Andrew Sommer from Clayton Utz and the Australian Taxation Landscape
Clayton Utz is Australia’s largest independent law firm, which provides a full range of commercial legal services across Australia. The Clayton Utz tax practice operates out of our Brisbane, Melbourne and Sydney offices, with six specialist tax partners and three tax special counsel. Andrew Sommer is the National Tax Practice Group Leader and is a specialist in indirect taxation including Australian GST, payroll tax, land tax and FBT. Andrew commenced his career in indirect taxation at Ernst & Young in 1994 and has been at Clayton Utz for the past 19 years. He has taught post graduate courses in indirect taxation for the University of New South Wales and the University of Sydney. Andrew is engaged by the Australian Taxation Office to serve on the Public Advice and Guidance Panel and is a member of the GST Advisory group that seeks to draw better links between the tax administrators, tax advisors and tax payers.
Could you tell us a bit about any recent changes in the Australian taxation landscape? How have they impacted your work?
There is a number of aspects of the taxation landscape that have changed in recent years. The continuing revenue pressures for the Australian Federal Government and the State Government have driven the adoption of new measures to both protect the existing tax base and also to expand the extent to which non-residents are taxed in Australia.
In the income tax context, we have seen the recent adoption of the Multinational Anti-Avoidance Law (MAAL) and from 1 July 2017, Australia will have a Diverted Profits Tax. Both of these measures are designed to ensure that significant multinationals operating in Australia allocate “the appropriate level” of profits to Australia.
In the GST context, 1 July 2017 will also involve the largest expansion of the indirect tax base since the introduction of GST in 2000.
For the first time, supplies of “intangibles” (things other than goods and real property) supplied to consumers from outside Australia will be subject to GST. The Australian GST has always included a “reverse charge” for offshore supplies of intangibles. However, the operation of the reverse charge was previously limited to acquisitions by businesses carrying on an enterprise in Australia. Even in such cases, the reverse charge was only payable when the business would not have been entitled to claim full input tax credits. As such, under the rules which apply up to 1 July 2017, no Australian GST is payable in connection with video or music streaming services supplied to Australian consumers from outside Australia. Similarly, software, electronic books and news subscription services supplied from offshore were all outside the GST base.
The new rules seek to impose GST on these supplies. The mechanism for doing so is similar to models used in other jurisdictions – the offshore supplier will be required to be registered for GST purposes in Australia and remit GST to the Australian Taxation Office (ATO). Again, consistent with other GST/VAT models, where the supply of those intangibles is made through a “platform”, it will be the operator of the platform that will be deemed to be making the supply and it is the operator of the platform who will be required to register and account to the ATO for the GST payable. Whilst this will alleviate registration responsibilities for small vendors operating through platforms, it will create compliance issues for the operators of the platform.
The reforms for intangibles have been enacted into law. There is a further, and perhaps more controversial reform, that has been proposed for 1 July 2017 but not yet enacted. The legislation is currently under consideration by the Australian Parliament. The proposed additional reforms would extend the above approach to cross border supplies of “low value goods” to Australian consumers.
Australia has typically had a comparatively high threshold (AUD 1000) for the imposition of GST on goods that are imported. Consignments of goods of less than AUD1000 are not stopped at the border and are not subject to any payment of Australian GST. Under the proposed reforms:
- for supplies of goods under AUD1000, GST will be payable by the offshore supplier of the goods. Where the sale of goods is effected through a platform (similar to the platforms for intangibles), it will be the operator of the platform that is liable for the GST;
- for supplies of goods over AUD1000, the current rules will apply. This means that GST will not be payable by the supplier of the goods (or the platform through which they operate) and GST will be payable by the Australian importer at the Customs border.
The changes and proposed changes are quite complex and this is only a very high level summary. It is hoped that ATO guidance will be made available for non-resident suppliers soon.
What do you anticipate for the sector in 2017? Do you believe that there is potential for any significant legislative developments in the next twelve months?
Tax reform is often a feature of the Federal Government’s annual budget, which will be handed down on 9 May 2017. However, as discussed above, there has already been significant reform in the lead up to the budget. Nonetheless, further tightening of income tax measures remains a possibility.
Reform of GST measures is typically more complex, because such reforms involve the agreement of the Australian States and Territories. As such, minor reforms (such as a recent announcement of the introduction of a reverse charge for supplies of precious metals) continue to be made but it is expected that the focus will be on the implementation of the cross-border measures and ensuring that the “low-value goods” measures are enacted into law.
A large proportion of your work includes advising on complex GST-related matters – what are the requirements for businesses in Australia to register for GST?
Australia has always had a very open approach to registration for GST purposes. The only criterion that needs to be met is for an entity to be carrying on an enterprise. The definition of “enterprise” for this purpose is very broad (it includes an activity or series of activities done in the form of a business). Significantly, there is no need for the entity seeking registration to make supplies that are “connected with” Australia.
However, whilst the entitlement to register is quite open, the procedural requirements can be onerous. Many of these involve these involve the satisfaction of the ATO’s “proof of identity” requirements. These measures are important to ensure that GST entitlements are correctly paid, but assembling the necessary documentation for non-resident clients can be time-consuming.
What are some of the key issues that your clients need assistance with in relation to registering for GST? What are the complications that are likely to arise post-registering?
Many of our clients require assistance in navigating the process of engaging with the ATO regarding registration and proof of identity. This often involves the interaction with other taxes, including income tax and registration for employment taxes. There are also other complications for non-residents that can arise as a consequence of voluntarily registering for GST purposes. In particular, registration of a non-resident may result in Australian suppliers ceasing to be able to treat supplies to that non-resident as GST-free (zero rated). Also, once an entity voluntarily registers for GST purposes, all supplies by that entity that have the relevant connection with Australia can become taxable supplies. As the scope of supplies that will have a relevant connection with Australia will be substantially expanded from 1 July 2017, this will be an important analysis to undertake for all non-residents dealing with Australia.
What tactics do you employ when assisting clients who are having difficulties meeting their tax payment obligations?
From time to time taxpayers do have difficulties in meeting their tax payment obligations. It is important in such cases to actively engage with the ATO. The earlier taxpayers engage with the ATO, the better the chance they have of an agreed outcome. The worst thing that taxpayers can do is “stick their heads in the sand” and hope the problem goes away.
Taxpayers who are in financial difficulty also need to ensure that they comply with their obligations under the Corporations Act regarding insolvent trading. They should seek advice as to these issues quickly and proactively.
As a thought leader in this segment, how are you developing new strategies and ways to help your clients?
Our focus is on practical solutions for our clients. This requires a detailed understanding of our clients’ business and their objectives. In our experience, clients are not interested in “pre-packaged” approaches. We are genuinely interested in our clients and the success of their business. We work closely with the in-house tax team of our key clients to develop the best approach to each transaction or their overall tax compliance.
Tax continues to be a challenging and rewarding area of legal practice. We seek to provide our clients with market leading technical expertise along with our determination to provide them with the best and most practical outcome.
You have been involved in some of the most significant Government, financing and corporate transactions in Australia – over the years, which would you say has been the most successful and rewarding case that you have worked on, and why?
On a personal note, infrastructure projects are always satisfying because they are a great tangible reminder of the delivery of a successful outcome for a client. They also give you something to point to when you are trying to explain to your kids what you do for a living. However, the most satisfying matters are the ones in which we achieve a cost-effective solution for our clients that enables them to focus on their business and have a positive and productive ongoing relationship with the ATO.