Base Erosion and Profit Shifting  (BEPS) is currently the key tax  issue being discussed across the  globe. The globalisation of  business and the particular  issues presented by cross border  digital commerce are changes  that underlie the current tax  debate, particularly for  corporates. International tax  standards may not have kept  pace with changes in global  business practices especially in  relation to the development of  the digital economy.

In March 2014 the OECD issued a Public Discussion Draft Paper titled ‘BEPS Action 1: Address the Tax Challenges of the Digital Economy’ (the OECD Draft Paper) which provides a comprehensive brief on the background, development, key issues and potential options in respect of taxation reform as it applies to the Digital Economy. In the OECD Draft Paper, VAT/GST is potentially seen as one of the collection solutions to the revenue challenges presented by the digital economy.

There are three principal areas of OECD concern in respect of VAT/GST identified in the OECD Draft Paper, namely:

  1. Remote digital supplies to input taxed businesses (the Australian GST Law addresses this issue through the use of the reverse charge provisions).
  2. Exploitation of the Low Value Threshold (the LVT) for online sales of goods to consumers.

​This not a new issue for Australia and there may be changes the future to the amount of the LVT - subject to efficient administration and tax collection.

  1. Remote digital supplies of ‘B2C’ services and intangibles to consumers.

This issue is relevant for Australia. Critically, the Australian GST position is determined with reference to whether the thing supplied is ‘done’ in Australia. This is principally dependant on the nature or character of the digital offering/product. ‘Done’ can mean;, performed, executed, completed, finished and so on, depending on what is supplied. For example, if the sales are characterised as a supply of digital software (intangible property), the existing ATO view suggests that the ‘thing’ will be ‘done’ where the digital software is provided/downloaded (i.e. where the server is). Further complexity arises where a cloud based service is involved, as (by its nature) a cloud based service is spread out over a cluster of hard drives which can act as one large virtual hard disk without one specific location. Therefore, it can be difficult to determine what, if anything is being ‘done’ in Australia for Australian GST purposes. Alternatively, the sales may be characterised as a right to use/download digital content e.g. a licence. In that instance, if the agreement is executed outside Australia, it is possible that the ‘thing’ will not be ‘done’ in Australia.

In summary, there is a clear view that GST/VAT has a critical role to play in taxing the cross border digital economy and further, the OECD Global  Forum on VAT (April 2014 in Tokyo), recognised the critical role VAT/GST will play. At this forum, the governments of 86 countries agreed to the finalisation of OECD International VAT/GST Guidelines which will provide the global standard on the application of VAT to cross- border trade in services and intangibles.  These International Guidelines seek to address the problems that arise from national VAT systems being applied in an uncoordinated way in the context of international trade. They set standards aimed at ensuring neutrality in cross- border trade and a more coherent taxation of business- to-business (B2B) trade in services. There is also a general consensus that VAT should be applied pursuant to the destination principle i.e. the location of the consumer.

What is Australia doing to address the problem?

There is a question of whether the existing Australian legislative framework is sufficient to deal with the global business model. However, there is still a question of enforcement of our existing law and the authors have seen an increase in activity of the ATO in relation to these issues.

BESS program

The ATO’s GST equivalent to BEPS is the development of the ‘Base Erosion Supply Shifting’ (BESS) program (a subset of BEPS and as part of this the ATO has been focusing on taxpayers in the retail, media, telecommunications and digital content industries). Taxpayers in these industries have been receiving detailed questionnaires about cross- border supplies. We understand, the BESS Questionnaires are part of an information gathering phase,are very detailed and are tailored for individual taxpayers.

Key features of the questionnaires include:

  • Focus on Importation: The BESS Questionnaires request a significant level of detail in respect of matters relating to importations. We note this appears to indicate an increased level of sharing of information between the ATO and Customs.
  • Online sales: Following a global trend to attempt to bring online sales within the scope of current indirect taxation schemes, the BESS Questionnaires frequently contain a wide range of queries about online sales.
  • Other issues: As noted above, the information requested by the ATO is extensive and covers a high level of disclosure in respect of specific transactions. In some circumstances we have seen requests for information about third party relationships; including details about the third party’s presence in Australia.

Low Value Threshold (LVT) Issues

Consistent with the line of reasoning discussed in the OECD Draft Paper, there has been some discussion in recent years that the Commonwealth Government may reduce the LVT for importations so as to capture an increased level of importations within the GST system.

Some commentators are strongly optimistic that the GST importation threshold will be lowered. It is our view that the LVT will be lowered at some point but unlikely to be in the near future.1


Globally, jurisdictions are looking at the role of GST /VAT as it evolves with the changing nature of the digital and ecommerce environment and the ability of companies to shift supplies to different jurisdictions. At a local level, both within Australia and specific foreign jurisdictions, legislative shortfalls are being overcome or (if there are appropriate laws in place) various administrative measures are increasing in their scope and scale. There is a particular emphasis on remote sales made into specific localities around the world and we will likely see administrative and legislative innovation in this area in the near future. In Australia, we are seeing both consideration of legislative reforms and also increased enforcement of existing rules e.g. via BESS reviews from the ATO.