Private ruling: Goods and services tax (GST) and promotional services
Published: June 2015

Ruling: Q1: Is X entitled to input tax credits on its purchase of promotional services from Australian promotions companies? | A1: X is entitled to input tax credits on these purchases provided that the Australian promotions companies supplying these services are registered or required to be registered for GST. | Q2: Is Y acquiring taxable supplies of promotional services from Australian promotions companies? | A2: Y is acquiring taxable supplies of promotional services from Australian promotions companies if the Australian promotions companies are registered or required to be registered for GST.

Relevant facts and circumstances: Y is incorporated in an overseas country. Y is not registered for GST. Y's operations are as follows: • advertisements for promotion of tourism; • domestic tour guide services for foreign visitors in the overseas country; • acting for implementation of tour guide/interpreter examinations; • survey and study on international tourism, publications; • bidding on international meetings, supporting their smooth operation; and • other matters related to above. X was established many years ago. X has been engaging in promotional activities. X registered for an ABN many years ago as a non-profit organisation, together with GST registration. Currently X has a certain number of staff (a number of expatriate staff from the overseas country and a number of locally hired staff). X is given a budgetary annual allowance and receives monthly cash from Y for salaries, other office expenses and other small promotional expenses. Y supervises X. Y refers to X as its agent. X is involved with the supplies made under contracts between Australian promotions companies and Y. X gives instructions to the Australian promotions companies on what promotional services Y requires. X also passes on Y's feedback and comments to the Australian promotion companies regarding the proposed campaigns. X facilitates the supplies. Promotion scheme before certain fiscal year: - Z directly contracts with promotion companies in overseas country. These promotion companies in overseas country in turn subcontract with Australian promotion companies for promotional activities (ie. Australian promotion companies contract with Australian newspaper companies to distribute "(Publication name)". Promotion Scheme from certain fiscal year: - Z will empower Y and Y foreign branches to run promotion activities in order to match promotional activities to local markets in each country. Consequently, promotional contracts will be between X (or Y) and Australian companies.

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 11-5 | A New Tax System (Goods and Services Tax) Act 1999 section 11-15 | A New Tax System (Goods and Services Tax) Act 1999 section 11-20 | A New Tax System (Goods and Services Tax) Act 1999 section 38-190

Reasons for decision: Summary: If the Australian promotion companies are registered or required to be registered for GST, they are making taxable supplies to X. Under such circumstances, X is entitled to input tax credits because it meets all of the requirements of section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). | Detailed Reasoning - Details reasoning: You are entitled to input tax credits on your creditable acquisitions. You make a creditable acquisition if you meet the requirements of section 11-5 of the GST Act, which states: You make a creditable acquisition if: (a) you acquire anything solely or partly for a *creditable purpose; and (b) the supply of the thing to you is a *taxable supply; and (c) you provide, or are liable to provide, *consideration for the supply; and (d) you are registered for GST. (*Denotes a term defined in section 195-1 of the GST Act) Subsection 11-15(1) of the GST Act provides that you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. However, subsection 11-15(2) of the GST Act provides that you do not acquire a thing for a creditable purpose to the extent that: (a) the acquisition relates to making supplies that would be input taxed, or (b) the acquisition is of a private or domestic nature. X meets the requirement of paragraph 11-5(a) of the GST Act because it acquires the services in question in carrying on its enterprise; the acquisitions do not relate to making supplies that would be input taxed and the acquisitions are not of a private or domestic nature. X provides consideration for the supplies. Therefore, X meets the requirement of paragraph 11-5(c) of the GST Act. X is registered for GST. Therefore, X meets the requirement of paragraph 11-5(d) of the GST Act. Therefore, what remains to be determined is whether the supplies are taxable. You make a taxable supply, for GST purposes, 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 Australia; 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. The supplies made to X meet the requirements of paragraphs 9-5(a), (b) and (c) of the GST Act. This is because: • the supplies are made for consideration • the supplies are made in the course or furtherance of enterprises that the suppliers carry, and • these supplies are connected with Australia as the supplies are made through establishments the suppliers carry on in Australia. If the suppliers are registered or required to be registered for GST, the requirement of paragraph 9-5(d) of the GST Act is met. There are no provisions of the GST Act under which the supplies would be GST-free or input taxed. Therefore, where the suppliers are registered or required to be registered for GST, all of the requirements of section 9-5 of the GST Act are met. Hence, where the suppliers are registered or required to be registered for GST, X will meet the requirement of paragraph 11-5(b) of the GST Act. Therefore, where the suppliers are registered or required to be registered for GST, X would be entitled to input tax credits because it would meet all of the requirements of section 11-5 of the GST Act. | Detailed Reasoning - Additional information: X is also entitled to input tax credits in respect of its other expenses where the supplies made to X are taxable supplies. There is no GST exemption under section 38-190 of the GST Act (which deals with supplies of services consumed outside Australia) in respect of the supplies of any services to X because these services are consumed by X in Australia. | Summary: The supplies of the promotional services by Australian promotions companies to Y are not GST-free because consumption takes place in Australia. | Detailed Reasoning - Detailed reasoning: In accordance with item 2 in the table in subsection 38-190(1) of the GST Act (item 2), a supply of something other than goods or real property is GST-free if 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 for GST. However, subsection 38-190(3) of the GST Act provides that a supply covered by item 2 is not GST-free if: (a) is a supply under an agreement entered with a non-resident; and (b) the supply is provided to another entity in Australia. The supply of the promotional services is not a supply of goods or real property. Y is a non-resident company. Paragraph 31 of Goods and Services Tax Ruling GSTR 2004/7 provides the ATO view on the meaning of 'not in Australia' for the purposes of item 2. 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 37 of GSTR 2004/7 provides guidance on determining whether a non-resident company is in Australia. It states: 37. A non-resident company is in Australia 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. Paragraph 281 of GSTR 2004/7 provides guidance on determining whether a non-resident company carries on a business in Australia through an agent. It states: 281. In this regard it is necessary to weigh up various factors, including but not necessarily limited to the following, to determine whether a non-resident company can properly be regarded as carrying on business in Australia through an agent: • Was the fixed place of business from which the agent operates originally acquired for the purposes of enabling the agent to carry on the business of the non-resident company? • Does the non-resident company directly reimburse the agent for the cost of accommodation or staff at the fixed place of business? • Does the non-resident company make other contributions to the financing of the business carried on by the agent? • Is the agent remunerated by reference to transactions, for example, by commission, or by fixed regular payments or in some other way? Commission can be an indicator that the agent is carrying on its own business and not that of the non-resident. However, it is not determinative. • What degree of control does the non-resident company exercise over the running of the business conducted by the agent? • Does the agent reserve part of the agent's staff or accommodation for the conducting of business related to the non-resident company? • Does the agent display the name of the non-resident company at the agent's premises or on stationery and, if so, does it indicate that the agent is an agent of the non-resident company? • What business, if any, does the agent transact as principal exclusively on the agent's own behalf? • Does the agent make contracts with customers or other third parties in the name of the non-resident company or otherwise in such a manner so as to bind it? • If the agent does make contracts so as to bind the non-resident company, does the agent require specific authority in advance before binding that foreign company to contractual obligations? Paragraph 311 of GSTR 2004/7 states: 311. If the business of the non-resident company does not involve making contracts for sales, leases or similar, we consider that a non-resident company is in Australia if the agent carries on a material part of the non-resident's business. Paragraph 41 of GSTR 2004/7 provides guidance on determining whether a non-resident company is in Australia in relation to a supply. It states: 41. A non-resident company is in Australia in relation to the supply if the supply is solely or partly for the purposes of the Australian presence, for example, its Australian branch. If the supply is not for the purposes of the Australian presence but that Australian presence is involved in the supply, the company is in Australia in relation to the supply, except where the only involvement is minor. Paragraph 365 of GSTR 2004/7 gives an example where a supply is for the purposes of the Australian branch of a non-resident company. It states: 365. The computer program is for use by Asia Co, including its branch in Australia. As the supply is for the purposes of the Australian branch of Asia Co, Asia Co is in Australia in relation to the supply. It makes no difference whether Program Aus sends the program to the branch directly or whether Program Aus sends the program to Asia Co and then Asia Co sends it on to the branch. It is not relevant whether the program is also for use by the head office or other branch operations outside Australia. Therefore, as Asia Co is in Australia in relation to the supply the supply is not GST-free under item 2 or item 3 . Paragraphs 351 and 352 of GSTR 2004/7 provide guidance on determining whether the involvement of the Australian presence of a non-resident company in a supply is minor. They state: 351. If the involvement of the Australian presence is limited to the carrying out of simple administrative tasks on behalf of the company, as a matter of administrative convenience, that involvement is minor. The connection between the supply and the presence is so minor in nature that it is reasonable to conclude that the presence of the company in Australia is not in relation to the supply. 352. Tasks of a simple administrative nature include: • payment of, or arranging for payment of, the supplier's invoice on behalf of the company; • passing on an e-mail to the company; • being a point of telephone contact to pass on messages to the company; • being a mailing address or delivery contact on behalf of the company; • being a point of contact for a visiting representative of the company; and • on-forwarding information to the company. Paragraphs 356 to 358 of GSTR 2004/7 give an example where the involvement of the Australian branch of an overseas company in a supply that is made to the overseas company is of a minor nature. They state: 356. A Singapore company ('Sing Co') is not a resident of Australia. It has a branch in Australia. Sing Co is considering setting up a joint venture in Australia with a Malaysian company. Sing Co's head office engages an Australian legal firm, Aus Legal, to provide written legal advice . 357. Sing Co requests Aus Legal to deliver the advice to the Australian branch so that it can translate it before forwarding it on. Sing Co is in Australia but not in relation to the supply of legal services. 358. The fact that the advice is received and on-forwarded by the Australian branch to Sing Co does not make Sing Co in Australia in relation to the supply. The involvement of the Australian branch is limited to carrying out an administrative task on behalf of Sing Co, as a matter of administrative convenience. If the Australian branch translates the advice into Malay before on-forwarding it to Sing Co, that does not alter this outcome. Therefore, Sing Co is not in Australia for the purposes of item 2 or item 3. The supply is GST-free if the other requirements of the item are met . Paragraphs 359 and 360 of GSTR 2004/7 give an example where the Australian branch of an overseas company is involved with a supply made to the overseas company and that involvement is of more than a minor nature. They state: 359. A United States company ('US Co') has a branch in Australia. US Co engages a legal firm in Australia ('Aus Legal') to represent it in legal action against an Australian company. US Co sends a director to Australia to provide information to Aus Legal. The director uses an office at the Australian branch, and uses employees of the branch to liaise with Aus Legal and to supervise the legal proceedings generally . 360. The involvement of the branch in Australia in relation to the supply is not limited to administrative tasks of a minor nature. US Co is in Australia in relation to the supply. Therefore, the supply is not GST-free under item 2 or item 3 . We consider that Y carries on its enterprise in Australia through an agent (X) at a fixed and definite place because: • Y's enterprise activity of advertising for promotion of foreign nationals to visit the overseas country does not involve making contracts for sales or leases or similar • X carries on a material part of Y's enterprise in Australia, being the advertising for promotion of foreign nationals to visit the overseas country • Y provides the operational funding to X • Y supervises X • Y refers to X as its agent, and • X has a fixed and definite place of operations in Australia. Additionally, X was established to conduct activities in Australia many years ago. Therefore, Y is in Australia. Where Y contracts an Australian promotions company to perform promotional services, the supply made under this contract is not for the purposes of the Australian presence of Y given the following facts in combination: • Y contracts the Australian promotions companies to perform the services, and • the services are not used to assist the office of X. X is involved with the supplies the Australian promotions companies make to Y and this involvement is of more than a minor nature. X has extensive liaisons with the Australian promotions companies on behalf of Y, which includes instructing the Australian promotions companies regarding the proposed campaigns. X facilitates the supplies. Therefore, Y is in Australia in relation to the supply made to it by an Australian promotions company when the thing supplied is done. 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. The supplies of the services are not provided to a third party in Australia. The supply of promotional services from an Australian promotions company to Y is not GST-free under item 2 because Y is in Australia in relation to the supply. There are no provisions of the GST Act under which the supplies are GST-free. Therefore, if the Australian promotions companies are registered or required to be registered for GST all of the requirements of section 9-5 of the GST Act would be met. Under such circumstances, the supplies would be taxable supplies. If Y registered for GST, it would be entitled to input tax credits for the GST component, if any, on such promotional expenses, because it would meet all of the requirements of section 11-5 of the GST Act under such circumstances. | Detailed Reasoning - Additional information: Any supplies X makes to Y are GST-free under item 2. Where the recipient of a supply of a service is an overseas company with a branch in Australia and the Australian branch supplies the services to the overseas company, the presence of the Australian branch in Australia does not result in the overseas company being considered to be in Australia in relation to the supply (in accordance with paragraph 375 of GSTR 2004/7).