INSIGHT: New Zealand’s ‘‘Amazon Tax’’— Offshore Suppliers Beware!
This article first appeared in Bloomberg’s International Tax News (November 2018).
New Zealanders have embraced online shopping in recent years, taking advantage of the wider range of goods and lower prices offered by offshore suppliers.
But not everyone is happy with this development. The country’s retailers, in particular, have been vocal about the Goods and Services Tax (GST) free importation of low value goods into New Zealand, which has put them at a competitive disadvantage. The government has moved to level the playing field by announcing a new GST regime targeted at offshore suppliers of goods, to take effect from 1 October 2019.
Currently, goods purchased from offshore suppliers are generally not subject to New Zealand GST if they have a delivered value of less than NZ$400 (lower thresholds apply for goods that are subject to duties, such as footwear and clothes). It is estimated that more than NZ$500 million of such goods are imported into New Zealand each year free of GST, and this figure is expected to increase to NZ$850 million by 2021.
The New ‘‘Amazon Tax’’ Regime
The government has responded to this issue by announcing a new GST regime for imported low value goods, to take effect from 1 October 2019. This regime has been informally referred to as the ‘‘Amazon Tax’’, following on from the so-called ‘‘Netflix Tax’’ for imported services introduced in 2016.
The legislation has not yet been tabled, but the key design parameters have been confirmed. From 1 October 2019 offshore suppliers that supply more than NZ$60,000 of goods and services to New Zealand consumers in a 12 month period will be required to:
- register for GST under this new regime; and
- account for GST on supplies of goods valued at or below NZ$1,000 to New Zealand consumers that are not GST registered businesses.
The regime will also apply to domestic and offshore electronic market places and re-deliverers that exceed the NZ$60,000 threshold described above.
Importantly, the regime is not intended to impose a GST liability on offshore suppliers on:
- supplies made to GST registered businesses; or
- supplies valued over NZ$1,000, for which GST will continue to be imposed at the border on the importer of record.
Our fundamental concern with the new regime is that it will impose GST obligations on offshore suppliers who have no presence in New Zealand. We expect that many offshore suppliers that supply goods to New Zealand consumers will not realise they are liable for GST under the regime, and will:
- fail to collect sufficient information to apply the regime correctly (e.g. information around whether their New Zealand customers are private consumers or GST registered businesses);
- fail to gross up their prices to take account of their GST liability; and
- be liable for late payment interest and/or penalties, arising from their failure to account for GST on time.
These issues are likely to be much more common in the dispersed market for imported goods than the more concentrated market for imported services dealt with under the ‘‘Netflix Tax.’’
We are also concerned about the application of the regime to electronic market places. At this stage, the regime is expected to impose GST on both domestic and offshore electronic market places for sales made by nonresident suppliers through their platforms. There are some potential issues with this approach, including:
- determining what market places these rules should apply to. Electronic market places can range from websites that simply allow goods to be listed for sale, through to sophisticated store fronts that take care of delivery and process payments. While there is a case for imposing GST obligations on the latter, it would be unreasonable to impose GST on owners of websites that simply allow goods to be listed for sale. We will have to wait for the legislation to see how this is dealt with; and
- potential overreach. Imposing GST on electronic market places may result in GST applying in circumstances where there would be no GST if the underlying seller made the sale directly to the purchaser (e.g. because the underlying seller does not carry on a taxable activity). This is arguably an inappropriate outcome from a policy perspective.
Anyone that is potentially affected by the new regime should:
- keep an eye out for the legislation, which is expected to be included in a Bill to be released later this year; and
- review their systems and pricing well before 1 October 2019 so that they are ready when the regime comes into force.
For further information, please see the government’s initial discussion paper, published in May 2018. More recently, a fact sheet and Q&A have also been released.
About the authors
Simon Akozu, Senior Associate
Simon is a tax specialist with more than 10 years’ experience delivering effective commercial solutions to a wide range of New Zealand and international clients. Simon has a particular focus on M&A, financing transactions, managed funds, inbound and outbound investments, and corporate insolvency.
Charlotte Agnew-Harrington, Solicitor
Charlotte is a solicitor specialising in Tax in our Auckland Office. She has broad experience dealing with corporate and personal tax, including in respect of complex commercial transactions.