Private ruling: Goods and services tax (GST) and supply of legal services to non-resident company
Date of advice: 19 September 2017
Published: February 2018

Ruling: Q1: Is GST payable on your supply of the legal services to Company X? | A1: No.

Relevant facts and circumstances: You are registered for GST. You are a legal firm acting for X clients (Company X and Company Y) in an Australian court action in relation to a business dispute. Company X and Company Y are minority shareholders in Company Z, an Australian registered Company. Company X and Company Y brought proceedings against the majority shareholder in Company Z. There was a trial in this proceeding. You currently act for Company Y and Company X in the appeal proceeding. You have been taking instructions from the director of both companies, Company X and Company Y. Company Y is an Australian company. You have provided legal advice to that. You have also provided legal advice to Company X. Company X was incorporated overseas. Company X is a mineral exploration/investment entity based overseas. Company X is not registered with ASIC. Company X does not have any business activity in Australia other than indirectly through Company Z (that is, Company X has equity in Company Z). Company X is not 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: You are making a GST-free supply of services to an overseas based non-resident 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) (item 2). | Detailed Reasoning - Detailed reasoning: GST is payable on your taxable supplies. You make a taxable supply where you satisfy the requirements of section 9-5 of the GST Act, which 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 in the GST Act) The indirect tax zone includes mainland Australia amongst other things. GST-free supplies of services to non-residents Under item 2, a supply of something other than goods or real property may be GST-free if the supply is made to a non-resident. A supply of services made to a non-resident who is not in the indirect tax zone when the thing supplied is done is GST-free under item 2 if the circumstances in (a) or (b) below are present and no exclusion applies: (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. There are some exclusions from GST-free treatment under item 2 (the exclusions). These are set out in subsections 38-190(2), 38-190(2A) and 38-190(3) of the GST Act. You are suppling legal services to Company X. Legal services are not goods or real property. Paragraph 241 of Goods and Services Tax Ruling GSTR 2004/7 provides guidance on determining whether a non-resident company is in Australia for the purposes of item 2. It states: 241. We consider, therefore, that a non-resident company [ is in Australia for the purposes of item 2 and paragraph (b) of item 4 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. Your customer, Company X is a non-resident company that does not carry on business in Australia. Company X’s minority equity in company Z does not amount to Company X carrying on a business in Australia. Therefore, you are supplying legal services to a non-resident company that is not in the indirect tax zone for the purposes of item 2. The legal services do not involve work physically performed on goods situated in the indirect tax zone and they are not directly connected with real property situated in the indirect tax zone. The exclusions at subsections 38-190(2) and 38-190(2A) of the GST Act are not relevant to your case. Under subsection 38-190(3) of the GST Act, a supply of services to a customer (who purchases the services) is not GST-free under item 2 in certain circumstances where the supply is provided to a third party (someone other than the customer). Paragraphs 61 and 62 of Goods and Services tax Ruling GSTR 2005/6 provide guidance on determining whether services etc are provided to another entity (other than the customer). They state: 61. Thus the expression 'provided to another entity' means, in our view, that in the performance of a service (or in the doing of some thing), the actual flow of that supply is, in whole or part, to an entity that is not the non-resident entity with which the supplier made the agreement for the supply. The contractual flow is to one entity (the non-resident recipient) and the actual flow of the supply is to another entity. 62. For example, if a supply of entertainment services is made to a non-resident company and in the performance of that service the employees are the entities that are entertained, the actual flow of that service is to another entity, each employee (see above where the meaning of 'another entity' is discussed). The supply is made to the non-resident company (the employer) and provided to another entity (each employee). You are providing advice to Company X (which is one of your customers) and representing Company X in the appeal proceeding. Therefore, you are providing these services (purchased by Company X) to your customer (Company X) rather than to a third party. None of the exclusions apply. Therefore, you are making a GST-free supply of legal services to Company X under item 2. Hence, GST is not payable on your supply of legal services to Company X.