New Zealand – Taxing by the megabyte – proposed changes to the GST treatment of the digital economy

As widely anticipated, the Government of New Zealand has released a discussion document on the GST treatment of digital products and other services purchased online by New Zealand consumers. The analysis in the discussion document is based on the OECD guidelines for applying GST to cross-border services and intangibles (e.g. music, movie, and game downloads).

In relation to imported goods, the Government has indicated that various challenges exist to devising a solution for low value goods imports (covered by the current so-called $400 threshold or the minimum duties / taxes $60 concession). Although the goods solution is expected to take more time, work is progressing on a solution for collecting duty / GST on imported goods in the most efficient way.

According to PwC New Zealand the discussion document demonstrates that the Government and policy makers have a desire to keep the GST model current for the digital economy. This is in line with recent OECD guidelines and developments in Australia, Europe, Japan, South Korea, and South Africa. The document also addresses matters of sound tax policy, tax leakage (estimated at $180 million per annum and growing) and fairness. The measures will go a long way to ensuring that consumption in New Zealand is taxed in the same way as domestic purchases of goods and Services.

Key points of the document:

  • Services and intangibles supplied remotely by an offshore supplier to New Zealand-resident consumers will be treated as performed in New Zealand and therefore subject to GST.
  • Offshore suppliers will be required to register and return GST if their supplies of services to New Zealand-resident consumers exceed a given threshold in a 12-month period. Submissions are sought on the value of that threshold. There are pros and cons for a threshold lower than the current GST registration threshold of $60,000 per annum.
  • A wide definition of “services” is proposed, which includes both digital services and more traditional services.
  • In some situations, an electronic marketplace (or intermediary) may be required to register instead of the principal offshore supplier.The discussion document will affect many businesses and consumers.

We encourage interested parties to consider making submissions by the closing date of 25 September 2015.

For further information please contact Eugene Trombitas (Partner, PwC New Zealand) or me.

About Andras Salanki

Manager PwC Switzerland email: andras.salanki@ch.pwc.com Office: +41587924536

Andras Salanki is an international VAT advisor with 7 years of relevant professional experience. He spent one year on secondment in California, US, where he advised US multinationals on global VAT projects and also gained experience with IT and Internet companies based in the Silicon Valley.