Private ruling: GST and reverse charge liability
Published: March 2013

Ruling: Q1: Has A correctly treated the supply of the services to A by B as a taxable supply under section 84-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) based on information available to A at the time the services were performed? | A1: No. | Q2: If the answer to the above is 'yes', has A correctly paid the GST on the taxable supply based on information available to A at the time the services were performed? | A2: As we have answered Question 1 in the negative, it is not necessary to answer Question 2. | Q3: Alternatively, if the answer to Question 1 above is 'no' due to further information that became available to A after the time when the services were performed, should A comply with what A understood to be A's obligation under Division 84 of the GST Act based on information available to A at the time the services were performed and if so, how? | A3: The Commissioner declines to rule on Question 3.

Relevant facts and circumstances: A is registered for GST. A entered into arrangements with B for B to supply certain products and services (services) to A. B is incorporated overseas. The relevant licenses for the use of B's products were granted outside of Australia, and as far as A is aware, B neither performed the services in Australia nor supplied the services through an enterprise carried on in Australia by B. B has not issued valid tax invoices to A for the supply of the services and the invoices that were issued by B to A for the supply of the services do not contain any GST component. At no stage during the performance of the services did B indicate to A that the supply of the services was either performed in Australia or supplied through an enterprise carried on in Australia by B. Based on information available to A at the time the services were performed by B, A considered that the supply of the services was not connected with Australia and was a taxable supply under section 84-5 of the GST Act. As A considered that A had an obligation to comply with Division 84 of the GST Act, A paid GST to the Commissioner in respect of the supply of the services to A when B issued the relevant invoices to A. B has since informed A that B that during some of the period a proportion of the services provided to A were performed in Australia, and that B should have paid GST to the Commissioner on that proportion of the services. B has also informed A that B will seek a private indirect tax ruling from the Commissioner confirming that a proportion of the services supplied by B to A were connected with Australia that A therefore should not have paid GST to the ATO pursuant to Division 84 of the GST Act when B issued the relevant invoices to A.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 84-5 | A New Tax System (Goods and Services Tax) Act 1999 section 9-25

Reasons for decision: Summary: While A considered that A correctly treated the supply of the services by B as a taxable supply under section 84-5 of the GST Act based on information available to A at the time the services were performed, later events proved that A's GST treatment of the services was incorrect. | Detailed Reasoning - Detailed reasoning: During the period in question, GST operated under a self actuating tax regime under which a taxpayer was automatically liable to pay an amount under an indirect tax law based on the liabilities and entitlements attributable to a tax period. However under a self actuating system, the taxpayer remains liable to pay the correct amount of tax even if a wrong amount has been inadvertently reported and paid. Subsection 84-5(1) of the GST Act states: (1) A supply of anything other than goods or *real property that is: (a) a supply not *connected with Australia; or (b) a supply connected with Australia because of paragraph 9-25(5)(c); is a taxable supply if: (c) the *recipient of the supply acquires the thing supplied solely or partly for the purpose of an *enterprise that the recipient *carries on in Australia, but not solely for a *creditable purpose; and (d) the supply is for *consideration; and (e) the recipient 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. Subsection 9-25(5) of the GST Act states that a supply of anything other than goods or real property is connected with Australia if either the thing is done in Australia, or the supplier makes the supply through an enterprise that the supplier carries on in Australia. Goods and Services Tax Ruling GSTR 2000/31 states that if the thing being supplied is a service, the supply of that service is typically 'done' where the service is performed. Based on the information available to A at the time the services were performed by B, there was nothing which indicated to A that the services were performed in Australia or that B supplied the services through an enterprise that B carried on in Australia: · B has never issued valid tax invoices to A in respect of the supply of the services; · the invoices that B did issue to A in respect of the supply of the services did not contain any GST component; and · at no stage during the period when the services were performed did B indicate to A that the supply of the services was either performed in Australia or supplied through an enterprise that B carried on in Australia. A did not provide the ATO with any information about any other processes A went through prior to deciding to treat the supply of the services as a taxable supply under Division 84 of the GST Act. Nor did A advise the ATO about A's protocols and risk assessments to ensure that A's decision to apply Division 84 was correct and that the relevant circumstances had not subsequently changed. As stated in Goods and Services Tax Draft Ruling GSTR 2012/D3, under reverse charge arrangements the supplier is not required to provide the recipient with a tax invoice and the recipient does not require a tax invoice in order to claim a GST credit. During the period in which B performed the services and issued the relevant invoices A decided that the supply of the services was a supply not connected with Australia such that section 84-5 may apply. Accordingly, as the other requirements of subsection 84-5(1) of the GST Act were satisfied as follows, A treated the supply of the services by B as a taxable supply under section 84-5 of the GST Act: · A, as the recipient of the supply, acquired the services supplied solely or partly for the purpose of an enterprise which A carries on in Australia, but not solely for a creditable purpose; · the supply was for consideration; · A is registered for GST; and · the supply was not GST-free or input taxed to any extent. A concluded that Division 84 of the GST Act applied. Further, A's conclusion as that the supply of the services was not connected with Australia was supported by B's assessment of the supply at the time. However, while A's assessment of its GST liability at the time the services were performed appeared correct to A, later events have demonstrated that a proportion of the supply of those services by B to A should not have be dealt with under Division 84 of the GST Act and that A's assessment was ultimately incorrect. | Detailed Reasoning - Question 2: As we have answered Question 1 in the negative, it is not necessary to answer Question 2. | Summary: The Commissioner declines to rule on Question 3 because the correctness of any ruling on that issue would depend on which assumptions the Commissioner made about certain matters. | Detailed Reasoning - Detailed reasoning: While A considers that A correctly paid GST under Division 84 of the GST Act in respect of the supply of the services made by B based on the information available to A when the services were performed, subsequent events indicate that A should not have done so. Question 3 asks whether A was correct to pay GST pursuant to Division 84 based on the information available to A when the services were performed. Taxation Ruling TR 2006/11 states that the Commissioner may decline to rule where the Commissioner considers that the correctness of the ruling would depend on which assumptions were made about a matter (Para 40). The correctness or otherwise of any ruling provided by the Commissioner in response to Question 3 would depend on which assumptions the Commissioner made about certain matters such as A's risk protocols and processes at the time when A decided to apply Division 84 of the GST Act and the time when A undertook any review that decision. Consequently we decline to rule in respect of Question 3.