Subject: FW: International GST [DLM=For-Official-Use-Only] [SEC=UNCLASSIFIED]
From: Purcell, Jonathan [mailto:firstname.lastname@example.org]
Sent: Wednesday, 18 October 2017 1:22 PM
To: Warren Bolton <email@example.com>
Cc: another officer <firstname.lastname@example.org>
Subject: RE: International GST [DLM=For-Official-Use-Only]
Dear Mr Bolton
Thank you for your patience.
Your questions are as follows:
Q1. Can you please send me the relevant section of the legislation that gives the Australian government the authority to require a company providing a service in another country (ie American based company based in Arizona) to collect tax on behalf of the Australian government for the rent of cyber space located in that country (USA)?
A1. The principle relevant legislation are ANTS(GST)A 1999 9-25(5)(d) ANTS(GST)A 1999 9-25(7) however for a supply to be taxable ANTS(GST)A 1999 9-5 must still be met. This is explained in GSTR 2017/1 Goods and services tax: making cross-border supplies to Australian consumers
See also International taxation of goods and services supplied to Australia for more explanation and links to resources.
Q2. Can you please tell me the policy of the Australian Taxation Office in the enforcement of the legislation?
A2 The ‘policy’ is set by Parliament, the ATO administers the law. The Explanatory Memorandum provides the policy intent of the new law with Chapter 1 being relevant here and I would encourage you to review it. Also the General Outline provides the background to the new measures as per this excerpt:
GST Treatment of Cross-Border Transactions
Schedules 1 and 2 to this Bill each contain measures that modernise Australia’s goods and services tax (GST) system.
Australia’s GST system has been in place for 15 years. Over this time there have been a number of significant changes in Australia and the world.
One of the most notable of these changes has been the growth in cross‑border supplies of services and other intangibles. When the GST was introduced in 2000, such transactions were relatively unusual, especially for consumers. However, cross-border supplies now form a large and growing part of Australian consumption.
The growing importance of these types of transactions has highlighted that the GST system was designed with a focus on Australian‑based, rather than cross-border supplies.
In the context of cross-border supplies where consumption is of a private or domestic nature, the GST often does not apply to supplies made by non-residents to consumers in Australia. Given the increase in cross‑border transactions and the growth of the digital economy, this treatment has led to a growing area of consumption being out of scope of the GST. This harms the integrity of the GST tax base and can disadvantage local suppliers.
At the same time, the GST system is also often not well adapted to the circumstances of foreign suppliers in respect of their dealings with Australian‑based businesses. In many cases supplies between such entities result in little or no final GST being payable. As a result, the current GST settings can impose unnecessary obligations and compliance costs on foreign suppliers.
Schedules 1 and 2 each contain measures that modernise the GST to address these challenges.
The amendments made by Schedule 1 update the GST law to ensure that GST applies consistently to all supplies of digital products and other imported services made to Australian consumers.
The amendments in Schedule 2 make a number of changes to the GST law to minimise compliance costs for non-resident suppliers while maintaining the integrity of the GST base.
Currently, the supply of digital products and other services by non‑residents is often not subject to GST.
This measure seeks to ensure that foreign vendors must remit GST on the supply of digital products and other services to Australian consumers.
It is anticipated in the order of 100 non-resident entities will register for and remit GST, through either a simplified or full registration regime, as a result of this measure. These businesses will face transitional costs associated with learning about and implementing the change in obligations, as well as ongoing reporting and compliance obligations.
The impact of this measure on affected non-resident businesses is mitigated as many non-resident suppliers may already apply a consumption tax to supplies to consumers in other OECD jurisdictions and are familiar with how this operates.
Two periods of consultation were conducted on draft legislation for this measure, in addition to regular engagement with resident and non-resident stakeholder businesses, and law and accounting professionals in this area. Response to the proposed option was largely positive. Changes were made to the draft legislation to address concerns raised in consultation.
Q3. How will the ATO enforce compliance with this law on service providers throughout the planet?
I hope I have addressed all the concerns you have raised. Please contact me if you need any further clarification.
Senior Technical Advisor
GST Technical Product Leadership,
Indirect Tax, Australian Taxation Office
P 02 9374 8231