Private ruling: GST and supply of digital marketing solutions via an online platform
Date of advice: 10 September 2015
Published: September 2015

Ruling: Q1: Is the supply by NR of digital marketing solutions via on-line platform to Australian customers outside the scope of Australian GST as the supply is not connected with Australia in accordance with section 9-25 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) so that NR is not required to be registered for GST in Australia? | A1: NR's supply is not connected with Australia pursuant to subsection 9-25(5) of the GST Act. Hence BV Inc is not required to be registered for GST in Australia due to this supply.

Relevant facts and circumstances: Non-resident company (NR) supplies digital marketing solutions to Australian customers electronically via a software-as-a-service online platform (Platform). The Platform is hosted on servers located overseas. NR creates and owns all intellectual property (IP) related to the digital marketing solutions and all trademarks and trade names. NR does not sell goods, does not have equipment or machinery in Australia and does not engage in construction projects. Master Agreement between NR and Australian customers: NR contracts with Australian customers through the Master Agreement and service orders. All contracts with Australian customers are negotiated and executed by NR's relevant personnel located overseas. The Sales and Marketing and Support Service Agreement (the Agreement) NR has a subsidiary company (S) who is registered for ABN and GST in Australia. S supplies sales and marketing and support services to NR. The Agreement was executed overseas. Pursuant to the Agreement, S provides NR with sales and support services. The Agreement states that NR engages S as a contractor to perform services related to sales, inclusion any and all technical, marketing, promotion and advertising actions and S shall not have the authority to conclude contracts in the name of NR. S is remunerated on a cost plus basis, and do not receive commissions linked to sales made by NR to Australian customers. Currently some of NR's employees have been seconded to Australia for a period of time and work at S's Australian office. They do not have the authority to conclude contracts on NR's behalf in respect of Australian customers. They cannot negotiate with Australian customers about any specific terms such as pricing or service level. They are in Australia for the express purpose of conducting sales meetings, visiting with Australian customers and prospects and providing technical support. S receives a Service Fee from NR for the following services: • Identifying potential business opportunities for NR • Distributing and disseminating information • Engaging in promotional activity; including demonstration; and responding to inquiries for NR's services; • Advising NR on marketing strategies and local market conditions, including the provision of information in respect of market trends, competitors, new products and services in the market; • Provision of customer and technical support services to customers; • Conducting marketing activities; All contracts with Australian customers are negotiated and executed by NR's relevant personnel. NR plays the primary roles in all contracts negotiations with support from S. Overall NR provides oversight and guidance for S's sales and marketing activities. S does not carry on any other business in Australia except the sales, marketing and support services provided to NR. S is a limited risk sales and marketing service provider. S contends that S does not carry out a material part of NR's business in Australia because S only provides sales and marketing services for NR, while NR is the entrepreneur and the owner of all significant intangible property and is the only party that provides the contracted services to the customers.

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 9-25 | A New Tax System (Goods and Services Tax) Act 1999 Section 23-5 | A New Tax System (Goods and Services Tax) Act 1999 Section 188-15 | A New Tax System (Goods and Services Tax) Act 1999 Section 188-10 | A New Tax System (Goods and Services Tax) Act 1999 Section 188-20 | A New Tax System (Goods and Services Tax) Act 1999 Section 195-1.

Reasons for decision: Summary: GST is payable on a taxable supply. To be a taxable supply, the supply must meet the conditions under section 9-5 of the GST Act. 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 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.) The supply of NR's digital marketing solutions to clients in Australia is a supply of services and satisfies the requirements of paragraphs (a) and (b) of section 9-5 of the GST Act as NR receives consideration for the supply, and NR makes the supply of digital marketing solutions in the course or furtherance of an enterprise that NR carries on. Is the supply connected with Australia- paragraph (c) of section 9-5 of the GST Act? Since the supply made by NR is a supply of anything other than goods or real property, we need to consider whether the supply of digital marketing solutions is connected with Australia under subsection 9-25(5) of the GST Act, which provides that a supply of anything other than goods or real property is connected with Australia if: (a) the thing is done in Australia; or (b) the supplier makes the supply through an enterprise that the supplier carries on in Australia; or (c) all of the following apply: (i) neither paragraph (a) nor (b) applies in respect of the thing; (ii) the thing is a right or option to acquire another thing; (iii) the supply of the other thing would be connected with Australia. Paragraph 9-25(5)(a) of the GST Act is not satisfied because the digital marketing solutions are created overseas and supplied via the Platform which is hosted on servers outside Australia. Paragraph 9-25(5)(b) of the GST Act is not satisfied because the supplier does not carry on an enterprise through a permanent establishment in Australia via S at the office in Australia. While NR carries on a business of selling digital marketing solutions to Australian customers, S is in the business of providing marketing services for NR's supply to promote NR and its activities and to introduce potential customers in Australia to NR. NR does not have an agent due to the presence of S in Australia because S does not have the authority to sign contracts or make important decisions in respect of the supply of digital marketing solutions from NR to the Australian customers. We consider that S is carrying on its own business, not NR's business. Although S does not carry on any other business in Australia except the services provided to NR, we do not consider that S carries on a material part of NR's business in Australia because NR is the owner of all significant intangible property inherent in the digital marketing solutions and Australian customers enter into the Master Agreement with NR. Paragraph 9-25(5)(c) of the GST Act is not applicable as the supply is a supply of digital marketing solutions and is not considered to be a supply of a right or option to acquire another thing. In conclusion NR's supply of digital marketing solutions to Australian customers is not connected with Australia and paragraph 9-5 (c) of the GST Act is not satisfied. NR's supply to Australian customers is outside the scope of Australian GST. Is NR required to be registered for GST? Section 23-5 of the GST Act provides that an entity is required to be GST registered if the entity is carrying on an enterprise and the entity's GST turnover meets the 'registration turnover threshold', i.e. $75,000 (regulation 23-15.01 of the A New Tax System (Goods and Services Tax) Regulations 1999 ). Section 188-10 of the GST Act provides that an entity's turnover meets a turnover threshold if that entity's 'current GST turnover' is at or above the turnover threshold and the ATO is not satisfied that the entity's projected GST turnover is below that turnover threshold or the entity's 'projected GST turnover' is at or above the turnover threshold. Paragraphs 188-15(3)(a) and 188-20(3)(a) of the GST Act provide that supplies which are not connected with Australia are disregarded when calculating 'current GST turnover' or 'projected GST turnover' respectively. Since the supply of digital market solutions via an online platform by NR is not connected with Australia, this supply does not have any impact on the calculation of NR's current GST turnover and projected GST turnover. Since NR's GST turnover does not meet the registration turnover threshold, NR is not required to be registered for GST, and the supply of digital market solutions via an online platform by NR to Australian customers is not a taxable supply.