Australia digital GST introduced: foreign-suppliers targeted

Thu Jun 29, 2017

“It is unfair that overseas-based businesses selling services into Australia may not charge GST when local businesses have to charge GST. A local business that employs Australians pays rent in Australia, pays tax in Australia, and helps build our economy is disadvantaged by the current system. We will level the playing field for Australian businesses by mandating that foreign businesses supplying digital products and services are subject to the GST.”

The words of the former Treasurer of Australia Joe Hockey in his May 2015 budget speech on the reasoning behind extending Australia Goods and Services Tax (GST) to cover the foreign supply of digital services to Australian customers. The key phrase here is ‘levelling the playing field’ mirroring the language used in a slew of similar law changes across the globe in the past 30 months.

This new age for Australian indirect tax begins on July 1 when supplies of digital services (e.g. movie streaming, image downloads, etc) purchased by Australian consumers from overseas are to be subjected to GST.

For clarity, this is a separate legislative bill to one recently postponed by the Australian Government until July 2018. The postponed bill – the Treasury Laws Amendment (GST Low-Value Goods) Bill 2017 – plans to extend the scope of Australian GST to supplies of low-value goods (those with a customs value of less than A$1,000).

The bill we are concerned with here, one that has a major impact on the business models of international digital service suppliers, is the Tax and Superannuation Laws Amendment (2016 Measures No .1) Bill 2016. This bill, enacted in March 2017, extends the scope of the GST to digital products and other services imported by Australian consumers.

Global trend in taxing digital economy

Global trend in taxing digital economy

The legislative change means the GST system does not favour international digital service providers ahead of domestic Australian-based providers.

Cross-border eCommerce is booming thanks to advances in information technology and customer access to the internet. Online purchases by Australian consumers hit USD$9.5 billion in 2016 and are expected to reach USD$15.4 billion by 2021. Australian like shopping online: over 80% of the country’s 24 million population have made a cross-border purchase.

This upsurge brings a wealth of opportunities for businesses that deliver products digitally. Digital business is by its definition borderless and even the smallest digital business operates in multiple foreign markets. Up until recently the world was effectively a single market. With the advent of digital tax laws the world is now being broken into multiple local markets. How does a digital business navigate this new market environment?

Tax integrity of new Australian digital GST

‘Tax integrity’ is a term often used by the Australian Taxation Office (ATO) in reference to this rule change, it is actually part of the bill.

Why is that and what does this mean? Well, the Australian Government (just like many other jurisdictions before them) have termed this “levelling the playing field” as outlined in Joe Hockey’s 2015 budget speech.

The Australia indirect tax law change is the latest in a mushrooming list of indirect tax implementations across the globe aimed at taxing the digital economy.

In 2017 alone Russia, Serbia, and Taiwan have already changed their Value-Added Tax (VAT) laws so as to tax the digital economy with Australia, India, and Bangladesh doing likewise in July 2017. Worryingly for digital service merchants, each iteration brings its own complexity, adding to their compliance burdens.

Australia’s specific digital tax implementation is as follows:

From July 1, GST will apply to cross-border supplies of digital products and other services imported by Australian consumers. This includes:

  • Digital products such as streaming or downloading of movies, music, apps, games, and e-books
  • Services such as architectural or legal services.

A merchant supplying such services and whose sales exceed the registration threshold of AUD$75,000 (circa USD$57,500, GBP£44,300, EUR€50,400 at time of publishing), will be required to register for Australian GST. This threshold ceiling applies to sales over any 12-month period.

The role of platforms specifically highlighted

The Australian GST legislation makes specific reference to electronic distribution platforms (EDP). As is the case with other legislative implementations across the globe a platform – such as Apple’s App Store or Google’s Play store – is deemed to be the provider of the digital service to the end customer. In this scenario, GST registration, in addition to the collection and remittance of GST to the Australian Government, is that platform’s responsibility.

It is their responsibility as the business-to-consumer (B2C) supply of a digital service is carried out by the platform and therefore all GST compliance burdens are their responsibility.

Another platform example, Amazon Web Services (AWS), has provided the following advice to its non-GST registered Australian consumers: “GST will not be added to cloud services provided to Australian business customers who are GST registered,” a recent email to customers states. “Amazon Web Services, Inc. will charge GST, and issue corresponding tax invoices, on certain Amazon Chime, Amazon Connect, and Snowball services supplied to business and individual customers.”

As the digital economy develops legislation must keep pace. The Australian GST legislation has been designed with platforms to the fore. Increasingly, it is the role of the platform or an intermediary to act as the tax collection vehicle on behalf of a tax jurisdiction.

How Taxamo helps

To that end Taxamo are here to help. Taxamo will act as the intermediary in the collection of GST for remittance to the Australian Government. We will assume our merchant’s GST liability and allow them to concentrate on their core business.

Contact us now to learn more about how Taxamo takes on the indirect tax liability of digital companies selling services to India-based customer.

Note: Taxamo content is created for guidance only, please consult your local tax advisor.

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