Chapter 3 – Proposals


It is proposed that:

  • The special rules in the GST Act for supplies of telecommunications services be mostly repealed.
  • The GST treatment of most telecommunications services be aligned with the treatment of other remote services.
  • The GST treatment of some specific telecommunications services will be determined by the physical location of the recipient rather than their residency, if to receive the services, the recipient needs to be at a specific location.
  • The residency of a consumer receiving mobile telecommunications services be determined solely by the country code of the SIM card they are using to receive those services.
  • Business-to-business supplies of telecommunications services by non-resident suppliers would continue to not be subject to GST.

The problem

3.1 As outlined in chapter 2, the approach of many countries is to apply tax to telecommunications services on a residency basis. As New Zealand’s current rules are not aligned with international best practice they could give rise to potential double non-taxation and double taxation issues. Outbound roaming services supplied to New Zealand-resident consumers temporarily offshore may not be taxed in any country (double non-taxation). On the other hand, inbound roaming services received by a non-resident in New Zealand could possibly be subject to tax in both New Zealand and in the country where the consumer is usually resident (double taxation).

3.2 Further, the nature of telecommunications services has changed significantly since the special GST rules were introduced in 2003. The lines between telecommunications services and content are now blurred and services that were once separate are now supplied together over data-based networks.

3.3 It does not make sense when these services are now so interconnected, for the supply of digital content to be treated differently (currently taxable under the remote services regime) from the telecommunications services through which the content is able to be provided or delivered. The current rules mean that a New Zealand resident would, for example, be charged GST on music that she has downloaded while overseas, but no GST would be charged on the roaming services that she has used to download the music.

Example 3: Current treatment of outbound roaming services versus treatment of other remote services

Nell is still in Brussels on holiday. She uses roaming services on her New Zealand mobile phone to search for a song title. She then pays to download that song from a popular international music website. The song she downloads onto her phone is subject to New Zealand GST (taxable under the remote service rules). However, the underlying roaming services which enabled her to search for the song on the internet and subsequently download it onto her phone are not subject to GST (currently zero-rated under the special rules for telecommunications services).

The main proposal

3.4 The Government has proposed to repeal most of the special rules applying to telecommunications services. Repealing the telecommunications services rules would mean that telecommunications services would generally be treated as remote services. As such, their place of consumption would be determined by the residency of the recipient of the services.

3.5 However, for certain telecommunications services the consumer’s residency is not an appropriate proxy for the place of consumption. These services require a person to be in a specific location to receive the services. For these specific telecommunications services we propose that the location of the recipient of the services should be used for determining the place of consumption (discussed in chapter 4).

Telecommunications services as remote services

3.6 Section 2 of the GST Act defines a remote service as:

a service that, at the time of the performance of the service, has no necessary connection between –

(a) the place where the service is physically performed; and
(b) the location of the recipient of the services

3.7 We consider that most telecommunications services meet this definition. Therefore, by repealing the special GST rules for telecommunications services, the treatment of telecommunications services would be aligned with the treatment of other remote services and based on the consumer’s residency rather than their physical location. This means that telecommunications services supplied to New Zealand-resident consumers would be subject to GST regardless of the location of the consumer. Conversely, telecommunications services supplied to non-resident consumers would not be subject to GST.

3.8 For most telecommunications services, aligning their treatment with the GST treatment of other remote services would not change their GST treatment. These telecommunications services are currently initiated in New Zealand by a New Zealand resident, or initiated outside New Zealand by a non-resident.

Example 4: Telecommunication services supplied to a resident

Brett is a New Zealand resident living in Hamilton. Brett receives mobile phone services from Kiwiphone, a New Zealand-resident telecommunications supplier. The mobile phone services supplied to Brett are currently standard-rated (subject to GST at 15%) as they supplied by a New Zealand resident and are initiated by Brett in New Zealand (meaning that section 11AB, which zero-rates telecommunications services initiated outside New Zealand, does not apply to the treatment of the services). These mobile phone services would still be standard-rated in the absence of the special telecommunications rules as they are supplied by a New Zealand resident.

Brett also receives landline phone services to his house in Hamilton from Kiwiphone. These services are currently subject to GST at 15% as they are initiated by Brett in New Zealand. In the absence of the special telecommunications rules these services would also be subject to GST at 15% as they are supplied by a New Zealand resident.

Brett also contracts Catapult Broadband, an American internet service provider to supply internet to Brett’s home in Hamilton. Under the current rules, assuming Catapult Broadband meets the registration threshold, they would need to charge GST on the internet services they provide to Brett as the services are initiated by a person in New Zealand. Under the remote services rules these internet services would still be subject to GST as they are provided to a New Zealand-resident consumer.

Mobile roaming services

3.9 Telecommunications services supplied to a New Zealand resident physically outside New Zealand, or to a non-resident physically inside New Zealand would have their GST treatment changed under the proposals. The place of consumption for these services would no longer be determined by the place the services are initiated but would instead be determined by the residency of the recipient of the services.

3.10 The most prominent type of telecommunications services that would have their GST treatment changed under the proposals are mobile roaming services. For example, outbound roaming services supplied to New Zealand residents outside New Zealand are currently zero-rated but would be standard-rated (subject to GST of 15%) under the proposed changes.

Example 5: Roaming services supplied to residents

Kiwi Telco, a New Zealand-resident telecommunications supplier, supplies mobile phone services to New Zealand residents. Currently, Kiwi Telco charges GST on the mobile phone services its customers receive in New Zealand. However, Kiwi Telco zero-rates the roaming services it provides to its customers when they are outside New Zealand. Under the proposed rules, Kiwi Telco would be required to charge GST at the standard rate on both the regular mobile phone services and the outbound roaming services it supplies to New Zealand residents.

3.11 Conversely, inbound roaming services supplied to non-residents inside New Zealand would no longer be potentially subject to GST.

Example 6: Roaming services supplied to non-residents

Ozzy Telco is an Australian telecommunications company that supplies roaming services to Australian tourists on holiday in New Zealand. Ozzy Telco also makes some taxable supplies to New Zealand residents and is therefore GST-registered. Currently Ozzy Telco would be required to return GST on the inbound roaming services it provides to tourists in New Zealand. Under the proposals, Ozzy Telco would no longer be required to return GST on its supplies of inbound roaming services to non-residents.

Telecommunications services supplied by residents to non-residents

3.12 Applying the remote services rules to telecommunications services would mean that telecommunications services supplied by a resident supplier to non-residents outside New Zealand would remain zero-rated. Telecommunications services supplied to non-residents physically in New Zealand would under section 8(2) be prima facie still subject to GST at the standard rate. However, section 20(3)(dc) would mitigate double taxation by reducing the amount of output tax payable on these services to the extent the supplier has incurred liability for, returned and paid a consumption tax in another jurisdiction.

Example 7: Telecommunications services supplied by a resident to non-residents

Kiwiphone is a New Zealand-resident telecommunications supplier that primarily supplies mobile phone services to New Zealand residents. However, Kiwiphone also operates a mobile network in the UK through which it supplies mobile phone services to UK residents. Currently, the regular mobile services Kiwiphone supplies to UK residents are zero-rated under section 11AB(b), whilst the inbound roaming services they supply to UK residents physically in New Zealand are standard rated.

Under the remote services rules the regular mobile services Kiwiphone supplies to UK residents would remain zero-rated and the inbound roaming services they supply to UK residents in New Zealand would prima facie be subject to GST at the standard rate. However, as Kiwiphone is registered for VAT in the UK they are paying UK VAT on these inbound roaming services at the rate of 20%. Under section 20(3)(dc) Kiwiphone would therefore not be required to return GST on the inbound roaming services they supply to UK residents.

Local SIM cards, phones and portable mobile routers

3.13 It is a common practice for tourists travelling overseas to purchase local SIM cards or use local portable mobile routers (such as, pocket wi-fi) of the country they are travelling in to avoid paying international roaming charges. Alternatively, some tourists may purchase local mobile phones of the country they are travelling in to use while away on holiday.

3.14 Under the remote services rules, these mobile telecommunications services a tourist receives should be subject to GST/VAT in the jurisdiction they are resident in even if they are using a local SIM card or phone. However, it can be argued that the place of consumption for the telecommunications services a tourist receives through the use of a local SIM card, portable mobile router or mobile phone should be the tourist’s physical location and not their residency as, to receive the “non-roaming” mobile telecommunications services, a tourist using a local SIM card needs to be in the country associated with that SIM card.

3.15 In practice it is also likely to be difficult for telecommunications suppliers to charge the correct jurisdictions’ GST or VAT when a tourist is using a local SIM or phone. Under section 8B(2) suppliers are required to use two non-contradictory pieces of evidence for determining the residency of the consumer. However, under paragraph (e) one of the pieces of evidence that can be used is the mobile country code of the SIM card used by the person. It may therefore be difficult for a supplier of mobile phone services to have two non-contradictory pieces of evidence for a consumer’s residency status when a tourist is using a local SIM card.

3.16 As such, we propose that the residency of a consumer receiving these mobile telecommunications services should be determined solely by the country code of the SIM card they are using to receive those services. This would mean that mobile telecommunications services a tourist receives through using a New Zealand SIM card, for example, would be subject to GST. Likewise, the mobile telecommunications services a New Zealand resident receives through a foreign SIM card while overseas would not be subject to GST.

Example 8: New Zealand resident using a foreign SIM card

Kirsty, a New Zealand resident, is on holiday in Egypt. To avoid paying international roaming charges she purchases a SIM card of a local Egyptian telecommunications supplier. The mobile telecommunications services she receives through her Egyptian SIM card will not be subject to GST.

Example 9: Non-residents using a New Zealand mobile device

Steve, Dave and Cameron are Australian tourists on holiday in New Zealand. To avoid paying international roaming charges while in New Zealand, they purchase a pocket wi-fi device from the local supermarket. This device provides them with a private wi-fi signal and allows them all to connect to the Internet from their respective mobile devices. This mobile telecommunications service they receive through the pocket wi-fi will be subject to GST at 15%.

3.17 We are seeking feedback on whether this is an appropriate approach for determining the place of consumption of mobile telecommunications services when a person uses a local SIM card or mobile device while overseas.

Business-to-business supplies

3.18 Telecommunications services supplied by a non-resident to a GST-registered business are generally not subject to GST under section 8(8). Treating telecommunications services as remote services should generally maintain this treatment. Under section 8(4D), remote services supplied by a non-resident to a GST-registered business are not subject to GST unless the supplier chooses to zero-rate the supply in order to claim back any New Zealand GST incurred in making the supply.

3.19 Currently telecommunications services supplied by a resident are zero-rated if supplied to a non-resident supplier of telecommunications services. We recommend that this treatment be retained to ensure that GST remains a tax on consumption and not on businesses.

Definition of telecommunications services

3.20 Telecommunications services are currently defined in section 2 of the GST Act as:

the transmission, emission or reception, and the transfer or assignment of the right to use capacity for the transmission, emission or reception, of signals, writing, images, sounds or information of any kind by wire, cable, radio, optical or other electromagnetic system, or by a similar technical system, and includes access to global information networks but does not include the content of the telecommunication

3.21 While we are proposing to repeal the special telecommunications rules we consider that a definition of telecommunications services is still required in the GST Act. We are therefore seeking feedback on whether the current definition is still fit for purpose.

Application date

3.22 It is proposed that the new rules apply from 1 October 2020.