New Zealand Indirect Taxes in 2022 and Future Global Trends (Part 1)

The last year has been a significant year in relation to indirect tax developments in New Zealand, and part 1 of this article will recap the main customs and goods and services tax developments. Part 2 will cover topical global indirect taxes issues.

Customs

Trade Highlights

New Zealand Customs Service collected NZ$17.5 billion ($11.2 billion) in revenue on behalf of the Crown in the year to June 30. This is an increase of 17% (or just over NZ$2.5 billion) compared to the previous 12-month period. Each year, NZCS collects approximately 16% of core Crown tax revenue, including customs and excise duties on alcohol, tobacco, fuel, and tariff charges, as well as GST on imported products over NZ$1,000 and various government levies.

In a media release issued on Oct. 26, Craig Chitty, group manager of revenue and assurance at NZCS, explained the increase:

“Ongoing supply chain disruption and increased freight costs has meant many businesses are placing larger orders for their products from overseas, rather than operating a ‘Just-in-Time’ model, which impacts the amount of GST collected. The cost of goods has also increased in most countries due to inflation and freight costs, which will increase the amount of GST collected.”

NZCS has actively assisted hundreds of businesses in relation to supply chain challenges. During the year, it increased credit limits for many small to medium-sized enterprises so they could manage their cash flow during unsettled times and more easily import larger, or more frequent, shipments. NZCS has also:

• Assisted impacted duty payers through installment payment plans and a refunds and remissions period for compensatory interest and late payment penalties;
• Provided a well-utilized deferral of payments scheme, which allows importers to defer their payment of customs charges including duties and GST;
• Remained focused on identifying and addressing revenue and duty evasion.

Royalty Cases

Where importers have royalty arrangements in place, it is important to consider whether the royalty should form part of the declared customs value. Under New Zealand law, if a royalty or license fee is a condition of the sale of goods for export to New Zealand, the royalty amount must be added to the customs value.

After two decades of no new case law in this area, several cases are working their way through the court system. The importer retailers are arguing that the royalties do not relate to the price of goods and that they relate to matters such as store layout, know-how, IP, business experience, and marketing. NZCS is arguing the opposite and asserting that the royalties adjustment rule applies widely, and the amounts are part of the price of goods. The cases have also highlighted that importers need to consider if certain adjustments—to the value of the goods after importation—need to be disclosed to NZCS, either voluntarily or under the provisional value scheme.

International Trade Deals

A new customs arrangement between New Zealand and the UK will make it easier for New Zealand’s exporters to access one of New Zealand’s largest export markets. A mutual recognition arrangement was signed on July 2, as part of the free trade agreement that was formalized with the UK on Feb. 28 (March 1, NZT). Christine Stevenson, customs comptroller and chief executive, said in a media release on July 4:

“The UK is one of the world’s largest economies and New Zealand’s seventh largest trading partner, with two-way goods and services trade worth NZ$6 billion pre-Covid-19. This MRA gives accredited New Zealand businesses streamlined border access to the UK’s $3 trillion consumer market.”

MRAs are beneficial as they enable businesses in signatory territories to operate under authorized economic operator partnership programs. New Zealand’s program has 140 export businesses, representing about 65% of New Zealand’s export trade to MRA countries, and 50% of all exports.

In relation to Europe more broadly, New Zealand and the EU concluded negotiations on a major FTA in mid-2022. This development is strategically important and economically beneficial, coming at a crucial time in the export-led Covid-19 recovery. The deal will provide duty-free access in respect of 97% of New Zealand’s existing goods trade to the EU within seven years, and 91% from day one. The EU is New Zealand’s fourth-largest trading partner.

Goods and Services Tax

General Developments

On March 30, the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Bill received royal assent (the 2021 Act). The new legislation contains significant policy and technical GST changes including the exclusion of cryptoassets from GST, modernizing the GST invoicing rules, and a raft of technical changes concerning land transactions, going concerns, GST grouping, and GST apportionment.

Cryptoassets

Under new legislation, cryptoassets (other than non-fungible tokens) are excluded from the GST base. This will remove the potential for multiple taxation, help reduce distortions, and provide certainty in the market. The application date is Jan. 1, 2009 (when the first cryptoasset, Bitcoin, was launched).

Even though cryptoassets are excluded from the GST base, an exemption applies for options over cryptocurrency and brokering services in relation to transfers of cryptocurrency.

NFTs are subject to the standard GST rules if supplied domestically and the remote services rules if supplied by a nonresident seller or platform to a New Zealand unregistered consumer.

Positively, the new law also confirms that GST on costs associated with issuing cryptoassets with features similar to traditional securities—security tokens—can be deducted by a GST-registered business (with a start date of April 1, 2017).

Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Bill

The government also introduced the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Bill to parliament on Sept. 8. This bill contains a raft of proposed GST changes, including:

• Further refinements to the invoicing rules (introduced in the first instance by the 2021 Act);
• Full GST liability on platform operators in the gig and sharing economy;
• Simplification to the GST apportionment rules that apply to businesses that make both exempt and taxable supplies; and
• GST on legislative charges and levies.

GST Invoicing Changes

A key principle of the changes to the current invoicing rules is to increase flexibility and remove the requirement to issue and hold a single prescribed “tax invoice” document. Rather, the GST requirements would be met if specified GST information is provided and held, regardless of the source, for example, commercial invoices, supply agreements, or other business records.

There will be less rigid requirements on what GST-registered persons need to hold to support GST claims. Current tax documents issued that are compliant with the current GST rules should generally be compliant with the new rules. However, current accounts payable systems may reject invoices that will be compliant under the new (more relaxed) rules, so this part of the accounts payable process will need to be reviewed by businesses.

The majority of the invoicing changes are set to take effect from April 1, 2023.

Platform Economy GST Changes

The bill proposes to extend, from April 1, 2024, the current GST rules for electronic marketplaces (that currently apply to remote services and low-value imported goods) to taxable accommodation, ride-sharing, and food and beverage delivery services that are provided through electronic marketplaces. The author discussed this significant change in an earlier article.

A large number of submissions were made to the parliamentary finance and expenditure committee in November. The submissions covered various aspects, including the following:

• New Zealand should adopt a wait-and-see approach and assess how successful these rules are in other countries such as Canada and India;
• There should not be a double-up of GST on the facilitation fee as well as the underlying supply;
• Some platforms are also merchants of record (as they buy and then on-sell products) so clarity will be required in this area;
• The concept of a flat-rate tax credit may not work very well if the underlying supplier is found to be an employee of the platform;
• The flat-rate tax credit regime will require practical systems’ changes (as well as new reporting and tracking), and will also require systems’ changes to manage the compliance disclosures and cash flow impact in relation to payments to underlying sellers who are not GST-registered;
• Consideration should be given to defining the main types of services covered;
• More clarity is needed in the law on the difference between the cost of the food or beverage (intended to be out of scope) and delivery services (intended to be in the GST net); and
• If the rules do come into effect, a significant lead in time is required (12 months or more) for businesses to make the relevant systems and contractual changes.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Eugen Trombitas is PwC’s global digital indirect taxes leader.

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