GST and supply of services to the overseas branch of an Australian company

Is the entity, a supplier, making a GST-free supply 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, under a contract with an Australian company, it: • supplies services to the overseas branch of the Australian company, and • the services are for the purpose of the overseas branch's operations?

Yes, the entity is making a GST-free supply under item 3 in the table in subsection 38-190(1) of the GST Act, as the supply is made to a recipient who is not in Australia in relation to the supply when the thing supplied is done and the effective use or enjoyment of the supply takes place outside Australia.

The entity is a supplier that is registered for goods and services tax (GST).

The entity enters into a contract with an Australian company. The contract requires the entity to supply their services to the overseas branch of the Australian company. The entity makes this supply through an enterprise that it carries on in Australia.

The involvement of the Australian presence of the Australian company, in the supply made by the entity, is limited to engaging the entity in supplying their services to the overseas branch.

The supply is neither a supply of work physically performed on goods situated in Australia nor a supply directly connected with real property situated in Australia.

Section 38-190 of the GST Act makes certain supplies of things, other than supplies of goods or real property, for consumption outside of Australia GST-free.

Item 3 in the table in subsection 38-190(1) of the GST Act (Item 3) provides that a supply that is not a supply of work physically performed on goods situated in Australia when the thing supplied is done nor a supply directly connected with real property situated in Australia is GST-free where the supply: (a) is made to a recipient who is not in Australia when the thing supplied is done; and (b) the effective use or enjoyment of which takes place outside Australia.

The entity is making a supply that is neither a supply of work physically performed on goods situated in Australia nor a supply directly connected with real property situated in Australia. In addition, as the supply is for use in the overseas branch's operations, the effective use or enjoyment of the supply takes place outside Australia. Therefore, the entity's supply will be GST-free if it is made to a recipient who is not in Australia when the thing supplied is done.

The term 'recipient' in relation to a supply is defined in section 195-1 of the GST Act and means the entity to which supply was made. Further, it is considered that the requirement that the recipient of a supply is 'not in Australia' when the thing supplied is done, requires that the recipient is not 'in Australia in relation to the supply' when the thing supplied is done.

Even though a company incorporated in Australia is always 'in Australia' by virtue of its incorporation, it may not be in Australia 'in relation to the supply'. As such, it is necessary to examine the role of the Australian presence of the Australian company in relation to the entity's supply.

If a supply to a company incorporated in Australia is for the purposes of its Australian presence, that presence is 'in relation to the supply'. There is a connection between the supply and the presence in Australia that is more than just incidental.

Where the supply is not for the purposes of the Australian presence, for example, it is for the purposes of an off-shore branch, but that Australian presence is involved in receiving the supply, then the company is 'in Australia in relation to the supply', except where that involvement is just incidental.

If the involvement of the Australian presence is limited to the carrying out of simple administrative tasks on behalf of an overseas branch, as a matter of administrative convenience, that involvement is just incidental. The connection between the supply and presence is so minor in nature that it is reasonable to conclude that the company is not in Australia in relation to the supply.

The involvement of the Australian presence of the Australian company, in the entity's supply, is limited to engaging the entity to supply their services to the overseas branch. This is minor involvement in the supply. Accordingly, the Australian company is not in Australia in relation to the supply.

Therefore, the entity is making a supply to a recipient that is not in Australia when the supply is done.

The entity is making a GST-free supply under Item 3 when, under a contract with an Australian company, when it: • supplies services directly to the overseas branch of the Australian company, and • the services are for the purpose of the overseas branch's operations.