2016 National GST Intensive

Transcription

1 2016 National GST Intensive Written by: Josephine Drum Senior Technical Specialist Australian Tax Office Presented by: Josephine Drum ATO Suzanne Kneen Director PwC Suzanne Kneen Director PwC National Division 8 9 September 2016 Four Points by Sheraton, Sydney Josephine Drum (ATO) & Suzanne Kneen (PwC) 2016 Disclaimer: The material and opinions in this paper are those of the author and not those of The Tax Institute. The Tax Institute did not review the contents of this paper and does not have any view as to its accuracy. The material and opinions in the paper should not be used or treated as professional advice and readers should rely on their own enquiries in making any decisions concerning their own interests.

2 Josephine Drum & Suzanne Kneen CONTENTS 1 Overview Collecting VAT/GST from foreign based suppliers Scope Which suppliers What supplies can be accounted for within this system Integrity and compliance issues relevant to scope Base and characterisations Definitional issues Role of intermediaries New Zealand EU Norway Japan South Africa Russia Australia Electronic Distribution Platform Taxing decisions relevant to customer status and customer location EU New Zealand Japan Norway Russia South Africa Australia International Cooperation Treaties Administrative cooperation task team Josephine Drum (ATO) & Suzanne Kneen (PwC)

3 Josephine Drum & Suzanne Kneen 3.3 Brexit Taxing the supplies of low value imported goods What is a vendor registration model? Enforcement Australia: Interaction with taxable importation provisions Next Steps Australia Other jurisdictions Josephine Drum (ATO) & Suzanne Kneen (PwC)

4 1 Overview Over the last 12 months: The International VAT/GST Guidelines were endorsed at the VAT/GST Global Forum in Paris in November 2015 by over 100 jurisdictions. 1 Action item 1 of the base erosion and profit shifting (BEPS) Action Plan has addressed concerns for the collection of VAT/GST within the Digital economy. 2 For remote supplies of services and intangibles jurisdictions are encouraged to follow the principles in the International VAT/GST Guidelines; and For low value imported goods a combination of models including using vendors, intermediaries and traditional methods may allow jurisdictions to remove or lower the GST/VAT import exemption threshold. 3 This paper considers what various jurisdictions are doing in regards the collection of VAT/GST in the areas that are the greatest challenge for administrators and also for foreign suppliers impacted by the various recommended or possible approaches. Areas focused on this paper: Collecting VAT/GST from foreign based suppliers 4 Scope and thresholds Base and characterisations Role of intermediaries Taxing decisions relevant to customer status and customer location International cooperation 5 Taxing the supplies of low value imported goods (13/8/2016) 2 OECD (2015), Addressing the Tax Challenges of the Digital Economy, Action Final Report, OECD Publishing, Paris. DOI: (13/8/2016) 3 Ibid, paragraph 333 includes a summary of the conclusions and Annex C is the full report covering The Collection of VAT/GST on the import of low value goods. 4 Scope and thresholds, and base and characterisations are covered by Josephine Drum (ATO), role of intermediaries and taxing decisions are covered by Suzanne Kneen (PWC) 5 Covered by Josephine Drum (ATO) 6 Covered by Suzanne Kneen (PWC) Josephine Drum (ATO) & Suzanne Kneen (PwC)

5 2 Collecting VAT/GST from foreign based suppliers The main aim of a VAT/GST is to impose a broad-based tax on final consumption by households. 7 Under the destination principle internationally traded services and intangibles should be taxed according to the rules of the jurisdiction of consumption. 8 Under a value added tax, the GST/VAT is normally collected from business suppliers through a staged collected process but the tax, in principle is not borne by businesses. 9 All this makes sense from a policy perspective. However, implementing these principles, in a crossborder context if the supplier is not located in the jurisdiction of consumption, is an enormous challenge for both businesses and administrators. The spectrum of issues is constantly raised: Local businesses are concerned about the lack of level playing field between local businesses and foreign businesses who make supplies to the same customer - both supplies should include a consumption tax; Foreign businesses are concerned about their ability to comply if VAT/GST was imposed given the enormous burden on foreign suppliers in understanding local rules in a large number of jurisdictions; and jurisdictions concerned about the level of revenue forgone given the growth of cross-border supplies particularly within the Digital economy whilst weighing up their ability to collect from foreign suppliers. Foreign suppliers having access to a simplified registration and compliance regime and International cooperation are key areas in implementing the taxation of cross-border business to consumer supplies. Within the International VAT/GST Guidelines the main features of a simplified registration and compliance regime for non-resident suppliers was considered. 10 This paper considers some of those features but also points out that some of the policy decisions of how to implement a simplified registration and compliance regime can vary a great deal depending on aspects of a jurisdiction s starting position that may not initially change upon implementation of a foreign supplier collection system. 7 Refer paragraph 2.1 of the OECD International VAT/GST Guidelines, published 6 November Ibid page 24 9 Ibid paragraph 8, page Ibid Josephine Drum (ATO) & Suzanne Kneen (PwC)

6 2.1 Scope The scope of a simplified registration and compliance regime for remote suppliers considers the following: Which suppliers; What supplies can be accounted for within this system; and Integrity and compliance issues Which suppliers The simplified registration and compliance regime is targeted at suppliers that are not located in the jurisdiction of consumption. Typically they will be suppliers that are less likely to be seeking GST/VAT credits. Businesses that carry on their enterprise outside the jurisdiction of consumption usually only need the ability to claim GST/VAT credits in jurisdictions in which they operate. Remotely based suppliers who are required to register and account for GST/VAT for supplies in the jurisdiction of consumption are unlikely to be disadvantaged by registering in a pay only regime that offers a greater level of simplicity. Australia Non-resident suppliers who make at least one inbound intangible consumer supply (remote supply) have a choice of full registration or limited registration. Limited registration is Australia s version of the simplified registration and compliance regime for non-resident suppliers. Registration in Australia is one of the elements of whether a supply is a taxable supply. Therefore once registered under either full registration or limited registration all supplies made that satisfy all the other elements of a taxable supply will be a taxable supply. For example if a non-resident supplier who predominantly supplies remote supplies make one supply of goods that has the relevant connection with Australia then that supply of goods will be a taxable supply and can be accounted for under the limited registration system. New Zealand New Zealand s simplified registration and compliance is very similar to Australia and can be accessed by non-resident suppliers. Under New Zealand GST law the term non-resident does not include entities that carry on a taxable activity from a fixed or permanent place in New Zealand. 11 Whereas non-residents in 11 In New Zealand you are a resident for GST purposes if you carry on a taxable activity from a fixed or permanent place in New Zealand (13/8/2016) Josephine Drum (ATO) & Suzanne Kneen (PwC)

7 Australia might carry on activities in Australia through a fixed place of business. This difference is unlikely to make a practical difference as non-residents with a fixed place of business in Australia are more likely to choose full registration to access GST credits. New Zealand s simplified registration and compliance system is similar to their full registration system but for access to GST credits and fewer labels on their GST return. It s interesting to note that whilst New Zealand GST law changes to impose GST on remote supplies into New Zealand applies from 1 October 2016 their simplified registration and compliance regime is offered from 1 April United Kingdom Businesses not established (reside or incorporated) in the UK nor have a fixed establishment are entitled to register for the EU simplified registration and compliance system that is referred to as the mini-one-stop shop (MOSS). MOSS is a regional approach. It is a scheme that allows suppliers to avoid registering in each Member state of consumption. Registration in one EU member state allows the reporting of VAT on all supplies to every EU member state on the one VAT return. 13 The jurisdiction who receives the VAT return then redistributes the VAT to the member state of consumption. In contrast to Australia, registration in the EU s simplified registration and compliance system does not impact how other supplies not covered by that regime are treated for VAT purposes. Non-UK small and micro businesses, who do not supply through platforms, that supply digital supplies to final consumers who reside in the UK are required to register in UK s domestic registration system or in the EU s MOSS scheme within the member state that they are established or have a fixed establishment. Registration in the MOSS does not impact on whether other supplies not covered by the MOSS are subject to VAT. For example a business that supplies goods into the UK but is not above the distance sales threshold is not treated as being registered if they are registered under MOSS May 2016, A special report from Policy and Strategy, Inland Revenue, New Zealand: Special report on GST on cross-border supplies of remote services (13/8/2016) 13 European Commission, Brussels 23 October 2013, Guide to the Mini One stop shop: 14 :HM Revenue & Customs, published: 1 July 2014: VAT: what to do if you re an overseas business selling goods in the UK, (13/8/2016) Josephine Drum (ATO) & Suzanne Kneen (PwC)

8 Table 1: Registration Thresholds Summary Table by Country Country Cross-border Threshold Domestic Threshold Australia A$75,000 A$75,000 Japan 10 million Yen 15 (A$130,000) 10 million Yen (A$130,000) New Zealand NZ$60,000 (A$57,000) NZ$60,000 (A$57,000) United Kingdom Zero for electronic 70,000 (A$121,000) for distant sales of goods 16 81,000 A$140,500 South Africa ZAR 50,000 (A$4,500) ZAR 1mill (A$92,000) and voluntary above ZAR 50,000 (A$4,500) Policy considerations for jurisdictions deciding on an appropriate registration threshold for remote supplier include minimising: compliance burdens for non-resident suppliers; administration costs of detecting and seeking compliance as a proportion of total revenue gained; and competitive distortion between supplies by foreign and domestic suppliers to customers in the same jurisdiction. Many jurisdictions have implemented a threshold for supplies into the jurisdiction of consumption below which non-resident suppliers are relieved of any obligation to collect and remit tax in that jurisdiction. However, another way jurisdictions minimise the number of registrants is by requiring certain intermediaries to collect and remit tax on behalf of the actual supplier (discussed below by Suzanne Kneen). The EU has a zero remote supplier threshold for telecommunication, broadcasting and electronic services (TBE supplies). Small and micro businesses within the UK have been highly critical of this threshold due to the costs of complying. However, even a UK policy change on this threshold post Brexit will not assist. UK businesses will want the EU, as opposed to the UK, to increase the remote supplier threshold above zero. It is difficult to see that happening UK distant sale of goods rules (13/8/216). Note if distant sales not met then goods are subject to VAT in jurisdiction of the EU supplier. Josephine Drum (ATO) & Suzanne Kneen (PwC)

9 2.1.2 What supplies can be accounted for within this system Character of the supply The approach taken in a jurisdiction in implementing the destination principle seems to be influencing the type of supplies a foreign registration and compliance system should or could include. A simplified registration and compliance system is aimed at a supplier that does not practically have a presence in the jurisdiction of consumption. Many of these non-resident suppliers could supply goods, on-the spot services (through a subcontractor) or remote services. If the consequence of registration has an impact on other types of supplies made by the non-resident then the registration systems offered should have a certain amount of flexibility in terms of what supplies can be accounted for. Australia - a broad approach In Australia all types of supplies can be accounted for in the limited registration system but at least one supply needs to be an inbound intangible consumer supply (remote supply). An inbound intangible consumer supply is a supply: to an Australian consumer (resident and not GST registered); and not wholly performed in Australia; and not made wholly through an enterprise the supplier carries on in Australia (a business presence in Australia with employees or agents). Most other countries - a targeted approach For most countries including all EU member states, Japan, and South Africa have a more targeted approach in only including remote electronic supplies in their simplified registration and compliance non-resident regimes. The targeted approach Policy considerations Currently the targeted approach has generally been used by jurisdictions that have not fully implemented Guidelines 3.5 (on-the-spot supplies) or 3.6 (remote supplies) 17 and also jurisdictions in which the place of performance test has a very limited role. Under the targeted approach generally jurisdictions have only aligned with the place of taxation rules under the Guidelines where the revenue risk of not doing so is substantial. As such, for these jurisdictions the targeted approach of only applying the simplified regime to digital supplies is more a reflection of the fact that these supplies are generally the only supplies a foreign supplier is accountable for in that jurisdiction Josephine Drum (ATO) & Suzanne Kneen (PwC)

10 The consequences of a targeted approach include: Definitional issues - remote supplies that do not fall within the electronic service definitions may not be taxed in jurisdiction of consumption if the supplier and customer are based in two different jurisdictions. Under EU rules the place of taxation for an on-line education course with a live lecturer supplied by a UK training entity would be the UK and not in France where the student resides. Less guidance needed if the consequence of a different characterisation is no different. However, in many instances services that require human intervention such as cleaning and legal services the customer and the supplier are located in the same jurisdiction and therefore using the supplier or the customer as the proxy for determining the place of consumption may produce the same result. Distinction between B2B and B2C Generally under the simplified registration and compliance regimes supplies made to businesses by non-resident supplies are not accounted for by supplier. There are a number of reasons for this and the most commonly cited reasons include: Non-resident supplier will have no need to issue tax invoices. Reduce the risk to revenue of non-collection of VAT/GST from the non-resident supplier in instances the recipient is seeking a VAT/GST credit on the uncollected GST/VAT. Collecting the GST/VAT through the recipient via reverse charge is more administratively efficient as it is far easier to seek compliance from an entity within your jurisdiction that is already required to account for GST/VAT. The following table is a summary of whether some countries allow supplies made to businesses to be accounted from by the non-resident supplier under the simplified scheme. Josephine Drum (ATO) & Suzanne Kneen (PwC)

11 Table 2: B2B and B2C distinction Summary Table by Country Country B2B & B2C If a distinction then who are final consumers Australia B2C only Individuals & unregistered enterprises Japan New Zealand B2C demarcation is via type of supply Mainly B2C but B2B also up to $1,000 Individuals that are not a Japanese business Individuals & unregistered enterprises United Kingdom B2C Individuals & exempt enterprises South Africa Both N/A Australia Does not require supplies of services, rights and digital products to resident GST registered businesses to be accounted for by the supplier. However if a supplier treats a supply as being made to an Australian consumer then the supply will be treated as being a taxable supply up to the point the recipient is reimbursed. 18 Japan 19 Japan s domestic GST/VAT system does not require registration as such Japan needed to design its cross-border taxation of electronic services in a different way. Japan has introduced a GST registration system for foreign suppliers of B2C electronic services. B2C electronic services are supplies typically supplied to private consumers. Even if these supplies are supplied to Japanese businesses the non-resident supplier will be making a taxable supply. Business recipients of these B2C electronic services will be entitled to GST credits if they acquire the supply from a registered non-resident supplier. Japan has a public register of non-resident suppliers registered under their cross-border registration system. At the same time as Japan introduced the taxation of cross-border B2C electronic services, Japan also introduced reverse charge rules for cross-border B2B electronic services. Foreign businesses providing cross-border B2B electronic services are required to notify the recipient beforehand that the 18 This is a result of section of the GST Act (13/8/2016) Josephine Drum (ATO) & Suzanne Kneen (PwC)

12 transaction is subject to reverse charge. Cross-border B2B electronic services are cross-border services normally limited to businesses. New Zealand New Zealand is very similar to Australia. However, if the payment for the supply (including GST) is NZ$1,000 or less, and the non-resident supplier has treated the supply to a GST registered business as a taxable supply the non-resident supplier will have the option to provide a tax invoice to the purchaser to allow them to claim a deduction, rather than to refund the GST charged and make the necessary adjustment in their GST return Integrity and compliance issues relevant to scope Table 3: Access to Credits and Tax Invoice Requirements Summary Table by Country Country UK (EU MOSS) New Zealand South Africa Japan Simplified Registration (supplier) No access to credits No access to credits Access credits No access to credits Access to full registration Yes but not both Yes but not both Same system Tax invoice No No Specific rules Required but generally not a requirement for domestic rules. Australia Non-resident suppliers who make one inbound intangible consumer supply (remote supply) can: Register through a limited registration system which will mean: No access to GST credits as this type of registration is a pay-only system Minimal upfront proof of identity will be required The GST returns will be quarterly and fewer labels will be required Registrant supplier will not be given an ABN therefore not be capable of issuing a valid tax invoice Register under the current registration system which means: 20 Page 3, May 2016, A special report from Policy and Strategy, Inland Revenue, New Zealand: Special report on GST on cross-border supplies of remote services (13/8/2016) Josephine Drum (ATO) & Suzanne Kneen (PwC)

13 more stringent proof of identification for both the entity and office holders access to GST credits for larger suppliers with a turnover of A$20million they will need to lodge GST returns monthly If a limited registration entity wishes to switch over to full registration, they can then claim the input tax they incurred for up to two financial years prior to entering the standard registration system if they were registered under the limited registration scheme. Recipients of non-resident suppliers Generally recipients will have no access to GST credits for supplies by limited registration supplier who incorrectly treat a supply as a taxable supply. However, if the cost of the supply is A$82.50 or less, the recipient business is allowed to claim GST/VAT credit (if for a creditable purpose) without a tax invoice if the recipient is satisfied GST was included in the price paid. In other situations the recipient will need to seek a reimbursement from the supplier. Proof of identity Many jurisdictions around the world are taking notice of the Guidelines in limiting the details required for a pay only registration system and minimising the level of proof of these details. Australia will also relax its proof of identity procedures for limited registration entities as the risk to revenue is reduced if suppliers cannot access GST credits and recipients of these suppliers will generally not be entitled to GST credits on supplies from limited registration entities. Although not finalised the following details are likely to be requested when a non-resident elects to register for the limited registration system: Name Address Phone URLs/company website type of supplies (intangibles, low value goods or both) Authorised persons name and contact details Overseas Tax Identification Number (TIN) Josephine Drum (ATO) & Suzanne Kneen (PwC)

14 Tax invoice As discussed in the International VAT/GST Guidelines, invoicing requirements for VAT/GST purposes can be one of the most burdensome responsibilities for businesses to comply with. 21 This is particularly an issue for non-resident suppliers whose systems are in a different language, currency and are already compliant with their own domestic rules. The Guidelines encourage jurisdictions to eliminate invoice requirements for business-to-consumer supplies that are covered by the simplified registration and compliance regime. In Australian limited registration entities will not be eligible for an ABN as such will not be capable of issuing a valid tax invoice. Whilst the EU directives do not demand the issuing of tax invoices by foreign supplies of electronic services each country is entitled to decide. Many EU countries do require suppliers to issue tax invoices. In New Zealand tax invoices for remote supplies will not be required. However as mentioned above for supplies below $1,000 made to registered enterprises the recipient can request a tax invoice instead of seeking a reimbursement if supply was incorrectly treated as a taxable supply. 2.2 Base and characterisations One of the aims of the International VAT/GST Guidelines is greater consistency in countries applying place of taxation rules. The more jurisdictions that follow the International VAT/GST Guidelines the reduced likelihood of double taxation or unintended non-taxation. However, differences will still occur between how jurisdictions implement the Guidelines. If a certain type of supply has a different outcome then characterisation of that supply is extremely important. This part discusses some complexities a foreign supplier faces beyond determining the place of taxation Definitional issues Under scope I discussed the broad and targeted approach to what supplies can fall under a foreign supplier simplified registration and compliance regime. Definitional issues however are often more prominent in determining what supplies are within scope of a jurisdiction s law, or what rate to apply or if a special rule applies to tax that supply in a different way. Payment processing charges Within the UK (and other EU member states) a payment processing charge by a credit card issuer to a merchant is an exempt supply (equivalent of an input taxed supply). 22 In Australia this same supply is not an input taxed supply. Both administrations characterise the additional payment a retailer may 21 See paragraph (13/8/ See paragraph Josephine Drum (ATO) & Suzanne Kneen (PwC)

15 charge if customers opts to pay by credit as additional consideration for customer s purchase of goods and services. 23 However, where intermediaries are involved the lines can be blurred. The supplies of payment processing services (often also referred to a card handling fees) through intermediaries who process the underlying merchant s transaction have argued in the UK that their services are exempt. Despite arguments by intermediaries recent European court decisions have restricted the payment processing exemption essentially to issuers of the credit or debit facilities. 24 Gambling supplies For Gambling suppliers the requirement to understand and comply with various laws will be a burden. Many jurisdictions approach the taxation of gambling supplies in different ways. Both New Zealand and Australia needed to amend their special rules for gambling supplies to take into account gambling supplies by foreign suppliers being brought into the scope of GST. In New Zealand non-resident gambling suppliers need to return GST on the difference between amounts received from New Zealand residents (wagered amounts) less amounts paid out to New Zealand residents (prize money). Additionally a special rule allows losses derived from one taxable period to be used to offset positive amounts from subsequent taxable periods. 25 In Australia the calculation of GST on gambling supplies has a similar approach to New Zealand but an additional change was required to bring into the scope of GST law supplies to professional resident gamblers given recipients of a gambling supplies are not entitled to an input taxed credits and reverse charge rules would not be applicable. 26 In the UK gambling supplies are VAT exempt. 27 However gambling suppliers supplying to people residing in the UK are subject to a UK gambling tax. The UK law is a discreet tax on gambling and was introduced in December The amount of tax payable appears to have a similar calculation to how the GST on Gambling supplies is calculated in Australia for GST purposes. The tax rate on the margin however, can vary between 15 and 50% of the margin depending on a turnover level. All jurisdictions try to distinguish between games of chance (gambling) and competitions that involve skill (not gambling). 23 UK, see paragraph Australia see paragraph 8, GSTR 2014/2 Goods and services tax: treatment of ATM service fees, credit card surcharges and debit card surcharges, 24 See European Cases, Bookit Ltd (Case C-607/14) and National Exhibition Centre Ltd (Case C-130/15) that have overturned Bookit Ltd [2006] EWCA Civ 550 that supplies of card handling services were VAT exempt. 25 Page 4, May 2016, A special report from Policy and Strategy, Inland Revenue, New Zealand: Special report on GST on cross-border supplies of remote services (13/8/2016) 26 Refer section of the GST Act for when recipient are ineligible to a GST credit and new of the GST Act for supplies of gambling supplies to Australian residents being connected with the indirect tax zone regardless of whether recipient is GST registered. See GST law as passed by parliament in May Refer VAT Notice 701/29: betting, gaming and lotteries betting-gaming-and-lotteries/vat-notice betting-gaming-and-lotteries Josephine Drum (ATO) & Suzanne Kneen (PwC)

16 Vouchers or supplies of the underlying thing Many jurisdictions have special rules for vouchers. Understanding these various rules whilst also understanding how these rules are impacted by the cross-border business-to-consumer changes is important. Face Value vouchers In Australia vouchers that can be redeemed for goods and services up to a particular value (face value vouchers) are generally taxed upon redemption (if redeemed for a taxable supply) 28 or if not redeemed prior to date of expiry then the consideration for the voucher is treated as being for an increasing adjustment in the period the voucher expired. 29 This delayed attribution rule was an important reason why the issuer of face value vouchers would not fall under the electronic distribution platform definition. The carve out in the electronic distribution platform definition of face value vouchers puts beyond doubt that the operator of a platform is not liable for any GST upon redemption of the voucher if the voucher issued through their platform. Vouchers or supplies of the underlying thing Australia has a number of provisions that assist in treating the supply of rights to an underlying thing as being characterised in the same way as the underlying thing. 30 However in a cross-border supply the GST Act does not always give the same GST outcome for supplies of rights to a thing compared to the supply of the thing. 31 The amendments to the GST Act as passed in May 2016 have aligned the supply of rights to things other than goods or real property that are supplied to an Australian consumer as having the same GST outcome as characterising the supply as the supply of the thing in terms of what supplies are counted in determining if a supplier is required to register. With these changes supplies connected with Australia under both the new paragraph 9-25(5)(d) and paragraph 9-25(5)(c) will have the same GST outcome Role of intermediaries One of the key features in the use of the internet by consumers to buy goods and services has been the emergence of a number of large electronic markets and stores. The operators of these platforms allow other entities to make supplies through the store or market to consumers. 28 See section of the GST Act 29 See section of the GST Act. 30 For example under subsection 9-30(1) a supply of a right to receive a supply that would be GST-free is a GST-free supply. 31 Prior to 1/7/2017 supplies that are only connected with the in direct tax zone (Australia) because of paragraph 9-25(5)(c) are not counted in determining if a supplier is required to register as these supplies are ignored under paragraph (3)(b) and (3)(b). 32 See the amended paragraph (3)(b) for GST law as passed by parliament in May Josephine Drum (ATO) & Suzanne Kneen (PwC)

17 One area of inconsistency across jurisdictions is the application of the B2C digital supplies laws to intermediaries. For the purposes of the discussion below, rather than focusing on a discussion about who is the supplier which can involve detailed contractual, commercial, legal analysis, below is a focus on the critical issue is which entity is treated as the supplier from a VAT/GST perspective. This can involve a number of practical issues. The issues that need to be considered include: When should an intermediary be treated as the supplier What happens if there is more than one intermediary How are supplies/acquisitions between the supplier and the intermediary treated Do the broader GST/VAT rules apply to the intermediary in the same way How do intermediary rules apply where there is a domestic supplier making supplies through a non-domestic intermediary? Set out below is an overview of how the intermediary provisions work in a number of jurisdictions and then a discussion on the Australian rules and the potential practical issues with our provisions New Zealand When a supply of remote services is made through a non-resident operator of an electronic marketplace to a person resident in New Zealand, the operator of the marketplace will be treated as making the supply in the course or furtherance of their taxable activity. However, the operator of the electronic marketplace will not be considered to have made the supply if they do not control any of the key elements of the supply, and the liability of the underlying supplier is made clear in the documentation relating to the transaction. Accordingly, the non-resident operator of an electronic marketplace will be the supplier, unless all of the following conditions are satisfied: the electronic marketplace does not authorise the charge to the recipient, or authorise the delivery of the supply, or set the terms and conditions under which the supply is made; the documentation provided to the recipient identifies the supply as made by the underlying supplier and not the marketplace; and the underlying supplier and the operator of the marketplace have agreed in writing that the supplier is liable for GST. As a result of being treated as making the supply, the operator of the electronic marketplace will be responsible for accounting for GST. The operator of the electronic marketplace will include these supplies in their turnover for the purpose of determining whether the registration threshold is exceeded and, if it is exceeded, will be liable for the GST. The operator will make any adjustments arising from the supply, for example, when GST is refunded to a GST-registered business. A specific rule is therefore proposed to treat the supply of remote services as two separate supplies a supply of services from the underlying supplier to the operator, and a supply of those services from Josephine Drum (ATO) & Suzanne Kneen (PwC)

18 the operator of the marketplace to the recipient. The first supply to the marketplace is likely to be zerorated under the existing provisions as the supply is to a non-resident outside New Zealand. This will generally enable the resident underlying supplier to recover the GST costs incurred in making the supply EU Article 28 of Directive 2006/112/EC ( the VAT Directive ) states: Where a taxable person acting in his own name but on behalf of another person takes part in a supply of services, he shall be deemed to have received and supplied those services himself. As part of the 2015 changes, it was felt necessary to be much more prescriptive as to the application of the above in the context of electronically supplied services. The explanatory notes set out the following: Supply chains are often long and can stretch across borders. Where that is the case, it can be difficult to know when the services are finally supplied to a final consumer, and who is responsible for the VAT on that supply. To provide legal certainty for all parties involved and to ensure collection of the tax, it was necessary to define who in the chain must be seen as the supplier of the service to the final consumer. New Article 9(a) was introduced and designed to provide certainty by: introducing a presumption to determine which party is making the supply, providing the means to rebut this presumption, and indicating when the presumption cannot be applied. The article introduces the following presumption in the context of the supply of electronically supplied services or internet telephone services provided through a telecommunications network, interface or portal: "a taxable person taking part in that supply is acting in his own name but on behalf of the provider of those services". As a result of the presumption, for each transaction in the chain, each taxable person is deemed to have received and on sold the electronic supply himself. This new Article 9(a) has been arguably one of the most problematic provisions to have agreed by all Member States. Article 9a will apply to an intermediary if: the underlying supplies made via its marketplace are electronically supplied services; and the intermediary is taking part in the supply; and it does more than merely process the payments of buyers; and Josephine Drum (ATO) & Suzanne Kneen (PwC)

19 it sanctions the charge to the buyer, sanctions the delivery of the services or sets the general terms and conditions of the supply, Norway In Norway, intermediaries involved in marketplaces for the supply of services are required to register for VAT. Where an intermediary is used to deliver services in a B2C supply, the intermediary is taken to be the supplier. The Value Added Tax Act specifies that where an intermediary is the entity responsible for the delivery of the services and collecting payment for those services they will be required to register under the VAT Register in place of the original supplier of the services Japan In Japan. In the case of intermediaries, the consumption tax must still be collected and remitted by the offshore supplier rather than the relevant intermediary South Africa The South African Revenue Service (SARS) has stated that where an intermediary is registered for VAT in South Africa, the foreign service supplier is not required to register. This is on the proviso that there is an agreement between the supplier and intermediary for the intermediary to account for VAT and pay it directly to SARS. In the absence of this, the supplier will be required to register for VAT where they exceed the supply threshold Russia The new digital supply measures (1 January 2017) will apply to intermediaries. Where there are several intermediaries, the one involved in the settlement with the final customer is required to account for VAT. Where a Russian intermediary is involved in the supply chain, this entity would be required to act as tax agent for the foreign suppliers or foreign intermediaries Australia Electronic Distribution Platform Where a supply that is connected with Australia, is made through such an electronic distribution platform (EDP), it was determined that compliance and administration can be simplified if liability for GST rests on the EDP rather than the supplier. Therefore, the provisions shifts responsibility for the GST liability from a supplier to the operator of the EDP. Both Australian residents and non-residents can be the operator of an EDP. Where the operator of the EDP is not liable under the provisions, they can agree with their suppliers to account for the GST for these other supplies. For the avoidance of doubt, the amendments specifically identify several types of services that on their own are not EDP. These excluded services include: Josephine Drum (ATO) & Suzanne Kneen (PwC)

20 carriage services, such as those provided by internet service providers (ISPs) and telecommunications companies; access to payment systems or payment processing services; and supplies of vouchers which are not taxable supplies as a result of section A supply that is not an inbound intangible consumer supply can still be subject to the platform rules if: it is made through an EDP; the operator and the supplier have agreed in writing that the operator will be liable for the GST on the supply; the operator is registered for GST; and the supply is not an ineligible supply. This rule allows suppliers and operators to jointly agree for the rules to apply more widely where this is more convenient or commercially desirable for the parties. This extension of the EDP rules means that the rules can potentially apply to supplies between principals and intermediaries to which Subdivision 153-B of the GST Act could also apply. As both Subdivision 153-B and these amendments change the entity that is liable for GST on a supply, there would be a conflict if both were to apply to the same supply. To prevent this issue from arising, to the extent that the EDP and the supplier agree that the EDP will account for GST on the supplies, Subdivision 153-B cannot apply in relation to that supply. For inbound intangible consumer supplies and other eligible supplies made through an EDP: the operator of an EDP is treated as the supplier; the supply is treated as having been made through an enterprise the operator carries on; and the supply is treated as having been made for the same consideration for which the supply was made by the actual supplier. Unlike other jurisdictions (EU & NZ) Australia has not changed the any of the rules relating to the transactions between the actual supplier and the EDP eg it does not deem a supply by the supplier to the EDP. As the operator of the EDP is treated as the supplier, all of the provisions of the GST Act that would apply to the supplier generally now apply to the EDP in respect of the supply. This means that, for example, if the operator has undertaken reasonable steps to determine if the recipient of the supply is an Australian consumer and reasonably believes they are not an Australian consumer, then the GST law provides the operator with the same protection as it provides to suppliers. The provisions do not modify the general GST registration rules as they apply to EDPs. Consistent with these rules, operators are required to register if their GST turnover (including both their own supplies and those supplies they are treated as having made) reaches or exceeds $75,000. Josephine Drum (ATO) & Suzanne Kneen (PwC)

21 In some cases, a supply may be made through multiple EDPs. In this case it is not intended that all of the operators become liable for the GST on the supply. The provisions provide for a hierarchy as follows: the operators may agree in writing which operator will be treated as making the supply and liable to pay GST. The Commissioner determine can determine which EDP will be liable. In the event there is not agreement between the operators, the amendments prescribe default rules. Generally, it will be the first operator to authorise a charge or receive any of the consideration for the supply that is treated as making the supply. If none of the operators meet this requirement, it is the first operator to authorise the delivery of the supply that is liable. It is likely that there will be a number of issues during implementation in relation to these tiebreaker provisions. The ATO has indicated that it will publish a number of examples in its guidance to help taxpayers determine the application of the electronic distribution platform provisions. While the EM states that the EDP rules are largely consistent with the models applied in the European Union and Norway, there are some differences noted above, most notably the EU deems a back-toback transaction to take place to the intermediary by the principal, and a corresponding transaction to the end consumer. The can be contrasted with the approach in Australia, where rather than deeming a transaction, the liability is shifted to the EDP. In Australia, in addition to the new EDP rules, intermediaries have a number of provisions that they need to consider. For example, under Division 57 of the GST Act an agent acting for a non-resident supplier, is liable to account for GST on the supply made by the non-resident. The resident agent is required to be registered if the non-resident is registered or required to be registered. It is possible that an Australian resident EDP is also a Division 57 agent for a non-resident supplier. EDP provisions will only apply where supplies are made to Australian consumers. Division 57 applies to any supplies. Division 57 will apply where the non-resident supplier is registered or required to be while the EDP provisions consider the threshold of the EDP. Under the EDP provisions, parties can opt in to these rules which will be particularly helpful where an EDP is a marketplace for both resident and non-resident suppliers. Division 153B is a further provision for intermediaries and agents. The provisions set out that parties cannot opt in to the EDP provisions if a Division 153B is in place. Unlike the EDP provisions, Division 153B arrangements deem a transaction between the parties. Therefore if you are an EDP with some Division 153B agreements in place, these will need to be treated differently from a systems perspective. As shown above, it is possible that multiple intermediary provisions can apply to an intermediary (ie different types of suppliers, different customers, parties wanting to opt in/opt out) and on top of that Josephine Drum (ATO) & Suzanne Kneen (PwC)

22 there could be multiple intermediaries in the supply chain making less clear which entity is responsible for GST. All of these issues add to the complexities. 2.4 Taxing decisions relevant to customer status and customer location The essential aspect of the approach to taxing intangibles is the customer location/jurisdiction. Therefore, to determine the appropriate GST/VAT rate to apply and relevant rules it is essential to determine the location of the customer. This is an area which has caused significant difficulties for some businesses in other jurisdictions. The decision about whether a supply is subject to tax in a jurisdiction considers the nature of the supply (as covered above) but also the customer location and status. The framework for determining these rules include considered some of the below. Increasing certainty/consistency Balancing flexibility with certainty and consistency Reduce the possibility of fraud Easier for suppliers to implement Monitoring technology and business developments It is also necessary to consider the implications of the wrong decision on the status and residence of the customer. Josephine Drum (ATO) & Suzanne Kneen (PwC)

23 2.4.1 EU The digital services provisions apply only to supplies to private consumers. If the customer provides the supplier with a valid VAT Registration Number (VRN) then the transaction should be treated as B2B. The VRN can be validated against the VIES website. 33 If the customer claims they are in business but not registered because they are, for example, below the member state s VAT registration threshold the supplier can accept other evidence of the customer s business status (e.g. link to the business website or other commercial documents). It is up to the supplier to accept other evidence that a customer is in business and a customer cannot require a supplier to treat a supply as B2B where they have not provided a valid VRN. 34 Some EU member states take a more prescriptive view, for example only accepting a VAT number as evidence of the customer s business status. The EU provisions require identifying where each customer belongs. The EU applies certain presumptions where, if applicable, suppliers do not need to know the location of the customer. For example where digital services are acquired through a telephone box, telephone kiosk or Wi-Fi hot spot then VAT is due where those places are actually located. Where presumptions do not apply there is a need to obtain two pieces of non-contradictory information to support and evidence the member state where the customer is located. In particular, information which can serve as evidence includes: a) the billing address of the customer; b) the internet Protocol (IP) address of the device used by the customer or any method of geolocation; c) bank details such as the location of the bank account used for payment or the billing d) address of the customer held by that bank; e) the Mobile Country Code (MCC) of the International Mobile Subscriber Identity (IMSI); f) stored on the Subscriber Identity Module (SIM) card used by the customer; g) the location of the customer s fixed land line through which the service is supplied to him; h) other commercially relevant information. Commercially relevant information is a wide definition and potentially encompasses evidence from a variety of sources - without any particular emphasis on the quality nor accuracy of the information. Some other examples depending on the business operations that could be used as commercially relevant information are: unique payment mechanisms i.e. that can only be used in one country; 33 European Commission, VIES VAT number validation, (link valid on 24 August 2015) 34 Refer to HM Revenue & Customs Guidance VAT: businesses supplying digital services to private consumers, updated 24 March (link valid on 24 August 2015) Josephine Drum (ATO) & Suzanne Kneen (PwC)