Private ruling: GST and supply made under an agreement with a non-resident entity.
Published: September 2013

Ruling: Q1: What is the goods and services tax (GST) status of your supply to the non-resident entity under the Agreement you have with them? Advice Under the Agreement you have with the non-resident entity you are making a supply of rights to the non-resident entity. Your supply of rights is GST-free under item 4(b) in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).


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; and | A New Tax System (Goods and Services Tax) Act 1999 section 195-1.

Reasons for decision: Detailed Reasoning - Characterisation of supply: Before we determine the GST status of your supply to the non-resident entity under the Agreement we need to determine the character of your supply. Under the Agreement, you grant the non-resident entity the right to publish, market, distribute and sell the digital book worldwide. The non-resident entity has the sole and complete discretion to set the retail sale price of the digital book to customers, retains the proceeds from the sale and pays you a royalty. In this instance, you are making a supply of publishing, marketing, distributing and selling rights (supply of rights) to the non-resident entity who on receipt of the rights will undertake the publishing, marketing and sale of the book digitally for the purpose of their own business activity. The next step is to determine the GST status of your supply of rights to the non-resident entity. | Detailed Reasoning - GST status of supply of rights: GST is payable on a taxable supply. To be a taxable supply, the supply of rights must meet the conditions in section 9-5 of the GST Act. This section provides that 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. From the information received, you satisfy paragraphs 9-5(a) to 9-5(d) of the GST Act as: (a) you make the supply for consideration since you receive a royalty when supplying the rights; (b) the supply is made in the course of an enterprise (business) that you carry on; (c) the supply is connected with Australia as the supply of rights is made through a business that you carry on in Australia; and (d) you are registered for GST. However, the supply of rights is not a taxable supply to the extent that it is GST-free or input taxed. Your supply of rights to the non-resident entity is not input taxed under any provision in the GST Act. The next step is to consider whether the supply is GST-free. GST-free Under section 38-190 of the GST Act supplies other than supplies of goods or real property for consumption outside Australia are GST-free. Of particular relevance to the supply of rights is item 4 in the table in subsection 38-190(1) of the GST Act (item 4). Under Item 4, a supply that is made in relation to rights is GST-free if: (a) the rights are for use outside Australia; or (b) the supply is to an entity that is not an Australian resident and is outside Australia when the thing supplied is done. Under the Agreement, when you supply the rights to the non-resident entity your supply of rights is GST-free under paragraph (b) of item 4 as the non-resident entity is not an Australian resident and is outside Australia when you supply the rights to them. | Detailed Reasoning - Limitations: Under subsection 38-190(2) of the GST Act, a supply covered by any of items 1 to 5 in the table in subsection 38-190(1) of the GST Act is not GST-free if it is the supply of a right or option to acquire something the supply of which would be connected with Australia and would not be GST-free. From the information received, subsection 38-190(2) of the GST Act is not applicable to your supply of rights to the non-resident entity since it is not a supply of a right or option to acquire something the supply of which would be connected with Australia. | Summary: Under the Agreement, when you supply the rights to the non-resident entity your supply of rights is GST-free under paragraph (b) of item 4. You are not liable to pay GST on your supply of rights to the non-resident entity.

Relevant facts: You are an Australian company and registered for GST. | You hold an account and have a written Agreement with a non-resident entity to have your book available digitally. You receive a royalty for the sale of your digital book by the non-resident entity. You have provided us with a copy of the Agreement. | The Agreement has the following conditions: | · you provide at your own expense the digital book you desire the non-resident entity to distribute; | · the non-resident entity has sole discretion to determine what content they would accept and distribute; | · the non-resident entity has sole discretion in determining the marketing and promotions related to the sale of your digital book. The non-resident entity does not owe you any fees for any marketing or promotional efforts; | · the non-resident entity has no obligation to market, distribute or to continue marketing, distributing or selling the digital book after they have commenced doing so; | · the non-resident entity has the sole discretion to set the retail sale price of the digital book. They are responsible for processing the payments, payment collection, requests for refunds and related customer service and have sole ownership and control of all data obtained from customers and prospective customers; | · you grant to the non-resident entity, throughout the term of the Agreement, a non-exclusive irrevocable right and licence to distribute the digital book, directly and through third party distributors in all digital formats by all digital distribution means available; | · You retain all ownership rights in and to the copyrights and all other rights and interest in and to your digital book. The non-resident entity retains all ownership rights in and to the copyrights and all other rights and interests in any materials they use or provide to you for use relating to your digital book (such as a generic cover image used for your digital book if you do not provide one). The Agreement does not grant you any licence or other rights to any intellectual property or technology owned or operated by the non-resident entity, including, without limitation, any trademarks or traded names. Nothing in this Agreement restricts any rights the non-resident may have under applicable law or a separate permission.