As anticipated in our recent post tonight’s Budget announced new law in relation to the GST treatment of digital products and other services imported by Australian consumers, based on the OECD guidelines for the taxation of cross-border intangibles. The new law will apply to supplies made on or after 1 July 2017. The closing date for the submission of comments on the draft legislation is 7 July 2015, which does not give affected taxpayers long to consult on the process.
The new law effectively broadens the scope of the “connected with Australia” test to capture supplies of anything other than goods and real property supplied to an “Australian consumer”. An Australian consumer is broadly defined to be an Australian resident not carrying on a business.
There are provisions in place (based on a series of tests about the purchasing process) to shift the GST collection burden away from the supplier onto the intermediary in the supply chain (the “electronic distribution service”) which will capture most online marketplace arrangements. This collection mechanism will not apply where the supplier belongs in Australia or the service is performed wholly within Australia (e.g. a local haircut).
There will be a simplified GST registration process for affected suppliers.
Some initial observations include:
- An implementation date of 1 July 2017 may not give sufficient time for the requisite taxpayer systems changes.
- There are likely to be significant implementation issues regarding requesting information from customers about their Australian residency and GST registration status. Any extra steps in the online purchasing flow is likely to negatively impact the customer experience.
- The new GST law talks about taking ‘all reasonable steps to obtain information about whether or not the consumer is an Australian consumer’. This is going to be extremely hard to evidence without any guidelines on suitable proxies for ascertaining the residency status of the customer. The Australian Taxation Office (ATO) is expected to work with taxpayers in the lead-up to the new law to assist in this process and to gain an understanding as to what information businesses routinely collect from their customers in the course of their normal business activities.
- The EU experience of taxing intermediaries is that there has been widespread confusion as to the scenarios in which the primary supplier is liable for VAT and those in which the intermediary is liable.
The new rules are extremely broad in their interpretation in that they will cover supplies of digital products and other services imported by consumers, such as streaming or downloading of movies, music, apps, games, e-books as well as other services such as consultancy and professional services.
PwC has been consulting with Treasury in the lead-up to the introduction of the draft legislation. If you would like to hear more about these changes then please join our webcast on 14 May.