Private ruling: GST and supply of services to a non-resident
Published: December 2013

Ruling: Q1: Do the supplies of specified goods by Y to Australian customers give rise to any GST payable by X under Division 57 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: No. | Q2: Will the services supplied by X to Y in return for service fees be GST-free supplies under subsection 38-190(1) of the GST Act? | A2: Yes.

Relevant facts and circumstances: X is based in Australia and a resident of Australia for income tax purposes. Y is a subsidiary of X. Y is a non-resident company for Australian tax purposes and is based in an overseas country. The business operations of Y take place overseas. Y is not registered or required to be registered for Australian GST. Y has no presence in Australia. Y will contract with Australian customers in respect of the sale of specified goods that will be directly imported by Australian customers. Goods ordered from overseas suppliers that are relevant to Y will be imported into the overseas country and will be stored in Y's warehouse in the overseas country. Y will take title in the goods imported into the overseas country and the associated inventory risk. X will act as agent for Y. X will advertise the specified goods on its website and Australian customers will place orders constituting offers for purchase of the specified goods. When an Australian customer places an order for purchase of the specified goods through the X's website, the order details will be passed on to Y by X. The order will be fulfilled by Y, not X in relation to the specific goods. This will be reflected in the Terms and Conditions of X which will provide for confirmation of the supplier at the time that the customer's order is accepted and communicated. The specified goods will then be imported by Australian customers directly from outside Australia, namely, from Y in the overseas country. The Australian customer will be the importer of the specified goods. A copy of the Online Terms and Conditions under which Y supplies the specified goods to Australian customers was submitted to us. X will provide a number of other specified services to Y. The services that will be supplied by X to Y include services of the kind described in Paragraph 44 of Goods and Services Tax Ruling GSTR 2003/7 and are not supplies that are directly connected with real property or a supply of work physically performed on goods situated in Australia. X will receive fees as consideration for providing its services to Y. There will be no agreement entered into between X and Y to provide the supplies to another entity in Australia. X's submissions: There is no GST payable on the supplies of the specified goods to Australian customers under the described arrangement. Consequently, there is no GST payable by X under Division 57 of the GST Act, as a resident agent is only liable for the GST payable on a taxable supply made by a non-resident through a resident agent. The supply of services by X to Y will be GST-free under item 2 in the table in subsection 38-190(1) of the GST Act and subsection 38-190(3) of the GST Act will not apply. Therefore no GST will be payable on this supply.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 subsection 9-25(1) | A New Tax System (Goods and Services Tax) Act 1999 subsection 9-25(3) | A New Tax System (Goods and Services Tax) Act 1999 subsection 38-190(1) | A New Tax System (Goods and Services Tax) Act 1999 subsection 38-190(3) | A New Tax System (Goods and Services Tax) Act 1999 section 57-5

Reasons for decision: Summary: The supplies of the specified goods made by Y to Australian customers do not give rise to any GST payable by X under Division 57 of the GST Act. | Detailed Reasoning - Detailed reasoning: Division 57 of the GST Act contains a special rule that makes resident agents acting for non-residents responsible for the GST consequences of supplies and acquisitions that the non-residents make through them. Section 57-5 of the GST Act states: (1) GST payable on a *taxable supply or *taxable importation made by a *non-resident through a *resident agent: (a) is payable by the agent; and (b) is not payable by the non-resident. (2) This section has effect despite sections 9-40 and 13-15 (which are about liability for GST). (* denotes a term defined in section 195-1 of the GST Act) Based on the information provided, Y is not making a taxable supply of goods though X. We therefore agree with the submission that X is not liable to pay GST on the supply of the specified goods made to Australian customers by Y. | Detailed Reasoning - Question 2: Will the services supplied by X to Y in return for service fees be GST-free supplies under subsection 38-190(1) of the GST Act? | Summary: The services supplied by X to Y in return for service fees will be GST-free supplies under subsection 38-190(1) of the GST Act. | Detailed Reasoning - Detailed reasoning: Based on the information provided, X will provide a number of services to Y. X will act as agent for Y. X will advertise the specified goods on its website. When an Australian customer places an order for purchase of the specified goods through the X's website, X will pass the order details to Y. The order will be fulfilled by Y. X will receive fees as consideration for providing its services to Y. Section 38-190 of the GST Act provides that certain supplies of things other than goods or real property, for consumption outside of Australia are GST-free. Item 2 in the table in subsection 38-190(1) of the GST Act (item 2) provides that a supply of a thing, other than goods or real property, made to a non-resident is GST-free if the non-resident 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. | Detailed Reasoning - Non-resident: Section 195-1 of the GST Act provides that for GST purposes a 'non-resident' means an entity that is not an Australian resident and an 'Australian resident' means a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936). Accordingly, a supply that is made to an entity is a supply to a non-resident for GST purposes if the entity is not a resident of Australia for income tax purposes. X has advised that Y is a non-resident for Australian tax purposes. Therefore, Y will be a non-resident for GST purposes. | Detailed Reasoning - Non-resident not in Australia in relation to the supply: For the supply of services to be GST-free under item 2, there is a precondition that the non-resident must not be in Australia in relation to the supply when the thing supplied is done. Paragraph 37 of GSTR 2004/7 explains when a non-resident company is considered to be 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. If a non-resident company is determined to be in Australia on the basis of the above test, it is necessary to determine if the company is in Australia in relation to the supply, when the supply is done (that is, provided/performed). Based on the information provided, even if it is considered that Y might be in Australia through the presence of X, Y will not be in Australia in relation to the services that X would supply to it for the purposes of item 2. | Detailed Reasoning - Paragraphs (a) and/or (b) of item 2: Where a non-resident entity is not in Australia in relation to the supply when the thing supplied is done, it is then necessary to determine if the requirements of either paragraph (a) or (b) of item 2 are satisfied. For the purposes of paragraph (a) of item 2, the supply must be analysed to determine whether it is properly characterised as a supply of work physically performed on goods or is directly connected with real property situated in Australia. This is examined in Goods and Services Tax Ruling GSTR 2003/7. Based on the information provided, the services supplied by X to Y will neither be a supply of work physically performed on goods situated in Australia nor a supply directly connected with real property situated in Australia. Therefore, the supply of the services to Y will be a supply covered under paragraph (a) of item 2. However, the scope of item 2 is limited by subsection 38-190(3) of the GST Act. Subsection 38-190(3) Subsection 38-190(3) of the GST Act states that a supply covered by item 2 is not GST-free if: (a) it is a supply under an agreement entered into, whether directly or indirectly, with a *non-resident; and (b) the supply is provided, or the agreement requires it to be provided, to another entity in Australia. Goods and Services Tax Ruling GSTR 2005/6 explains the operation of subsection 38-190(3) of the GST Act. This ruling provides that subsection 38-190(3) of the GST Act only applies if there is a supply of something, being a supply that is made to a non-resident and is covered by item 2, and that same supply is provided, or is required to be provided to another entity in Australia. That is the contractual flow of the supply is to one entity (the non-resident) and the actual flow of the supply is to another entity in Australia. The intent of this provision is to impose a further location test when a supply is provided, or required to be provided, to another entity. If that other entity is in Australia, subsection 38-190(3) of the GST Act operates to negate the GST-free status that would otherwise apply under item 2. X advised that there will be no agreement entered into between X and Y to provide the supplies to another entity in Australia. Based on the information provided, the services that X will supply to Y in Australia will not meet the requirements of subsection 38-190(3) of the GST Act and therefore will not be excluded from being GST-free under item 2. We agree with X's submission that the supply of these services therefore will be GST-free.

Question 1: Do the supplies of the specified goods made by Y to Australian customers give rise to any GST payable by X under Division 57 of the GST Act?