A Bill has been introduced to the New Zealand Parliament that, if enacted, will apply goods and services tax (GST) to remote services and intangibles (including e-books, music, videos and software) supplied by non-resident suppliers to New Zealand resident consumers.
Our earlier update ('New Zealand proposes new GST rules for supplies of cross-border services', in the October 2015 issue) outlined the discussion document released by the New Zealand Government that preceded the introduction of the Bill.
Under existing law, GST is generally not imposed on cross-border services and intangibles that are purchased by New Zealand resident consumers from non-resident suppliers. The growth of e-commerce means that the volume of such services and intangibles on which GST is not collected is becoming increasingly significant. There are also concerns that by not imposing GST on such cross-border services and intangibles, it is placing New Zealand suppliers of similar services and intangibles at a comparative disadvantage.
While the growth in e-commerce has been the main catalyst for the proposals, the proposals will capture both digital and non-digital services (including consulting, accounting and legal services). Applying the new rules to a broad range of 'remote' services avoids the complexity of designing the new rules to target only digital services and is consistent with the broad base of New Zealand's GST regime.
The amendments proposed in the Bill apply GST to 'remote' services and intangibles supplied by non-resident suppliers to New Zealand-resident consumers, by requiring non-resident suppliers to register with the New Zealand Inland Revenue Department and return GST on these supplies. 'Remote' services are defined as services where, at the time of performance, there is no necessary connection between the location of the recipient and the place where the service is physically performed.
Non-resident suppliers will be required to register and return GST when their supplies of remote services to New Zealand-resident consumers exceed NZD60,000 ($40,000) in a 12-month period (a registration threshold that is consistent with the threshold applying to domestic suppliers). To minimise compliance costs, non-resident suppliers will not be required to return GST on supplies to New Zealand GST registered businesses, and non-resident suppliers will not be required to provide tax invoices to New Zealand consumers.
It is proposed that a non-resident supplier will be required to treat a consumer as resident in New Zealand if two non-conflicting pieces of evidence support that conclusion. Various proxies are proposed for this purpose, including the consumer's billing address, bank details and IP address, or other such 'commercially relevant information'. Where a non-resident supplier has two pieces of evidence indicating that a consumer is resident in New Zealand and two pieces of evidence indicating that the consumer is not resident in New Zealand, the supplier must use the evidence that is the more reliable.
The proposals are intended to broadly align with OECD guidelines on international VAT and GST, which seek to establish a set of principles for allocating taxing rights between countries. Australia has announced plans to introduce similar rules, applying from July 1 2017.
If enacted, New Zealand's proposed new rules will come into force on October 1 2016.