The 2015 Budget includes three announcements which are connected with the GST. The first is the proposed extension of GST to the importation of digital products and other intangibles. The second is the proposed amendments to Part IVA of the Income Tax Assessment Act to stop multinational entities using artificial or contrived arrangements to avoid a taxable presence in Australia. This announcement is relevant because the proposed amendments will apply to “supplies” of goods and services by foreign multinationals to Australian customers. The draft legislation incorporates the definition of “supply” in section 9-10 of the GST Act and the jurisprudence on what constitutes a “supply” will likely be relevant to the operation of the provisions. The third is that the proposed “reverse charge” amendments to the sale of going concern and farmland GST exemptions are not to proceed. These amendments were proposed in the 2009/10 Budget – a paper I presented on the proposed amendments can be accessed here.
Extension of GST to the import of digital products and other intangibles
The Government has released an exposure draft Bill and associated explanatory material that would amend the goods and services tax (GST) law to ensure digital products and services provided to Australian consumers receive equivalent GST treatment whether they are provided by Australian or foreign entities.
The proposed amendments:
- make the supply of anything other than goods or real property to an entity that is not registered or required to be registered for GST potentially subject to GST if that entity is an Australian resident;
- provide that the GST will be payable on certain electronic supplies to which the above applies, by the operator of the service through which the supply is made to the consumer rather than the actual supplier; and
- allow for the making of regulations to provide simplified rules for registration, tax periods and GST returns for entities to which the proposed amendments apply.
The Exposure Draft can be accessed here. The Explanatory Material can be accessed here.
Amendments to Part IVA re multinational tax avoidance
The Government has released an exposure draft to amend Part IVA of the Income Tax Assessment Act to target the following situations:
- a foreign multinational supplies goods or services to Australian customers and books that revenue offshore;
- the activities of an Australian entity are integral to the Australian’s customer’s decision to purchase the goods or services;
- the profits from Australian sales are subject to low or no global tax; and
- one of the principal purposes of the arrangements is to obtain a tax benefit.
A central element in the proposed amendments is the concept of “supply”. This can be seen from the following extract from the proposed section 177DA (emphasis added):
Scheme for a purpose including obtaining a tax benefit etc
(1) Without limiting section 177D, this Part also applies to a scheme if:
(a) under, or in connection with, the scheme:
(i) a non-resident makes a supply to an Australian resident who is not an associate of the non-resident; and
(ii) income the non-resident derives from the supply is not attributable to an Australian permanent establishment of the non-resident; and
(iii) activities are undertaken in connection with the supply; and
(iv) some or all of those activities are undertaken by an Australian resident who, or undertaken at or through an Australian permanent establishment of an entity who, is an associate of or is commercially dependent on the non-resident; and
(b) it would be reasonable to conclude (having regard to the matters in subsection (2)) that the scheme is designed to avoid the non-resident deriving income, from such supplies, that would be attributable to an Australian permanent establishment of the non-resident; and…
The definition of “supply” in the exposure draft incorporates section 9-10 of the GST Act. The Explanatory Material at paragraph 1.48 states as follows:
The term ‘supply’ is defined in section 9-10 of the A New Tax System (Goods and Services) Tax Act 1999 and includes, amongst other things, the supply of electronic material, advertising services, downloads, the provision of data, intellectual property rights, and the right to priority in search functions.