GST and supply of services for the benefit of a third party outside of Australia

Is the entity, an Australian research company, making a supply that is GST-free under item 3 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it provides research services and a report to a project management company that is in Australia and those services are for the benefit of another entity outside Australia?

No, the entity is not making a supply that is GST-free under item 3 in the table in subsection 38-190(1) of the GST Act when it provides its research services and a report that is for the benefit of another entity outside Australia, as the research services are provided to a company that is in Australia at the relevant time.

The entity is making a taxable supply under section 9-5 of the GST Act.

The entity is an Australian research company.

A project management company entered into a contract with another Australian entity to supply and manage an overseas research project. This project is for the benefit of an overseas entity.

The project management company then entered into a contract with the entity. Under this contract the entity provides research services and a report to the project management company.

The contract between the entity and the project management company acknowledges that the entity's research services will be used by the project management company to fulfil its obligations under its contract with the other Australian entity.

In relation to the entity's supply, the project management company is in Australia at all times.

The entity is registered for the goods and services tax (GST). The supply satisfies the other positive limbs of section 9-5 of the GST Act.

Under section 38-190 of the GST Act, certain supplies of things other than goods or real property, for consumption outside Australia, are GST-free. The entity supplies research services and a report. Paragraph 69 of Goods and Services Tax Ruling GSTR 2000/31 states: Sometimes a service may involve both work being done and the creation of a product. However, this does not alter the nature of the supply as one for the performance of a service.

Therefore, the provision of the report does not alter the nature of the supply from being a supply of services.

As a supply of services is not a supply of goods or real property, its GST status is appropriately considered under section 38-190 of the GST Act.

Item 3 in the table in subsection 38-190(1) of the GST Act (Item 3), provides that a supply is GST-free where: • it is made to a recipient who is not in Australia when the thing supplied is done; and • it is effectively used or enjoyed outside of Australia; and • it is not a supply of work physically performed on goods situated in Australia or a supply directly connected with real property situated in Australia.

The first requirement of Item 3 is that the supply is made to a recipient who is not in Australia when the thing supplied is done. Under section 195-1 of the GST Act, a 'recipient', in relation to a supply, means the entity to which the supply is made.

The recipient of the entity's supply is the project management company. In relation to the supply the project management company is in Australia at all times.

However, subsection 38-190(4) of the GST Act provides that a supply is taken, for the purposes of Item 3 to be a supply made to a recipient who is not in Australia if: • it is a supply under an agreement entered into, whether directly or indirectly, with an Australian resident; and • the supply is provided, or the agreement requires it to be provided, to another entity outside Australia.

The entity's supply of the research services is made under an agreement between the entity and the project management company. The entity's services are ultimately for the overseas entity. This is acknowledged in the agreement between the entity and the project management company. Therefore, it needs to be determined whether the entity's supply is provided, or the agreement between the entity and the project management company requires it to be provided to the overseas entity.

While the report provided by the entity will be used as part of the project management company's supply to the overseas entity, the entity's services and the report are being provided to the project management company. Moreover, the contract between the entity and project management company does not require the entity to supply anything to the overseas entity. Therefore, the supply is not provided and the agreement does not require the supply to be provided to another entity outside Australia.

Consequently, as the entity's supply is provided to the project management company who is in Australia at the relevant time, the supply does not satisfy subsection 38-190(4) of the GST Act. The entity's supply is not GST-free under Item 3.

The entity is registered for GST and the supply satisfies the other positive limbs of section 9-5 of the GST Act. The supply is neither GST-free under any provision in Division 38 of the GST Act nor input taxed under Division 40 of the GST Act. Therefore, the entity is making a taxable supply under section 9-5 of the GST Act when it provides services to the project management company for the benefit of an entity outside Australia.