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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.

 

 

Iain

 

 

 

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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.

http://jbh.ministers.treasury.gov.au/transcript/075-2015/

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.

www.retail.kiwi/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.

Cheers

Iain

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Overseas companies avoiding GST?

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

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11422160

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.

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