From 1 July 2017, the supply of services, digital products or rights are connected with Australia (and so potentially liable to GST) if made to an Australian consumer by an overseas-based supplier. This is referred to as the digital import or "Netflix tax" rules.
GST Ruling GSTR 2017/1 explains how overseas suppliers can decide whether a recipient of a supply is an Australian consumer. It explains what evidence suppliers should have, or what steps they should take to collect evidence, in establishing whether or not the supply is made to an Australian consumer.
Two limbs must be satisfied for an entity to qualify as an Australian consumer. First, an entity must be an Australian resident for income tax purposes (although there is an exception for residents of external territories). This is referred to in the Ruling as the "residency element". Second, the recipient must not be registered for GST or, if registered, not acquire the supply solely or partly for its enterprise. This second limb is referred to as the "consumer element".
Overseas suppliers can treat the supply as having not been made to an Australian consumer (and so not liable for GST) if they:
- satisfy particular evidentiary requirements; and
- reasonably believe that the recipient is not an Australian consumer.
An overseas supplier can satisfy the evidentiary requirements by using either the supplier's usual business systems and processes (the business systems approach) or by using what the Ruling terms the "reasonable steps" approach (ie where the supplier has taken steps to obtain information about whether the recipient is an Australian consumer).
The reasonable belief requirement can be based on a belief that the recipient does not satisfy either the residency element or the consumer element.
The ATO's view on the meaning of "non-resident" for GST purposes is set out in GST Ruling GSTR 2004/7. Although that ruling considers the definition of non-resident for the purposes of the GST export rules, GSTR 2017/1 states that the ATO will adopt it for the purposes of the Netflix tax.
In terms of the business systems approach for evidentiary requirements, GSTR 2017/1 provides the following examples of information that the ATO will accept to support a conclusion as to whether the recipient satisfies the residency element:
- the recipient's billing or mailing address;
- the recipient's banking or credit card details, including the location of the bank or credit card issuer;
- location-related data from third-party payment intermediaries;
- mobile phone SIM or landline country code;
- the recipient's country selection;
- tracking/geolocation software;
- the internet protocol (IP) address;
- the recipient's place of establishment (for non-individuals);
- representations and warranties given by the recipient;
- the origin of correspondence; and
- locations, such as a wi-fi spot, where the recipient's physical presence at the location is needed.
In terms of the reasonable steps approach for evidentiary requirements, GSTR 2017/1 lists the following relevant circumstances:
- the level of interaction the supplier has with the recipient in making the supply or in maintaining the commercial relationship;
- the type of personal information that a recipient will usually share, or usually be willing to share, with the supplier in the course of making a supply or in maintaining the commercial relationship, taking into account the type of supply, its value and the nature of the commercial relationship between the parties;
- the difficulty and costs involved for the supplier in taking steps to obtain information about whether the recipient is an Australian consumer; and
- the expected reliability of the information.
The ATO will also accept that the evidentiary and reasonable belief requirements have been satisfied if an overseas-based supplier sets up its systems to comply with the requirements of an overseas jurisdiction and such systems indicate that the recipient's residency is outside Australia. This applies to suppliers operating in countries from the European Union, as well as New Zealand and Norway.
GSTR 2017/1 also examines what should be done if there is inconsistent evidence or other uncertainty. It provides many examples to illustrate the Commissioner's views.
GSTR 2017/1 states that specific evidence is needed to establish a reasonable belief that the recipient does not satisfy the consumer element. This evidence is the recipient's ABN and a declaration or statement indicating that the recipient is GST-registered. The ATO expects the supplier to take reasonable steps to ensure that the ABN is likely to be valid and belong to the customer. These steps may include:
- using ABN Lookup or the ABN Lookup tool;
- ensuring the ABN provided is in the correct format; and
- ensuring there are no duplicate ABN entries for different recipients.