Private ruling: GST and supplies to a non-resident
Published: April 2012

Ruling: Is GST payable on your supply of sales support services to your ultimate parent company? | No. | Is GST payable on your supply of service work to your ultimate parent company for machines sold to customers located in Australia? | Yes. | Is GST payable on your supply of service work to your ultimate parent company for machines sold to customers located outside Australia? | No. | You are the subsidiary of a foreign company (ultimate parent company). You are registered for GST. | Your role is to locate buyers for the machines in Australia for the ultimate parent company for which you are paid a commission based on the sales they make. You are also reimbursed for expenses you incur in locating buyers in Australia. | You are also responsible for the maintenance and repair of the machines in Australia. The ultimate parent company reimburses you for costs incurred in repairing, maintaining and providing spare parts for machines in Australia. | The agency agreement between you and the ultimate parent company names you as an agent and contains the following clauses: | · You act as an intermediary for the ultimate parent company in the acquisition of business. | · You have the sole agency rights in Australia for selling certain products and the non-exclusive selling right for a particular product. However, the ultimate parent company retains the right to become active themselves in Australia with respect to selling the products. | · You are entitled to commission only when transactions have been concluded mainly through your intermediary. | · Your tasks include: | o To receive complaints and/or notices of defects from customers and pass them on to the ultimate parent company | o To assist the ultimate parent company in handling and resolving complaints | o To give advice and assistance to the service personnel of the ultimate parent company | o You do not have the right to collect payments on behalf of the ultimate parent company, except when authorised in specific cases. | The sale contract is between the ultimate parent company and the Australian customer. | The ultimate parent company is not a resident of Australia for income tax purposes and does not have a permanent establishment in Australia. It does not carry on any business in Australia and it is not registered with ASIC. It is neither registered nor required to be registered for GST in Australia. | You listed three scenarios under which you invoice the ultimate parent company: | · Scenario 1 - Sales support service | You target potential customers for the products of the ultimate parent company. The actual sale is handled directly by the ultimate parent company and their Australian-based customer. You receive a commission on this sale. You are also reimbursed for business expenses, such as travel, wages, telephone, administration, rent, secretarial services and others, you incurred in providing the sales support service. | · Scenario 2 - Service work for machines located in Australia | You employ technicians from Australia to service and repair machines located in Australia. There are also cases where a technician employed by the ultimate parent company is sent to Australia to service the machines in Australia. You are reimbursed for the business expenses, which include the travel costs of technicians employed by the ultimate parent company, you incurred. | There are also instances where you order and pay for parts for the machines being serviced and the ultimate parent company reimburse you for the cost of the spare parts, which is stated in a foreign currency. | · Scenario 3 - Service work for machines located outside Australia | You employ technicians to work on machines located outside Australia. You are reimbursed for the costs incurred by the technicians while outside Australia. | A New Tax System (Goods and Services Tax) Act 1999 Section 9-5. | A New Tax System (Goods and Services Tax) Act 1999 Section 9-25. | A New Tax System (Goods and Services Tax) Act 1999 Section 9-70. | A New Tax System (Goods and Services Tax) Act 1999 Section 9-85. | 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). | A New Tax System (Goods and Services Tax) Act 1999 Section 195-1. | Income Tax Assessment Act 1936 Section 6-1. | Summary | Your supply of sales support services to your ultimate parent company is GST-free. Hence, GST is not payable. | Detailed reasoning | GST is payable on any taxable supply that you make. | Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) sets out the requirements of a taxable supply and it states: | 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 for GST. | However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed. | (* denotes a term defined in section 195-1 of the GST Act.) | Under the terms of the agency agreement, you supply sales support services to the ultimate parent company. The supply of these services satisfies the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act as: | (a) you receive consideration for the supply of the services | (b) the supply is made in the course of an enterprise that you carry on | (c) the supply is connected with Australia as the services are performed in Australia and made through an enterprise that you carry on in Australia, and | (d) you are registered for GST. | The supply of the sales support services is not input taxed under the GST Act or under any other Act. Therefore, what is left to determine is whether the supply is GST-free. | The supply of sales support services is not considered to be a supply of goods or real property. Hence, the GST status of this supply is appropriately considered under section 38-190 of the GST Act, which provides that certain supplies of things other than goods or real property, for consumption outside Australia, are GST-free. Of relevance, is item 2 in the table in subsection 38-190(1) of the GST Act. | Item 2 in the table in subsection 38-190(1) of the GST Act (item 2) | 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 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 for GST. | A non-resident for GST purposes is an entity that is not an Australian resident for the purposes of the Income Tax Assessment Act 1936 . | A company is a resident of Australia if: | · the company is incorporated in Australia, or | · the company is not incorporated in Australia but has either its central management or control in Australia or its voting power is controlled by shareholders who are residents of Australia . | On the information provided, the ultimate parent company is not a resident of Australia for income tax purposes. | Goods and Services Tax Ruling GSTR 2004/7 provides guidance on when a non-resident is 'not in Australia' for the purposes of item 2. | The meaning of 'not in Australia' | The requirement that the non-resident in item 2 is not in Australia when the thing supplied is done is a requirement that the non-resident is not in Australia in relation to the supply when the thing supplied is done. | Paragraph 184 of GSTR 2004/7 states: | As the Australian location of the entity to which the supply is made at the relevant time is a proxy test for identifying when consumption occurs in Australia, we consider that the expression 'not in Australia' should be interpreted in the context of the supply in question. The expression 'not in Australia' requires, in our view, that the non-resident or other recipient is not in Australia in relation to the supply . This means that a non-resident or other recipient of a supply may satisfy the 'not in Australia' requirement if that entity is in Australia but not in relation to the supply… | Paragraphs 230 to 332 of GSTR 2004/7 discuss when a non-resident company is in Australia for the purposes of item 2 (and paragraph (b) of item 4). | A company being an artificial legal entity does not have a precise location and its presence can only be established through the presence of its representatives. The representatives of a company may take on a variety of forms and capacity and can include a branch of the company. | The presence of a non-resident company in Australia is the means by which consumption of the supply in Australia is identified. | We determine the presence of a foreign company in a jurisdiction according to jurisdictional law. At common law, a foreign company is amenable to the jurisdiction of an Australian court if the company carries on business within the court's jurisdiction through its own office or through an agent acting on behalf of the company and that office or agent has a fixed and definite place within the jurisdiction and the business has continued for a sufficiently substantial period of time. (paragraph 239 of GSTR 2004/7). | At paragraph 241 of GSTR 2004/7, we established a test where we consider that a non-resident company is in Australia if that company carries on business (or in the case of a company that does not carry on business, carries on its activities) in Australia: | (a) at or through a fixed and definite place of its own for a sufficiently substantial period of time, or | (b) through an agent at a fixed and definite place for a sufficiently substantial period of time. | Paragraph 247 of GSTR 2004/7 provides that a non-resident company is in Australia if: | · the company is registered with ASIC, or | · the company has a permanent establishment is Australia for income tax purposes. | A company that is incorporated outside Australia is required to register as a foreign company with ASIC if it wishes to carry on a business in Australia. | Although registered with ASIC, a non-resident company to which the supplier makes a supply may be able to demonstrate to the supplier that, even though it is registered with ASIC or has a permanent establishment, on application of the test to its particular circumstances, the non-resident company is not in Australia. Alternately, even if a company is not registered with ASIC, it may still be in Australia on an application of the test. Similarly, even if a company does not have a permanent establishment in Australia for income tax purposes, it may still be in Australia on application of the test to its particular circumstances. | You advised that the ultimate parent company is not registered with ASIC. | The non-resident carries on a business in Australia at or through a fixed and definite place of its own for a sufficiently substantial period of time or through an agent at a fixed and definite place for a sufficiently substantial period of time | A non-resident company is considered to be carrying on business in Australia even though the activities carried on in Australia are not a substantial part of, or are no more than incidental to, the main objects of the company. | A non-resident company has a place of its own if it leases or owns a place at which it conducts through its servants or agents. However, a place of its own is not limited to such a place. A non-resident company occupies a place as a place of its own if it has a right to be there. Evidence of that right is generally to be found in the fact that the company's employees or agent occupy that place for the purposes of its business. | If a non-resident company does not have a fixed and definite place in Australia at, or through which, the business of the non-resident company is carried on in Australia, the company is not in Australia. | The word 'fixed' connotes a degree of permanence in the same location. A place may be fixed even if it only exists for a short time. Although 'fixed place' excludes a place that is purely temporary, it does not mean everlasting. It is a geographical place with some degree of permanence. The word 'definite' is used in the sense of a distinct place; that is a place that can be pointed to as the place at which the non-resident company's business is carried on. | For a non-resident company to be considered to be in Australia, the business of the non-resident company must have continued, or be intended to continue, at a fixed and definite place for a sufficiently substantial period of time. Sufficiently substantial period of time simply means that there is a period sufficient for the business of the non-resident company to be conducted in Australia. | If a non-resident company has no fixed or definite place of its own in Australia, it may still carry own business in Australia through an agent from some fixed and definite place. The key issue in this kind of situation is whether the non-resident company is itself carrying on business in Australia through a duly appointed agent, or whether the business being conducted is the agent's own business and the non-resident is merely one of its customers. | Paragraph 281 of GSTR 2004/7 lists factors which may be taken into account in determining whether a non-resident company can properly be regarded as carrying on business in Australia through an agent. Paragraphs 282 to 310 deal with situations where the business of a non-resident company involves the making of contracts for sales, leases or similar. Paragraphs 282 and 283 state: | 282. If the business of a non-resident company involves the making of contracts for sales, leases or similar, the authority of the agent to conclude contracts in Australia on behalf of the non-resident is an important factor in establishing whether the non-resident is carrying on business in Australia. | 283. If an agent has the power to make contracts on behalf of the non-resident company without seeking the company's approval before binding the non-resident to contractual obligations, this is a factor of great importance in establishing that the agent is carrying on the non-resident company's business. While it is not the sole determinative factor, when coupled with other factors such as the agent displaying the name of the non-resident company on the agent's premises, or the non-resident company reimbursing the rent and staff costs of the agent, there will be little difficulty in establishing that the agent is carrying on in Australia the business of the non-resident. In these circumstances, the non-resident company has, in effect, adopted the agent's place of business as its own, and the non-resident company is in Australia. | On the information provided, the ultimate parent company does not directly lease or otherwise occupy premises in Australia. Their only presence is through you, their subsidiary. | As outlined in paragraph 319 of GSTR 2004/7, the mere presence of a subsidiary does not mean that a non-resident company is carrying on a business in Australia. | The fact that the ultimate parent company owns or controls 100% shareholding in you does not make them present in Australia unless you are acting as their agent and carrying on their business in Australia at some fixed place of business for a sufficiently substantial period of time. | As outlined in the Agency Agreement, the ultimate parent company has granted you the sole agency rights for selling their products in Australia. The ultimate parent company retains the right to become active themselves in selling the products in Australia. You are also required to provide service work on the products. Apart from receiving a commission for sales they make through your intermediary, you are also reimbursed for expenses you incur in the course of providing your services. Although you act as an intermediary for the ultimate parent company, you do not have power to contract nor have the authority to enter into legal relations with other entities in Australia on their behalf. | Based on the information provided, we do not consider that the ultimate parent company is carrying on its business in Australia through you as their agent. | Hence, we consider that the ultimate parent company is not in Australia in relation to your supply of sales support services when such supply is made. | The supply of your sales support services must also satisfy the requirements of either paragraph (a) or paragraph (b) of item 2 for the supply to be GST-free. | Paragraph (a) and/or (b) of Item 2 | Goods an Services Tax Ruling GSTR 2003/7 examines the meaning of the expressions 'directly connected with goods or real property' and 'a supply of work physically performed on goods' as used in subsection 38-190(1) of the GST Act. | Paragraph 21 of GSTR 2003/7 states: | 21. Under items 1, 2 and 3 it is only where the connection between the supply and the goods or real property is a direct one that the location of goods or real property 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 or real property. The inference is that the supply is so closely aligned with goods or real property that it is appropriate to treat the location of the goods or real property as the place where consumption occurs. | Paragraph 23 of GSTR 2003/7 provides that the goods or real property must be particular goods or real property for this very close connection to exist. A supply that is connected with goods or real property in general, rather than with particular goods or real property, does not have a sufficiently close connection with goods or real property for that connection to be a direct one. | Paragraph 33 of GSTR 2003/7 provides examples of situations where the Commissioner considers that a close link or association between the supply and particular goods or real property exists. An example given is where the direct object of the supply is the goods or real property in the sense that the supply changes or affects the goods or real property in a physical way. Examples of supplies that fall in this category are listed in paragraphs 37 and 38 of GSTR 2003/7. 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 building. Other examples of supplies of this kind include the installation, alteration, repair, cleaning, restoration or modification of goods. | The range of supplies that are directly connected with goods includes supplies of work physically performed on goods. However, not all supplies directly connected with goods are also supplies of work physically performed on goods. A supply of work physically performed on goods requires a much closer connection with the goods: it requires a physical intervention with the goods. | Paragraphs 58 and 59 of GSTR 2003/7 provide the following examples: | 58. A supply is a supply of work physically performed on goods where something is done deliberately to the goods to change them or to otherwise affect them in some physical way. The repair of goods is an example of work that is physically performed on goods. | 59. In contrast, where activities do not change or affect goods in a physical way, there is no supply of work physically performed on goods. For example, a supply of transporting goods is not work physically performed on goods because the supply only changes the location of the goods, not the goods themselves. | The sales support services that you carry out in Australia for the ultimate parent company are 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. As such, the supply of your sales support services satisfies the requirements of paragraph (a) of item 2. | As the requirements of paragraph (a) of item 2 are satisfied, there is no need to consider if the requirements of paragraph (b) of item 2 are met. | However, item 2 is limited by subsection 38-190(3) of the GST Act. | Limitations of item 2 | 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 to another entity in Australia, or the agreement requires that it be so provided, subsection 38-190(3) of the GST Act negates the GST-free status of that supply. | Subsection 38-190(3) of the GST Act states: | Without limiting subsection 38-190(2) or (2A), a supply covered by item 2 is not 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. | In this case, the supply of sale support services is a supply under an agreement entered into with a non-resident entity. Hence, paragraph 38-190(3)(a) is satisfied. | GSTR 2005/6 which provides the Tax Office view on the operation of subsection | 38-190(3) of the GST Act states at paragraphs 59 and 61: | 59. The word 'provided' is used in subsection 38-190(3) to contrast with the term 'made' in item 2. In the context of section 38-190, the contrasting words indicate that if a non-resident contracts for a supply to be provided to another entity, the place of consumption should be determined with regard to the entity to which the supply is provided, not the entity to which the supply is made. | 61. Thus the expression 'provided to another entity' means, in our view, that in the performance of a service (or in the doing of some thing), the actual flow of that supply is, in whole or part, to an entity that is not the non-resident entity with which the supplier made the agreement for the supply. The contractual flow is to one entity (the non-resident recipient) and the actual flow of the supply is to another entity. | The Agency Agreement provides that you are required to supply your sales support services to the ultimate parent company and there is nothing to indicate that you are required to provide the services to other entities in Australia. Hence, the contractual and actual flow of the services is to the ultimate parent company. Hence, paragraph 38-190(3)(b) is not satisfied. | Therefore, subsection 38-190(3) of the GST Act does not exclude your services from being GST-free under item 2 as the supply of your services is made and provided to the ultimate parent entity, a non-resident company not in Australia when the supply is made. | Accordingly, the supply of your sales support services to the ultimate parent company is GST-free under Item 2. Hence, GST is not payable on this supply. | Commission | Under section 9-15 of the GST Act, consideration includes any payment, act or forbearance, in connection with, in response to or for the inducement of a supply of anything. | In accordance with the agreement with the ultimate parent company, you are paid a commission for the supply of your sales support services. As this payment is consideration for a GST-free supply, GST is not payable. | Reimbursement of costs | Under the agreement with the ultimate parent company, your remuneration also includes the reimbursement of costs. You are reimbursed for moneys necessarily expended in fulfilling your obligations under the agreement, which include travel cost, wages, administration, rent and secretarial services. Therefore, it needs to be considered whether the payment is consideration for the supply of your services. | Paragraphs 48 to 54 of GSTR 2000/37 describe the effects of an agency relationship on disbursements by lawyers. Although GSTR 2000/37 uses the example of lawyers the GST treatment stated in GSTR 2000/37 is applicable to any situation involving service providers and their clients. | Paragraphs 48 and 49 of GSTR 2000/37 state: | 48. Agents may incur expenses on a client matter both as an agent of the client and as a principal in the ordinary course of providing their services to the client. For example, in most cases, even though agreements between solicitors and clients may not use the term agent or agency, it is clear that the | clients have authorised the solicitors to act on their behalf in the particular matter. When the solicitor acts as an agent for the client, the general law of agency applies so that the solicitor is 'standing in the shoes' of the client. | 49. If a disbursement is made by a solicitor and incurred in the solicitor's capacity as a paying agent for a particular client, then no GST is payable by the solicitor on the subsequent reimbursement by the client. This is because the goods or services to which the disbursement relates are supplied to the client, not to the solicitor, by a third party. Also, the reimbursement forms no part of the consideration payable by the client for the supply of services by the solicitor. However, if goods or services are supplied to the solicitor to enable the solicitor to perform services supplied to the client, GST is payable by the solicitor on any reimbursement by the client of expenses incurred on those goods or services, whether the reimbursement is separately itemised or included as part of the solicitor's overall fee. This is because the reimbursement is part of the consideration payable by the client for services supplied by the solicitor. | From the information available and applying the principle in paragraph 49 of GSTR 2000/37, we consider that you are not a paying agent for the ultimate parent company in respect of the costs outlined in the agreement. You incurred these costs in the ordinary course of providing your services to the ultimate parent company. They are similar to other acquisitions that you make in the ordinary course of carrying on your enterprise. The subsequent payment by the ultimate parent company for these costs forms part of the consideration payable by them for your services. | As this payment is consideration for a GST-free supply, GST is not payable. | Summary | You are making a taxable supply when you supply of service work to your ultimate parent company for machines located in Australia. Hence, GST is payable on the supply. | Detailed reasoning | Your supply of service work for machines sold to customers located in Australia satisfies the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act as: | (a) you receive consideration for the supply of the services | (b) the supply is made in the course of an enterprise that you carry on | (c) the supply is connected with Australia as the services are performed in Australia and made through an enterprise that you carry on in Australia, and | (d) you are registered for GST. | The supply of the service work is not input taxed under the GST Act or under any other Act. Therefore, what is left to determine is whether the supply is GST-free. | The supply of service work is not considered to be a supply of goods or real property. Hence, the GST status of this supply is appropriately considered under section 38-190 of the GST Act. Of relevance are items 2 and 3 in the table in subsection 38-190(1) of the GST Act. | Item 2 | Similar to the reasons outlined in Question 1 above, we consider that the ultimate parent company is not in Australia in relation to your supply of service work when such a supply is made. | The supply of your service work must also satisfy the requirements of either paragraph (a) or paragraph (b) of item 2 for the supply to be GST-free. | You advised that the service work you perform include installation, repairs, maintenance and warranty work. The service that you carry out on machines located in Australia is work physically performed on goods situated in Australia. Therefore, the supply of the services to the ultimate parent company does not meet the requirements of paragraph (a) of Item 2. | The supply of the service work may satisfy the requirements of paragraph (b) of Item 2 if the ultimate parent company acquires your services in carrying on its enterprise and it is not registered or required to be registered for GST. | However, item 2 is limited by subsection 38-190(3) of the GST Act. | In this case, the supply of service work is a supply under an agreement entered into with a non-resident entity. Hence, paragraph 38-190(3)(a) is satisfied. | Under your agreement with the ultimate parent company, you perform the services that the ultimate parent company is obliged to make to the machines warranted. The supply of services is therefore provided to the entity using the machines in Australia. The actual flow of the supply is to this entity. | As the supply is made to the ultimate parent company but provided to an entity in Australia, paragraph 38-190(3)(b) of the GST Act is satisfied. | Accordingly, subsection 38-190(3) of the GST Act applies and the GST-free status of the supply covered by item 2 is negated. Hence, the supply of service work to the ultimate parent company but provided to their customers in Australia is not GST-free under item 2. | Item 3 in the table in subsection 38-190(1) of the GST Act (item 3) | Item 3 provides that a supply of a thing (other than goods or real property) is GST-free if it is a supply: | (a) that is made to a *recipient who is not in Australia when the thing supplied is done; and | (b) the effective use or enjoyment of which takes place outside Australia; | other than a supply of work physically performed on goods situated in Australia when the thing supplied is done, or a supply directly connected with *real property situated in Australia. | Both paragraphs (a) and (b) of item 3 must be satisfied for the supply to be GST-free. | Paragraph (a) of item 3 | Similar to the precondition of item 2 discussed above, paragraph (a) of item 3 requires that the recipient must not be in Australia in relation to the supply when it is done (that is, when services are provided/performed). | As stated above, on the information provided, it is considered that the ultimate parent entity is 'not in Australia' in relation to your supply, and therefore paragraph (a) of the item 3 is satisfied. | Paragraph (b) of item 3 | Paragraph (b) of item 3 requires that the place of effective use or enjoyment of a supply to be determined (that is, whether the place is outside Australia). | Goods and Services Tax Ruling GSTR 2007/2 examines the circumstances in which the effective use or enjoyment of a supply takes place outside Australia for the purposes of paragraph (b) of Item 3. We take a two step approach to work out whether effective use or enjoyment of a supply takes place outside Australia. Firstly, we determine the entity to which the supply is provided (the providee entity). We then determine whether provision of the supply to the providee entity is outside Australia. | Paragraphs 52 to 54 of GSTR 2007/2 deal with identifying the entity to which the supply is provided (the providee entity). These paragraphs state: | 52. A supply may be made and provided to the same entity, or may be made to one entity but be provided to another entity (or entities)... | 53. The entity to which the supply is made is the recipient. The supplier may provide the supply to that recipient entity (in which case the recipient is also the providee) or may provide the supply to another entity (in which case the other entity is the providee). | 54. A supply is provided to another entity if, in the performance of a service (or in the doing of some thing), the actual flow of that supply is to an entity that is not the recipient. The contractual flow is to the recipient and the actual flow of the supply is to another entity and thus the other entity is the providee. | In this case, you supply service work under your agreement with the ultimate parent company. However, you provide, or are required to provide, the service work to the ultimate parent company's customers in Australia. | The providee entity is the ultimate parent company's customer, being the entity who receives your services. The providee entity (the ultimate parent company's customer) is in Australia when you perform your services in Australia. Hence, the effective use and enjoyment of your services does not take place outside Australia. As such, paragraph (b) of item 3 is not satisfied. | Accordingly, the supply of your service work made to the ultimate parent company but provided to the ultimate parent company's customers in Australia is not GST-free under item 3. | The supply of your services is not GST-free under any other provision of the GST Act or any other Act. Therefore, as all the requirements of section 9-5 of the GST Act are met, you are making a taxable supply when you supply service work to the ultimate parent company but provide the services to the ultimate parent company's customers in Australia. | Reimbursement of costs | Under the agreement with the ultimate parent company, you are reimbursed for moneys necessarily expended in fulfilling your obligations, which include travel cost of technicians employed by the ultimate parent entity and spare parts used in the service work. You incurred these costs in the ordinary course of providing your services to the ultimate parent company. The subsequent payment by the ultimate parent company for these costs forms part of the consideration payable by them for your services. | As this payment is consideration for a taxable supply, GST is payable. | GST payable | Section 9-70 provides that the GST payable for a taxable supply is 10% of the value. Subsection 9-85(1) provides that the value of a taxable supply is to be expressed in Australian currency for the purposes of the GST Act. Subsection 9-85(2) allows the Commissioner to determine the manner in which consideration in a foreign currency is to be converted into Australian currency to work out the value of a taxable supply. | Goods and Services Tax Ruling GSTR 2001/2 explains how to convert amounts of consideration that are expressed in foreign currency into Australian currency for GST purposes. | Summary | GST is not payable when you supply service work to your ultimate parent company for machines sold to entities located outside Australia. | Detailed reasoning | Your supply of service work for machines sold to customers located outside Australia satisfies the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act as: | (a) you receive consideration for the supply of the services | (b) the supply is made in the course of an enterprise that you carry on | (c) the supply is connected with Australia as the services are made through an enterprise that you carry on in Australia, and | (d) you are registered for GST. | The supply of the service work is not input taxed under the GST Act or under any other Act. Therefore, what is left to determine is whether the supply is GST-free. | The supply of service work is not considered to be a supply of goods or real property. Hence, the GST status of this supply is appropriately considered under section 38-190 of the GST Act. Of relevance are items 2 and 3 in the table in subsection 38-190(1) of the GST Act. | Item 2 | Similar to the reasons outlined in Question 1 above, we consider that the ultimate parent company is not in Australia in relation to your supply of service work when such a supply is made. | The supply of your service work must also satisfy the requirements of either paragraph (a) or paragraph (b) of item 2 for the supply to be GST-free. | You advised that the service work you perform includes: installation, repairs, maintenance and warranty work. The services that you carry out on machines located outside Australia is not work physically performed on goods situated in Australia. Therefore, the supply of the services to the ultimate parent company meets the requirements of paragraph (a) of Item 2. However, item 2 is limited by paragraph 38-190(3). | The supply of service work is a supply under an agreement entered into with a non-resident entity. Hence, paragraph 38-190(3)(a) is satisfied. | Under the agreement, the supply of your services is provided to the entity using the goods outside Australia. The actual flow of the supply is to this entity. | As the supply is made to the ultimate parent company but provided to an entity outside Australia, paragraph 38-190(3)(b) of the GST Act is not satisfied. | Therefore, subsection 38-190(3) of the GST Act does not exclude your services from being GST-free under item 2 as the supply of your services is made to the ultimate parent entity but provided to their clients outside Australia. Hence, GST is not payable on this supply. | The reimbursement of your costs by the ultimate parent company in this instance forms part of the consideration for a GST-free supply of services. Hence, GST is not payable. | Correcting GST mistakes | Where you have incorrectly calculated your GST payable, you have to correct this mistake in your activity statement. Refer to the fact sheet Correcting GST Mistakes for further information. | All GST rulings and publications referred to above are available at the ATO website www.ato.gov.au




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