Private ruling: GST and commission received for services to overseas entity
Date of advice: 18 October 2016
Published: February 2017

Ruling: Q1: Is goods and services tax (GST) payable on the commission received by an Australian entity (you) from the non-resident entity for your supply of services? | A2: Yes, you are entitled to claim an ITC, when you acquire the goods in relation to your supply of goods to the non-resident entity.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You are Australian company and is registered for goods and services tax (GST). You supply various types of goods, mainly hygienic products, food such as milk powder, etc. to the non-resident entity for export to overseas. The non-resident entity has no place of operation in Australia and not registered for GST in Australia. You receive purchase order from the non-resident entity for the supply of goods to overseas. After receiving a purchase order, you acquire the goods from the Australian suppliers and sell those goods pursuant to a purchase order. A small margin is added to the purchase costs. The Australian suppliers of the goods are registered for GST and charge GST for their supply of the goods to you. The non-resident entity will give you a commission based on a predetermined percentage of your costs. The commission is based on the actual costs of goods and plus a certain proportion and bonus. You and the non-resident entity agreed a commission. This can be changed with agreement through consultation between you and the non-resident entity. After receiving the purchase order, you purchase the goods as per the purchase order from the Australian suppliers. You inspect the goods on arrival and arrange to export to overseas. You are responsible and liable for the freight costs charged by the freight forwarder in sending the goods to overseas. You provided us a copy of a tax invoice issued by the Australian entity which shows that GST was charged on purchase of goods.

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 | 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 11-5 | A New Tax System (Goods and Services Tax) Act 1999 section 11-15 | A New Tax System (Goods and Services Tax) Act 1999 section 11-20

Reasons for decision: Detailed Reasoning - Issue 1: Taxable supply Under section 9-5 of the GST Act , an entity makes a taxable supply if: a) the entity makes the supply for consideration; and b) the supply is made in the course or furtherance of an enterprise that it carries on; and c) the supply is connected with Australia; and d) the entity is 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 your services to the non-resident entity in return for the commission will be a taxable supply if all the requirements in section 9-5 of the GST Act are satisfied. Based on the facts provided, the supply of your services to the non-resident entity satisfies paragraphs 9-5(a) to 9-5(d) of the GST Act as follows: (a) you make a supply of services in return for consideration by way of a commission; (b) the supply is made in the course of your business; (c) the services are performed/provided in Australia and/or the supply is made through an enterprise (business) that you carry on in Australia (and therefore the supply is connected with Australia); and (d) you are registered for GST in Australia. However, the supply of your services to the non-resident entity is not taxable to the extent that it is GST-free or input taxed. The supply of your services to the non-resident entity does not satisfy the input taxed provisions under the GST Act. The GST-free provisions are taken into consideration. | Detailed Reasoning - GST-free: 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. Of relevance to the supply of services to the non-resident entity is item 2 in the table in subsection 38-190(1) of the GST Act (Item 2). Under Item 2 a supply of things (other than goods or real property) 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 the 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. Accordingly, where the requirements of either paragraph (a) or (b) above are met, the supply will be GST-free if the non-resident is not in Australia when the thing supplied is done (that is, when the services are performed/provided). Non-resident not in Australia in relation to the supply For the supply of your services to be GST-free under Item 2, there is a precondition that the non-resident must not be in Australia in relation to the supply when it is performed/provided. Goods and Services Tax Ruling GSTR 2004/7 discusses when an entity is not in Australia when the thing supplied is done. Paragraph 37 of GSTR 2004/7 provides that a non-resident company is in Australia if that company carries on business (or in the case of company that does not carry on business, carries on its activities) in Australia through: a) a fixed and definite place of its own for a sufficiently substantial period of time; or b) an agent at a fixed and definite place for a sufficiently substantial period of time. In addition, if a non-resident company is determined to be in Australia on the basis of the above test, it is necessary to determine if the company is in Australia in relation to the supply, when the supply is done (that is, performed/provided). From the facts provided, the supply of your services are made and provided to the non-resident entity. You advise that the non-resident entity is not in Australia in relation to your supply of the services, nor do they have any other representatives acting on their behalf in Australia in relation to those services. Accordingly, it is considered that the non-resident entity is 'not in Australia' in relation to the supply of your services in return for the commission for the purposes of Item 2. Paragraphs (a) and/or (b) of Item 2 Where a non-resident entity is not in Australia in relation to the supply when the thing supplied is done, it is necessary to determine if the other requirements in either paragraph (a) or (b) of Item 2 are satisfied. Under paragraph (a) of Item 2, a supply of a thing that is made to a non-resident who is not in Australia when the thing supplied is done is GST-free if the supply is neither a supply of work physically performed on goods situated in Australia nor directly connected with real property situated in Australia when the work is done. Paragraph 44 of Goods and Services Tax Ruling GSTR 2003/7 provides guidance on when supplies of things are not directly connected with goods or real property, because we consider that a direct connection does not exist where the supply does not relate to particular goods or real property or only indirectly relates to such goods or real property. Supplies of this kind include marketing, advertising or similar intermediary services, and services of merely arranging supplies between two other parties. From the facts provided, you provide services to the non-resident entity in return for a commission. Furthermore, your services to the non-resident entity is neither a supply of work physically performed on goods situated in Australia nor a supply directly connected with real property situated in Australia. Accordingly, the supply of your services to the non-resident entity satisfies the requirement of paragraph (a) of Item 2. In addition, where the non-resident entity acquires your services in carrying on its enterprise (business), and is neither registered nor required to be registered for GST in Australia, the supply of your services to the non-resident entity will also satisfy paragraph (b) of Item 2. Please note that you are able to ascertain the GST registration status of an entity that you deal with by checking the Australian Business Register at www.abr.gov.au. Limitations Having met the requirements of Item 2, it is also necessary to consider subsection 38-190(3) of the GST Act. Subsection 38-190(3) of the GST Act states: Without limiting subsection (2), a supply covered by item 2 in that table 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. From the facts provided, the supply of your services in return for the commission is not provided, and there is no agreement(s) with the non-resident entity to provide these services to another entity in Australia. Accordingly, subsection 38-190(3) of the GST Act does not exclude the supply of your services in return for the commission from being GST-free under Item 2. In summary, the supply of your services to the non-resident in return for the commission is GST-free under Item 2 and no GST is payable on this supply. | Detailed Reasoning - Issue 2: Under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), you are entitled to claim an input tax credit (ITC) on any creditable acquisition you make. Section 11-5 of the GST Act provides that you make a creditable acquisition if: (a) you acquire anything solely or partly for a creditable purpose; and (b) the supply of the thing to you is a taxable supply; and (c) you provide or are liable to provide consideration for the supply; and (d) you are registered or required to be registered for GST. You acquire a thing for a creditable purpose to the extent that you acquire the thing in carrying on your enterprise. However, you do not acquire a thing for a creditable purpose to the extent that the acquisition relates to making input taxed supplies or is of a private or domestic nature. Where you satisfy all the requirements of section 11-15 of the GST Act for a creditable acquisition, and you hold a valid tax invoice(s), you will be entitled to claim an ITC on that acquisition. From the facts provided, you will satisfy all the requirements of paragraphs (a) to (d) of section 11-5 of the GST Act, as follow: (a) you acquire the goods solely for a creditable purpose, and (b) the supply of the goods to you is taxable supply; and (c) you provide the consideration for the supply; and (d) you are registered for GST in Australia. As you satisfy all the requirements of section 11-5 of the GST Act, you will be entitled to claim ITCs when you acquire the goods in the course of supplying goods to the non-resident entity. You must hold a valid tax invoice(s) to claim the ITC.

Answer 1: No, the supply of your services to the non-resident entity in return for the commission is GST-free under subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) . | Are you entitled to an input tax credit (ITC) when you acquire goods in relation to your supply of goods to the non-resident entity?