On October 24, 2017 the OECD released an implementation guidance for collection of value-added taxes (VAT/GST) on cross-border sales (“Mechanisms for the Effective Collection of VAT/GST When the Supplier Is Not Located In the Jurisdiction of Taxation”). The aim of the guidance is to support the consistent implementation of internationally agreed standards for the VAT treatment of cross-border trade and is of particular relevance given the rapid and ongoing digitalisation of the economy.
The new guidance Mechanisms for the Effective Collection of VAT/GST Where the Supplier Is Not Located in the Jurisdiction of Taxation (implementation guidance) focuses on the implementation of the recommended approaches included in the 2015 Final Report on Action 1 "Addressing the Tax Challenges of the Digital Economy" of the BEPS project (BEPS Action 1 report). According to the OECD these recommended approaches, which are also included in the International VAT/GST Guidelines, have already been successfully implemented by a large number of countries.
The implementation guidance builds on good practice approaches deployed by jurisdictions when they require foreign suppliers to register and collect VAT on cross-border B2C sales in application of the solutions recommended in the BEPS Action 1 report. The implementation guidance was developed by the OECD with the active involvement of a wide range of jurisdictions beyond the OECD and with representatives of the global business community.
According to the OECD the new implementation guidance will support enhanced compliance levels while limiting compliance costs for digital suppliers by promoting the consistent and coherent implementation of these collection mechanisms across jurisdictions.
The guidance released on October 24, 2017 discusses a.o. the following topics:
· Collecting VAT on supplies of services and intangibles when the supplier is not located in the jurisdiction of taxation - basic policy questions and design issues
o Introduction
o Situating tax collection as applied to international trade within the framework of the core features of VAT
- Core features of VAT in all trade
- VAT and international trade: the destination principle and its implications for tax collection.
o Options for collecting VAT on supplies of services and intangibles when the supplier is not located in the jurisdiction of taxation
- Supplier collection (registration-based collection regimes)
- Customer collection
- Intermediaries
- Automated systems
· Registration-based collection regimes - key policy and design considerations
o Introduction
o Thresholds
o The role of third-party service providers in facilitating foreign suppliers' VAT compliance
- Fiscal representatives
o Approaches for determining and evidencing the status of the customer
o Approaches for determining and evidencing the usual residence of the customer (where required)
· Design and practical operation of simplified registration and collection regimes
o Introduction
o Scope of the simplified registration and collection regime
- Broad approach: all B2C supplies of services and intangibles by foreign suppliers in scope
- Targeted approach: scope limited to specific type(s) of B2C supplies of services and intangibles
- Overall considerations on the scope of a simplified registration and collection regime
o Approaches to organising and simplifying registration and compliance under a simplified regime
- Registration procedure
- Input tax recovery – Refunds
- Return procedure
- Payments
- Record keeping
- Invoicing
- Communication strategy - Availability of information
- Regularisation of suppliers that failed to register
- Provide adequate lead time
Click here to be forwarded to the implementation guidance for collection of value-added taxes (VAT/GST) on cross-border sales as released by the OECD on October 24, 2017.
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