Investigating the Netflix Tax
The so called ‘Netflix’ tax operating from 1 July 2017, imposes GST on inbound intangible supplies to Australian consumers made from offshore by non-residents.
Australian GST on inbound intangible consumer supplies made by non-residents
The ‘Netflix’ tax seeks to impose GST on the private consumption of inbound intangible consumer services supplied from offshore by non-residents (business to consumer transactions or B2C) and recognise that if GST was imposed on such supplies made to a GST registered business (business to business transactions or B2B) then, the business would generally claim a GST credit. Important points to note are:
Non-resident entities will now need to consider whether there is a GST liability on the inbound supply of intangible services from offshore to Australian customers.
The scope of supplies on which GST will be imposed, is determined by whether it is …a supply of anything other than goods or real property… Goods and real property are subject to other taxing provisions, so the words supply of anything are extremely wide. For example, GST may now apply to non-resident supplies from offshore of digital products, movie streaming, music downloads, professional services, rights, insurance and gaming.
B2C transactions are subject to GST where the supply is made to an Australian consumer as defined. Broadly, an Australian consumer is an Australian resident that either is not registered for GST or if they are registered acquires the services for private use. As a result, if a non-resident does not charge GST on supplies to Australian customers they will either need to show that the customer is not an Australian resident or show that the customer is registered for GST. There are special rules applying if the services are supplied through the operator of an electronic distribution platform rather than direct by the non-resident.
B2B transactions with Australian GST registered businesses are not subject to GST. However, non-resident suppliers will need to take reasonable steps to obtain information as justifying why it is a non-taxable B2B transaction. As well as taking the reasonable steps, the non-resident suppliers will need to identify the business customer ABN and obtain a declaration form the business customer that they are registered for GST.
Potential Impacts on Australian businesses
- Businesses who have been competing with offshore suppliers in the private consumer space may find that their services are more price competitive.
- When processing invoices from non-resident suppliers, Australian business purchasers should check whether GST has been added to invoices or charges from 1 July 2017.
- Non-resident suppliers may request Australian business purchasers for declarations or seek to amend terms and conditions of agreements. Any such requests should be carefully considered.
- Businesses that are not entitled to claim full input tax credits on acquisitions for input taxed supplies will need to consider the impact of the amendments to the reverse charge provisions.