Private ruling: GST and supply of advertising services
Date of advice: 22 July 2021
Published: September 2021

Ruling: Q1: Is GST payable on the supply of advertising services made by you to the non-resident where the advertisements placed are for Australian entities? | A1: No. The supply of advertising services made by you to the non-resident is 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 (GST Act) when the advertisements placed are for Australian entities

Relevant facts and circumstances: You are registered for GST. You sell advertising space in a number of online publications that you produce. An advertising agency based overseas (the non-resident) places advertisements with you on behalf of its clients. The advertisements are placed for businesses that operate almost exclusively in Australia. The non-resident does not place any advertisements for real estate in Australia. You do not have a written contract with the non-resident. The non-resident contacts your advertising sales team to place an ad for its client. The non-resident provides the name of the client, the pages on the website they want the ad to be placed, the dates they want the ad to appear and the advertising copy. You then send a booking sheet and sales advice to the non-resident indicating its client as the client booked via the non-resident, the pricing, commission, and confirmation of the pages on the website where the ad will appear and on which dates. The ads placed on your website contains links to the website of the non-resident's client. When the ad is placed, you send an invoice. You do not communicate directly with the non-resident's clients for instructions in relation to your supply of advertising services. You have no contact with any Australian presence of the non-resident. You were previously advised by the non-resident that it has no offices, agents or staff in Australia. The non-resident is not registered or required to be registered for GST.

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: The supply of advertising services made by you to the non-resident is 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 (GST Act) when the advertisements placed are for Australian entities. | Detailed Reasoning - Detailed reasoning: GST is payable on a taxable supply. 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 the indirect tax zone; 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 under section 195-1 of the GST Act) Your supply of advertising services to the non-resident is made for consideration and in the course of your enterprise. The supply is connected with the indirect tax zone as it is made through an enterprise that you carry on in Australia. You are registered for GST. All the requirements in paragraph 9-5(a) to 9-5(d) of the GST Act are satisfied; therefore, your supply of advertising services to the non-resident is a taxable supply unless it is GST-free or input taxed. There is no provision in the GST Act under which your supply to the non-resident is input taxed; thus, what remains to be determined is whether your supply is GST-free. GST-free supply Item 2 in the table in subsection 38-190(1) of the GST Act (item 2) provides that a supply of anything, other than goods or real property, made to a non-resident who is not in in the indirect tax zone when the thing supplied is done is GST-free if: a. the supply is neither a supply of work physically performed on goods situated in the indirect tax zone when the work is done nor a supply directly connected with real property situated in the indirect tax zone; 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. The precondition of item 2 is that the non-resident is not in Australia in relation to the supply when the supply is done. You advised that the non-resident does not carry on its enterprise in Australia and does not have any presence in Australia at the time you make the supply; therefore, the precondition of item 2 is met as the supply is made to a non-resident entity that is not in Australia in relation to your supply when the supply is done. Your supply of advertising services is not a supply of work physically performed on goods situated in Australia and is not a supply directly connected with real property in Australia; thus, the requirement in paragraph (a) of item 2 is satisfied. For completeness, paragraph (b) of item 2 is also satisfied as the non-resident acquires your services for its enterprise but is not registered or required to be registered for GST. As either paragraph (a) or (b) is satisfied, the supply is covered by item 2 and is GST-free unless subsection 38-190(3) of the GST Act applies. Subsection 38-190(3) of the GST Act Subsection 38-190(3) of the GST Act provides 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 the indirect tax zone; and c. for a supply other than an input taxed supply - none of the following applies: (i) the other entity would be an Australian-based business recipient of the supply, if the supply had been made to it; (ii) the other entity is an individual who is provided with the supply as an employee or officer of an entity that would be an Australian-based business recipient of the supply, if the supply had been made to it; or (iii) the other entity is an individual who is provided with the supply as an employee or officer of the recipient, and the recipient's acquisition of the thing is solely for a creditable purpose and is not a non-deductible expense. An Australian-based business recipient of a supply is an entity that is registered for GST, is carrying on its enterprise in Australia, and its acquisition of the thing supplied is not solely of a private or domestic nature. Subsection 38-190(3), in contrast to item 2, focuses on the entity to which the supply is provided, not the entity (the non-resident) to which the supply is made. If the supply is provided (or is required to be provided) to another entity in Australia, subsection 38-190(3) may negate the GST-free status that would otherwise apply to the supply covered by item 2. Although the non-resident recipient of the supply is not in Australia, consumption of the supply is considered to be in Australia because the supply is provided to an entity in Australia. Accordingly, a clear understanding of the exact nature of the supply is essential to determining whether that supply is provided to another entity. It is only by having regard to what is in substance and reality being supplied that it is possible to identify to which entity that supply is provided. The exact nature of a supply in any given situation depends on the facts and circumstances of the supply and the agreement made between the parties. In this regard, it is necessary to look at the whole arrangement for the supply (including the contractual arrangements) and the way in which the supply is carried out. If there is no written contract, other documents such as correspondence between the parties may be useful in establishing the nature of the supply. Thus, the focal point in working out whether a supply is provided to another entity is the facts and circumstances of the doing of the thing supplied. By the supplier examining what it is required to do and in what circumstances, the supplier is able to objectively determine to whom the supply is provided. In situations where the contractual flow of a 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. However, the application of subsection 38-190(3) is still dependent upon on all the facts and circumstances of the supply. Goods and Services Tax Ruling GSTR 2005/6 explains the operation of subsection 38-190(3) of the GST Act and provides guidance in determining whether a supply is provided to another entity in Australia. Paragraphs 134 and 135 in GSTR 2005/6 state the following: 134. If the nature of the supply is such that the supply is only provided to an entity outside Australia, subsection 38-190(3) does not apply. This outcome is not altered even if another entity in Australia benefits from a supply provided to another entity outside Australia. 135. This can occur with, for example, the supply of advertising services. If the advertising services are made and provided to a non-resident, subsection 38-190(3) does not apply to that supply even if another entity in Australia derives a benefit from that supply (see Example 23 at paragraphs 504 to 508, Part V of the Explanation section of this Ruling). You advised that the advertisements requested by the non-resident are for Australian entities and you do not communicate directly with the Australian entities for instructions for the advertising. You further advised that generally, you do not contact the non-resident's clients directly. After considering the information received and the nature of the supply you make, we are of the view that your supply of advertising services is made and provided to the non-resident and not to another entity. The Australian entities derive benefit from these advertisements when the ads you placed on your website contain links to their websites. In such case, subsection 38-190(3) of the GST Act does not apply to negate the GST-free status of your supply made to the non-resident. Accordingly, your supply of advertising services made and provided to the non-resident remains GST-free under item 2 and no GST is payable on the supply.