Private ruling: GST and supply of services to a non-resident
Published: July 2012

Ruling: Q1: Is your supply of marketing services to an offshore entity (the offshore entity) a taxable supply? | A1: No, the supply of your services to the offshore entity is not a taxable supply. The supply is a GST-free supply.

Relevant facts and circumstances: You supply marketing services to a number of clients including the offshore entity. The offshore entity is a non-resident company incorporated in an overseas country. The offshore entity's parent company is based overseas and runs various websites. You have been providing marketing services since July 2011 promoting the offshore company's websites in Australia. The websites for the offshore entity are hosted on a server outside of Australia, with customer service hours in Australia only corresponding to business hours in a specified overseas country. The offshore entity is not a resident of Australia for income tax purposes. The offshore entity is not registered for GST nor is required to be registered for GST. The offshore entity is not carrying on an enterprise in Australia through a fixed and definite place of its own or through an agent at a fixed and definite place for sufficiently substantial period of time. The offshore company is not registered with ASIC and does not have a permanent establishment in Australia. The offshore entity used to have an office in Australia but they have closed that office. You were engaged by the offshore entity for the supply of your services after the offshore entity had closed its office in Australia. The services that you provide to the offshore entity are not directly connected with real property situated in Australia and are not work physically performed on goods situated in Australia. You provided a copy of the agreement between you and the offshore entity (the Agreement). The Agreement provides that the offshore entity assigned you to act as its marketing communication consultant in the Australian and other specified marketplaces. The Agreement outlines the scope of your services and provides that your services are focused on raising the profile of the offshore entity's websites via media relations. Under the Agreement you are required to promote the offshore entity's websites through activities such as: · developing ads for print, online, radio and TV placement · media services, including targeting, outreach, monitoring editorial opportunities · arranging an maintaining communications with the media · setting up and executing interviews and other media opportunities · story direction and creation · account management and coordination including regular updates · compilation of the media yield · regular reports of all placements in all media. The Agreement provides that your relationship with the offshore entity is that of an independent contractor for the purposes of any applicable tax legislation. Nothing in the Agreement shall be regarded or construed as creating any relationship by way of employer/employee, agency, joint venture, association, or partnership between the parties. Pursuant to the Agreement, you acknowledge that you are being retained as a consultant to the offshore entity as such you do not have the authority and cannot commit or bind the offshore entity to any matter, contract or negotiation without the prior authorisation of the offshore entity. Further, the Agreement provides that nothing contained in this agreement shall be deemed to constitute or create a partnership or joint venture between the parties and neither party shall hold itself out as the agent of the other. You do not provide and the Agreement does not require you to provide your marketing services to another entity in Australia. You do not have any dealings with the offshore entity's members/subscribers. You issue invoices for the performance of your services to the offshore entity. You have been charging the offshore entity GST for the supply of your services.

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 s ection 9-40. | 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).

Reasons for decision: Summary: Your supply of marketing services to the offshore entity is not a taxable supply. The supply is GST-free. | Detailed Reasoning - Detailed reasoning: Section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you must pay the GST payable on any taxable supply that you make. Section 9-5 of the GST Act 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. 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) The supply of your marketing services to the offshore entity meets the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act as: · the supply is for consideration · the supply is in the course of the enterprise that you carry on · the supply is connected with Australia as the services are performed in Australia, and · you are registered for GST. The supply of your marketing services is not input taxed under a provision of the GST Act or a provision of another Act. Therefore, what is left to consider is whether the supply is GST-free. | Detailed Reasoning - GST-free: Section 38-190 of the GST Act provides that certain supplies of things other than goods or real property, for consumption outside of Australia are GST-free. You advised that the supply of your marketing services is neither a supply of goods nor a supply of real property, therefore, Item 2 in the table in subsection 38-190(1) of the GST Act (Item 2) is relevant for consideration. Item 2 provides that a supply that is made to a non-resident is GST-free if the non-resident 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. | Detailed Reasoning - Non-resident: Section 195-1 of the GST Act provides that for GST purpose 'non-resident' means an entity that is not an Australian resident and 'Australian resident' means a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936). Accordingly, a supply that is made to an entity is a supply to a non-resident for GST purposes if the entity is not a resident of Australia for income tax purposes. Subsection 6(1) of ITAA 1936 provides that a company is a resident of Australia for income tax purposes if: · the company is incorporated in Australia, or · if not incorporated in Australia, it carries on business in Australia and has either its central management and control in Australia, or its voting power controlled by shareholders who are residents of Australia. You advised that the offshore entity is not a resident of Australia for income tax purposes. Therefore, the offshore entity is a non-resident for GST purposes. | Detailed Reasoning - Not in Australia: For the supply of the marketing services to be covered under Item 2, there is a precondition that the non-resident must not be in Australia in relation to the supply when the supply is performed/provided. Goods and Services Tax Ruling GSTR 2004/7 discusses when an entity is considered not to be in Australia when the thing supplied is done. Paragraphs 37 to 41 of GSTR 2004/7 explain when a non-resident company is in Australia. These paragraphs state: 37. 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. 38. We consider that it would be reasonable for a supplier to conclude that a non-resident company is in Australia if: · the company is registered with ASIC; or · the company has a permanent establishment in Australia for income tax purposes. 39. However, 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 (at paragraph 37) to its particular circumstances, the non-resident company is not in Australia. 40. Suppliers should be aware that even if a company is not registered with ASIC, it may still be in Australia on an application of the test (at paragraph 37). 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. 41. A non-resident company is in Australia in relation to the supply if the supply is solely or partly for the purposes of the Australian presence, for example, its Australian branch. If the supply is not for the purposes of the Australian presence but that Australian presence is involved in the supply, the company is in Australia in relation to the supply, except where the only involvement is minor. You advised that the offshore entity does not carry on an enterprise in Australia through a fixed and definite place of its own or through an agent in Australia. Further, the offshore entity is not registered with ASIC and does not have a permanent establishment in Australia. Based on the information provided, the offshore entity is not in Australia in relation to the supply of your marketing services. | Detailed Reasoning - Paragraphs (a) and/or (b) of Item 2: Where a non-resident is not in Australia in relation to the supply when the thing supplied is done, it is necessary to determine if the requirements of either paragraph (a) or (b) of Item 2 are satisfied. For the purposes of paragraph (a) of Item 2, the supply must be analysed to determine whether it is properly characterised as a supply of work physically performed on goods or is directly connected with real property situated in Australia. This is examined in Goods and Services Tax Ruling GSTR 2003/7. From the information provided, the nature of your supply is the provision of marketing services to the offshore entity. The supply of your services is neither a supply of work physically performed on goods situated in Australia nor a supply directly connected with real property situated in Australia. Therefore, the supply of your services to the offshore entity satisfies the requirement of paragraph (a) of Item 2. Consequently, the supply of your marketing services to the offshore entity is covered by Item 2. However, the scope of Item 2 is limited by subsection 38-190(3) of the GST Act. | Detailed Reasoning - Subsection 38-190(3): Subsection 38-190(3) of the GST Act states that 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. Goods and Services Tax Ruling GSTR 2005/6 explains the operation of subsection 38-190(3) of the GST Act. This ruling provides that subsection 38-190(3) of the GST Act only applies if there is a supply of something, being a supply that is made to a non-resident and is covered by Item 2, and that same supply is provided, or is required to be provided to another entity in Australia. That is the contractual flow of the supply is to one entity (the non-resident) and the actual flow of the supply is to another entity in Australia. The intent of this provision is to impose a further location test where the supply is provided, or required to be provided, to another entity. If that other entity is in Australia, subsection 38-190(3) of the GST Act operates to negate the GST-free status that would otherwise apply under Item 2. You advised that you do not provide, and your agreement with the offshore entity does not require you to provide your services to another entity in Australia. Therefore, the supply is not excluded by subsection 38-190(3) of the GST Act from being GST-free. | Detailed Reasoning - Conclusion: As the supply satisfies the requirements in Item 2 and is not excluded from being GST-free by subsection 38-190(3) of the GST Act, you are making a GST-free supply when you supply your marketing services to the offshore entity. | Detailed Reasoning - Correcting GST mistakes: You stated that you have been treating your supplies as taxable and have been including GST in your invoices issued to the offshore entity. As explained above, the supply of your services to offshore entity in the circumstances described is GST-free. Under subsection 105-65(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA), the Commissioner has a discretion to refund or credit the GST amount that was incorrectly included in the price of a non-taxable supply if certain requirements are met. As a general rule, the Commissioner will exercise the discretion to allow a refund or credit in accordance with subsection 105-65(1) of the TAA, if the supplier first reimburses the GST incorrectly included in the price to the recipient of the supply. Accordingly, to be able to recover the GST incorrectly included in the price of your supplies that were GST-free, you must first reimburse the GST incorrectly included in the price to the offshore entity and notify us when you have done that. For more information about the restriction on GST refunds that may apply if you mistakenly classify a GST-free sale as taxable, see Miscellaneous Taxation Ruling MT 2010/1 Miscellaneous tax: restrictions on GST refunds under section 105-65 of Schedule 1 to the Taxation Administration Act 1953. Any entitlement to a refund may also be affected by section 105-55 of Schedule 1 to the TAA, which provides for a four-year time limit for entitlements to refunds, other payments or credits in relation to GST. For further information please refer to the publication entitled Time limits on GST refund. The publication Correcting GST mistakes (NAT 4700) is also relevant for consideration.

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