Private ruling: GST and supply of legal services to a non-resident company
Published: October 2013

Ruling: Q1: Is the supply of legal services to the Company in respect of preparation for litigation a GST-free supply pursuant to subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes. | Q2: Is the supply of legal services to the Company in respect of court proceedings a GST-free supply pursuant to subsection 38-190(1) of the GST Act? | A2: Yes.

Relevant facts and circumstances: You are an Australian based legal firm that has been engaged by an overseas client (the Company) to act on its behalf in respect to a contractual dispute and you are to provide representation for the Company. The proceedings concern the operation of a mine overseas, although the party is not in Australia the litigation is in Australia as the relevant contract specifies Australia as the jurisdiction to determine legal disputes. You are is acting for the Company in the Australian proceedings as well as giving advice. The Company is the plaintiff in one claim and the defendant in three claims. It has no association with Australia and does not have any operations or places of business in Australia. You envisage that the legal services can be identified distinctly into two types being: Part 1. The preparation work in respect to the litigation in preparing for the case such as obtaining information, preparing for discovery, provision of advice, conferences with the client, its overseas based lawyers and the client, its officers, review of materials/documentation and the provision of advice. Part 2. If the matter proceeds to court then this will be heard in Australia and you will represent the Company in those proceedings and attend to hearings with other parties such as counsel. You state that it would be reasonable to expect that officers of the Company will be required to attend the hearing and be present in Australia whist the matter is before the courts.

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 legal services to the Company in respect of preparation for litigation is a GST-free supply pursuant to subsection 38-190(1) GST Act. | Detailed Reasoning - Detailed reasoning: GST is payable on any taxable supply that you make. Section 9-5 of the GST Act sets out the requirements of a taxable supply and it 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.) Your supply of legal services to the Company satisfies the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act as: (a) you receive consideration for your supply of legal services (b) the supply is made in the course of an enterprise that you carry on (c) the supply is connected with Australia as the legal services are 'done' in Australia and are made through an enterprise that you carry on in Australia, and (d) you are registered for GST. There are no provisions in the GST Act under which your supply of the legal services to the Company is input taxed. Therefore, what remains to be determined is whether your supply of the legal services to the Company is GST-free. Item 2 in the table in subsection 38-190(1) of the GST Act provides that a supply of something other than goods or real property is GST-free where the supply is made to a non-resident who is not in Australia when the thing supplied is done; and (a) the supply is neither a supply of work physically performed on goods situated in Australia when the work is done nor a supply directly connected with real property situated in Australia; 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. Your supply of the legal services to the Company is a supply of something other than goods or real property. The term 'non-resident' for GST purposes is defined, for a company, as not being an Australian resident for the purposes of the Income Tax Assessment Act 1936 (ITAA). Section 6 of the ITAA defines a resident company as: a company which is incorporated in Australia, or which, not being incorporated in Australia, carries on business in Australia, and has either its central management and control in Australia, or its voting power controlled by shareholders who are residents of Australia. You advised that the Company has no association with Australia and does not have any operations or places of business in Australia, therefore we accept that the Company is a non-resident for GST purposes. Paragraph 31 of Goods and Services Tax Ruling GSTR 2004/7 provides the Australian Taxation Office (ATO) view on the meaning of not in Australia for the purposes of item 2 in the table in subsection 38-190(1) of the GST Act. It states: 31. The requirement that the non-resident in item 2, or the recipient in item 3, is not in Australia when the thing supplied is done is a requirement, in our view, that the non-resident or recipient is not in Australia in relation to the supply when the thing supplied is done. Paragraph 241 of GSTR 2004/7 provides the ATO view on determining whether a non-resident company is in Australia in relation to the supply in respect of Item 2 in the table in subsection 38-190(1) of the GST Act. 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 supply of the legal services to the Company, in respect of the pre-court proceedings preparatory work, is a supply to a non-resident Company that is not physically in Australia. This is due to the fact that the Company does not carry on business in Australia at or through a fixed and definite place of its own for any period of time when your first component of legal services are performed. Therefore, the Company is not in Australia when the thing supplied is done, for the purposes of item 2 in the table in subsection 38-190(1) of the GST Act. Your supply is neither a supply of work physically performed on goods situated in Australia nor a supply directly connected with real property situated in Australia. Therefore you satisfy the requirements of item 2 in the table in subsection 38-190(1) of the GST Act. Therefore, your supply of the preparatory legal services to the Company is GST-free. | Summary: The supply of legal services to the Company in respect of court proceedings is a GST-free supply pursuant to subsection 38-190(1) of the GST Act. | Detailed Reasoning - Detailed reasoning: What is relevant to determine is whether the Company, through its employee's presence at court proceedings or through the court proceedings alone is in Australia in relation to your supply. We consider that if a non-resident company carries on business at or through a fixed and definite place of its own in Australia and it has carried on, or intends to carry on, its business from such premises by its servants or agents for a sufficiently substantial period of time, that company is in Australia. A non-resident company is considered to be carrying on business in Australia even though the activities carried on in Australia are not a substantial part of, or are no more than incidental to, the main objects of the company. | Detailed Reasoning - Company's business or activities: While the Company's mining business is overseas, the court proceedings in an Australia jurisdiction are at least incidental to the main objects of the Company and therefore the Company is carrying on its business in Australia. | Detailed Reasoning - Place of its own: A non-resident company clearly has a place of business of its own if it leases or owns a place at which it conducts business through it servants or agents. However, a place of its own is not limited to such a place. A non-resident company occupies a place as a place of its own if it has a right to be there. Evidence of that right is generally to be found in the fact that the company's employees or agents occupy that place for the purposes of its business. It may be argued that the Company, through the employees present, has a right to occupy the court premises and particularly in its role as plaintiff the Company is actively asserting this right to occupy the court premises and conduct its business there. However we feel that the Company's entitlements fall short of a right to occupy in this instance and are better defined as a right to attend at the discretion of the Court. | Detailed Reasoning - Fixed and definite place: The word 'fixed' connotes a degree of permanence in the same location. A place may be fixed even if it only exists for a short time. Although 'fixed place' excludes a place that is purely temporary, it does not mean everlasting. It is a geographical place with some degree of permanence. The word 'definite' is used in the sense of a distinct place; that is a place that can be pointed to as the place at which the non-resident company's business is carried on. A non-resident company owning, leasing or licensing premises in Australia typically evidences such a fixed and definite place. However, it is immaterial whether the fixed place of business is owned or rented by, or is otherwise at the disposal of, the non-resident company. A place of business may be situated in the business premises of another entity. This may be the case, for instance, if the non-resident company has at its constant disposal premises or part of premises owned by another entity. For example in the case of an exhibition hall or market place, it is the actual exhibition hall or market place that is the distinct business premises rather than the location of the stand. A stand may be set up at different locations within an exhibition hall or market place at different times, but the premises are still a fixed and definite place. We consider that the Company's occupancy in Australia for Court proceedings falls short of the degree of permanence required to be a 'fixed and definite place'. As noted above the Company will attend rather than occupy the Court, further it cannot assert a right to attend on any particular day. | Detailed Reasoning - Sufficiently substantial period of time: For a non-resident company to be considered to be in Australia, the business of the non-resident company must have continued, or be intended to continue, at a fixed and definite place for a sufficiently substantial period of time. If a non-resident company were to announce its intention to carry on its own business in Australia, and were to carry it on, at a certain place in this country for a limited period, the mere fact that it carried on the business for only a limited period of time would not prevent the company from being considered to be in Australia. By instigating Court proceedings in Australia, the Company is announcing its intention to carry on business in Australia and to do so for the period of time taken for the litigation to be resolved. On balance however, we consider that the Company is not carrying on business at or through a fixed and definite place of its own in Australia. Therefore, despite employees being present for the purposes of Court proceedings, your supply of this second component of legal services are GST-free pursuant to item 2 in the table in subsection 38-190(1) of the GST Act.