Private ruling: GST and supply of services to non-residents
Date of advice: 1 July 2016
Published: August 2016

Ruling: Q1: Is the commission that you receive for your supply of services to the non-resident entity (the Principal) in selling the products subject to GST? | A1: No. The commission that you receive for your supply of services to the Principal in selling the products is not subject to GST.

Relevant facts and circumstances: You design and manufacture special purpose products. You are registered for GST. You entered into an agency agreement with a non-resident company (the Principal). The Principal has an Australian subsidiary that is non-operating. Under the agreement, you are granted the right to act as the Principal's sole and exclusive agent in Australia and another country (the Contract Territory) for the sale of products that are manufactured by the Principal: The agreement provides that: • You shall procure business for the Principal; be of service in contract conclusions, implementation and discharge; and assist the Principal to ensure best sales of the products and best performance of contracts entered into by the Principal. You shall assist the Principal in conduct of business inside the Contract Territory entered into with customers even if not residing in the Contract Territory. • You shall follow the instructions of the Principal, particularly with regard to prices, conditions of delivery and terms of payment. • You may make legally binding statements for the Principal if expressly authorised to do so in the individual case only. • You shall ensure that the Principal being related to customers with sound financial standing only. • You shall regularly visit customers and potential customers of products residing in the Contract Territory. • You shall inform the Principal regularly and in detail about your activity, the market situation in the Contract Territory, significant changes in personnel at customers and potential customers, and any other important circumstances. • You shall advise the Principal on the suitable means of marketing in the Contract Territory. • You shall monitor conduct and discharge of contracted business, immediately report any financial, technical or other difficulties that occur, and assist the Principal to overcome such difficulties. • You shall examine the solvency of customers and potential customers and immediately report any deterioration in their creditworthiness. • You shall assist the Principal to obtain and defend industrial and intellectual property rights and to counter unfair competition. • You shall advise and assist personnel delegated to the Contract Territory by the Principal • You shall preserve the business and manufacturing secrets of the Principal, also after the expiry of the agreement. • You shall observe the rules of fair competition. • You shall inform the Principal of intended material changes in your firm which are or could affect the agreement and its implementation. For rendering your services under the agreement, you shall receive as your commission a specified percentage of the contract price for the sale of the products. The services that you provide to the Principal for the installation, commissioning and warranty work for the products are charged separately. You treat the supply of these services as taxable if the services are for the products physically located in the indirect tax zone. Occasionally, you provide these services directly to the customer under a separate contract.

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: GST is payable on a taxable supply. Section 9-5 of the A New Tax System (Goods and Services tax) Act 1999 (GST Act) 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 the indirect tax zone; 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. (* denotes a term defined under section 195-1 of the GST Act) You receive a commission as consideration for your supply of services in selling the products. You make the supply in the course of carrying on your enterprise. The supply is connected with the indirect tax zone as you make it through an enterprise that you carry on in the indirect tax zone. You are registered for GST. All the requirements in paragraphs 9-5(a) to 9-5(d) of the GST Act are satisfied. Therefore, your supply of services in selling the products is a taxable supply unless the supply is GST-free or input taxed. There is no provision in the GST Act under which your supply would be input taxed. Under subsection 38-190(1) of the GST Act certain supplies of things, other than goods or real property, for consumption outside the indirect tax zone are GST-free. Item 2 in the table in subsection 38-190(1) (item 2) provides that a supply that is made to a non-resident who is not in the indirect tax zone when the thing supplied is done is GST-free if: (a) 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 (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. Non-resident not in the indirect tax zone Goods and Services Tax Ruling GSTR 2004/7 provides guidance in determining whether a particular entity is in the indirect tax zone for the purpose of item 2. According to paragraph 375 of GSTR 2004/7, for supplies of agency services made by the agent to the non-resident company, the company is not in the indirect tax zone in relation to the supply of those agency services. This is because the agent does not make the company in the indirect tax zone in relation to supplies that it makes itself to the company. Based on the information provided, you do not supply your services for the purposes of the Principal's subsidiary in the indirect tax zone. Furthermore, the subsidiary has no involvement in the supply. Therefore, the Principal is not in the indirect tax zone when you supply your agency services. Work physically performed on goods Goods and Services Tax Ruling GSTR 2003/7 examines the meaning of the expression "a supply of work physically performed on goods' for the purpose of subsection 38-190(1) of the GST Act. According to paragraph 58 of GSTR 2003/7, a supply is a supply of work physically performed on goods where something is done deliberately to the goods to change them or otherwise affect them in some physical way. Based on the information provided, the supply that you make under your agency agreement with the Principal is of services in selling the products. As such, the supply is not a supply of work physically performed on goods. | Detailed Reasoning - Conclusion: You make the supply of your services to a non-resident who is not in the indirect tax zone when you supply your services; and your supply is not a supply of work physically performed on goods. Therefore, the supply of your services in selling the products is GST-free under item 2. Accordingly, the commission that you receive for your supply is not subject to GST.