There is growing importance in getting your electronically supplied services (ESS) tax treatment correct.
With effect from 1 July 2017, Australia has announced that Australian goods and services tax (GST) will apply to the sale of services and digital products provided to Australian consumers, meaning overseas businesses will be required to pay GST on such sales. This is the latest country to adopt the change in place of supply rules for Business to Consumer (B2C) electronically supplied services that were originally seen with the introduction of the Mini One Stop Shop (MOSS) in the EU in January 2015.
Following in the footsteps of Japan and New Zealand in implementing a system derived from the core principles of the EU MOSS, Australia’s announcement further emphasises how important it is for companies to ensure their international tax affairs are handled correctly. Companies supplying mobile apps, eBooks, music, pay per video download from their own online platforms and many other automated services that rely solely on digital transmission, will need to ensure they have two non-conflicting pieces of evidence to demonstrate where every consumer is located.
Unlike the EU where the very first sale of such services is reportable, Australia has introduced a threshold of AUS $75,000 before a company has to register for Australian GST. Similarly, New Zealand included a threshold of NZD $60,000 when introducing its version of the MOSS in October 2016. Many companies will be caught by these new rules and may already have sales that count towards this threshold; for example, Australia has said that a portion of a subscription paid for a service still being delivered would count towards this threshold.
The recent changes spreading across Europe, Asia and Oceania do not currently apply to Business to Business (B2B) electronic service suppliers. However, should the end user be an individual consumer, then the company will have a potentially immediate local filing requirement in each of these territories.
If you are using a provider like Apple or Google Play to deliver your product, in many territories this filing obligation will be passed on to the distributor and in those cases, no further action should be required. However, it is up to you as the supplier of these services to look where your consumers are on a country by country basis, as in some regions the liability to report remains with you.
Since its inception in January 2015, the EU, Japan, New Zealand and now Australia have adopted the changes and a number of other countries are in consultation as to how to bring in similar changes or already have plans to action these new rulings, making it an international issue.
Companies that are delinquent in adapting to these changes and have to ‘catch up’ with filings can be negatively affected in a number of ways, including diminishing sales margins (for having to account for VAT/GST not previously charged), additional costs in data collection, penalties - and in some cases prosecution.
If you think you could be affected by these rules, please contact Sean O’Sullivan for more information.
+44 (0)20 7430 5966 / firstname.lastname@example.org