Australia – GST treatment of cross-border transactions – GST changes to B2C and B2B supplies – new exposure draft released

Treasury has released a second exposure draft (ED) legislation on the Government’s integrity measures to extend the GST to imported digital products and other services. The ED also seeks comments on provisions to give effect to the announced measure relating to GST cross-border business to business transactions and the ‘connected with Australia’ rules.

Treasury has noted that as a result of feedback from consultation (including feedback from a number of international suppliers that have had experience in dealing with similar provisions in other jurisdictions), changes have been made to the content of the earlier exposure draft. This is especially in relation to the Australian Consumer test and also the operation of the intermediary provisions.
There is still an opportunity to make submissions on these measures and given that Treasury has appeared to take onboard a lot of the feedback obtained, impacted taxpayers should use this opportunity to make any further comments on the ED to Treasury by Wednesday 21 October 2015.

GST and imported digital products and other services

Broadly, by way of background, the Government announced that it would introduce measures that would require non-resident suppliers to register, collect and remit GST on the digital products and services that they provide to Australian consumers.

The key changes to the earlier exposure draft are broadly as follows:

  • The latest ED makes it clear that the same GST registration threshold will apply to all residents and non-residents. That is, A$75,000 for most entities and A$150,000 for non-profit entities.
  • The requirement to take ‘all reasonable steps’ in relation to determining whether a recipient is not an Australian consumer, has been changed to a requirement to take ‘reasonable steps’. There is also no requirement to collect additional data in relation to this test if that data provides you with a reasonable basis for forming a reasonable belief that the entity is not an Australian consumer. A belief will not be reasonable if the supplier does not collect an ABN (Australian Business Number) or a declaration that the customer is registered for GST.
  • The second iteration has removed references to whether a customer is ‘required to be registered’ for GST.
  • Changes to ensure that financial supplies that would be input taxed if made by an Australian entity remain input taxed and likewise some GST-free health and education supplies will also remain GST-free if made by a non-resident.
  • There will be no requirement to issue a tax invoice in relation to supplies caught by these provisions. This is an important administrative concession based on experience in other jurisdictions.
  • There has been a number of changes to the intermediary provisions mainly to clarify which entities will be liable. The terms “electronic distribution services” has been changed to ‘electronic distribution platform’ (EDP). The provisions now specifically exclude entities that merely facilitate electronic payments, provide for the transmission of communications or sell vouchers which are taxed on redemption in the definition of EDP. There is also now a tie breaker provision in situations where several EDPs could be liable.
  • Transitional rules have now been introduced. As a result, the portion of the supply taken to be made after 1 July 2017 will be subject to the proposed amendments in the same way as other supplies made at this time. There are also some “grandfathering provisions” where suppliers have entered into longer fixed terms agreements prior to the budget announcements. The rules will not apply to such grandfathered provisions until July 2019.

2. GST and B2B Cross border changes

These measures were previously announced as part of the Board of Taxation review of GST. The measure aims to reduce the number of non-resident suppliers in cross border business-to-business arrangements who are drawn into the GST system. Given these measures have not previously been publicly consulted on, the consultation period is quite short.

In summary, the measures:

  • Modify the test for when an entity is carrying on an enterprise in Australia.
  • The connected with Australia test will have a more limited application where supplies are made between businesses. The changes deal with both supplies between non-residents and between a non-resident and a resident entity. There are specific provisions dealing with the installation of goods and leases of goods between non-residents.
  • The above will result in a greater application of the reverse charge provisions to Australian businesses that acquire services for a non-creditable purpose
  • GST-free treatment may be available to supplies made by non-residents to other non-residents but provided to entities in Australia
  • Non-residents will no longer be required to register for GST if they only make GST-free supplies (this is a provision which may not have a huge practical impact as it is our experience that the Commissioner has not generally policed this requirement.
  • Changes to the calculation of the value of taxable importation by providing an uplift factor rather than requiring the actual value of transport etc to be included

For more information please click here or contact Suzi Russell-Gilford of PwC Australia 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.