In recent months, multiple jurisdictions have issued guidance regarding the taxability of digital streaming services. These developments signify a growing trend by states to address whether and how such products and services should be taxed. Similar to other trending areas, such as Software as a Service (SaaS), states and cities must initially determine how to classify digital streaming based on existing state and local tax rules. As the following recent developments illustrate, companies offering digital streaming services, as well as consumers of such services, should be aware of the potential for divergent tax determinations across the different states. Find out more
We reported in our initial post on the South Korean VAT rule changes regarding the supply of electronic services by non-established service providers (effective from 1 July 2015), that the legislation subjected both B2B and B2C supplies to VAT under the new rules. There has been controversy whether the legislation really intended to apply the same treatment to B2B supplies, as to B2C.
The recently submitted Korean tax reform proposal for 2015 brings clarity in this regard by inserting a provision that B2B supplies of electronic services (as defined) will not be subject to the new VAT rules and they remain taxable by Korean business customers under the reverse charge mechanism.
The Australian Federal Treasurer announced yesterday that it will be discussing GST measures with State Treasurers today with a view to announcing changes to the Australian GST rules for online sales of goods into Australia. You may be aware that currently goods sold into Australia under A$1,000 (approx. USD 730) are not subject to GST or duty.
At this stage, we do not have any details of the precise changes, but on the basis of statements made by the Treasurer, it is assumed that the measures are likely to involve a requirement for a non-resident seller to register and account for GST on the sales of all goods into Australia. Such a change may not impact on the current import rules, potentially meaning that goods imported into Australia below the current A$1,000 low value threshold could continue to remain free of customs duties. Find out more
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.
Further to our previous posts on this topic (here, here and here) the Japanese National Tax Agency (NTA) published on-line its guide in English on the Japanese Consumption Tax (JCT) obligations on the cross-border supply of electronic services.
You can access the English version of the document intended for foreign businesses here. The NTA also published some further documents here on this topic, however please note that all these documents “are used only for explanations”.
The EU Commission recently updated its Taxation and Customs Union website, which now offers a way better overview. At first sight it also seems that you need to spend less time on researching the website for what you are looking for and it provides easier access to information. You can check the VAT section here, including a good repository of all documents relating to the B2C 2015 changes.
Further to our previous posts on this topic (here, here and here), the Japanese tax authorities recently issued a new Consumption Tax Law Basic Circular (Circular – in Japanese) as well as further guidance on electronically supplied services to provide further clarity on the Japanese Consumption Tax (JCT) impact of the new rules on an Offshore Business Person. In particular the leaflet further explains what is considered to be “B2C Telecommunication Online Services” (Links in Japanese for the leaflet for business customers and off-shore suppliers and to general Q&A).
The Israeli Tax Authorities (ITA) issued draft guidelines titled “Activities of Foreign Companies through the Internet” (hereafter the “Draft Circular”) for comments.
The purpose of the Draft Circular is twofold:
- To elaborate on when service income is generated by a foreign entity; in cases where the internet serves as a key tool for generating such service income, income would be regarded as generated by a permanent establishment (PE) of such an entity in Israel.
- To determine, if, and under what circumstances, a foreign entity, which provides services to Israeli customers through the internet, should register for Israeli VAT purposes.