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New rules for property transactions

The Government has acted to require buyers and sellers of property to have IRD numbers. see

The Taxation (Land Information and Offshore Persons Information) Bill was introduced into Parliament yesterday.

There are two main proposals:

1. Parties to real estate sale and purchase agreements will have to have an IRD number and supply that number to Land Information New Zealand. If one of the parties is a non-resident they will also have to provide the Tax Identification Number from the country where they are resident.

2. A non-resident applying for an IRD number in New Zealand will have to provide details of a New Zealand bank account.

There are exceptions of course, such as for the family home.

These changes are designed to help IRD enforce the land taxing provisions. They come ahead of the other big Budget 2015 measure proposing a bright line test to tax property bought and sold within two years. We’ll see more on that later this year.

In the meantime, when these measures are enacted IRD will have more ammunition to go after property traders and developers, whether for income tax or GST.


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Vat audits- the whole story

EY’s digitally interactive report on managing indirect tax disputes is definitely worth a read.

The report has a host of useful information about modern indirect tax audits, common errors and how smart businesses are managing their indirect taxes to stay clear of nasty surprises.

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Low value import thresholds distort markets

An expert’s report from the European Commission concludes low value import exemption thresholds cause major competitive distortions, including loss of VAT revenues, business closures, business relocations and booming new fulfilment industries.

You can find the EY report here:

There’s a more digestible executive summary here:

The authors were asked to examine the impact of VAT exemptions for low value consignments. This came of the back of a 2014 recommendation from an EU Commission Expert Group to abolish the exemptions for low value imports which have been in place across the EU since 1983.

Low value VAT import thresholds exist because of the costs of collecting VAT on large volumes of small imports. The report was unable to determine the costs for tax authorities in assessing and collecting VAT because of a lack of publicly available information. However, data was available from freight companies which indicated the cost to them of processing a clearance for a small consignment triples when VAT and duty apply. This is because of the additional paperwork and information that has to be provided.

The UK has managed to devise a methodology which keeps the compliance costs below the EU average. Overseas traders can use a prepayment scheme where they charge VAT on mail order goods and pay it up front to the customs authority. This makes the clearance process much simpler when the goods arrive but transfers compliance costs to the supplier.

According to the report the growth of low value import consignments is accelerating. Conservatively they estimate between 1999 and 2013 volumes tripled, outpacing GDP growth in the same period. These imports are now costing EU governments anything between Euros 500m to 900m annually.

The challenge for governments has been balancing the additional revenue against the additional costs of removing the exemptions and the impact of extra compliance on the broader economy.

In my view because of the competitive distortions highlighted in this report it’s only a matter of time before the exemptions for low value imports are removed. A technology solution will be found.


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Bit of a GST fizzer…..

We were eagerly awaiting an announcement in yesterday’s Budget 2015 speech on digital services but…. nothing. How many more countries need to take the lead on this before NZ acts?

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Australia jumps ahead of NZ in taxing digital commerce

The Australian Government has released draft legislation proposing to apply GST to downloads and streaming of digital content and other services supplied from offshore to Australian consumers.

This will affect media such as games, movies, e-books and music downloaded over the internet by Australian resident consumers. GST will also apply where an Australian consumer buys other services from offshore such as legal, accounting, architectural, medical or other similar services.

There will be measures to allow the GST to be collected from operators of electronic distribution services in addition to the offshore supplier and a simplified registration regime appears on offer. A lot of the detail will appear later in Regulations.

The States of Australia still need to approve the legislation but it is intended to apply from 1 July 2017.

So Australia gets an early jump on NZ. Bets are on something similar being announced in the NZ Government’s Budget this month.

The practical issues with these measures have been well debated now and no complete or ideal solution has been found. Australia is essentially following the EU lead.

The Australian approach tilts the playing field completely in the opposite direction. At the moment, products sold electronically from offshore (such as e-books) are not taxed as highly as goods purchased online and imported into the country.

When this measure comes into force the preference shifts in favour of goods purchased online. That is because, for goods bought over the internet and imported into Australia there is a threshold of $1,000 below which no tax is payable. There is no suggestion at this stage to apply a similar threshold to imported services. How this impacts consumer choices (such as buying hard copy books over the internet rather than an e-book) remains to be seen.

The thorny issue of the low value import threshold just won’t go away.







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GST heat goes on internet sales

Debate is turning into action over taxing internet sales.

The Australian Treasurer told media at the Council on Federal Financial Relations Meeting in Canberra on 9 April his Government will require overseas companies selling intangibles into Australia to register and pay GST on their sales there. This includes companies like Netflix and many others which are clearly in the Australian Government’s sights.

Treasurer Hockey says the States in Australia have agreed to this in principle and they intend working as quickly as possible to achieve it. He also said it would make sense to apply the same rules to goods sold over the internet below the import exempt threshold of $1,000. That will be welcome news for Australian retailers.

Meanwhile, in New Zealand, our Government maintains the line it will await the OECD special working party on digital commerce (due to release a further report later this year) before acting and there is no current intention to review the low value import threshold here for goods.

NZ retailers still have their work cut out to persuade our Government to act sooner and follow the EU and South Africa.

On 13 April Retail NZ and Bookseller NZ launched an #eFairnessNZ campaign seeking urgent action on this. They say it is hurting retailers all over New Zealand. The campaign is being run on Facebook, Twitter and Instagram using the hashtag #eFairnessNZ.

While the regimes in place in South Africa and the EU have significant practical and enforcement issues it does appear they are collecting revenue. We won’t know how they are impacting consumer behaviour for another few months but it certainly doesn’t look like the sky has fallen on them.

I’d say this is an inevitability but we still are some way away from the ideal technological solution we need.



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Overseas companies avoiding GST?

Simon Moutter, Spark’s MD, says overseas companies like Netflix are avoiding GST.

He has a point, and it’s not news really. But the debate grows as more New Zealand businesses feel the heat from overseas digital competitors.

I’ve no doubt a solution will be found and I agree with Moutter, it will be a technology solution.

VAT /GST regimes around the world apply the “destination principle” i.e. the tax burden lies where consumption occurs. Unless we abandon that policy building block we must find a way to tax the increasingly valuable services being purchased from offshore.

Some countries are forging ahead without waiting for the OECD to come up with a multilateral solution [South Africa, the EU, the Bahamas]. As Moutter points out, the US has rules in place for sales taxes on inter-state transactions, but of course enforcement isn’t as difficult when the two taxing states are part of the same country.

This is a challenge for technology entrepreneurs as much as tax administrators.