OECD Potential Game Changer: VAT on Cross-Border Sales

This specific rule change with respect to “services” could have huge compliance impacts if widely adopted around the world (or it could create an interesting tax planning opportunity…).

In Canada, Revenu Quebec summarizes the actual rule as follow:

“The sale in Canada of services rendered to non-residents of Canada is, as a rule, zero-rated for GST purposes. Likewise, the sale in Québec of services rendered to non-residents of Québec is generally zero-rated for QST purposes.”

See also Canada Revenue Agency’s GST/HST memorandum 3.3 Place of Supply for more detail.

From the OECD website:

“The decision by representatives of more than 100 countries and jurisdictions to endorse the new OECD International VAT/GST Guidelines as the preferred international standard for coherent and efficient application of Value Added Tax/Goods and Services Tax to the international trade in services was one of the highlights of the annual meeting of the OECD Global Forum on VAT on 5-6 November, in Paris, France. See Statement of Outcomes here.

This final package of  includes recommended rules for the collection of VAT on cross-border services, including Internet downloads, to private consumers (Business to Consumer, or B2C Guidelines). The Guidelines recommend that foreign sellers register and remit tax on sales of e-books, apps, music, videos and other digital goods in the jurisdiction where the final consumer is located. The Guidelines also include a recommended mechanism to ensure the effective collection of VAT by tax authorities from foreign sellers, thus helping governments to protect VAT revenues and levelling the playing field between domestic and foreign suppliers.”

More detail are available in DRTP BEPS Library here (see BEPS Action 1 reports), including the OECD International VAT/GST Guidelines (see Chapter 3).

Robert Robillard, Ph.D., CPA, CGA, MBA, M.Sc. Econ.
Associé principal, DRTP Services-conseils inc.
514-742-8086; robertrobillard “at” drtp.ca
www.drtp.ca

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