Supplies of remote gambling services

(Clauses 48(1), 48(2), 51 and 52(1))

Summary of proposed amendment

Payments made for remote gambling services or prize competitions by a New Zealand resident performed outside New Zealand are treated as a supply for GST purposes. Special rules will apply to determine the consideration for a remote supply of gambling services or prize competitions, based on amounts received from New Zealand residents, less a share of worldwide prizes.

Key features

Proposed section 5(10B) will treat payments for remote gambling services or prize competitions by a New Zealand resident performed outside New Zealand as payment for the supply of services by the person who conducts the gambling or prize competition.

An addition to section 5(11) will apply the definition of “gambling” under the Gambling Act 2003 to proposed section 5(10B).

Proposed section 10(14B) will apply to determine the consideration for the supply of remote gambling services or prize competitions for the purposes of proposed section 5(10B). The amount of consideration is:

resident amount - worldwide prizes × ( resident amounts
worldwide amounts
)

Resident amounts, worldwide prizes and worldwide amounts are defined under section 10(14C) as follows:

  • “resident amounts” is the total amount in money received in relation to the supply by the non-resident who conducts the gambling or prize competition from all the persons resident in New Zealand;
  • “worldwide prizes” is the total amount of all prizes paid and payable in money worldwide in relation to the supply; and
  • “worldwide amounts" is the total amount in money received worldwide in relation to the supply by the non-resident person who conducts the gambling or the prize competition.

Background

Gambling and prize competitions conducted in New Zealand are currently supplies for GST purposes. Gambling is defined under the Gambling Act 2003 as:

  • paying or staking consideration, directly or indirectly, on the outcome of something seeking to win money when the outcome depends wholly or partly on chance;
  • includes a sales promotion scheme;
  • includes bookmaking; and
  • includes betting, paying, or staking consideration on the outcome of a sporting event.

A “prize competition” is defined in the GST Act as a scheme or competition:

  • for which direct or indirect consideration is paid to a person for conducting the scheme or competition;
  • that distributes prizes of money or in which participants seek to win money; and
  • for which the result is determined:
    • by the performance of the participant of an activity of a kind that may be performed more readily by a participant possessing or exercising some knowledge or skill; or
    • partly by chance and partly by the performance of an activity as described above, whether or not it may also be performed successfully by chance.

Currently, when these services are performed in New Zealand, the person who conducts the gambling or prize competition must determine the consideration for these supplies using the following formula:

amounts received - prizes

The amount received is the total of all amounts in money received in relation to the supply for gambling or a prize competition. Prizes are the total amount of all prizes paid and payable in money in relation to the supply.

The rules proposed ensure that gambling services and prize competitions performed in New Zealand are treated in the same way as supplies performed remotely outside New Zealand.

Detailed analysis

Gambling and prize competitions conducted outside New Zealand are likely to be supplied electronically (such as through an offshore gambling website). The person who conducts the gambling or prize competition is therefore likely to have participants in a number of countries. Prizes can also be paid out to any of these and the supplier is likely to have little influence over which participant receives a prize.

In this context, a rule for calculating consideration (the value of the supply with the addition of the tax charged) that reflects the existing rule for calculating consideration for gambling services performed in New Zealand (such as determining consideration by amounts received by New Zealand residents less prizes paid to New Zealand residents) may not be appropriate for gambling services performed outside New Zealand. This approach could produce arbitrary results, depending on the country in which the winner resides.

Example 1

Gambling Co. operates an offshore gambling website. Gambling Co. offers a game of chance to two participants, one in Australia and the other in New Zealand. The Australian resident and the New Zealand resident each make a payment of $100 to participate in the game of chance for a 50 percent chance to win $150.

Depending upon who won the prize, the amount of consideration calculated by Gambling Co. could vary significantly if consideration was solely based on amounts received by New Zealand residents less the amount of prizes paid to New Zealand residents.

If the Australian resident wins, the amount of consideration in New Zealand would be $100 ($100–$0); if the New Zealand resident wins, the amount of consideration in New Zealand would be nil ($100–$150).

To better reflect the level of services supplied to New Zealand residents, and to smooth out the amount of consideration for the gambling services attributed to New Zealand residents, the proposed rules determine the consideration for a remote supply of gambling services or a prize competition based on amounts received from New Zealand residents less the appropriate share of worldwide prizes.

The amount of consideration is proposed to be calculated using the following formula:

resident amounts - worldwide prizes × ( resident amounts
worldwide amounts
)

Example 2

Consider again Example 1. Using the proposed formula for calculating consideration, the amount of consideration attributed to supplies to New Zealand residents will be $25 regardless of whether the prize is won by the Australian resident or the New Zealand resident:

$25 = $100 - $150 × ( $100
$100 + $100
)

The proposed formula reflects the fact that remote gambling services performed outside New Zealand are likely to be supplied to a number of participants in a number of countries and will produce outcomes more consistent with the rules that apply to gambling services performed in New Zealand.