Australia: Consultation, proposed GST changes for cross-border transactions

Australia: Consultation, proposed GST changes

Australia’s government released a consultation Exposure Draft on 7 October 2015 that: (1) would bring into the goods and services tax (GST) system, non-residents who supply intangibles and services to Australian resident end-consumers; and (2) would remove from the GST system, those non-residents who supply, through their overseas business, intangibles and services to GST registered businesses.

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Submissions are required by 21 October 2015.

Overview

The purpose of these amendments would be to create a “level playing field” between overseas online retailers and “bricks and mortar” retailers located in Australia selling to private consumers, while at the same time recognising that non-residents who make supplies to Australian registered businesses would not have to register and account for GST on business-to-business transactions that offer no net GST revenue gain to the government.

The amendments, if enacted, would result in non-residents no longer having to register for GST when they only make GST-free supplies. Also, provided non-residents do not make supplies through an enterprise carried on in Australia, they would avoid GST registration and ongoing compliance under the following scenarios (these would no longer be “connected with Australia” and would be outside the scope of GST):

  • Supply of installation or assembly services in Australia for goods imported into Australia by a registered Australian business 
  • Supply of services in Australia provided to a GST-registered Australian business 
  • Supply of services in Australia to another non-resident who is carrying on an enterprise outside Australia 
  • Supply of leased goods located in Australia between non-residents who are carrying on an enterprise outside Australia 

KPMG observation

While this revision would be good news for non-residents, they would still need to consider GST registration in situations when there are GST costs incurred in Australia that they want to recover.

There will be heavier emphasis on the reverse-charge provisions to require Australian businesses that are not entitled to full input tax credit recoverability to self-assess GST on supplies by non-residents that would no longer be “connected with Australia.” 

Few would argue with the purpose of the proposed legislation, but as usual the devil is in the detail.  It remains to be seen how the proposed amendment to the concept of “permanent establishment” would align with the changes that are expected under the current base erosion and profit shifting (BEPS) debate, and whether it would be sufficiently robust to cater for technology issues, such as server location.

 

Read an October 2015 report prepared by the KPMG member firm in Australia: Lighter touch GST for cross border transactions

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