Goods and Services Tax Determination

GSTD 2012/9

Goods and services tax: is the supply of a right to capacity in an international telecommunication network made by an Australian resident telecommunication supplier GST-free under item 4 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999?

• Please note that the PDF version is the authorised version of this ruling.
  From 1 July 2015, the term 'Australia' is replaced in nearly all instances within the GST, Luxury Car Tax, and Wine Equalisation Tax legislation with the term 'indirect tax zone' by the Treasury Legislation Amendment (Repeal Day) Act 2015. The scope of the new term, however, remains the same as the now repealed definition of 'Australia' used in those Acts. This change was made for consistency of terminology across the tax legislation, with no change in policy or legal effect. For readability and other reasons, where the term 'Australia' is used in this document, it is referring to the 'indirect tax zone' as defined in subsection 195-1 of the GST Act.

Preamble

This publication provides you with the following level of protection: This publication (excluding appendixes) is a public ruling for the purposes of the Taxation Administration Act 1953. A public ruling is an expression of the Commissioner's opinion about the way in which a relevant provision applies, or would apply, to entities generally or to a class of entities in relation to a particular scheme or a class of schemes. If you rely on this ruling, the Commissioner must apply the law to you in the way set out in the ruling (unless the Commissioner is satisfied that the ruling is incorrect and disadvantages you, in which case the law may be applied to you in a way that is more favourable for you - provided the Commissioner is not prevented from doing so by a time limit imposed by the law). You will be protected from having to pay any underpaid tax, penalty or interest in respect of the matters covered by this ruling if it turns out that it does not correctly state how the relevant provision applies to you.

Background

1. 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]

2. 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.

3. 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.

4. 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.

Ruling

5. 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.

6. 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.

7. 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.

8. 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]

9. 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.

10. 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.

Example - Supply of capacity in an international telecommunication network

11. 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).

12. 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.

Item 4

13. 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.

14. 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.

Subsection 38-190(2)

15. 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.

16. The supply of capacity by Aus Telco to NZ Telco is a GST-free supply under item 4.

Date of effect

17. 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).

Commissioner of Taxation
28 November 2012

GSTD 2012/D3

References

ATO references:
NO 1-3XLD0B2

Related Rulings/Determinations:

TR 2006/10
GSTR 2003/8
GSTR 2004/7
GSTD 2012/7
GSTD 2012/8
GSTD 2012/10

Subject References:
goods and services tax
GST-free
rights for use outside Australia
telecommunication supply

Legislative References:
ANTS(GST)A 1999
ANTS(GST)A 1999 38-190(1)
ANTS(GST)A 1999 38-190(2)
TAA 1953
TAA 1953 Sch 1 105-60
Broadcasting Services Act 1992 Sch 5
Telecommunications Act 1997

Other References:
The Telecommunications Industry Liaison Group - Issues Register