Agents' "opt-out" provision
Issue: Support the provision to allow principals and agents to “opt out” of the current rules
Submissions
(Ernst & Young, Farmlands, PricewaterhouseCoopers, KPMG)
The proposal is welcomed. (Ernst & Young)
The proposal to allow principals and agents to opt out of the agency rules in the GST Act is supported. (Farmlands)
This proposal is welcomed as it is business-friendly and reflects common commercial practice in relation to agency arrangements. (PricewaterhouseCoopers)
We agree with the changes to the agency rules as this will alleviate the compliance costs of the principal and agent and align the GST Act with current commercial practices. (KPMG)
Recommendation
That the submissions be noted.
Issue: Extra requirements for people who use the opt-out provisions
Submissions
(Ernst & Young, Chapman Tripp, New Zealand Institute of Chartered Accountants, PricewaterhouseCoopers)
Use of the provision should not be restricted to registered persons. (Ernst & Young)
The provision should be clarified as to determine whether there needs to be an express written agreement per supply, or whether an identification of the types or kinds of supplies subject to the provision is sufficient. The Commissioner should be able to make determinations that the provision should apply to supplies of a specified kind. (Chapman Tripp)
The requirement that the principal account on an invoice basis for this supply should not be retained. It does not seem like a practical solution to a practical problem. (New Zealand Institute of Chartered Accountants)
The principal should be allowed to claim a bad debt deduction if the agent does not pay them. (PricewaterhouseCoopers)
Comment
Although the GST Act does not allow a principal to issue a tax invoice in relation to a supply if the agent has issued a tax invoice in relation to that supply, officials now understand that in practice, multiple invoices are commonly issued in agency situations. This is wider than the problem which prompted this amendment, namely large computer systems automatically issuing invoices when goods are sent out, and therefore technically being in breach of the one-invoice requirement. This situation could equally also arise where smaller taxpayers use agents to sell items for them.
In light of submission received on this amendment, officials are of the view that some of these additional requirements could be impractical for some principals and agents. The requirement for the principal to account for the supply on an invoice basis, and the inability of the principal to claim a bad debt deduction if the customer paid the agent were included in the bill as a GST protection measure. Otherwise a GST liability could be avoided by interposing an agent into a transaction, and then having the agent disappear before meeting their GST obligation.
Officials do not, however, recommend removing the amendment which limits the principal’s ability to claim a bad debt deduction. This requirement is an important protection against taxpayers creating agency relationships in order to take advantage of this section.
Recommendation
That the first three submissions be accepted.
That the submission relating to bad debt deductions be declined.
Issue: Application of the section to an “agent”
Submission
(KPMG, Chapman Tripp)
There is currently no definition of an “agent” in the GST Act. It is uncertain whether this provision will only apply to persons acting as agents in supplying goods and services, or also to those merely acting in the capacity of a paying or collecting agent. (KPMG)
The GST Act should follow the Australian GST legislation and define the role of an intermediary. (KPMG)
As currently drafted, the section only applies to parties in a full agency relationship. The provision should be extended to apply to situations where an intermediary facilitates supplies to a third party on behalf of a principal. (Chapman Tripp)
Comment
This matter was not raised during the policy development process, and would need further research and analysis before being implemented.
Recommendation
That the submission be noted.
Issue: Purchases by agents
Submission
(KPMG)
The section should be amended to also include any purchases by the agent to be treated in the same manner for GST purposes.
Comment
This matter was not raised during the policy development process, and would need further research and analysis before being implemented.
Recommendation
That the submission be noted.
Issue: Treatment of a commission paid to an agent
Submission
(KPMG, Farmlands, Chapman Tripp)
As currently drafted, the legislation does not refer to the treatment of a commission derived by the agent.
It should be considered whether this provision should include wording to deal with the GST treatment of a commission paid to an agent. (Chapman Tripp)
The consideration for the commission services should be overlooked for GST purposes, which would allow the principal to account for GST on its supply on a net of commission basis. (Farmlands)
Comment
Officials would generally expect commission derived by a New Zealand-resident agent to be subject to GST. There is not, in our view, a sufficient case for further clarification.
Recommendation
That the submission be noted.
Issue: Scope of the amendment
Submission
(Ernst & Young)
Existing subsection 60(7) should be extended to allow agents to return GST in respect of services provided by non-registered non-residents.
Comment
This submission is outside the scope of the current proposals in the bill.
Recommendation
That the submission be declined.