Administering the offshore supplier registration system

(Clauses 48(5), 54(1), 54(2), 58, 61, 67, 68 and 71)

Summary of proposed amendment

An amendment proposes that the Commissioner will have the discretion to require a person who has knowingly provided altered, false or misleading information to register for GST and to repay the GST that should have been charged, when their behaviour is repeated or when a substantial amount of GST is involved.

The proposed amendments contain several features that are intended to reduce the costs for offshore suppliers in complying with their obligations under the rules. These measures will be complemented by simplified registration and return filing processes that Inland Revenue is developing for these customers.

Key features

Misrepresentations by recipients of remote services

Proposed sections 5(27) and 51B(7) will provide a discretion for the Commissioner to require a person to register and pay GST that should have been charged, when the person has knowingly provided incorrect information that leads to GST not being charged on a supply, and this behaviour is repeated or a substantial amount of GST is involved.

Taxable periods

Proposed section 15(6) provides that between 1 October 2016 to 31 March 2017, a non-resident supplier of remote services that are taxed under the new rules will have a default taxable period of six months, with the option of a two-monthly taxable period. From 1 April 2017, these suppliers will have calendar quarterly taxable periods.

Inland Revenue intends to develop a tailored, simplified registration process for offshore suppliers registering under the new rules, which will be accessible through its website.

A simplified GST return is also expected to be developed that is tailored to the needs of offshore suppliers registering under the new rules. As many offshore suppliers would not incur GST costs in New Zealand and therefore would not need to claim back any GST in their returns, a simplified “pay-only” return would not include the fields that are not relevant to these customers. This “pay-only” GST return should be available when the Business Transformation programme is deployed in 2017. Offshore suppliers that are claiming input tax deductions for any New Zealand GST costs will be required to use the existing GST return.

Expressing amounts in a foreign currency

Amendments to section 77 are proposed that will allow a non-resident supplier of remote services that are taxed under the new rules to choose to express the amount of consideration for their supplies in a foreign currency at the time of supply, with the amounts being converted into New Zealand currency at the date of filing (or the due date if the return is filed after the due date).

Holding records outside New Zealand and in a language other than English

Proposed section 75(3F) will provide an automatic exception for non-resident suppliers who only supply remote services from the requirement to apply to the Commissioner for authorisation to keep and retain records in a language other than English or at a place outside New Zealand.

Exception from the bank account requirement

Proposed section 24BA(1B) of the Tax Administration Act 1994 will provide an exception for non-resident suppliers to the existing requirement for an offshore person to have a fully functional New Zealand bank account to obtain an IRD number, if this is required solely because they are a non-resident supplier of remote services that are taxed under the proposed rules.

Detailed analysis

Misrepresentations by recipients of remote services

Proposed sections 5(27) and 51B(7) provide a discretion for the Commissioner to require a person to register and pay GST that should have been charged, when:

  • the person has knowingly provided information that is altered, false or misleading, which leads to a supply being treated as being zero-rated or as not being supplied in New Zealand; and
  • the person has repeatedly knowingly, provided altered, false or misleading information, or the amount of GST that was not charged is substantial.

The existing “knowledge offences” are also expected to apply when a person deliberately supplies incorrect information for the purpose of avoiding GST by misrepresenting themselves as a registered business or as a resident of another country (section 143A of the Tax Administration Act 1994). A person convicted of a knowledge offence is liable for a fine of up to NZ$25,000 for a first-time offence, or NZ$50,000 for repeated offences.

If a customer provided incorrect false information to access content that is geographically restricted, which consequentially resulted in GST not being charged, the reverse charge in proposed section 5(27) and the existing knowledge offences would not be expected to apply.

Example

Luke purchases a number of remote services online, including online dating services, music and movie content. To avoid paying GST, Luke has used a false IP address, billing address and other details to mask the fact that he is a resident of New Zealand. On other occasions, he has provided a false GST registration number.

The Commissioner of Inland Revenue exercises her discretion to register Luke from the time the services were physically performed, and requires him to repay the GST that was not charged, plus penalties and interest.

Taxable periods

Currently, GST returns must be filed on a one-monthly, two-monthly or six-monthly basis, depending on turnover levels. Current systems are unable to support other taxable periods. However, these systems are expected to be replaced with a new solution during the first quarter of 2017, as part of Inland Revenue’s Business Transformation programme.

For the period beginning 1 October 2016 to 31 March 2017, non-resident suppliers of remote services will have a default taxable period of six months, or an optional taxable period of two months. This initial six-month taxable period provides a “soft start” to the rules, as a non-resident supplier of remote services will be able to register, file and pay by 7 May 2017 without facing interest or penalties.

From 1 April 2017, non-resident suppliers of remote services that are subject to GST under the new proposed rules will have quarterly taxable periods. This is intended to align with these suppliers’ filing obligations in other jurisdictions, to reduce their compliance costs.

Expressing amounts in a foreign currency

Currently, the GST Act requires that all amounts are expressed in New Zealand currency at the time of supply. This means that if a supply is paid for in a foreign currency, the value of the supply must be expressed as the amount of foreign currency converted to New Zealand currency at the exchange rate applying at the time of supply.

As this requirement could result in significant compliance costs for offshore suppliers who register under the new rules, amendments are proposed to section 77 that will provide non-resident suppliers of remote services with the option of expressing amounts in a foreign currency. The foreign currency amounts would then be converted into New Zealand dollars at the time of filing their return (or at the due date for filing, if the return was filed past the due date). To ensure that suppliers to do not switch between currencies to take advantage of currency movements, a “lock-in” rule will prevent the non-resident supplier from changing their election within two years.

Holding records outside New Zealand and in a language other than English

Proposed section 75(3BA) will provide an automatic exception to the requirement to keep and retain records in English or at a place in New Zealand for non-resident suppliers of remote services that are subject to GST under proposed section 8(3)(c). Currently, a GST-registered person must apply to the Commissioner of Inland Revenue for authorisation to keep records at a place outside New Zealand or in a language other than English.

Exception from the bank account requirement

Recent amendments to the Tax Administration Act 1994 require an offshore person to have a fully functional New Zealand bank account in order to obtain an IRD number. This is to ensure that an offshore person has first been subjected to New Zealand’s anti-money laundering and Countering Financing of Terrorism rules.

Proposed section 24BA(1B) will provide an exception to this requirement for non-resident supplier who required an IRD number solely because they are a non-resident supplier of remote services that are taxed under the proposed rules. As these suppliers will often have no connection with New Zealand other than supplying a remote service to New Zealand customers, this requirement would otherwise impose compliance costs, and may discourage GST registration.