OECD VAT/GST Guidelines 2015

At the second meeting of the OECD Global Forum on VAT, in April 2014 in Tokyo, the high-level officials of 100 jurisdictions and international organisations endorsed the first three chapters of the OECD International VAT/GST Guidelines as global standards for the application of VAT/GST to international trade.

In the Statement of Outcomes of this meeting, they urged the OECD to finalise the work on the remaining elements of the Guidelines and to present the completed Guidelines for endorsement at the next meeting of the Global Forum.

This work has been carried out since April 2014 and the resulting new elements of the Guidelines have been merged with those that were endorsed at the 2014 Global Forum to form a fully consolidated draft.

This consolidated draft was approved by the OECD’s Committee on Fiscal Affairs (CFA) on 7 July 2015 with OECD and G20 countries working together on an equal footing, and is now presented for discussion at the third meeting of the OECD Global Forum on VAT.

These new elements of the Guidelines notably include a recommended solution for the effective collection of VAT/GST on the remote business-to-consumer sales of digital products by foreign suppliers (B2C Guidelines).

These B2C Guidelines were developed in the context of the OECD/G20 Project on Base and Erosion and Profit Shifting (the BEPS Project).

They were included in the 2015 Final Report on BEPS Action 1 “Addressing the Tax Challenges of the Digital Economy” that was endorsed by G20 Finance Ministers at their meeting on 8 October 2015 in Lima, Peru, as part of the final BEPS Package.  OECD VAT/GST Guidelines 2015

Australia – GST Treatment of Cross-border transactions

The exposure draft legislation is the second part of consultation on the Government’s tax integrity measure to extend the GST to digital products and other services imported by consumers.  This exposure draft builds on the feedback received from the first round of consultation, conducted from 12 May 2015 to 7 July 2015:

The Government has released an exposure draft Bill and associated explanatory material that would amend the goods and services tax (GST) law to give effect to the 2015-16 Budget decision to ensure digital products and services provided to Australian consumers receive equivalent GST treatment whether they are provided by Australian or foreign entities. The proposed amendments:

• make the supply of anything other than goods or real property to an entity that is not registered or required to be registered for GST potentially subject to GST if that entity is an Australian resident;
• provide that the GST will be payable on certain electronic supplies to which the above applies, by the operator of the service through which the supply is made to the consumer rather than the actual supplier; and
• allow for the making of regulations to provide simplified rules for registration, tax periods and GST returns for entities to which the proposed amendments apply.

The exposure draft also seeks comments on provisions to give effect to the announced but previously unenacted measure relating to GST cross border transactions and the ‘connected with Australia’ rules.

Key Documents

• Exposure draft
• Explanatory Material
• Exposure draft
• Consultation Paper

Closing date for submissions: Wednesday, 21 October 2015: GST Treatment of Cross-border transactions | The Treasury

Elements of GST Control Framework - Singapore

The Enhanced Taxpayer Relationship (ETR) Programme was introduced in 2008 as a service initiative and aims to build an open and collaborative taxpayer relationship through regular engagement with large companies, mutually benefitting IRAS and these companies.

The ETR Programme is designed to address the needs of large companies and help these companies manage their tax compliance. It offers large companies the benefits of finalising their tax assessments in a timely manner through a collaborative review process with IRAS, as well as tax certainty on significant current events through consultation with IRAS.

At the same time, IRAS gains a better understanding of the company's business operations and with the knowledge, IRAS is better able to identify and address revenue risk early.

Scope of the ETR Programme

Through the ETR Programme, IRAS and the company's senior management (Chief Financial Officer or equivalent) will meet regularly to address the company's current and emerging tax issues. The involvement of both IRAS' and the company's senior management, as well as the commitment of resources from both parties, will facilitate timely resolution of the company's tax matters.
Large companies with complex business models will benefit most from the ETR Programme as these companies are likely to have more complex tax issues. Currently, IRAS expects to have up to 200 companies on the ETR Programme.

Key Areas of Engagement

Under the ETR Programme, IRAS will engage the large company in one or more of the following key areas:

• Specific issue resolution - IRAS and the company will work on a mutually agreed plan to achieve timely resolution of specific tax issues.
• Generic issue resolution - Issues that are common to companies within a group are identified so that clear and consistent tax treatment can be applied on the same issue across the group.
• Significant current events - IRAS or the company may request early discussion and resolution of an upcoming significant event before filing of the income tax return so that downstream difficulties in assessments and objections can be reduced.
• Review of tax control system - IRAS and the company may work together to assess the adequacy of the company's tax accounting and reporting controls, identify existing and potential gaps and discuss the remedial actions.

How to Participate in the ETR Programme

Companies that contribute a significant amount of tax revenue may be invited to participate in the ETR Programme. These companies are strongly encouraged to participate in the programme, especially if their corporate tax assessments are not up-to-date.
Companies that have not been selected by IRAS to participate in the ETR Programme but wish to do so may apply to IRAS in writing. IRAS will review the application on a case-by-case basis, based on the following criteria:

• Tax contribution from the company;
• Complexity of the company's structure and operations;
• Current state of tax affairs of the company; and
• Company's willingness to commit resources to engage IRAS in the key areas, with the aim of bringing its tax affairs up-to-date.

Assisted Compliance Assurance Programme (ACAP)

GST ACAP is a compliance initiative for businesses that set up robust GST Control Framework as part of good corporate governance. Businesses may, on a voluntary basis, conduct a holistic risk-based review to endorse the effectiveness of their GST controls.
In the long run, a structure and a visible function properly set up to evaluate the impact of GST on the business transactions ensures the completeness and accuracy of GST reporting. In turn, a reduced risk of non-compliance with GST law ("GST risks") ultimately allows businesses to reap productivity gains - savings in both time and money.

Businesses Suited for ACAP

This programme is suited for businesses that:

• Have complex structures and business models;
• Engage in voluminous transactions;
• Place emphasis on tax risk management as part of their corporate governance; and
• Rely on extensive in-built controls in their systems and processes to generate timely and accurate data for financial and tax reporting.

Businesses that have established GST Control Framework at three critical levels (Entity Level, Transaction Level and GST Reporting Level) can undertake ACAP voluntarily.

Elements of GST Control Framework

Entity level

Senior Management - Incorporates GST risk management approach as part of the corporate governance. Senior Management and/or Boards of Directors- Maintains oversight of important GST matters. Control features pertaining to GST are established in:

• Control Environment
• Control Activities
• System Controls
• Change Management
• Information and Communication
• Monitoring and Review

Transactional level

Ensure the transactions are:

• properly tax classified
• accurately captured

Essential preventive and detective controls are established for Sales and Purchases Cycles to manage GST risks.
Two main GST risks are:

• Compliance risk: risk that a transaction may not be correctly tax classified or comply with requirements under the GST law.
• Processing risk: risk that the processes in capturing the transaction may not be effective in generating accurate data

GST Reporting level

Ensure data extracted and compiled for reporting in GST returns are accurate and complete. Control features are established at:

• extraction of data
• compilation of data (including making adjustments to comply with GST reporting rules)
• filing of GST returns

Qualifying for ACAP

You are eligible for ACAP if you meet the following conditions:

1. You have established acceptable GST Control Framework with key controls (listed in the 'Self-Review of GST Controls below') established at Entity, Transaction and GST Reporting levels.
2. The auditor's opinion on your latest financial statements is unqualified.
3. You are registered for GST for at least three years.
4. You are currently not under any GST audit conducted by IRAS.
5. You have good compliance records (including no tax outstanding with IRAS) for GST, Income Tax, Property Tax and with the Singapore Customs.
6. You commit to engage a qualified ACAP Reviewer to conduct ACAP Review.

See for chapters 'Trends' and 'Audit Defense' for other intiatives.