26 June, 2017
New amendments to the GST law affecting foreign suppliers of intangible items and low value goods to take effect from 1 July 2017
What you need to know
From 1 July 2017, Australia's GST law will be broadened to capture supplies of intangible items from foreign suppliers to Australian "non-business" consumers. The amendments will be wide-reaching, with the potential to impact foreign suppliers of online content (eg movies, television shows, apps and music) and advisory and professional services (eg brokering, legal and financial advisory services) who make supplies to Australian based consumers and who otherwise have no business connection with Australia.
The GST law is also proposed to be amended with effect from 1 July 2018 to impose GST on supplies of low value goods (ie goods with a value of less than $1,000) from foreign suppliers to Australian consumers. Under the proposed amendments (which, at the time of writing this article, have not been passed as legislation), foreign suppliers (or deemed suppliers) of low value goods to Australian consumers may be required to register for, collect and remit GST on supplies of low value goods to Australian consumers.
There are a number of practical complexities and issues which are raised by these amendments, in particular, the need for foreign suppliers or deemed suppliers who meet the annual registration turnover threshold of A$75,000 or more to now register for Australian GST with the Australian Taxation Office (ATO).
What you need to do
Foreign suppliers of intangible items and low value goods to Australian consumers should determine whether they will be subject to the new provisions and, if so, take steps to register for Australian GST.
Foreign suppliers will also need to review their business systems and processes to ensure that they are capable of complying with the new information requirements in preparation for the start dates of 1 July 2017 and 1 July 2018.
Background
The reach of Australian GST on inbound supplies is set to expand considerably under new measures which commence from 1 July 2017 and 1 July 2018. There are two relevant aspects of the changes:
Foreign suppliers making supplies of intangible items (basically, anything other than real property or goods) to Australian "non-business" consumers may be required to register for, collect and remit Australian GST of 10% in respect of those supplies.
The supply of low value goods (ie where the value of the goods is less than A$1,000) from a foreign supplier (or deemed supplier) to Australian consumers will attract GST payable by the supplier.
Inbound supplies of intangibles
Currently, inbound supplies of things other than real property or goods generally only attract Australian GST where the supplier makes the supply through a business they carry on in Australia. This means, for example, a customer in Australia can download digital products from a supplier outside Australia without the supplier needing to register and remit any Australian GST.
Under the new provisions, GST will apply if all of the following requirements are met, even where the supplier has no presence in Australia:
- the customer is an Australian resident; and
- either;
- the customer is not registered for Australian GST; or
- if registered, the customer does not acquire the thing supplied for the purpose of a business they carry on (Australian consumers); and
- the supplier makes or expects to make supplies to Australian consumers with a value of approximately A$75,000 or more in any rolling 12 month period (which means that the supplier is required to register for Australian GST).
Responsibility for the GST liability may be shifted to the operator of an electronic distribution platform (EDP) if the supply is made though an EDP and the operator controls any of the key elements of the supply, such as price, terms and conditions or delivery arrangements. Operators and suppliers may also agree in writing that the operator will assume liability.
The complexities for foreign suppliers in applying these rules are obvious. Here are a few common questions and some guidance:
| How do suppliers identify whether the customer is an Australian resident? | The supplier can treat a supply as not made to an Australian consumer if the supplier has satisfied particular evidentiary requirements, and reasonably believes that the customer is not an Australian consumer. The ATO has sought to provide guidance on what steps a foreign supplier should take to establish whether a customer is an Australian resident in its draft public ruling GSTR 2016/D1. In particular, the ATO accepts that a supplier can satisfy the residency test relying on information gathered through existing business systems (such as address or credit card details) where these provide a reasonable basis for believing the customer is not a resident of Australia. |
| How do suppliers know if their customer is registered for Australian GST? | The ATO's view is that a supplier can only rely on this exception where the customer has disclosed an Australian Business Number (ABN) and provided a declaration or other information that indicates that they are registered for GST. An ABN alone is not sufficient as a customer can have an ABN and not be registered for GST. Suppliers can check a customer's ABN and whether they are registered for Australian GST on the public register at https://www.ato.gov.au/Newsroom/smallbusiness/GST-and-excise/Are-your-suppliers-registered-for-GST-/. However, the ATO view suggests that a supplier cannot rely on this information alone. |
| If the customer is registered for Australian GST, how do suppliers know if they will use the thing supplied in connection with their business? | GSTR 2016/D1 does not provide guidance on this test, other than to note that it would be unusual for a registered entity to make an acquisition for a purpose other than the enterprise carried on by it. Where the items supplied could be used for private or domestic purposes, a foreign supplier could consider seeking this information as part of the declaration referred to above. |
| If a foreign supplier becomes liable to register and pay GST, what is involved? |
Foreign suppliers can either register for GST under the normal rules (requiring monthly or quarterly lodgements) or can elect to adopt a simplified reporting method with a limited registration. Under a limited registration (which can be revoked by the supplier at any time), foreign suppliers are not entitled to claim back Australian GST on their acquisitions by way of input tax credits, are not entitled to an ABN, do not have their details recorded on the public ABN register and must lodge quarterly returns. No tax invoices or adjustment notes are required to be issued by foreign suppliers. |
| Can suppliers recover their GST liability on top of the price they charge to the customer? | No, unless the GST has been included in the price charged, or there is a contractual right to recover GST from the customer under the relevant terms and conditions, the supplier will need to absorb this cost. Suppliers who may be affected by these rules should check their standard terms and conditions and revise price lists as appropriate. |
| When do the provisions start? | The provisions apply to all supplies made on or after 1 July 2017 (including the component of a periodic supply that occurs on or after 1 July 2017), regardless of whether the supplier can recover the GST from Australian customers. |
Inbound supply of goods
The second measure involves a change in procedures for the importation of goods which are brought into Australia with the assistance of a supplier (or deemed supplier), with the removal of the low threshold value of A$1,000 from 1 July 2018.
Where the provisions apply, it will be the supplier (or deemed supplier) who will be liable to register and remit GST to the ATO. Operators of EDPs and re-deliverers will be deemed suppliers. To address the potential for double taxation, where the supplier (or deemed supplier) reasonably believes that GST will apply to the supply under the existing taxable importation rules, no GST will be payable by them.
In most cases the A$1,000 threshold is determined based on customs value, and on the basis of the value of each individual item in a single consignment. For example, if a consignment includes six items with a customs value of A$200 each, the low value threshold will apply even though the total customs value of the consignment exceeds A$1,000. Where any individual item in a consignment has a customs value in excess of A$1,000, it will be treated as a separate supply of that item and the current rules will apply (so that GST will be payable at the border on importation by the party entering the item for home consumption).
Affected suppliers will need to be able to distinguish these 2 categories of supplies.
As for the inbound supply of intangibles:
- the liability only arises where the supply is to an Australian consumer;
- suppliers can reasonably rely upon information provided by the customer to form a reasonable belief that the customer is not an Australian consumer; and
- the supplier (or deemed supplier) will only need to register and remit GST if they make or anticipate making supplies to which the rules apply with a value of A$75,000 or more on an annualised basis.
While the supplier (or deemed supplier) is also relieved from the obligation to issue tax invoices, they must notify the customer in the approved form of the amount of Australian GST (if any) that is payable in relation to the supply.
Under transitional rules, the new measures will generally only apply where invoices are issued or payment received on or after 1 July 2018, even where the goods do not reach the customer until after that date.
The Bill to implement this new measure (Treasury Laws Amendment (GST Low Value Goods) Bill 2017) has passed the Senate and is currently awaiting assent. Two key amendments were made to the Bill in the Senate:
- the proposed start date for the measure has been postponed to 1 July 2018 (from the initial proposed start date of 1 July 2017); and
- the amendments to the GST law must be referred by the Productivity Minister to the Productivity Commission for inquiry. Specifically, the Productivity Commission must analyse the effectiveness of the amendments and whether models for collecting GST other than the proposed vendor registration model might be more suitable. The Productivity Commission must report on its inquiry by 31 October 2017.
International aspects
Australia is not alone in introducing provisions to capture value added taxes on inbound supplies of intangibles and goods to consumers.
Businesses supplying digital services to consumers in the European Union (EU) generally have to register and account for VAT on those supplies in the jurisdiction in which the consumers are resident (unless, where applicable, the VAT is accounted for by the local platform through which the digital services are provided). It is also possible for those businesses to register in one member state and use that registration to account for VAT on all their digital supplies to consumers across the EU.
The online selling of goods has also come under scrutiny. In the UK, for example, non-EU sellers supplying goods which are already in the UK at the point of sale through an online marketplace need to register and account for VAT on those supplies even if they have no business establishment in the UK. Furthermore, both the online marketplace and any representative of that overseas seller can be held jointly and severally liable for any failure by the overseas seller to account for the proper amount of VAT.
It is perhaps not surprising that Australia is now considering its own provisions and, as the digital economy continues to grow in the global marketplace, it is probably safe to assume that more and more jurisdictions will adopt similar provisions and Revenue authorities will look beyond the actual supplier to ensure collection where they do not believe that the proper amount of VAT, GST or other sales tax is being accounted for.
For further information, please contact:
Barbara Phair, Partner, Ashurst
barbara.phair@ashurst.com
