Last Friday the Organisation for Economic Cooperation and Development (OECD) released a notable new report on the role of digital platforms in the collection of VAT/GST on online sales. It is a ground-breaking publication that aims to re-engineer how VAT/GST collection functions in a global economy that is increasingly online.
News of the report was shared at the end of the 5th Global Forum on VAT hosted by the Australian Tax Office (ATO) in Melbourne, Australia. This report follows a series of publications by the OECD regarding online sales including the International VAT/GST guidelines (endorsed in 2015) and an October 2017 report on the Mechanism for the Effective Collection of VAT/GST.
‘The explosive growth of online sales’
The report that was revealed on Friday, March 22, in Melbourne deals (as the title suggests) specifically with the growing role of digital platforms in the “explosive growth of online sales to private consumers”. The report also examines the potential of VAT/GST collection by these platforms on the online sales that they process.
The report is wide-ranging and does not try to define the term “digital platform” for the simple reason that it is a concept that continues to evolve. The report states that it uses the term to “refer to the actors in online sales that carry out the functions that can be considered essential for their enlistment by tax authorities in the collection of VAT/GST on online sales.”
One of the key elements of the report is on the functions of digital platforms and how, using the “sufficient and accurate” information available to them, they may be liable for, or be able to assist in, the VAT/GST collection on online sales. Of course, on some occasions the information available to the platform may be inaccurate, in such instances the report suggests that tax jurisdictions may “consider implementing a rule that reduces or eliminates digital platforms’ liability for mistakes resulting from reliance on inaccurate information, if they can supply evidence of their good faith and of their reasonable efforts to secure the accuracy and reliability of the information on the basis of which they have acted.”
The overall aim of the report is to achieve efficient and effective solutions so as to simplify compliance and lower administration costs in the context of the design and implementation of such rules by tax jurisdictions around the world.
Digital platforms as referenced in existing legislation
Such rules on online sales - imposing the VAT/GST liability on digital platforms for sales that they process - are already in place in Australia and come into force in New Zealand in October 2019. In Australia, the definition used in this context is that of an electronic distribution platform (EDP).
NEXT WEEK: We will focus in-depth on what functions of digital platforms may trigger VAT/GST liabilities.
Australian implementation: a real-life example
The 5th Global Forum hosts, the ATO, implemented their own version of taxing low-value imported goods in July 2018.
As of this date, Australian goods and services tax (GST) applies to sales of low-value goods imported by consumers into Australia. The rules also include a registration threshold of AUD$75,000 (circa USD$53,200) for affected businesses. If businesses meet this threshold of sales to Australian consumers then they must:
- Register for Australian GST
- Charge Australian GST on sales of low-value imported goods
- Make returns to the ATO
According to the ATO website providing information on these rules affected businesses “may be merchants who sell goods, electronic distribution platform operators or re-deliverers. For goods imported in a consignment over A$1,000, any GST, customs duty and clearance charges will be charged to the importer at the border under existing processes.”
Upcoming legislative changes: New Zealand
In October 2019, New Zealand’s Inland Revenue Department (IRD) will also implement new GST rules relating to the sale of goods by overseas companies online.
The rules are designed to level the playing field with domestic retailers who are currently subject to GST yet their international competitors are not.
In October 2018, New Zealand’s Minister of Revenue Stuart Nash stated that it was the country’s intention “to make offshore suppliers collect GST on low-value goods at the moment of sale, and in turn, buyers of these goods will no longer pay Customs tariffs or border security and biosecurity fees. This will simplify compliance and administration costs at the border.”
New Zealand’s new rules on imported goods will apply to imported goods valued at or below NZD$1,000 supplied to New Zealand-resident consumers, by requiring offshore suppliers (as well as marketplaces and re-deliverers) to register and return GST on these supplies. Customs will continue to collect GST on imported consignments valued above NZD$1,000.
From October 2019, affected non-resident suppliers (including non-resident marketplaces and re-deliverers) would be required to register and return GST when their total supplies treated as being made in New Zealand, including supplies of distantly taxable goods to consumers, exceed NZD$60,000 (circa USD$41,200) in a 12-month period.
Other similar implementations
Other similar implementations include those in the following jurisdictions:
European Union (E.U.)
The E.U. is planning to implement new rules making online marketplaces liable for VAT collection on sales made by non-EU companies to EU consumers via their platform. The rules are planned to come into effect in 2021.
United Kingdom (U.K.)
In 2018 the U.K. extended joint liability rules for online marketplaces. The rules state that HMRC will issue a liability notice to the relevant online marketplace(s) “identifying the specific UK business and explain that it is not complying with the VAT rules. The online marketplace will then normally be given 30 days in which to raise any concerns with the UK seller or remove the UK seller from its website if they wish to avoid becoming jointly and severally liable for any future unpaid VAT of that seller.”
German tax legislation introduced in January 2019 placed the liability for VAT collection on online marketplaces. Since March 1, 2019, such online marketplaces are jointly liable for VAT from sellers using their platform. More information here.
Swiss VAT rules changed for “foreign distance sellers of dispatched goods” on January 1, 2019, by de facto removing the exemption for low-value goods. The rule change once again eliminated a competitive advantage between international and domestic businesses. There is a threshold of CHF100,000 so when annual turnover exceeds this figure Swiss VAT registration obligations are triggered.