INSIGHT: New Zealand’s Goods and Services Tax Goes Global

The Taxation (Annual Rates for 2019-20, GST Offshore Supplier Registration, and Remedial Matters) Bill (the Bill) was reported back from the New Zealand Parliament’s Finance and Expenditure Committee (FEC) on May 31, 2019. The Bill was passed into law on June 26, 2019 and introduces new rules to require offshore sellers of low-value—NZ$1,000 ($652) or less—imported goods, as well as marketplaces and redeliverers, to register for and charge goods and services tax (GST) at 15%.

In the media statement covering the government’s recent announcement concerning a digital services tax, the Minister of Revenue also referenced the GST developments in the e-commerce area in the context of the growing significance of the digital economy. The new goods rules are consistent with New Zealand’s GST rules for remote services, which have imposed GST since October 1, 2016 on transactions with New Zealand private consumers.

Broadly, the rules propose that impacted sellers of low-value imported goods, referred to in the Bill as “distantly taxable goods” (DTGs) who make more than NZ$60,000 of annual supplies to New Zealand consumers will be liable for New Zealand GST. The proposals are wide-ranging and will apply to offshore underlying suppliers, electronic marketplaces (EMPs) and redeliverers.

The most significant change made by the FEC to the original Bill is the start date. This was a key issue for many submitters, given the large volume of changes to impacted sellers and platforms’ systems, pricing, and contracts that would need to be implemented. The revised December 1, 2019 start date will give impacted sellers two more months (the original proposed start date was October 1, 2019), but given the Act was passed on June 26, 2019 that only leaves five months to get ready.

Recap of Key Features of the Rules

Distantly Taxable Goods

The Act introduces a new concept of DTGs. This refers to any movable personal property (not being alcohol or tobacco):

• delivered to a place in New Zealand;
• supplied by either an offshore seller, EMP or redeliverer; and
• with an estimated customs value below NZ$1,000.

Offshore suppliers will be required to determine whether a customer is in New Zealand (on the basis of the address the goods are to be delivered to) and if the goods are outside New Zealand at the time of supply.

For the purposes of establishing an estimated customs value, international shipping and insurance costs are excluded. However, when calculating the amount of tax payable, the supplier must account for GST based on 3/23rds of the GST-inclusive amount paid by the customer including any international shipping and insurance costs.

The rules will allow suppliers who have reasonable grounds to believe that 75% or more of their supplies are valued at NZ$1,000 or less to elect to charge GST on high-value supplies as well. This is intended to be a compliance cost reduction measure.

A supply of DTGs will be subject to New Zealand GST if the supplier is registered or required to be registered (i.e. if they make NZ$60,000 or more of such sales to New Zealand in a 12-month period).

Business-to-Business Supplies

The general design is that the new rules apply only to sales made to New Zealand end consumers, i.e. business-to-consumer (B2C) or “GST-able” sales. Business-to-business (B2B) transactions, i.e. to New Zealand GST-registered recipients, are outside the scope of the proposed rules.

Suppliers are presumed to make a supply to an end consumer unless the recipient provides evidence of their GST registration or New Zealand Business Number (NZBN). The Commissioner of Inland Revenue (the Commissioner) is also able to agree to an alternative method of determining whether the supply is made to a GST-registered person.

Another rule of convenience has been introduced for suppliers who principally make B2C supplies. There is an ability to elect to treat all supplies as B2C supplies, and also charge GST on low-value B2B supplies if more than 50% of the supplier’s low-value goods sales are B2C.

If a GST-registered business is inadvertently charged GST (and no concession applies), the recipient may request a tax invoice to support a GST deduction claim if the payment for the supply excluding the amount of GST is NZ$1,000 or less. For supplies above NZ$1,000, the recipient must seek a refund of the GST from the supplier.

Widest Coverage of Sellers

The proposals are broad and will apply to underlying suppliers, EMPs (including New Zealand resident EMPs), and redeliverers. Offshore sellers may appoint a New Zealand agent to account for GST on their behalf.

An EMP broadly refers to an electronic platform which facilitates the supply of distantly taxable goods between an underlying supplier and the recipient. The EMP will be responsible for registering and accounting for GST on all supplies of DTGs made through their platform.

Safe harbor rules will apply to help provide EMPs with greater certainty, by allowing EMPs to agree on certain matters with the Commissioner, and this should make compliance easier. These rules are somewhat limited and will prevent the EMP from being held liable for underpaid GST where it has relied on incorrect or misleading information provided by another party.

Redeliverers will be required to register and return GST in respect of goods delivered to a New Zealand address (“redeliverers” refers to service providers that assist or arrange the delivery of goods from outside of New Zealand into New Zealand. These rules will be relevant if neither the underlying supplier nor the EMP assists in bringing the goods to New Zealand).

Redeliverers will also be able to reach an agreement with the Commissioner under the safe harbor rules in relation to determining their GST obligations. For example, it may be easier for a redeliverer to rely on the customer’s declaration of value rather than issuing a receipt.

Other Features

The Act contains several rules to prevent double taxation. For example:

• if multiple low-value goods are sent in one consignment and the goods are taxed at the point of sale and then again at the border, suppliers will be able to provide tax information on customs documents to ensure that the goods are not taxed a second time if GST has already been charged at the point of sale; or
• if the supplier incurs and pays a consumption tax in another jurisdiction on a supply of DTGs to New Zealand, it may claim that amount as a GST deduction in New Zealand.

Supplies of DTGs will need to be accompanied by appropriate documentation. Usually, this will be a receipt meeting certain criteria. Some suppliers who are eligible to treat all supplies as B2C (or subject to GST) will be able to issue a single document, which meets the requirements of both a receipt and a tax invoice.

The treatment of vouchers will require careful consideration. Globally, countries have been seeking to harmonize the GST/VAT treatment of vouchers in accordance with international best practice. New Zealand still does not tax vouchers solely on redemption and suppliers have the option to tax on issue or redemption subject to criteria.

Compliance and Transitional Period

A simplified “pay-only” registration system will be available to offshore suppliers that are only required to return GST. Impacted sellers will be able to use existing GST registration details/processes.

For the period from December 1, 2019 to March 31, 2020, impacted sellers can choose to have a taxable period of four months for DTG obligations. After this transitional period, these suppliers will be required to file returns quarterly.

Recent Amendments Following FEC Stage

Several key new features to note, as well as differences from the Bill as first introduced in December 2018, include:

• a special transitional rule, which will allow a supplier to treat payments made after December 1, 2019 under contracts entered into before the application date as not subject to GST (for the term of the agreement up to 396 days), e.g. magazine subscriptions;
• more flexibility with the information that can be provided to New Zealand Customs to evidence proof of payment of GST;
• the ability for suppliers to issue a single document that qualifies as a tax invoice and a GST receipt (a receipt is required as a new and central feature of the rules);
• the option for suppliers who primarily sell goods to consumers (more than 50% by value) to charge GST on low-value business supplies. This is an exception to the general rule that B2B supplies are not subject to GST as most countries typically impose GST only on B2C transactions;
• the ability for suppliers to charge GST on high-value goods (above NZ$1,000) as well as low-value goods if the total value of the items (under NZ$1,000) sold to NZ consumers is 75% or more.

The FEC also made changes to the original Bill to improve the accuracy and simplicity of the drafting. Significantly, the new law is still very detailed and interpretive difficulties remain in some areas. With more than 40 sections in the GST Act being changed, care will be required to make sure GST obligations are correctly accommodated by business systems.

Practical Considerations

All impacted sellers and platforms will need to decide if any of the concessions will be adopted, for example, GST on low-value business supplies or the 75% rule if high-value goods are also sold. Pricing considerations and contract terms will need to be reviewed, especially if sellers use marketplaces. The ability of business systems to issue the correct GST and customs documentation will be vital.

Several sellers have been asking about the use of existing GST registrations and concessions under the remote services rules, as well as advertising prices in foreign currency. Practical solutions exist in relation to these aspects.

New Zealand Customs will make several adjustments to its border and clearing processes and will publish guidance on the impact of the new rules and evidence/information requirements.

Impacted sellers should not assume that the New Zealand rules are the same as the similar rules applying in Australia—there are many differences.

Despite the positive move to defer the start date, the timeline is still very compact given the number of changes that will need to be made (as well as tested) to make sure the implementation of the new rules is successful. Impacted sellers need to start getting ready now.

Comments

New Zealand is not alone in trying to reshape its GST laws to the modern e-commerce environment. The remote services rules were successfully implemented in 2016 and now it is the turn to deal with the collection of GST on low-value imported goods. The issues affecting goods are more complex and present greater challenges. Other countries are also dealing with their version of the low-value imported goods rules. There is also a significant and emerging trend of countries evaluating and introducing digital services taxes in the corporate tax area.

All businesses have a desire to cut complexity and comply in an efficient manner—proper planning is crucial in this dynamic digital environment. The place of consumption looks likely to dominate as a principle, and international cohesion in this area is a must. Those who prepare well will be able to handle the digital indirect taxes tsunami of change.

Planning Points

Underlying Suppliers—Key Considerations

• Do you currently make sales of goods to New Zealand consumers and what is the value of each item?
• Are these goods outside of New Zealand at the time of supply?
• Do you have supplies of DTGs fulfilled from offshore as well as from New Zealand?
• Does the total value of sales to New Zealand exceed NZ$60,000 in a 12-month period?
• Do you supply these goods to someone who is registered for New Zealand GST or has a NZBN? (Can you track these supplies and is it easier to charge GST on business supplies?)
• Do you have high-value goods supplies and would it be easier to charge GST on these?
• Do you issue vouchers or accept vouchers as payment for goods?

Electronic Marketplace—Key Considerations

Operators of EMPs will be required to account for GST on DTGs sold on their platform to New Zealand private consumers, as the supply will be deemed to be between the EMP and the recipient (unless limited exceptions apply). In addition to the various aspects mentioned above, there are a number of other intricacies that will need to be considered by EMP operators, for example:

• Do you authorize the charge for goods or delivery of the goods, or set any of the terms and conditions under which the supply is made?
• Do you sell vouchers or credits on your platform?
• What kind of information do you currently receive from your underlying suppliers?
• Are your underlying suppliers registered for New Zealand GST because they make sales to New Zealand through other platforms?
• Do you solely process payments or provide other functions?

Redeliverers—Key Considerations

A redeliverer will only be deemed to be the supplier of the goods if neither the supplier nor the EMP is responsible for GST. Redeliverers will need to consider:

• Has the underlying supplier or EMP already charged GST on the sale?
• Is there uncertainty about the time of supply?
• Are there other (multiple) redeliverers involved in a supply?

Eugen Trombitas is a PwC NZ Partner and PwC Global E-commerce indirect taxes leader. He would like to acknowledge the assistance of Jason Kim (Senior Consultant, PwC) in preparing this article.

He may be contacted at: eugen.x.trombitas@pwc.com