity's branch, by either the resident distributor or the end-user for the installation of the goods as the cost of the installation is embedded in the price paid by the distributor to the entity for the goods. Notwithstanding that the goods are actually installed only when they are subsequently supplied by the distributor to the end-user, it is the entity, through its Australian branch, that installs the goods that it has supplied and which have been brought into Australia. As such, the supply of goods by the entity satisfies the requirement under paragraph 9-25(3)(b) of the GST Act and is connected with Australia. Therefore, the entity's supply is connected with Australia and the entity is making a taxable supply under 9-5 of the GST Act.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 section 9-25 subsection 9-25(3) paragraph 9-25(3)(a) paragraph 9-25(3)(b) paragraph 9-25(5)(a) section 9-40 section 11-20 section 13-15 Division 15
Related public rulings and determinations: Goods and Services Tax Ruling GSTR 2000/31
Subject references: Goods and services tax GST imports Creditable importations Taxable importations GST imports and exports Input tax credits GST international services Connected with Australia GST supplies & acquisitions Creditable purpose GST supply Taxable supply