Cohesion required in relation to international GST/VAT e-commerce rules

Cohesion required in relation to international GST/VAT e-commerce rules

The last year or so has seen unprecedented change in the VAT/GST e-commerce area. The common feature with the reform is the different approach taken by each country. The VAT/GST positions around the globe resemble a Rubik's Cube.

To illustrate the point, the following landscape features globally in relation to low value imported goods (LVIGs):

1. Australia - a fully fledged LVIG model has been in place since 1 July 2018 under which offshore sellers, redeliverers or electronic marketplaces/platforms (e-marketplaces) can be liable. There are no safe harbour rules for e-marketplaces in any practical sense;

2. Switzerland - a new LVIG regime will start from 1 January 2019 and, interestingly, e-marketplaces will not be liable;

3. New Zealand - a Tax Bill has this week been tabled in Parliament concerning GST on LVIGs. Similar to the Australian model, underlying sellers, redeliverers or e-marketplaces will be liable from 1 October 2019. A unique feature of the proposed law is the ability of marketplaces to reach an agreement with the Commissioner (a so-called 'safe harbour' agreement) in relation to the practical operation of the rules. Time will tell how successful this will be and submissions can still be made on NZ's design;

4. UK - online marketplaces can be jointly and severally liable for breaches by the underlying seller if UK HMRC has served a breach notice to the seller and it has not been rectified. If the sellers are not removed from the marketplace's platform the marketplace can be liable for any future unpaid VAT;

5. Germany - in a move stronger than the UK rules, the offshore marketplace will be liable for any unpaid German VAT (due by merchants/sellers using their digital platform) particularly when the marketplace cannot provide a certificate of the seller's German VAT registration to the tax authorities.

When the recent announcement was made in Norway about reform in this area (effective 1 January 2020), it was no surprise to see that officials wanted more time to explore all options. These options will consider consumers paying/collecting the VAT, Customs and/or freight companies collecting VAT or offshore sellers and platforms being collectors. It's of course possible to apply a combination of all of these collection options. An interesting time lies ahead in Norway.

In relation to cross border services, many countries have now introduced their version of the electronic/digital/remote services rules. The latest jurisdictions to go down this path include Singapore, Quebec (Canada) and Malaysia. In accordance with OECD best practice, the models have typically only applied VAT/GST to B2C transactions. However, the latest development in countries like Malaysia, Russia and South Africa is to expand the scope of the tax to B2B transactions as well.

GST has always been a relatively simple and practical tax. The latest international developments suggest that this is no longer the case. More differences are evident in the various VAT/GST e-commerce rules globally and this is adding to complexity at a time when sellers and marketplaces wish to cut through the complexity. This is making it hard for global sellers to comply and the cost of compliance is rising. The different approaches can also result in the consumer experience being compromised in some cases. 

It's time to assess the best approach globally and strive to achieve more cohesion and consistency. It must be recognised that it's not realistic to expect a state of total harmony across the globe. However, a strong case is emerging in support of the proposition that more international cohesion and consistency in the VAT/GST e-commerce area would be beneficial. This will make the rules easier to understand and compliance will be an easier task. Governments and consumers will ultimately benefit from a more globally cohesive approach and merchants/sellers will get their wish of less complexity.