Private ruling: GST and the supply of services
Date of advice: 15 November 2019
Published: March 2020
Ruling period: All tax periods ending on or after 30 November 20XX.

Ruling: Q1: Is the supply of services made by the entity to the non-resident a GST-free supply under section 38-190 of the A New Tax System (Goods and Services Tax) Act 1999 ? | A1: Yes, the supply of services is GST-free.

Relevant facts and circumstances: The entity has been engaged along with other parties to provide services to a non-resident entity. The non-resident will supply services to a group of entities (one of which is an Australian resident). The subject matter of the services involves real property which is located in Australia. The terms of the engagement state that the services provided by the non-resident are performed outside of Australia. The entity will undertake activities while in Australia. The fees payable to the entity are fixed by the non-resident and are paid entirely by the non-resident. The entity is registered for GST and provides the services in the course of carrying on its business activities in Australia. Assumptions The Australian resident party which is one of the entities which will receive services from the non-resident is registered for GST and the acquisition of the services is in connection with the business that it carries on in Australia.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 38-190.

Reasons for decision: Summary: Section 38-190 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that certain supplies are GST-free where the thing supplied is for consumption outside of Australia. The table in subsection 38-190(1) of the GST Act provides the specific rules and item 2 provides that a supply is GST-free if it is a supply that is made to a non-resident who is not in Australia when the thing supplied is done, and: · 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 · the non-resident acquires the thing in carrying on the non-resident's enterprise, but is not registered or required to be registered. The entity provides services to the non-resident. Therefore, the entity is making a supply to a non-resident which is not in Australia when the supply is made. The Goods and Services Tax Ruling, Goods and Services Tax: what do the expressions 'directly connected with goods or real property' and 'a supply of work physically performed on goods' mean for the purposes of subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999? (GSTR 2003/7) explains the Commissioner's views in regard when a supply may be directly connected to real property and states: 123. The inference is that if the connection between a supply and goods or real property is sufficiently close the supply is regarded as consumed where the goods or real property are located. 124. Consistent with the purpose of the subsection, we consider that the requirement that the supply is directly connected with goods or real property is a requirement that there be a very close connection between the supply and the goods or real property. Although the subject matter of the services may relate to real property located in Australia, the entity is providing a service that is not directly connected to real property. As the entity's services are also not work physically performed on goods located in Australia, the supply satisfies the requirements of item 2 in the table in subsection 38-190(1) of the GST Act. Although a supply may be GST-free because it satisfies an item in the table in subsection 38-190(1) of the GST Act, it may not be GST-free if one of the exclusions in section 38-190 apply. The exclusion in subsection 38-190(2) only applies to a supply of rights and subsection 38-190(2A) only applies to a supply which is related to the supply of real property which is located in Australia. Consequently, neither of these exclusions apply to the supply of services made by the entity. Subsection 38-190(3) of the GST Act provides that a supply which is covered by item 2 in the table in subsection 38-190(1) is not GST-free if it is a supply under an agreement with a non-resident; which requires the supply to be provided to another entity in Australia. The Goods and Services Tax Ruling, Goods and services tax: the scope of subsection 38-190(3) and its application to supplies of things (other than goods or real property) made to non-residents that are 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 (GSTR 2005/6) explains the Commissioner's view on the application of subsection 38-190(3) of the GST Act and states: 59. The word 'provided' is used in subsection 38-190(3) to contrast with the term 'made' in item 2. In the context of section 38-190, the contrasting words indicate that if a non-resident contracts for a supply to be provided to another entity, the place of consumption should be determined with regard to the entity to which the supply is provided, not the entity to which the supply is made. ... 61. Thus the expression 'provided to another entity' means in our view that in the performance of a service (or in the doing of something), 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. Although the entity has interacted with the group of entities (which includes one Australian entity) which are receiving the services from the non-resident, the services are only one part of the non-resident's supply to the parties. The non-resident's supply involves providing a collective service. That is, it is the non-resident which provides the final service, not the entity individually. Therefore, the supply of services to the non-resident is different from the supply made by the non-resident to the parties. Consequently, the entity's supply is not being provided to another entity. Even if it is arguable that the entity is providing its services to another entity, paragraph 38-190(3)(c) of the GST Act provides that the supply is not excluded from being GST-free if the supply is provided to an 'Australian-based business recipient of the supply' (had the supply been made to it directly). An 'Australia-based business recipient' is defined by subsection 9-26(2) of the GST Act as an entity that is registered for GST, carries on an enterprise in Australia and the acquisition is not solely of a private or domestic nature. The Australian entity which is one of the parties receiving the services from the non-resident would be an "Australia-based business recipient' and therefore, the exclusion (from being GST-free) in section 38-190(3) would not apply. As the entity's supply of services to the non-resident satisfies item 2 in the table in subsection 38-190(1) of the GST Act and none of the exclusions in section 38-190 apply, the supply is GST-free.