INSIGHT: Fiji—VAT on Remote Services

The Value Added Tax Bill 2020 (VAT Bill 2020) attempts to update and modernize current value-added tax (VAT) laws in Fiji, due to the rapid growth of e-commerce transactions in the country.

The proposed VAT Bill 2020 contains various changes but this article will only focus on the supply of remote services through an electronic marketplace.

VAT is significant for government in terms of revenue generation and the VAT Bill 2020 is an attempt to ensure that Fiji Revenue Customs Service (FRCS) collects VAT for e-commerce transactions. VAT Bill 2020 is an attempt to close the distortion of competition arising from suppliers/electronic marketplace operators not collecting VAT. Fraud being a significant concern, the change is an attempt to eliminate possible scenarios such as fraudsters collecting VAT but not remitting it to the tax authority and consumers who provide false information regarding their VAT registration status, place of consumption or residence.

How, What, Where and Who?

Taxing e-commerce business has perplexed many globally, given the complexity and rapidly changing environment in which businesses operate. We will examine how the Fiji VAT Bill 2020 addresses e-commerce transactions, which appears to be taxation imposed at the place of consumption rather than the place of supply.

Supply of Services

“Remote services” is defined as the supply of services where there is no necessary connection between the place where the services are physically performed and the location of the recipient of the services.

A supply of services is when the place of business of the supplier is in Fiji, however, for those suppliers of imported services, the place of business is irrelevant. A supplier who does not have a place of business in Fiji is taken to supply services in Fiji if:

• the recipient of the supply is not a registered person; and
• the services are physically performed in Fiji by a person who is in Fiji at the time of supply;
• the services are remote services supplied to a resident in Fiji; or
• the services are telecommunication services and a person physically in Fiji initiates the supply from the telecommunications supplier whether on the person’s own behalf or on behalf of another person.

Further, a recipient of a supply of remote services is a resident in Fiji if at least two of the following circumstances supports the conclusion:

• the recipient’s billing address is in Fiji;
• the internet protocol address of the device used by the recipient or another geolocation method;
• recipient’s bank details, including the account recipient uses for payment or the billing address held by the bank;
• the mobile country code of the international mobile subscriber identity stored on the subscriber identity module card used by the recipient;
• location of the recipient’s fixed land line through which the service is supplied to the recipient;
• any other commercially relevant information (which is broad and not clear as to what will be considered as commercially relevant by FRCS).

The electronic marketplace operator is treated as having made the supply and responsible for payment of VAT unless the supplier and the operator have agreed in writing that the supplier is liable for payment of the VAT.

An electronic marketplace is defined as a website, internet portal, gateway, store, distribution platform, or other similar platform that is operated electronically through which an underlying supplier makes a supply of remote services electronically through another person (the operator of the marketplace) to a third person (the recipient), but does not include a marketplace that solely processes payments.

Administrative Obligations and Tax Liability

The above provisions under the VAT Bill 2020 do create some concerns and administrative issues for suppliers and the electronic marketplace operators in terms of their respective obligations and liabilities. At this stage, without any regulations, one can only speculate how VAT will be charged and collected.

The operator of the electronic marketplace is to be treated as having made the supply of the remote services and so liable for VAT unless an agreement is in place with the supplier. The new provisions in the VAT Bill 2020 do not provide any clarity or guidance on the minimum requirements to be implemented by the supplier or marketplace operator. The VAT Bill 2020 also does not consider the possible scenario that putting the obligation on the recipient to disclose whether it/he/she is VAT registered can open possible fraud by the recipient who may register themselves as private individuals but in fact are entrepreneurs, hence defrauding the system.

There are no guidelines provided to the electronic marketplace operator or the supplier to implement procedures relating to liability of VAT and record keeping obligations of an electronic marketplace operator.

Planning Points

The VAT Bill 2020 fails to provide provisions to assist and ensure that the objective of capturing, collecting and paying VAT is achieved, such as:

• imposing thresholds for the quantity, type and amount of sales that a particular recipient is allowed to order, beyond which a supplier or electronic marketplace operator could conclude that the recipient is an entrepreneur and not a private individual;
• written notice from FRCS to the electronic marketplace operator notifying them that the supplier active on the operator’s marketplace is generating taxable sales which is subject to tax;
• issuing a list of rules and guidelines to implement for suppliers and electronic marketplace operators to ensure that they are able to identify scenarios in which VAT should be charged and collected.

The VAT Bill 2020, if passed into law, will definitely affect e-commerce transactions in Fiji and open up tax liability for electronic marketplace operators and supplier such as Netflix, iTunes, other online music stores, Amazon, and other online suppliers.

Electronic marketplace operators and suppliers should ensure that they are ready and have considered adequate measures to minimize any exposure to tax liability.

All stakeholders such as suppliers and electronic marketplace operators need to keep a close eye on the VAT Bill 2020 becoming law and any regulations that may be issued, as it does impose an obligation on them and, potentially, a huge tax liability.

Artika Prasad is a Partner and Seini Tinaikoro is an Associate at Siwatibau & Sloan, Fiji

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.