TEI comments on International VAT/GST guidelines addressing the place of taxation for business-to-consumer supplies of services and intangibles and supporting provisions.

PositionTax Executives Institute, value-added tax, goods and services tax

On February 19, 2015, TEI submitted comments to the OECD regarding two new draft elements of the International VAT/GST Guidelines, entitled Guidelines on Place of Taxation for Business-to-Consumer Supplies of Services and Intangibles and Provisions on Supporting the Guidelines in Practice (Draft Guidelines). TEI's comments emphasized the benefits of a simplified registration and compliance regime for non-resident suppliers of business-to-consumer services and intangibles, as well as the importance of clear guidance from tax authorities to facilitate compliance. TEI's comments were prepared under the aegis of TEI's European Indirect Tax Committee, whose chair is Jean-Francois Turgeon. Pilar Mata, Tax Counsel for TEI, coordinated the preparation of TEI's comments.

On December 18, 2014, Working

Party No. 9 on Consumption Taxes of the Organisation for Economic Co-operation and Development (OECD) released a consultation document setting forth two new draft elements (the Discussion Draft) of the International VAT/GST Guidelines (the Guidelines). The elements address the place of taxation for business-to-consumer (B2C) supplies of services and intangibles. In its Report on Tax Challenges of the Digital Economy, which was prepared in context of work on Action 1 of the BEPS Action Plan, the OECD identified this area as a "pressing issue that needs to be addressed urgently to protect tax revenue and to level the playing field between foreign suppliers relative to domestic suppliers."

Tax Executives Institute (TEI) commends Working Party No. 9 for its work on the Guidelines. Crafting globally applicable approaches for use in countries with different legal frameworks, customs, and backgrounds is a difficult task. The benefits of that work, however, are significant. All countries have the common objectives of fair taxation, maintaining (or achieving) a level playing field between domestic and foreign vendors, and the efficient collection and enforcement of their tax systems. In the specific context of electronic commerce, it is in the interest of all parties to ensure a consistent global approach in line with OECD principles and guidelines. As the International President of TEI, I am pleased to submit the following comments on the Discussion Draft.

Tax Executives Institute

TEI was founded in 1944 to serve the professional needs of business tax professionals. Today, the organisation has 56 chapters in Europe, North and South America, and Asia. As the preeminent association of in-house tax professionals worldwide, TEI has a significant interest in promoting tax policy, as well as the fair and efficient administration of the tax laws, at all levels of government. Our nearly 7,000 individual members represent 3,000 of the largest companies in the world. (1)

TEI Comments

General Comments

Countries around the world struggle with the application of consumption taxes to supplies of services and intangibles, especially when those supplies are made by businesses with no presence in the country of their customers. During the past decade, a number of countries have developed approaches for addressing B2C supplies of services and intangibles.

For example, effective January 1, 2015, the European Union introduced a new set of rules and registration requirements for supplies of electronically-delivered services. Norway has been taxing sales of electronic services made by foreign (non-established) vendors to Norwegian customers and operating a simplified registration and collection system since July 2011. Beginning June 1, 2014, South Africa introduced a set of rules addressing this same part of the economy. Finally, Canada and Japan continue to analyse different approaches to ensure the proper amount of GST and CT, respectively, is collected on these transactions. As more countries introduce measures governing the application of their VATs to supplies of services and intangibles, there is greater risk of creating a patchwork of inconsistent rules that could (and often do) result in double taxation or double non-taxation, thereby eroding the principle of neutrality, which is critical to a properly functioning international VAT system. TEI commends the OECD and Working Party No. 9 for their ongoing efforts to develop international VAT guidelines and appreciates this opportunity to comment on the Discussion Draft.

Comments on Specific Areas of the Discussion Draft

The Discussion Draft adds two new elements to the Guidelines that were approved at the OECD Global Forum on VAT held in Tokyo in April 2014: (1) Chapter 3 -- Determining the Place of Taxation for Cross-Border Supplies of Services and Intangibles; and (2) Chapter 4--Supporting the Guidelines in Practice-- Mutual Cooperation, Dispute Minimisation, and Application in Cases of Evasion and Avoidance. Chapter 3 of the Discussion Draft also includes an annex discussing the main features of a simplified registration and compliance regime for non-resident suppliers.

Paragraph 3.5: Guideline 3.1 of the...

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