Taxsifu © Liability is limited by a scheme approved under Professional Standards Legislation.

Michael Evans CA FCPA FTI

Place of provision of services:An international perspective

Distance to GST. Has the Union budget 2012 shortened it?

Saturday, June 2nd, 2012

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Scope of topic

The two approaches to collection of VAT/GST

NZ, Singapore, Australia, Canada, South Africa

The EU

Sharing the tax base and enforcement in Federal jurisdictions and common markets

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The “NZ model”

GST is payable to the central government by the supplier on goods and services supplied by him

Exported goods and services are zero-rated

Registered recipients claim input tax credits

“Place of supply” is used to identify transactions for which the obligations of registration and collection of GST can be imposed

Imports of goods are subject to GST at the border

Reverse charge applies to acquisition by registered traders of services from offshore No reverse charge in SingaporeLimited application in Australia and NZ

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EU model

VAT is payable by the supplier to the State in which he is established for:Goods and services supplied by him in that State

to recipients in that StateGoods and services supplied if the place of supply

is in that StateGoods and services supplied by him to

unregistered recipients in another StateSometimes a different rule for goods

Services supplied to non-EU recipients do not have a place of supply in any State of the EU effectively a zero-rate

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EU model (cont)

VAT is payable by a recipient that is registered in a State if:The supplier is not established in that StateThe place of supply is in that State

The reverse charge

“Place of supply” is used to identify the State of taxationWhich state collects the revenue

Imports of goods are subject to GST at the border

Reverse charge applies to acquisition by registered traders of services from offshore

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Difference

The difference between the two models is:NOT ABOUT how much VAT / GST is collectedBUT IT IS ABOUT how the revenue is shared

between the States

The problem arises becauseState taxing authorityHow to claim ITCs for tax collected by other State

Enforcement is easier on local sale by local authoritySupplier is the main point of focus

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Sharing revenue between States

Singapore and NZ – no sub-national states

Australia and Canada – central collectionAustralia - Redistributed on “HFE” system

Interim report of GST distribution review panel

Canada – proportionate to provincial consumption

EU model – collected by member States on supplies made “in the member State”Place of provision for inter-state supplies - general

B2B services – where registered recipient is established» Reverse charge in place of receipt

B2C services – where supplier is established

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EU specific rules

Connected with immovable property

Transport Passenger – place of transport proportionate

to distanceGoods – place of departure

Cultural, artistic, sporting, scientific, educational, entertainment or similar – where carried out

Loading and handling / valuations and work on movable property – where the work is carried outShort term hire of transport – place of delivery

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EU Specific rules

Restaurant and cateringOn board ships, boats or trains – point of

departureOtherwise - where the services are carries out

Electronically supplied services by person outside the EU – place where unregistered recipient is resident

Effective use and enjoyment override

Generally if recipient is not registered, in the place in which the

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Other ideas for Federal jurisdictions

Common external tariff (CET) modelLodge in home State

GST and ITC separated per State State pays across to other States

P-VATSupplier pays GST collected to other State

CVATSeparate return to central clearing house for

interstate salesEach registrant pays interstate GST and claims

interstate ITC

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Comments

Generally, traders are not required to register and collect VAT/GST in the State in which they are not established – lack of enforcement

Audit and integrity issuesTrader in one State does not remit VAT/GST on sale

made from its establishment (to a resident in another State)

Risk of fraud, error, inconsistent interpretationRecapitulative statements in EU – expert study

» http://ec.europa.eu/taxation_customs/common/publications/studies/index_en.htm

Only relevant in practice for registered recipient with exempt supplies.

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Comments

Different rates / scope?

Complexity, uncertainty and inconsistency

Rules reflect negotiations between the States as to revenue share

US States have enforcement limitations for goods purchased from interstateGST on imported goods and services

How to match integrity, State revenue needs, certainty, simplicity and neutrality

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Exported services from EU

licences, trade marks and similar rights -

advertising services;

consultants, engineers, consultancy firms, lawyers, accountants , data processing and the provision of information;

obligations to refrain from pursuing or exercising a business activity or a right referred

banking, financial and insurance transactions including reinsurance, with the exception of the hire of safes;

the supply of staff;

the hiring out of movable tangible property, with the exception of all means of transport;

access to natural gas and electricity distribution systems and the provision of other services directly linked thereto;

Telecommunications, radio and television broadcasting services;

electronically supplied services

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NZ zero-rated exported services

Services directly connected with goods or real property outside the countryNot connected with tangible property in NZ

To a non-resent that is not in the countryNot connected with tangible property in NZ

To any person who is not in the country where use and enjoyment is outside

Rights or information for use outside the countryRestrictive covenants for same

International transport of goods and passengers

Services connected with temporary imports14

Michael Evans CA, FCPA, FTI Regd. Tax Agent (55349002)

PO Box 1678, Rozelle, NSW, 2039

Phone: +61 2 98183315Mobile: +61 412252228

email: mbevans@taxsifu.com.au

Liability is limited by a scheme approved under Professional Standards Legislation.

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