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12 GST thoughts of Christmas

12 GST thoughts of Christmas:

1. There’s no GST on gifts (so Santa is probably not GST registered).
2. GST registered businesses can claim back the GST on gifts they buy for staff, suppliers and customers.
3. If you buy someone a gift voucher for Christmas it’s quite likely the IRD won’t get any GST until the person redeems it.
4. If the person you gave the voucher to loses it the IRD might never get any GST.
5. On Boxing Day when you go to the shop to return the present you don’t want the retailer will be able to get a refund of GST from the IRD provided they credit you for the return.
6. However, the retailer will have to pay GST if you use the credit to buy something else.
7. The government gets a double whammy of GST when you buy alcohol for your Christmas festivities or petrol for that family road trip (because GST applies to excise taxes on alcohol and fuel).
8. If you order an expensive gift online from overseas for someone in New Zealand and have it delivered directly to them you may be giving them a GST bill because chances are they’ll have to pay GST on the value of the present before they can pick it up from Customs.
9. Businesses are given an automatic extension of time to file their November GST return so they don’t have to file it on 28 December.
10. GST registered businesses with 31 December balance dates which make exempt supplies may have to come back early from their holidays so they can calculate their annual GST adjustment due on 28 January.
11. If you’re booking an overseas holiday and have to take a domestic flight to get to your departure airport it’s best to book both flights together if you want to save the GST on the domestic flight.
12. There’s no GST on gifts but if someone gives you something expensive while overseas you might have to pay GST when you bring it back with you.

Happy Christmas everyone

Iain

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NZ businesses are getting it wrong

I’m seeing increasing evidence of misunderstanding over how the zero rating rules apply.

From 1 April 2014 non-resident businesses can register for GST in NZ under a new system which allows them to claim GST refunds on business related costs. Historically a business had to supply goods or services in NZ before it could register and claim back GST on its costs here. That is no longer the case.

I’ve been working with a number of overseas businesses wanting to take advantage of the new system.

What’s starting to emerge is surprising. A number of these overseas businesses are looking to reclaim GST they should never have been charged in the first place.

The most common mistake I’ve seen is made by NZ service providers contracting with an overseas business. They’ve charged 15% GST when the transaction should have been zero rated.

To be fair, the zero rating rules are not the easiest in the legislation to follow. There’s quite a lot of case law on them which speaks to some of the complexities.

There seems to be a common misunderstanding that because services are performed in New Zealand (i.e. the work is done here) GST has to apply at 15%. That’s not necessarily the case. Only some services performed here and supplied contractually to a non-resident business are taxed at 15%.

If you’re providing services to overseas businesses I suggest you check how you are dealing with GST. If you’re incorrectly charging it at 15% you may find Inland Revenue comes knocking when your customer tries to register under the new system and claim back GST that should not have been charged.

Cheers

Iain

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Global VAT alignment edges closer

At the Global Forum on VAT in Tokyo last week 86 countries signed up to the first agreed framework for applying VAT to internationally traded services and intangibles. The new guidelines set out core VAT principles to be applied when taxing services and intangibles, will ensure more consistency between countries, will reduce double taxation and will protect the neutrality of business to business (“B2B”) transactions.

While an important step in the right direction, the more vexing question of how to tax internationally traded business to consumer (“B2C”)services and intangibles has been left for another time.

The Global Forum on VAT occurs under the umbrella of the OECD and provides a platform for global discussions on VAT. The first session took place in November 2012. Last week was the second occasion academics, tax administrators. business representatives and others were invited to discuss VAT policy trends and developments.

The main output from this latest session was a set of new OECD Guidelines on applying VAT across borders.

The Guidelines can be downloaded from the the OECD website – here: http://www.oecd.org/ctp/consumption/international-vat-gst-guidelines.htm

The focus of the Guidelines is B2B transactions. They discuss place of supply rules, the well known “destination principle” (B2B services should be taxed in the country where the customer is located) and mechanisms available to countries to allow non established foreign businesses to recover VAT incurred there.

None of this is startling news for New Zealand. We’re already ahead of this stuff thanks to our super charged GST system. Just this month we’ve seen a new streamlined registration and GST recovery system come into place for overseas businesses incurring GST here.

The really challenging question for New Zealand, and every other country with a VAT, is how do you tax B2C services and intangibles traded across borders? Unlike goods there’s no border control in place to capture internationally traded services and there’s no existing registration system to collect the tax from the customer/consumer.

This really is the more urgent question in my view. Countries are attempting to deal with the issue on their own (eg South Africa and the EU) but global cooperation and alignment are critical. Some States in the USA have implemented mechanisms to apply state taxes to inter-state B2C online sales (such as e-books) and the latest evidence suggests these measures are improving the sales of local bricks and mortar retailers at the expense of online retailers such as Amazon.

Last week’s Forum in Tokyo urged the OECD to finalise work on the VAT treatment of B2C services in time for the next Global Forum on VAT in November 2015. That seems like a long time to wait, but as we all know, achieving global consensus on anything is a slow process.

Cheers

Iain

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Are you ready for the 1st of April 2014?

Change to tax law is as certain as tax itself.

The 1st of April is a favourite of governments around the world for ushering in tax changes.

Here’s a snippet of some changes that are coming into force in GST, VAT and other indirect taxes on 1 April:

Albania – Supplies of medical services and medicines will be exempt from VAT, alcohol and tobacco excise taxes will rise and energy drinks will become subject to excise tax.

Cook Islands – The standard VAT rate will increase from 12.5% to 15% and import charges on some foodstuffs will reduce to zero.

France – CO2 content will become the basis for calculating excise taxes on energy products.

Japan – The rate of Consumption Tax will increase from 5% to 8%.

Lithuania – Excise duty on alcohol products will increase.

New Zealand – Non-residents will be able to claim refunds of GST for New Zealand business expenses under an enhanced registration system.

South Africa – Foreign suppliers of electronic services to residents in South Africa will have to register for VAT and charge South African VAT.

So, a busy day for indirect tax changes. Don’t be fooled!

The South African measure is especially interesting and deserves more comment in a separate post.

Iain

 

 

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Good news

Might as well start the year with a bit of good news, even if it’s a little old by now.

On 11 December the Government gave us a xmas present with the announcement by the Minister of Customs the Temporary Import period for yachts, launches and small craft will be extended from 12 months to 24 months.

This means visitors coming to NZ on their yachts or launches can stay here longer without having to pay duty or GST on the value of their vessel. They’ll be able to have more work done by our brilliant marine businesses, will be able to spend more time visiting NZ’s amazing tourist attractions and will be able to spend more money here.

Around 700 private craft visit NZ every year of all shapes and sizes. Marine industry representatives reckon this measure will increase that number by 25%.

This is surely good news. An incentive for visiting yachties to stay longer.

Cheers and Happy New Year

iain

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12 GST thoughts of Christmas

12 GST thoughts of Christmas:

1. There’s no GST on gifts (so Santa is probably not GST registered).
2. GST registered businesses can claim back the GST on gifts they buy for staff, suppliers and customers.
3. If you buy someone a gift voucher for Christmas it’s quite likely the IRD won’t get any GST until the person redeems it.
4. If the person you gave the voucher to loses it the IRD might never get any GST.
5. On Boxing Day when you go to the shop to return the present you don’t want the retailer will be able to get a refund of GST from the IRD provided they credit you for the return.
6. However, the retailer will have to pay GST if you use the credit to buy something else.
7. The government gets a double whammy of GST when you buy alcohol for your Christmas festivities or petrol for that family road trip (because GST applies to excise taxes on alcohol and fuel).
8. If you order an expensive gift online from overseas for someone in New Zealand and have it delivered directly to them you may be giving them a GST bill because chances are they’ll have to pay GST on the value of the present before they can pick it up from Customs.
9. Businesses are given an automatic extension of time to file their November GST return so they don’t have to file it on 28 December.
10. GST registered businesses with 31 December balance dates which make exempt supplies may have to come back early from their holidays so they can calculate their annual GST adjustment due on 28 January.
11. If you’re booking an overseas holiday and have to take a domestic flight to get to your departure airport it’s best to book both flights together if you want to save the GST on the domestic flight.
12. There’s no GST on gifts but if someone gives you something expensive while overseas you might have to pay GST when you bring it back with you.

Happy Christmas everyone

Iain

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Exporters beware!

There’s no GST on exports, right?

Wrong! Sometimes GST does apply to exports.

Here’s an example:

NZ Ltd agrees to sell products to UK Ltd. UK Ltd is going to use the parts in the creation of a sculpture in the UK.

NZ Ltd invoices UK Ltd and receives payment before the parts leave New Zealand. NZ Ltd delivers the parts to UK Ltd’s agent in New Zealand who uses them in initial design and fabrication of the sculpture in New Zealand.

UK Ltd’s agent then organises shipment of the partially completed sculpture at UK Ltd’s expense.

NZ Ltd wants to “zero rate” the sale of the parts to UK Ltd because they are exported and UK Ltd has bought them to use overseas. UK Ltd also wants the sale to be zero rated because they are not registered for GST in New Zealand and therefore couldn’t claim a refund of the GST. Will the IRD allow NZ Ltd to zero rate the sale?

No.

Even though exports as a general rule are not subject to GST, with some commercial arrangements that is not the case. The scenario outlined above is one example. In that case the IRD would be quite justified in insisting on having GST paid on the sale.

And so held the Taxation Review Authority in a decision released on 5 August dealing with almost identical facts.

Zero rating does not apply because NZ Ltd did not “enter the goods for export” and did not “export” them. Both are required. One refers to completing the Customs documentation as consignor and the other to the shipment of the goods.

Another problem for NZ Ltd was the parts were actually “consumed” in NZ because they were supplied to UK Ltd who then used them in NZ as part of initial fabrication of the sculpture here before shipping that partially completed sculpture. The product being exported was not the same product sold by NZ Ltd to UK Ltd.

There are lots of traps in the zero rating rules. Be careful.

The case is XX (An exporter) v CIR [2013] NZTRA 04

Iain