Australia's pioneering move to tax cross-border sales of low value goods
On July 1, 2018, Australia became the first tax jurisdiction to amend its indirect tax rules (VAT/GST) regarding obligations for foreign suppliers to collect tax on low value goods.
The background to this move was a wave of pressure from domestic Australian suppliers that had to charge 10% Goods and Services Tax (GST) on their supplies while their foreign-based competitors had no such obligations. This “levelling of the playing field” is one of the key pillars to the Australian move and of those that followed in New Zealand, Norway and soon to be introduced in the United Kingdom (UK) and the European Union (EU). The rule change was the end of an almost decade-long campaign by Australian suppliers seeking the levelling of the playing field.
Such pressure arose as historically, when GST was introduced in 2000, cross-border sales of low value goods were exempted due to the significant cost of tax collection (be it technical or personnel costs).
Since the July 2018 rule change low value goods imported into Australia are subject to GST but instead of being taxed at the border, GST is collected by the businesses that sell the goods to consumers in Australia. Businesses are required to register for GST if their taxable turnover in Australia is AUD75,000 or more in a 12-month period. A business that is required to register must then charge, collect and remit GST on their sales of low value goods to consumers in Australia.
Impact on online marketplaces
The rules also impact online marketplaces – or Electronic Distribution Platforms (EDPs) as they are referred to in Australian legislation – as they are now liable for GST on sales of low value goods supplied through their platform.
As a result online marketplaces must determine the value of goods sold. The calculation of the value, according to the ATO’s excellent explanatory webpage takes place as follows: “Low value goods are physical goods (excluding tobacco products or alcoholic beverages) valued at AUD1,000 or less [per consignment]. The AUD1,000 threshold is based on the customs value of the goods. This means transport and insurance costs are excluded when determining if GST needs to be charged on the goods you sell.”
For sales of goods above the threshold of AUD1,000 the rules have not changed and the liability remains with the customer upon delivery of the goods.
Not only is the value to be established on a per consignment basis but it excludes tobacco products, alcoholic beverages, and transport and insurance. This means the online marketplaces must now have very specific knowledge of the type of goods (and the value) sold on their platforms.
Mirroring global implementations
Other countries have mirrored these rules on taxing the importation of low value goods and VAT collection by online marketplaces. Jurisdictions that have done so include New Zealand (since December 2019), Norway (since April 2020), the United Kingdom (from January 2021) and (from July 1, 2021) the European Union (EU).
The relevant thresholds in these jurisdictions are as follows: New Zealand (circa AUD920, EUR555), Norway (circa AUD460, EUR284), the UK (circa AUD 246, EUR150) and the EU (AUD240, EUR150). It also follows the collection mechanism recommendation in the OECD report on the role of digital platforms on collection of VAT published in 2019.
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