Non-resident suppliers to prepare for Australian GST to apply at source of payment
A planned change to apply Australian GST to the source of paymentfor intangible services, regardless of the location of the source of the service, would require non-resident suppliers to pay GST on supplies of digital content (e.g. music, films, games), licensed rights (e.g. software), services provided and other intangible rights sourced from outside Australia.
A change to the current $1,000 low value threshold before GST applies to imported goods is also planned in association with these changes for intangible services.
Accordingly non-resident suppliers of services or goods should commence preparation for Australian GST to apply to their supplies at source of payment in Australia - including reviewing their pricing and contracts to ensure they are able to recover the additional GST cost from their business and retail customers.
Business and retail pricing will require different approaches, as only business pricing may be on a ‘GST exclusive, plus GST’ basis. Retail pricing must be GST inclusive.
In the press conference following the meeting of the Council on Federal Financial Relations on 9 April 2015, the Australian Treasurer, Joe Hockey, indicated an intention to introduce legislation to apply Australian GST to supplies of ‘intangibles’ into Australia by non-residents.
Particularly, the Treasurer indicated that one of the key measures is to enable GST to be imposed on ‘offshore services imports’ such as certain digital downloads and media streaming services. A purported trigger for the announcement was the recent high profile launch of Netflix subscription services in Australia – so the proposal has been branded by some as the ‘Netflix tax’. However, depending on how broadly ‘intangibles’ is defined, this measure could very well extend to other things such as contractual rights and IP granted from outside Australia.
Mr Hockey described the planned changes as ‘integrity measures’ (against the backdrop of combating multinational tax avoidance), which are aimed at charging GST at the source.
There are practical questions about how precisely the GST would be ‘collected’, and at what point in time, and what measures the Australian Taxation Office (ATO) would implement to ensure compliance. Each of those matters will undoubtedly present a significant challenge for the legislature, given the inherent difficulties with taxing the digital economy.
The Treasurer also commented that applying GST to the importation of goods with a value below $1,000 would also be ‘the appropriate system to follow as well’.
These proposals are by no means new. There have been prior discussion papers about these issues for both services and goods, for example as part of the 2012 GST Distribution Review. There has also been the more recent ongoing debate over whether the cost of collecting GST on goods below the low value threshold of $1,000 would outweigh the expected GST collected.
There is currently no announced commencement date or any other detail about the proposed changes, including whether any transitional measures would apply. The Treasurer has merely indicated he will work as quickly as possible with the States to introduce legislation.
When entering into new arrangements, non-resident suppliers should include contractual terms to protect the ability to recover from customers any future GST liabilities – and may also wish to review existing contract terms, in case full exclusion for pre-existing contracts is not provided in any transitional measures.