• Service: Tax, Indirect Tax
  • Date: 15/08/2013

Tax Insights

KPMG's analysis of tax issues and developments.

Justin Ward

Justin Ward
Director, Indirect Tax

+61 3 9288 5339

Preparing for the spotlight on GST and the digital economy 

by Justin Ward, Indirect Tax Specialist

"Address the Tax Challenges of the Digital Economy" is the first target in the Organisation for Economic Co-operation and Development (OECD) Action Plan on Base Profit Erosion released in July. Specifically, the OECD will address "how to ensure the effective collection of VAT/GST with respect to the cross-border supply of digital goods and services. Such work will require a thorough analysis of the various business models in this sector."

When Australia was still designing its goods and services tax (GST) at the turn of this century, the OECD and European Commission were reflecting on the taxation of electronic commerce in the context of Europe’s value added tax (VAT). At that time, electronic services such as web hosting were taxed at the ‘place of supply’, which was often a location outside the EU, like Gibraltar. During the 2000s, EU VAT rules changed significantly, attempting to tax electronic commerce at the place of consumption.


In Australia, complex technical questions arise when assessing whether inbound transactions originating from electronic commerce dealings are subject to GST, and whether vendors have an Australian GST liability as a consequence:

  • for 'goods', one must determine who is the 'importer' of the goods
  • for anything else, the focus is on where the 'thing is done'


In the context of where the 'thing is done', current ATO interpretation reflects contract law principles and case law determining jurisdiction, differentiating contracts accepted by post from those formed over email.


As the OECD and Treasury work through various business models, it is anticipated that closer review of online contracting processes will flush out inconsistent GST outcomes. Hopefully our law will ultimately be refined to simplify decision making and deliver consistent outcomes, particularly in the context of the digital economy.


For more information, please contact your indirect tax specialist.


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