Preamble
This question was considered amongst others in issue 3 of the Telecommunications Industry Liaison Group - Issues Register (issues register). Issue 3 deals with the GST treatment of specific telecommunication supplies. [1]
The issues register was a public ruling for the purposes of former section 105-60 of Schedule 1 to the Taxation Administration Act 1953 before 1 July 2010. The Commissioner's view in this Determination is consistent with those expressed in the issues register.
The telecommunication supply covered by this Determination is the supply of capacity in an international telecommunication network . The network can include international leased lines, international private circuits, indefeasible rights of use and global networks. These may comprise of a fixed line between two or more points, a global circuit or capacity that may be made available through a satellite network.
In this Determination, a telecommunication supplier means a carrier or a carriage service provider as defined in the Telecommunications Act 1997 or an Internet service provider as defined in Schedule 5 to the Broadcasting Services Act 1992 .
A supply of capacity in an international telecommunication network made by an Australian resident telecommunication supplier is a supply in relation to rights which is GST-free under item 4 in the table in subsection 38-190(1) (item 4) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) [2] provided that: (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.
Item 4 deals with 'a supply that is made in relation to rights'. This term is explained in Goods and Services Tax Ruling GSTR 2003/8. [3] Consistent with the views expressed at paragraph 64 of GSTR 2003/8, the Commissioner considers that the creation, grant, transfer, assignment or surrender of any right is a supply that is made in relation to rights for the purposes of item 4.
A supply of capacity in an international telecommunication network is discussed at paragraphs 98 to 100 of GSTR 2003/8. Consistent with the views expressed there, the Commissioner considers that the supply of capacity in an international telecommunication network is a supply of a right.
The supply by an Australian operator of a right to capacity in a network is GST-free under paragraph (b) of item 4 when it is supplied to a non-resident provided that they are not in Australia when the right is granted. [4]
As the supply is covered by paragraph (b) of item 4 it is not necessary to consider whether the supply is a right which is for use outside Australia under paragraph (a) of item 4. Rights for use outside Australia are not discussed in this Determination.
Subsection 38-190(2) negates the GST-free status of a supply covered by item 4 if it is a supply of a right or option to acquire something the supply of which would be connected with Australia. As the supply of capacity is not a right or option to acquire something else, subsection 38-190(2) will not negate the GST-free status of the supply.
A New Zealand company (NZ Co) enters into an arrangement with a New Zealand resident telecommunication supplier (NZ Telco) for the provision of network capacity to transmit voice and data information between sites for a fixed monthly rent. To establish the network for its customer, NZ Telco acquires the right to access network capacity in Aus Telco's cables (an Australian resident telecommunication supplier ).
The network capacity includes international leased lines, international private circuits, indefeasible rights of use and global networks, for example : • a fixed line between two or more points (for example, from a place in Auckland to a place in Sydney ); • a global circuit, such as Sydney to Auckland to New York to London to Sydney ; or • capacity that may be made available through a satellite network rather than a fixed line .
The agreement between NZ Telco and Aus Telco is for a supply of capacity. The Commissioner considers that the supply of capacity in an international network is a supply of rights. Therefore, the supply by Aus Telco to NZ Telco falls for consideration under item 4 .
The supply of capacity is made by Aus Telco to NZ Telco, a non-resident which is not in Australia when the right is granted. The supply of capacity by Aus Telco to NZ Telco meets the requirements of paragraph (b) of item 4 .
The supply of capacity by Aus Telco to NZ Telco is not a supply of a right or option to acquire something else. Therefore, subsection 38-190(2) does not negate the GST-free status of the supply .
The supply of capacity by Aus Telco to NZ Telco is a GST-free supply under item 4 .
This Determination applies both before and after its date of issue. However, this Determination will not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of this Determination (see paragraphs 75 and 76 of Taxation Ruling TR 2006/10).