Private ruling: GST - telecommunications services
Date of advice: 14 August 2024
Published: 23 September 2024
Ruling period: All tax periods ending on or after DD MM 20YY and before DD MM 20YY
Date scheme commenced: 30 January 20YY

Ruling: Q1: Is the entity making taxable supplies under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 when it provides services to an Australian entity and a non-resident entity? | A1: The supplies made to the Australian entity are taxable supplies. The supplies made to the non-resident entity are not taxable supplies as they are GST-free.

Relevant facts and circumstances: The entity is registered for GST and is carrying on an enterprise in Australia. The entity is in the process of installing equipment within Australia to provide services to both domestic and international customers. The entity will provide services via a number of different scenarios The entity has not yet started providing these 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 section 38-190

Reasons for decision: Summary: Generally, an entity makes a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) if: • it makes a supply for consideration (payment); and • the supply is made in the course or furtherance of an enterprise that is carried on by the entity; and • the supply is connected with the indirect tax zone (Australia); and • the entity is registered, or required to be registered for GST; and Supplies made by the entity satisfy the requirements of section 9-5 of the GST. This is because the supplies are made in the course of the business being conducted by the entity in return for payment from its customers; the entity is registered for GST; and the supplies are connected with Australia because they are either provided in Australia or are made through an enterprise that is carried on from a fixed place in Australia. However, section 9-5 of the GST Act also states that a supply is not a taxable supply to the extent that it is GST-free or input taxed. There are no provisions within the GST Act which would make the supplies being provided by the entity input taxed, but section 38-190 of the GST Act makes certain supplies of things other than goods or real property GST-free. Relevantly, table item 2 of subsection 38-190(1) of the GST Act provides that a supply is GST-free if it is made to a non-resident who is not in Australia at the time of the supply and: • the supply is not directly connected with real property, nor work done on goods located in Australia; or • the supply is acquired by the non-resident in carrying its enterprise, but is not registered or required to be registered for GST. The services offered by the entity are not connected to real property and nor are they supplies of work done on goods located in Australia. As such, they will satisfy table item 2 of subsection 38-190(1) of the GST where the services are supplied to a non-resident who is neither registered, nor required to be registered for GST. Given the nature of the services, it is reasonable to conclude that these services are always acquired by the non-resident in carrying on its enterprise. Where the entity supplies the services to an Australian Australian-based entity, those supplies are not GST-free. This occurs when the entity has an agreement with an Australian entity. Where the entity has an agreement with an entity that is a non-resident (whether or not that is in addition to an agreement with an Australian-based entity), supplies made by the entity to the non-resident entity will satisfy table item 2 in subsection 38-190(1) of the GST Act. This is because the recipient of the supply made by the entity is a non-resident who is not in Australia in relation to the supply (as discussed in the goods and services tax ruling, GSTR 2004/7 Goods and services tax: in the application of items 2 and 3 and paragraph (b) of item 4 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999: when is a 'non-resident' or other 'recipient' of a supply 'not in Australia when the thing supplied is done'? when is 'an entity that is not an Australian resident' 'outside Australia when the thing supplied is done'? ); The services provided by the entity are acquired by the non-residents in the course of carrying on their enterprise and they are neither registered, nor required to be registered for GST. However, subsection 38-190(3) of the GST Act broadly operates to restrict supplies that are GST-free under table item 2 of subsection 38-190(1) of the GST Act where the supply made by the entity is provided to another entity in Australia who is not acquiring the services for a creditable purpose (ie in the course of the non-resident's business and doesn't relate to making input taxed supplies such as financial supplies). (3) Without limiting subsection (2) or (2A), 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 the indirect tax zone; and (c) ... This means that, if the agreements the entity enters into with non-resident entities require the entity to provide its services to individuals that are in Australia, then subsection 38-190(3) of the GST Act will operate to stop the supplies being GST-free. Although the operation and intent of the services provided by the entity is to allow access to networks within Australia, it is ultimately the individual users of the networks that will benefit from the services provided by the entity to other entities. The Goods and Services Tax Ruling, GSTR 2005/6 Goods and services tax: the scope of subsection 38-190(3) and its application to supplies of things (other than goods or real property) made to non-residents that are GST-free under item 2 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 provides a detailed explanation of the operation of subsection 38-190(3) of the GST Act and, at paragraph 277 emphasises that the exact nature of the supply is essential to determining whether that supply is provided to another entity. When the entity enters into an agreement with a non-resident customer, it is not required to provide the services to the non-resident's customers. The entity provides the services by allowing the non-residents to access the entity's equipment. Although the individual users ultimately benefit from the non-resident having access to the entity's equipment, the entity doesn't provide those services to the individual users. Paragraph 285 of GSTR 2005/6 states: 285. In situations where the contractual flow of the supply is to an entity (other than an individual), and it is necessary to determine whether the actual flow of the supply is to another entity (other than an individual), we consider that a strong indicator that the supply is provided to another entity is that the contracting entity has no further interaction with, or participation in, the provision of the supply beyond contracting and paying for the supply... As the supplies made by the entity under the arrangements are not provided to the non-resident's customers, paragraph 38-190(3)(b) of the GST Act is not satisfied. This means that the supplies remain GST-free under table item 2 in subsection 38-190(1) of the GST Act. Alternatively, table item 4 in subsection 38-190(1) of the GST Act provides that a supply is GST-free if it is: a supply that is made in relation to rights if: (a) the rights are for use outside the indirect tax zone; or (b) the supply is to an entity that is not an Australian resident and is outside the indirect tax zone when the thing supplied is done. The application of table item 4 in subsection 38-190(1) of the GST Act in relation to a supply of capacity in an international telecommunication network such as international private circuits, indefeasible rights of use and global networks is explained in the Goods and Services Tax Determination, GSTD 2012/9 Goods and services tax: is the supply of a right to capacity in an international telecommunication network made by an Australian resident telecommunication supplier GST-free under item 4 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999? . GSTD 2012/9 states: 7. A supply of capacity in an international telecommunication network is discussed at paragraphs 98 to 100 of GSTR 2003/8. Consistent with the views expressed there, the Commissioner considers that the supply of capacity in an international telecommunication network is a supply of a right. 8. The supply by an Australian operator of a right to capacity in a network is GST-free under paragraph (b) of item 4 when it is supplied to a non-resident provided that they are not in Australia when the right is granted. 9. As the supply is covered by paragraph (b) of item 4 it is not necessary to consider whether the supply is a right which is for use outside Australia under paragraph (a) of item 4. Rights for use outside Australia are not discussed in this Determination. 10. Subsection 38-190(2) negates the GST-free status of a supply covered by item 4 if it is a supply of a right or option to acquire something the supply of which would be connected with Australia. As the supply of capacity is not a right or option to acquire something else, subsection 38-190(2) will not negate the GST-free status of the supply. Although the services of the type provided by the entity are not specifically addressed in GSTD 2012/9, the principles apply equally. This is because the supplies provided by the entity are in relation to rights to access the entity's equipment. Where the entity supplies the services to an Australian-based entity, those supplies are not GST-free. Where the entity has an agreement with an entity that is a non-resident (whether or not that is in addition to an agreement with an Australian-based entity), supplies made by the entity to the non-resident entity will satisfy table item 4 in subsection 38-190(1) of the GST Act. This is because the supplies made by the entity are in relation to rights of accessing its equipment and the recipient of the supply is a non-resident who is not in Australia in relation to the supply. The example in GSTD 2012/9 closely aligns to the services provided by the entity. Consequently, the supplies of services made by the entity to its Australian-based customers are taxable supplies under section 9-5 of the GST Act. The supplies of services made by the entity to non-resident customers are not taxable supplies because they are GST-free under either table item 2 or table item 4 in subsection 38-190(1) of the GST Act.