Chapter 6 – Business conferences and staff training
- Impractical for offshore businesses to claim back GST on conferences and staff training
- Zero-rating GST on conferences and staff training supplied to non-resident businesses
- Design issues
6.1 GST is designed to be a broad-based low rate tax on consumption of goods and services in New Zealand. When GST has been incurred by businesses making taxable supplies, then the business should be able to recover the GST paid on their business expenses, in a cost-effective way. This includes situations where a business sends their staff to a New Zealand conference or training course.
6.2 A business that is registered for GST can claim GST input credits in relation to the GST it pays for its employees to attend a New Zealand conference (see figure 1).
Figure 1: Claiming GST for a New Zealand conference
6.3 However, most offshore business will not be registered for GST in New Zealand so are unable to claim GST input credits in relation to GST on conference or training fees.
6.4 Although it is possible for such offshore businesses to register for GST (under section 54B of the GST Act) in order to claim refunds, in practice the process of registering for GST solely to claim small, irregular GST refunds can impose an undue compliance on offshore businesses (when their only New Zealand expenses are a one-off or occasional expense of attending a conference).
6.5 For some conferences, a large number of offshore businesses may attend and each of these businesses would need to register for GST and file a GST return if they wished to claim a GST refund. This means the current rules are not a practical way for offshore businesses to recover their GST costs when they attend New Zealand conferences.
6.6 To mitigate these practical difficulties, Australia and Singapore have made conferences, staff training, and other services provided to offshore businesses “GST-free” or zero-rated for GST (GST applies at 0%).
6.7 The New Zealand conference industry faces a disadvantage in respect of attracting international conferences compared to Australia and other locations such as Singapore which do not charge GST on business conferences or staff training. In contrast, the European Union countries apply VAT/GST at full rates on conference services provided to offshore businesses.
6.8 To address this issue, officials are proposing to zero-rate GST on conferences, conventions and staff training supplied in New Zealand to non-resident businesses.
6.9 Zero-rating GST for conference services provided to offshore businesses would make it relatively more attractive to host large international conferences in New Zealand.
6.10 The proposal could increase the competitiveness of New Zealand training providers that provide staff training courses. We are interested in any market data available on the current size of this market.
6.11 In order to implement a clear and robust zero-rating rule, a number of design issues would need to be worked through with the affected conference organisers, business training providers and tax advisors.
6.12 The two main design issues are the definition of a non-resident business and the definition of the qualifying conference or staff training services.
6.13 The rationale for the proposed zero-rating rule is to ensure GST does not impose unrecoverable costs on businesses. Therefore, zero-rating should only apply when the service is supplied to a non-resident business.
6.14 In many cases, training and education services will be received by students in a personal capacity (as opposed to a business buying training for its staff). In such circumstances the training represents final consumption in New Zealand rather than a business input, so it should continue to be standard-rated (subject to 15% GST).
6.15 For the purposes of the proposed zero-rating rule a non-resident business could be defined using the existing criterion in section 54B. That criterion refers to a non-resident who is not registered for GST under section 51 and is registered for a consumption tax (GST or VAT) in a country or territory in which they are resident (or is resident in a country or territory without a consumption tax and would have at least $60,000 of taxable supplies if they were resident in New Zealand). In addition, the zero-rating rule would also not apply to non-resident businesses which were already registered for GST under section 54B as these businesses are already able to claim input credits in respect of New Zealand GST costs.
6.16 A key difference between the existing rules in section 54B and a proposed zero-rating rule for conferences, would be that the New Zealand supplier would need to obtain sufficient information to be able to determine both the residency and business status of the conference attendee.
Services which qualify for the zero-rating provision
6.17 Singapore’s GST rules zero-rate exhibitions, conventions, staff training or retraining for business or employment.
6.18 Singapore’s rules also zero-rate services which are supplementary to providing the exhibition, convention or staff training (such as organising these events), but specifically exclude “services related to entertainment and accommodation” (such services are subject to the standard rate of GST).
6.19 Officials consider Singapore’s rules provide a clear boundary between business conferences and staff training and private consumption of tourism activities and that similar zero-rating rules could be used in New Zealand.
6.20 It is proposed that the service would have to relate to a business conference or staff training and there would be specific exclusions for accommodation or entertainment. So, for example, conference fees would be zero-rated but hotels and tourism experiences would continue to be standard-rated (subject to 15% GST).
6.21 However, we note that it is industry practice to “bundle” accommodation and other services (such as hospitality) into a conference or convention attendance fee. There could be a greater incentive to bundle other services (such as entertainment) into a conference package, to subject all of the services to zero-rate.
6.22 Officials are keen to receive submissions on the types of services that are typically bundled into a conference or convention fee, to assist officials with the policy development of this proposal.
6.23 Accordingly, most parts of “incentive tours” that businesses use to reward employees with tourism experiences would remain standard-rated. This is consistent with the fact that similar incentives provided to New Zealand employees as rewards for their work would be liable for fringe benefit tax and subject to GST as they represent private consumption.
6.24 It is therefore proposed that the zero-rating would only apply if a non-resident business uses the service for the purpose of carrying on a taxable activity. This should ensure that training provided to an individual in a personal capacity would not qualify for zero-rating.
Questions for submitters
- What are the costs, benefits and risks from the proposal to zero-rate GST on business conferences and staff training supplied to non-resident businesses? What data is available to assist with estimating these costs and benefits?
- How should a non-resident business be defined and identified by the relevant suppliers?
- What type of conference and training services should qualify for the proposed zero-rating? How should these be defined to provide certainty and reduce the risk of private consumption such as tourism activities becoming zero-rated?