Edited version of private ruling

Authorisation Number: 1011447586204

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Ruling

Subject: supply of money transfer services

Question 1

Is the supply by X of an inbound money transfer to a customer who is outside Australia connected with Australia?

Answer 1

No, the supply by X of an inbound money transfer to a customer who is outside Australia is not connected with Australia.

Question 2

Would the supply by X of an outbound money transfer to a customer who is in Australia be an input taxed supply if all the requirements of subregulation 40-5.09(1) of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) were satisfied?

Answer 2

Yes, the supply by X of an outbound money transfer to a customer who is in Australia would be an input taxed supply if all the requirements of subregulation 40-5.09 of the GST Regulations were satisfied.

Question 3

Would the supply by X of an intra Australia money transfer to a customer who is in Australia be an input taxed supply if all the requirements of subregulation 40-5.09(1) of the GST Regulations were satisfied?

Answer 3

Yes, the supply by X of an intra Australia money transfer to a customer who is in Australia would be an input taxed supply if all the requirements of subregulation 40-5.09(1) of the GST Regulations were satisfied.

Question 4

Is X required to register for GST in Australia under section 23-5 of the GST Act if the only supplies made by X which are connected with Australia are outbound money transfers and intra Australia money transfers?

Answer 4

No, X is not required to register for GST in Australia under section 23-5 of the GST Act if the only supplies made by X which are connected with Australia are outbound money transfers and intra Australia money transfers.

Question 5

If a supply of money transfer services by X is not a taxable supply, does a Seller located in Australia have a GST liability under Division 57 of the GST Act if the supply of money transfer services is made through that Seller?

Answer 5

No, a Seller located in Australia does not have a GST liability under Division 57 of the GST Act in respect of a supply of money transfer services made through that Seller on the terms set out in the Agreement if the supply of money transfer services is not taxable.

Relevant facts and circumstances

Your ruling is based on the following facts.

The parties

X is incorporated in the country X and has its head office in the Country X. X is not resident in Australia for Australian income tax purposes and is not currently GST registered in Australia.

X offers money transfer services to persons and businesses throughout the world through a network of unaffiliated agents known as 'Sellers'.

X owns 100% of XH, XH owns 100% of XO and XO is registered as a foreign company with the Australian Securities and Investment Commission ('ASIC') and carries on business in Australia promoting and marketing X's services and identifying Sellers who could offer X's services. XO is incorporated in the country Y.

XO is not authorised to enter into agreements with prospective Sellers on behalf of X or hold itself out as being authorised to bind X in any way, and XO does not supply money transfer services to customers.

X is registered as a foreign company with ASIC. X advised that although X is registered as a foreign company in Australia, X does not carry on any enterprise in its own right in Australia.

Commercial Terms for Money Transfer Kiosk Project document

A document prepared by C entitled 'Commercial Terms for Money Transfer Kiosk Project' set out the terms on which Y sought commitments from other parties (that is a 'Money Transfer Partner', a 'Prepaid Card Provider' and a 'Point of Sale Systems Provider') to offer a money transfer product. The 'Commercial Terms for Money Transfer Kiosk Project' document describes a 'Transfer Send' transaction (that is an outbound money transfer) as follows:

- The customer uses a kiosk in one of Y's stores to fill out an electronic Send Form;

- The kiosk stores the Send Form details and allows the customer to print a copy of the Send Form with a unique bar code;

- The customer takes the printed Send Form to the counter where an Y employee scans the bar code, checks that the customer's ID matches the details on the Send Form, and collects the Transfer Amount and Consumer Fee;

- The Y employee executes a confirmation on the POS System Provider's system which electronically transmits the Send Form details to X's Interface (i.e. the facility that co-ordinates Transfer Send and Transfer Receive transactions and which is located outside Australia); and

- After undertaking fraud and compliance checks X's Interface transmits an Approval Code back to the POS System Provider's System at Y's store which prints out a Transaction Receipt; and

- the Transfer Amount is available for collection by the offshore recipient one hour later.

The 'Commercial Terms for Money Transfer Kiosk Project' document also describes what occurs in a Receive Transaction (that is an inbound money transfer):

The recipient uses a kiosk in Y's store to complete an electronic Receive Form;

The kiosk stores the completed form and allows the recipient to obtain a Print Out with a unique bar code;

The recipient takes the Print Out to the store counter where the Y employee scans the barcode and checks that the recipient's ID matches the Receive Form details;

The Y employee confirms on the POS Provider's system that the recipient's ID matches the Receive Form details and then sends the Receive Form details to X's Interface;

After undertaking fraud and compliance checks X's Interface transmits an Approval Code which is printed on a Transaction Receipt by the Point of Sale System Provider; and

The Y employee pays the Receive Amount to the recipient.

X stated that the kiosk does not allow a customer or recipient to perform a money transfer and that once the customer or recipient populates the electronic form it is necessary to print the electronic form (which is bar-coded) and queue at the counter in Y's store. By getting the customer or recipient to use the kiosk to populate an electronic form the Y employee is saved from having to undertake that task. X emphasised that the kiosk does not make a money transfer occur, that a customer does not enter into a contract with X by completing the electronic form, and that X enters into a contract with a customer only after the Y employee sends the details to X's Interface and X's Interface transmits the Approval Code as a money transfer cannot occur without the Approval Code. X pointed out that the Approval Code is generated outside Australia and that there is no connection between the kiosk and the Approval Code.

X also stated that Y was not investing in the kiosks for the sole purpose of enabling X to provide money transfer services, that X's money transfer service is just the first service to be deployed involving the kiosks, and that in future Y intends to offer other services which will require customers to use the kiosks to complete electronic forms (e.g. paying bills, sports betting, and lotteries).

The International Money Transfer Agreement

The International Money Transfer Agreement (Agreement) between X and Y (as Seller) refers to the Commercial Terms for Money Transfer Kiosk Project document and indicates that, in addition to entering into the Agreement with X, Y will also enter into the following agreements:

An agreement with C or another party for the provision of kiosks and a software application for the Electronic Forms used to provide Money Transfer Services, a management platform, maintenance and support, and a kiosk help desk; and

An Agreement with D or another party for the provision of point of sale systems for the purpose of the Money Transfer Services.

The recitals to the Agreement state that X is a provider of international money transfer services and that Y wishes to offer X's proprietary wire transfer service at the 'Locations' (defined as all facilities owned and operated by Y or its franchisees and approved by X in advance) in Australia.

A clause provides that X authorises Y to provide 'Money Transfer Services' at the Locations within Australia approved by X. In a letter X stated that X's approval of locations merely reflects international financial regulations which require X to ensure that the files of X's agents are in the appropriate form for regulatory review.

Another clause provides that X grants Y a royalty-free non-exclusive licence to use the 'Transaction Software' (defined as the proprietary software provided by X for performing the 'Money Transfer Services' (defined as the Transfer Send, Transfer Receive, stored value card and any other electronic transfer or money transactional services offered by X under X's trade name or service mark ).

Outbound money transfers

In relation to a 'Transfer Send Transaction' (defined as the segment of Money Transfer Services where Seller collects 'Collected Funds' from a consumer and initiates an electronic request to the 'Transaction Centre' (defined as X's facility which co-ordinates 'Transfer Send' and 'Transfer Receive' transactions), the Agreement requires the Seller to collect the Transfer Amount plus the applicable 'Consumer Fee' (defined as the X-designated fee that Seller charges a consumer initiating a Transfer Send transaction) from the customer and to promptly deposit 'Collected Funds' into Seller's designated 'Banking Account'

The Terms and Conditions on the reverse of the Send Form include::

1. The X Money Transfer Service ('the Service') is provided by X through its network of Representatives (Service Reps')…

2. Send Information

…

Depending upon availability you may direct delivery of a Transfer to: an individual (a 'Receiver') for delivery at a specified address or receipt; at a Service Rep location; a third party debit card issued by a company outside country X (a 'SVC'); or a bank account ('Account'). Neither You nor Receiver will have a 'deposit' with X at any time during the Transfer…

Inbound money transfers

In relation to a 'Transfer Receive Transaction' (defined as the segment of Money Transfer Services where Seller receives a request from the Transaction Centre to disburse funds), the Seller agrees to pay the Transfer Amount to the recipient in AUD either in cash or by crediting the recipient's PrePaid Card at the conversion rate set by X.

The electronic Receive Form completed by a recipient is subject to the same Terms and Conditions as the Send Form, including:

3. Receive Information:

…

Transfers will be paid out or credited in cash, travellers check, money order, check, bankers draft or a combination therefore, or, if selected by Sender, delivered to an Account or SVC. A Transfer is received and X has no further liability to you, except as set forth below, when: it is disbursed to a Receiver; or notice of your payment for the Transfer is made available to the issuer of a SVC or bank that holds the Account (a Financial Institution)…A Transfer may only be available as a refund to Sender if: a specified number of days have elapsed since the Transfer was sent; or the Transfer is to a SVC or Account and the Transfer was not accepted by the Financial Institution…Neither Sender nor Receiver will have a deposit with X at any time during the Transfer

The Agreement - commissions, remittance and reporting

The Agreement provides that Y is entitled to commissions comprising part of the applicable Consumer Fee for each Transfer Send initiated at an Y store and part of the applicable Consumer Fee for each Transfer Receive paid out at an Y store. Y is also entitled to a share of any Foreign Exchange Profit realised where local currency is converted to USD as part of a Transfer Send or Transfer Receive transaction. Y's commission shares on Transfer Send transactions are paid under the net cash settlement provisions in the Agreement. Y's other commission shares and shares of Foreign exchange Profits are paid directly to Y by X.

The Agreement requires net cash settlement of collected funds to be made weekly and requires calculation of the 'Net Payable Amount' which is calculated as the difference between:

The amount owed to X by Y (that is Transfer Amounts and Consumer Fees related to Transfer Sends initiated by Y) and

The amount owed to Y by X (i.e. cash disbursed by Y pursuant to Transfer Receives and commissions due to Y for Transfer Sends)

If the Net Payable Amount is due to Y (that is B is greater than A) then X credits the Net Payable Amount to Y's Banking Account. If the net Payable Amount is due to X (that is A is greater than B) Y must initiate a wire transfer of the Net Payable Amount to a banking account designated by X.

Network Marketing and Development Agreement

A Network Development, Marketing and Advertising Agreement (NDMA Agreement) between X and XO provides for XO to provide to X 'Services' which are defined as:

Network development mainly consisting in but not limited to researching and selecting agents on behalf of X, negotiating on behalf of X contractual terms to be entered into by agents with X and operational support and training of X's agents; and

Advertising and marketing services, such as producing advertising to promote new products and services, determining joint marketing programs with X's agents, and the procurement of marketing services from third parties.

The NDMA Agreement provides that XO shall not enter into any agreement with prospective money transfer agent on behalf of X in any way and XO shall not hold itself out as being authorised to bind X in any way.

Interoffice Agreement

An Interoffice Agreement between XO and XO's Australian branch provides that XO's Australian branch agrees to provide such 'Services' as XO requires in accordance with the instructions and directions of XO or X. 'Services' is defined as:

Business liaison, technology exchange, market research services and products introduction with respect to the products and services offered by the X group companies.

The Interoffice Agreement provides that XO's Australian branch shall not enter into any agreement with prospective money transfer agents on behalf of XO or X and that XO's Australian branch shall not hold itself out as being authorised to bind XO or X in any way.

Ruling Request

In relation to an inbound money transfer it was submitted that X entered into an obligation to pay the customer or the customer's nominee an ascertainable amount at a future date and did not make a supply of services for GST purposes and that, for the purposes of paragraph 9-25(5)(a) of the GST Act, entry into that obligation was 'done' at the place where X accepted the funds from the customer (that is overseas) and that an inbound money transfer was not connected with Australia.

It was submitted that an outbound money transfer was connected with Australia (on the basis that X entered into an obligation when the Seller located in Australia accepted the funds from the customer and that was 'done' in Australia), but was input taxed under Item 2 of subregulation 40-5.09(3) of the GST Regulations as being the provision of an interest in a debt (that is a presently existing obligation to pay an ascertainable amount at a future date).

It was submitted that an intra Australia money transfer was also input taxed for the reasons set out above in relation to an outbound money transfer.

It was submitted that X was not required to register for GST in Australia because the only supplies made by X that were connected with Australia were outbound money transfers and intra Australia money transfers which were input taxed and subsections 188-15(1) and 188-20(1) of the GST Act exclude input taxed supplies when calculating whether X's current GST turnover and projected GST turnover exceed the GST registration turnover threshold.

It was also submitted that since Division 57 makes an Australian resident agent liable to pay GST on a supply made by a non-resident through that agent only where the supply made through the agent is a taxable supply and that if the Agreement made Y X's agent, Division 57 did not make Y liable for GST.

In a subsequent letter X submitted that X did not make a supply through an enterprise that X carries on in Australia when the actual nature, control, and ownership of the kiosks was analysed, that the kiosks are owned by Y under an agreement with C, C develops and owns the Agent Connect software installed in the kiosks, and X neither owns the kiosks nor controls how the kiosks are operated or maintained. X also submitted that a kiosk's only purpose is to provide electronic forms for customers to fill out and take to the counter in Y's store and that the kiosks cannot make any money transfer happen.

Reasons for decision:

Question 1:

Summary:

The supply of an inbound money transfer is not connected with Australia as it is not a thing done in Australia. Nor is the supply of an inbound money transfer connected with Australia as being made through an enterprise that X carries on in Australia.

Detailed reasoning:

Section 9-25 of the GST Act applies different tests for whether a supply is connected with Australia according to whether the supply is a supply of goods, a supply of real property, or a supply of anything other than goods or real property. Subsection 9-25(5) of the GST Act provides that a supply of anything other than goods or real property is connected with Australia if the thing is done in Australia or the supplier makes the supply through an enterprise that the supplier carries on in Australia.

For the purposes of determining whether the 'thing is done in Australia', Goods and Services Tax Ruling GSTR 2000/31 provides (Paras 62-77) a number of different tests according to whether the 'thing done' is a supply of a service, provision of advice or information, or the entry into, or release from, an obligation and so on.

It was submitted that the supply of a money transfer service by X was not the supply of a service but the supply of an entry into an obligation and that the supply of money transfer services was a financial supply. The definition of 'supply' in subsection 9-10(2) of the GST Act includes both:

(f) a financial supply

(g) an entry into, or release from, an obligation…

Goods and Services Tax Ruling GSTR 2002/2 provides (Para 61) that where a supply is a financial supply whether that supply is connected with Australia turns upon whether the interest is provided, acquired, or disposed of in Australia which, in turn, depends on how that provision, acquisition, or disposal is effected. Where the interest is created etc by the execution of a written contract the creation etc of that interest is done in Australia if that contract is made in Australia. Goods and Services Tax Ruling GSTR 2000/31 provides (Footnote 27):

A contract is made where the last act necessary to create a binding contract is performed (see W. A. Dewhurst and Co. Pty. Ltd. v. Cawrse [1960] V.R. 278 at 282.

In the case of an inbound money transfer we understand that an overseas customer would go to the premises of one of X's Sellers located outside Australia and initiate a process similar to that outlined in relation to a Transfer Send Transaction in the Commercial Terms for Money Transfer Kiosk Project document referred to above:

The customer uses a kiosk in a store located outside Australia to fill out an electronic Send Form;

The kiosk stores the Send Form details and allows the customer to print a copy of the Send Form with a unique bar code;

The customer takes the printed Send Form to the store counter where an employee scans the bar code, collects the Transfer Amount and Consumer Fee;

The employee then executes a confirmation on the POS System Provider's system which then electronically transmits the Send Form details to X's Interface; and

After undertaking fraud and compliance checks Ms Interface transmits an Approval Code back to the POS System Provider's System at the store which prints out a Transaction Receipt, and the Transfer Amount is available for collection by the Australian recipient one hour later.

In our view the last act necessary to create a binding contract is obtaining the Approval Code from X's Interface and printing it out on the Transaction Receipt, which occurs outside Australia. On that basis the supply of an inbound money transfer by X to a customer who is outside Australia is not connected with Australia under the 'thing done in Australia' test.

As an alternative to the 'thing done in Australia' test, subsection 9-25(5) of the GST Act provides that a supply of anything other than goods or real property is connected with Australia if the supplier makes the supply through an enterprise that the supplier carries on in Australia.

Subsection 9-25(6) of the GST Act provides that an enterprise is carried on in Australia if the enterprise is carried on through a 'permanent establishment' as defined in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA) or through a place that would be a permanent establishment if the exclusions in paragraphs (e), (f), or (g) of that definition did not apply. The 'permanent establishment' definition includes, in relation to a person, a place at or through which the person carries on any business and includes a place where the person is carrying on business through an agent. Taxation Ruling TR 2002/5 states (Paras 27-30):

….the phrase 'a place at or through which [a] person carries on any business' in the definition of PE in subsection 6(1) should be construed in a way that is broadly consistent with the meaning of PE in our tax treaties. Interpreting the phrase to include the concept of permanence in both its geographical and temporal senses facilitates such an approach.

While each situation needs to be judged in the context of the particular business, and is a question of fact and degree, the following comments offer guidance in determining whether 'a place at or through which a person carries on any business' exists for the purposes of the definition of PE in subsection 6(1).

A place at or through which a person carries on any business in the context of the definition of PE in subsection 6(1) must be geographically permanent. Any area, viewed commercially and as a whole, may, in relation to the business concerned, be a place.

The second criteria for a place at or through which a person carries on any business to exist for the purposes of the definition of PE in subsection 6(1) is temporal permanence, i.e. the business presence must not be of a purely temporary nature. In other words, the business must operate at that place for a period of time. Again, this has to be judged in the context of the particular business and is a question of fact and degree.

In a footnote to the discussion of geographic permanence Taxation Ruling TR 2002/5 states:

The Commissioner's view is that while concepts such as ownership, rights to use and the length of time such rights exist would be factors to take into account in confirming geographic and temporal permanence, the lack of such ownership and other rights does not preclude the finding that a place exists for the purposes of the definition of PE in subsection 6(1).

In the present case the Agreement obliges Y to enter into an agreement with an Electronic Kiosk Provider for the provision of 'kiosks' and a software application for the electronic forms and defines 'kiosks' as:

…the electronic terminals to be provided by the Electronic Kiosk Provider for use in the Locations by consumers wishing to sue the Money Transfer Services

and 'Locations' is defined as facilities owned or operated by Y or Y's franchisees and approved in advance by X from where money transfer services are offered.

The Agreement obliges Y to provide space for X to place a sign of specified dimensions on all kiosks, to install such signs, and to use a screensaver containing X's logo for each kiosk. The Agreement also provides that Y agrees that only the Electronic Forms shall be used for Money Transfer Services and agrees to ensure that Electronic Forms are available to customers in the Locations during public hours of operations. The Electronic Forms can be initiated by a customer only by using a kiosk.

The provisions of the Agreement and the Commercial Terms for Money Transfer Kiosk Project document referred to above indicate that an Australian recipient of an inbound money transfer would use a kiosk located in a store operated by an Y franchisee which has a X's sign on it and which houses a keyboard or touch screen, a screen with X's screensaver on it, and a printer to complete an electronic Receive Form. This suggests that a 'kiosk' is a physical structure large enough to house that equipment, is located at each Y store approved by X, and is separate from the counter housing Y's point of sale equipment.

X pointed out, however, that the kiosks are owned by Y, not X, and that X does not enter into a contract to provide money transfer services to a customer via the electronic form populated by the customer using the kiosk. Instead X enters into that contract only when X's Interface (which is located outside Australia) generates an approval code and sends it to Y's point of sale system. Consequently we do not consider that a kiosk is a place in Australia at or through which X carries on business.

The OECD Model Tax Convention on Income and Capital (Condensed Version, July 2008) (Convention) states in the Commentary on Article 5 - 'Permanent Establishment' (Para 42.2) that a location where automated equipment is operated by an enterprise may constitute a permanent establishment in the country where that equipment is situated. Thus a computer server:

…is a piece of equipment having a physical location and such location may thus constitute a 'fixed place of business' of the enterprise that operates that server.

The Convention also states (Para 42.4) that computer equipment at a given location may only constitute a permanent establishment if it meets the requirement of being fixed, that (Para 42.6) where an enterprise operates computer equipment at a particular location, a permanent establishment may exist even though no personnel of that enterprise is required at that location for operation of the equipment, and that (Para 42.8) where the electronic commerce operations carried on through the computer equipment form an essential and significant part of the enterprise (for example in the case of an e-tailer, the typical functions related to a sale such as the conclusion of the contract with the customer), the computer equipment would constitute a permanent establishment. As X points out, the kiosks are owned by Y, not X, and the electronic commerce operations carried on through the kiosks (that is populating the electronic forms) are not an essential part of concluding a contract to provide money transfer services to a customer.

For the reasons set out above we do not consider that the kiosks are places at or through which X carries on business in Australia.

The 'permanent establishment' definition also includes, in relation to a person, a place at or through which the person is carrying on business through an agent, making it necessary to consider whether an Y store approved by X is a place in Australia at or through which X carries on business through an agent.

Applying the test set out in Goods and Services Tax Ruling GSTR 2004/7 (Para 278), the issue is whether X is carrying on business in Australia through Y as X's duly appointed agent or whether the business being conducted by Y is Y's own business, X merely being one of Y's customers. This issue is resolved by applying the factors listed in Goods and Services Tax Ruling GSTR 2004/7 (Para 281) which were stated as general principles in Adams and Others v. Cape Industries Plc [1991] 1 All ER 929, 1014. Below we address those factors in the order in which they appear in Goods and Services Tax Ruling GSTR 2004/7 (Para 281):

The fixed place of business from which the agent (Y) operates was not originally acquired for the purpose of enabling Y to act on behalf of X. This indicates that X is not carrying on business through Y as X's agent.

X does not directly reimburse Y for the cost of accommodation at the fixed place of business or staff. This indicates that X is not carrying on business through Y as X's agent.

Y is remunerated by commission, which is an indicator that Y is carrying on its own business and not carrying on X's business, although this is not conclusive.

X has a relatively high degree of control over the Money Transfer Services provided by Y as X approves the locations at which Y is to provide the Money Transfer Services, Y agrees to provide Money Transfer Services at a minimum of Locations and at all hours of public operation, Y agrees not to provide 'Competing Services', the services are initiated by a customer using a X-branded kiosk, X controls the form and layout of all 'Electronic Forms', and Y allows X to offer training to all personnel involved in offering Money Transfer Services.

The Y franchisee at a store approved by X does reserve part of the franchisee's accommodation for the conducting of business related to X, that is the kiosk located in a store operated by an Y franchisee and approved by X which has X's sign on it, which houses a computer keyboard and screen with X's screensaver on it and which the customer uses to complete an electronic form which is then processed by an employee of the Y franchisee.

Y does display X's name at the premises of Y's franchisees. The Agreement obliges Y to invest a percentage of the revenue from Money Transfer Services to advertise Money Transfer Services in those stores. The electronic Send Form and Receive Form display X's name and logo and the Y employee dealing with the customer is referred to on the form as the 'X Operator'. In addition, the Terms and Conditions on the reverse of the form state:

The X Transfer Service ('the Service') is provided by X through its network of representatives ('Service Reps')…

Y does transact business as principal on Y's own behalf. The Commercial terms for Money Transfer Kiosk Project document states that Y operates stores in various states.

Y does make contracts with third parties in Ms name and in such a way as to bind X. The outline of the Send Transaction in the Commercial Terms for Money Transfer Kiosk Project document indicates that after printing the Send Form or Receive Form a customer deals with Y's staff who obtain the required Approval Code from X's Interface and print the Transaction Receipt.

However it appears that Y requires specific authority in advance before binding X to contractual obligations. The outlines of a Transfer Send Transaction and a Receive Transaction in the Commercial Terms for Money Transfer Kiosk Project document indicate that X is not bound until the Y employee has transmitted the Send Form details to X's Interface and received an Approval Code which is printed on a Transaction Receipt. Adams and Others v. Cape Industries Plc referred (p. 1010) to Grant v. Anderson & Co [1892] 1 QB which held that a firm did not carry on business in London where its London representative had no power itself to accept an order but instead had to refer the order to the firm for acceptance.

In our view the factors listed in Goods and Services Tax Ruling GSTR 2004/7 (Para 281) indicate overall that the Y stores approved by X are not places at or through which X is carrying on business through an agent.

XO has an Australian branch, which makes it necessary to consider (by applying the factors listed in Goods and Services Tax Ruling 2004/7 (Para 281)) whether X is carrying on business or activities in Australia through XO as X's agent at that Australian branch. Under the NDMA Agreement XO agrees to research and select agents on X's behalf, negotiate contractual terms with agents on X's behalf, and provide operational support and training to X's agents and the Interoffice Agreement provides that XOs Australian branch agrees to provide such 'Services' as XO requests and in accordance with the instructions of XO or X and 'Services' are defined to include business liaison and products introduction with respect to the products and services offered by X group companies. X reimburses XO's Australian branch for the cost of accommodation and staff and makes other financial contributions as the NDMA Agreement provides that X pays XO for services on a cost plus basis and the Interoffice Agreement provides that XO pays XO's Australian branch for services on a cost plus basis.

X's business involves making contracts with Sellers and making contracts with customers and Goods and Services Tax Ruling GSTR 2004/7 states (Para 282) that in those circumstances the authority of XO's Australian branch to conclude contracts on behalf of X is an important factor in establishing whether X is carrying on business in Australia. The 'Services' provided by XO under the NDMA Agreement are limited to network development, advertising and marketing and are unrelated to supplies of inbound money transfers made by X to X's customers. Although the NDMA Agreement authorises XO to 'negotiate on behalf of X contractual terms to be entered into by agents with X', the NDMA Agreement also provides that XO shall not enter into agreements with money transfer agents on X's behalf or hold itself out as being authorised to bind X in any way. The Interoffice Agreement provides that XO's Australian branch shall not enter into any agreement with prospective money transfer agents on X's behalf or hold itself out as being authorised to bind X.

We consider it unlikely that XO's Australian branch is a place in Australia where X is carrying on business through an agent. In any event we do not consider that the supply of an inbound money transfer is made through that branch under the tests set out in Goods and Services Tax Ruling GSTR 2000/31 (Para 86).

Question 2:

Summary:

Although the Terms and Conditions on the Send Form refer to X providing a service and deny that the Transfer Amount is a deposit, we consider that X provides an interest in a debt within the meaning of Item 2 in subregulation 40-5.09(3) of the GST Regulations. We do not consider that the supply of an outbound money transfer by X falls within any of the items in the table in regulation 40-5.12 of the GST Regulations. Consequently the supply of an outbound money transfer would be an input taxed supply if all the requirements of subregulation 40-5.09(1) of the GST Regulations were satisfied.

Detailed reasoning:

Section 40-5 of the GST Act provides that a financial supply is input taxed. Section 195-1 of the GST Act provides that 'financial supply' has the meaning given by regulations made for the purposes of subsection 40-5.02. Subregulation 40-5.09(1) of the GST regulations states that the provision, acquisition, or disposal of an interest mentioned in subregulation 40-5.09(3) or (4) is a financial supply if the provision, acquisition, or disposal is for consideration, in the course or furtherance of an enterprise, connected with Australia, and the supplier is both GST registered and a financial supply provider in relation to the supply of the interest.

Goods and Services Tax Ruling GSTR 2006/9 states (Para 112) that in determining whether an entity has made a supply, and the true character of any supply that entity has made, what is relevant is what the entity did. Goods and Services Tax Ruling GSTR 2006/9 also states (Para 180):

An arrangement between parties will be characterised not merely by the description which parties give to the arrangement, but by looking at all of the transactions entered into and the circumstances in which the transactions are made

In the present case X has described the supply which X makes to a customer as a service. A clause of the Terms and Conditions on the Send Form (and the Receive Form) provides:

The X Money Transfer Service ('the Service') is provided by X through its network of Representatives (Service Reps')…

and another clause of the Terms and Conditions provides:

X will use the information provided in this (send form/receive form) in order to provide you with payment transfer services…

In addition the Terms and Conditions state numerous times that funds paid to X are not a deposit. The relevant clause (Send Information) states:

Neither You nor Receiver will have a 'deposit' with X at any time during the Transfer…

A further clause ('Receive Information') states:

Neither Sender nor Receiver will have a deposit with X at any time during the Transfer

and the clause pertaining to (refund Information) states:

Funds provided to X for transfers processed through the X system are being provided for transmission purposes and are not a deposit.

Acceptance of funds as a deposit creates a debt. In Re Metway Bank Ltd [1991] 1 Qd R 120, 123 McPherson J held that a deposit of funds with a bank made the funds the bank's property but created a debt owed by the bank to the bank's customer. The statements in the Terms and Conditions that neither the Sender nor Receiver has a deposit with X may not have been intended to deny the existence of a debt. Those statements may have been included in the Terms and Conditions for sound commercial reasons, for example X may not wish to be subject to the regulatory regimes governing entities which accept deposits.

For the reasons set out above we do not consider that the references in the Terms and Conditions to a service and the statements that funds are not a deposit necessarily mean that X does not make a financial supply.

For there to be a financial supply there must be the provision of an 'interest'. Regulation 40-5.02 of the GST Regulations provides that an 'interest' is anything that is recognised at law or in equity as property in any form and Goods and Services Tax Ruling GSTR 2002/2 states (Para 79) that an interest is as wide as the legal and equitable concept of property, including rights arising under a contract. X submitted that there is the provision of an interest in 'a debt' within the meaning of Item 2 in subregulation 40-5.09(3) of the GST Regulations and relied on the ordinary meaning of 'debt', including the definition in Schedule 1 to Goods and Services Tax Ruling GSTR 2002/2:

- An amount due from one entity to another or a presently existing obligation to pay an ascertainable amount at a future time.

- and submitted:

As outlined above, X is obliged to make payment to the customer's nominee when X accepts the transfer request by the customer. The acceptance of the money transfer results in a presently existing obligation to pay an ascertainable amount at a future date.

We agree. The relevant clause of the Terms and Conditions on the reverse of the Send Form provides that the customer:

…may direct delivery of a Transfer to: an individual (a 'receiver') for delivery at a specified address or receipt at a Service Rep location; a third party debit card issued by a company outside country X (a 'SVC'); or a bank account

which indicates that X enters into a contractual obligation to pay the Transfer Amount to the customer's nominee at a future date.

Subregulation 40-5.09(a) requires that the provision of the interest is for consideration and is made in the course or furtherance of an enterprise. X makes the provision of the interest for consideration in the form of the Consumer Fee paid by the customer. Section 9-20 of the GST Act provides that an enterprise is an activity, or a series of activities, done in the form of a business. We are satisfied that X is carrying on a business, applying the factors listed in Miscellaneous Taxation Ruling MT 2006/1 (for example significant commercial activity, an intention to make a profit from the activity).

Subregulation 40-5.09(a) also requires that the provision of the interest is connected with Australia. Where the supply is the provision of an interest by way of the execution of a written contract the provision of that interest is done in Australia if that contract is made in Australia, that is if the last act necessary to create a binding contract is performed in Australia. In the case of an outbound money transfer that will be the case as the description of a Send Transaction in the Commercial Terms for Money Transfer Kiosk Project document indicates that after fraud and compliance checking by X's Interface, the point of sale system located in Y's store would receive an Approval Code from X's Interface and print out a Transaction Receipt in Australia.

Subregulation 40-5.09(1)(b) requires that the supplier is a financial supply provider in relation to the supply of the interest, 'Financial supply provider' is defined as an entity, in relation to the supply of an interest that was either the property of that entity immediately before the supply or created by the entity in making the supply. X submitted that since X created an interest in a debt when making the supply X was a financial supply provider. We agree. Goods and Services Tax Ruling GSTR 2002/2 states (Para 104) that an entity which issues a debenture is a financial supply provider of an interest because the entity created the interest when making the supply). Although X does not issue a debenture, X does provide an interest in a debt thereby creating the interest when making the supply to the customer.

Subregulation 40-5.08(2) of the GST Regulations provides that a supply mentioned in both regulations 40-5.09 and 40-5.12 is not a financial supply. Regulation 40-5.12 of the GST Regulations provides that a supply of something, or an interest in or under something, that is mentioned in the table in regulation 40-5.12 is not a financial supply. We do not consider that the supply of an outbound money transfer by X falls within any of the items in the table in regulation 40-5.12.

Question 3:

For the reasons set out above in relation to outbound money transfers we consider that an intra Australia money transfer would be input taxed if all the requirements of subregulation 40-5(1) of the GST Regulations were satisfied.

Question 4:

Summary:

If the only supplies which X makes that are connected with Australia are outbound money transfers and intra Australia money transfers X would not exceed the GST registration turnover threshold.

Detailed reasoning:

Section 23-5 of the GST Act provides that an entity is required to register for GST if the entity is carrying on an enterprise and the entity's annual turnover meets the registration turnover threshold. Section 23-15 provides that the registration turnover threshold for a body other than a non-profit body is $75,000.

Subsection 188-10(1) of the GST Act provides that an entity's annual turnover meets a particular turnover threshold if either the entity's current annual turnover is at or above the turnover threshold and the Commissioner is not satisfied that the entity's projected annual turnover is below the turnover threshold or the entity's projected annual turnover is at or above the turnover threshold.

Subsections 188-15(1) and 188-20(1) of the GST Act provide that current annual turnover or projected annual turnover is the sum of the values of all the supplies made or likely to be made during the relevant period, other than, inter alia, supplies that are 'input taxed'. 'Input taxed' is defined in section 195-1 of the GST Act as having the meaning given by subsection 9-30(2) and Division 40 and subsection 9-30(2) provides that a supply is input taxed if it is input taxed under Division 40.

For the reasons set out in relation to Questions 2 and 3 we consider that supplies of outbound money transfers and intra Australia money transfers would be input taxed under Division 40 of the GST Act if the requirements of sub-regulation 50-5.09(1) of the GST Regulations were satisfied . In that case those supplies would be excluded from the calculation of current annual turnover and projected annual turnover.

Question 5:

Summary:

A supply of a money transfer service made by X through an Australian resident Seller on the terms set out in the Agreement would not result in the Seller having a GST liability under section 57-5 of the GST Act.

Detailed reasoning:

Section 57-5 of the GST Act provides that GST on a taxable supply made by a non-resident through a resident agent is payable by the agent and is not payable by the non-resident. 'Resident agent' is defined as an agent that is an Australian resident. Section 195-1 of the GST Act states that 'taxable supply' has the meaning given by section 9-5 of the GST Act and section 9-5 requires that a taxable supply is connected with Australia and provides that a supply is not a taxable supply to the extent it is GST-free or input taxed.

Goods and Services Tax Ruling GSTR 2000/37 provides (Para 28) that the factors which indicate an agency relationship include an agreement between principal and agent which gives the agent authority so as to create or affect legal relations between the principal and a third party.

Under the Agreement X authorises Seller to provide money transfer services at locations approved by X and the Terms and Conditions on the reverse of the Send Form state that the money transfer service is provided by X 'through its network of Service Representatives'. For these reasons we consider that a Seller acts as X's agent when supplying money transfer services pursuant to the Agreement.

Section 57-5 obliges an Australian agent to pay GST only in respect of a taxable supply made by a non-resident principal through that agent. For the reasons set out above we consider that a supply of an inbound money transfer is not connected with Australia and therefore is not a taxable supply. For the reasons set out above we also consider that the supply of an outbound money transfer or an intra Australia money transfer is an input taxed supply and therefore is not a taxable supply. Consequently a supply of a money transfer service made by X through an Australian resident Seller would not result in the Seller having a GST liability under section 57-5 of the GST Act.

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