Federal Government introduces ‘Netflix’ tax bill


news The Federal Government has introduced legislation to Parliament that will force foreign providers of digital content, such as Netflix, to pay goods and services tax (GST) in Australia.

The Tax and Superannuation Laws Amendment (2016 Measures No. 1) Bill will apply GST to digital products and other services sold from overseas.

In a statement on 10 February, the government said the new bill would “protect the integrity of our tax system and ensure a level playing field for Australian businesses”, delivering on a 2015-16 Budget commitment.

The bill will require overseas vendors selling digital products or other services, such as apps and downloads of digital content, to register, report and pay GST on their sales to Australian consumers.

Treasurer Scott Morrison commented.”Our tax system was not designed for the 21st century economy. The Turnbull Government is committed to modernising our tax laws to ensure they are fit-for-purpose in the digital era and do not create an unfair advantage for foreign companies,” 

“This improves the integrity of Australia’s GST base in an area of rapid international growth and ensures a level playing field for business, regardless of the origin of the digital product or other services,” he explained.

Morrison cited current laws that discriminate between a software subscription service provided by a local supplier and which attracts a GST, and a similar software subscription service provided by an offshore supplier that may not. This creates a competitive advantage for overseas companies, he said.

These latest measures follow the government’s new multinational anti tax-avoidance laws, which came into effect from 1 January. This legislation was designed to ensure major international companies operating in Australia but booking profits offshore have to pay tax in the country.

“The Bill is consistent with OECD guidelines, ensuring that Australia’s approach is aligned with that of many other developed economies on the taxation of digital products,” the Treasurer said. “The legislation has been developed to minimise red tape. It includes two registration options, a simplified and a full registration option, which will allow international business a choice in registration giving these businesses more options and making it simpler to comply with.”

The government expects the bill to raise around $350 million over the forward estimates, and said that all revenue raised by GST is provided to the states and territories to deliver essential services.

The bill will also prevent non-resident businesses being drawn into the Australian GST system unnecessarily through business-to-business transactions following a Board of Taxation review, the Treasurer explained.

Furthermore, the legislation contains provisions that will enable farmers to better manage financial risk through changes to Farm Management Deposits (FMDs), announced in the Agricultural Competitiveness White Paper in July 2015.

“The Bill has undergone extensive consultation and the Government thanks those who were engaged in that process,” said Treasurer Morrison.

“Australia’s GST law needs to adapt to the growth of the international digital economy. These changes help to make Australia’s tax system more up to date, fairer for Australian business and fit-for-purpose in the rapidly changing digital economy,” he said.

Image credit: Parliamentary Broadcasting


    • I’ve been using the US Netflix for years so no issue for me.

      I do wonder tho if that means my Dropbox and iCloud subs will now attract the GST?

  1. On balance, I don’t have a problem with the principle of this law, but I have a few concerns:

    A) how will foreign companies determine whether or not a customer is Australian? Based on IP address? Registered physical address (which is effectively irrelevant to a digital license or download anyway)? Based on the issuing country of their payment method? If a person uses a fake physical address, a VPN to mask their IP address, and an overseas payment method, how will an international vendor determine that Australian GST is applicable to the sale?

    B) given that the LNP Government have been extremely deceptive throughout their administration on nearly every policy, direction and piece of legislation, I think it’s fair to say that the only thing I trust them to do is continue to lie, deceive, and do things that fly in the face of the national interest for the sake of a specific group. So, sorry, I don’t trust this legislation on face value – I’m very concerned there is some further agenda here that only an extensive analysis of the detail will reveal, so I’m very hopeful Labor do their due diligence prior to agreeing with it. Nothing the LNP do can afford to be waved through.

    • They’re the same party. The only difference between the two is that when Labor is in power, Liberals do anything they can to shut everything they do down. Labor prefer to just let everything Liberals do go through.

      #LibLabLast 2016

  2. So Australia pays some of The highest costs for digital goods, and now it’s going to get higher. Awesome work.

  3. No chirpy its about making Netflix cost more so 25 bucks a month for foxtel doesn’t look so bad insert joke here

    • No need to insert another joke into your comment. (The truth can still be a joke).

      On topic: how about they address transfer pricing, like apple and Google paying no tax on a billion dollars revenue.

      Surely taxing several billion dollars of revenue for the 5 or 6 mega companies alone would net the entirety of the proposed 350 million dollars, and you’d only need to audit the small number of companies to enforce it, rather than every online shop hosted overseas that exists.

      • Transfer pricing rules are already there. And wont solve the problem with deviating funds. You’re comment explains where people make the mistake – its not revenue that gets taxed, its profit.

        Woolies has $60b a year in revenue, obviously they have to spend money to get there. So do these international companies.

        The issue is more when they lend money to themselves, jack up the ‘cost’ of lending themselves money, and claim that as a deduction. Its income somewhere else, but generally where its a lower (or nil) tax rate.

        Chevron was recently outed for doing just that for example. Borrowing money at 1.2% interest, then ‘lending’ it to itself at 9%. That 7.8% difference being a deduction here, and profit in Ireland. Or somewhere like that.

        Thats the dodgy problem that needs to be solved, not Apple type places where they actually have real costs as part of the process.

        • I find it completely impossible to believe that After all costs were taken into account Google made 0 dollars in the Australian market, with revenue of digital goods over 1 billion dollars.
          So I take issue to being told I don’t understand the issue. I do, just because it isn’t labeled transfer pricing (because it managed to fall into some strange loophole where it isn’t classified as transfer pricing under the law) doesn’t mean it isn’t transfer pricing.
          As a result I used the term revenue, again because they made no profit, and if I had made a comment about needing to tax their profits, some smart arse would have mentioned they don’t make any profit to tax, (or that they are paying their fair share of tax on their profits already – which legally I am almost certain they are!).
          So I understand that it is profits that are taxed, and I understand the difference between revenue, and I recognise that transactions recognised as transfer pricing are already illegal. But fundamentally what the companies are engaging in is transfer pricing, which results in global companies being able to compete with local companies while being 30% more profitable.
          I half wonder if the government should just tax all currency conversions with GST, kind of solves the international shopping problem, at the same time as the Google Ireland problem.

          • OK, I’ll put it a different way. The rules are already there, and the ATO does everything it can to find anything illegal.

            So why cant they?

            Dont assume the ATO are lazy, or not interested in “justice”, they’ve gone out of their way for over a decade to fight this high level fraud.

            I also didnt say YOU didnt understand, but that your comment reflected why plenty dont.

            Dont take issue, it certainly wasnt the intent, but more that the MSM stories seem to keep representing revenue as the final figure rather than profits. As a result far too many people confuse revenue with profit.

            The problem isnt that there arent rules to catch them, its catching them. This is a massive international game of hide and seek, and its quite problematic to prove there are problems.

            I’ll put it a different way. Would people be so upset if the money being siphoned to Ireland was diverted to the US instead?

    • Worst case Netflix goes up by $1.50 hardly going to bridge the gap for Foxtel especially since you get only crud or less for that $25.

      This is basically Aust tax system catching up to the rest of the world as you generally see them charging a ‘GST/VAT’ for the other regions anyway.

      • Why would Netflix go up at all. They are an American company, running their business in America. Our government has zero jurisdiction.

    • You actually aren’t wrong there. But it’s not unreasonable.

      Let’s use Stan as an example. At the moment they are charged GST on the service they provide, but Netflix isn’t. Therefore Stan is actually paying its small requirement of tax that is in there to ensure essential services for everyone. Netflix however doesn’t have to.

      So there is a double whammy. Netflix is cheaper, because they don’t have to pay the tax, AND netflix isn’t paying its share to Australia of the profit it earns here.

      I have no problem with them taxing this.

  4. TBH I agree with the principle of this. This was one of my big gripes with regional pricing used by some online service deliveries. They charges us more using the excuse ‘it cost more to deliver these service to your region’ without actually paying the only cost that is applicable. As far as I’m concerned if your business charge regional pricing you should be paying tax in that region.

  5. I always love politicians when they cook up these half-assed policy on the fly rubbish to make it look like their “tackling the issue”.

    What’s this overseas corporates are using loop holes to evade tax? Lets do a tax reform? fix up loop holes? Work w/ other countries to fix up such arrangements?

    Nope we’ll apply a blanket GST! That’ll teach them companies… a Goods and Services Tax wherein the cost is literally just passed on to the consumer instead of the company footing the bill. And yet not one peep from folks who screamed the “Carbon tax” would destroy lives as we know it for inflating costs of purchases being passed down to the consumer….

    • Sorry but no company will ever foot the bill …. that’s not how profits and shareholders work – if they pay taxes, they will lift prices – they are not going to cut into revenue to support.

      The only way this will be visual to us if it it is introduced as GST – otherwise he government will introduce a higher tax to companies, they will put prices up and further down the track GST will be increased anyway

  6. Foreign corporations must act as unpaid tax collectors for the ATO? Seems unlikely. The GST is not “paid” anyway. It is merely collected. It is not the vendor’s money. It is the ATO’s money. The quid-pro-quo has been that the unpaid tax collectors can claim GST input credits on its own Australian purchases, nett off the two figures and and just hand the balance to the ATO. Maybe the ATO could do this by obliging vendors to establish wholly-owned, local subsidiaries. Then only domestic corporations could trade in Australia. But this doesn’t seem possible in practice. For the moment I can’t see how the legislation makes any sense or will have teeth. ATO doesn’t have the resources to enforce in any case. Policy Fail. Mikael.

  7. “that will force foreign providers”

    LOL. Any details on how they’re going to “force” anyone?

    • Just shows their priorities, dig shit out of the ground and you’ll pay no tax and get massive subsidies too. Work in the digital economy and you get 2nd rate infrastructure and no support at all.

    • Spend 6 years talking about he budget emergency first to acts getting into power cutting revenue.

  8. “fit-for-purpose in the digital era and do not create an unfair advantage for foreign companies”

    Would be real nice if they applied the same principles to trade policy. Tell me again how ISDS doesn’t create an unfair advantage for foreign companies.

  9. Renai, although the article in general is accurate the opening statement that “The Federal Government has introduced legislation to Parliament that will force foreign providers of digital content, such as Netflix, to pay goods and services tax (GST) in Australia.” is misleading.

    The legislation doesn’t force them to do it at all. There is nothing compelling foreign companies from collecting it but generally the big mainstream ones like the Ebays, Steams, IPTV providers etc will honor the government’s request. There are so many smaller vendors who will give the proverbial middle finger to this request though and won’t charge it, and there are other technological and trivial ways around paying it as a consumer who already pays the Australia Tax.

    I’d be surprised if the government sees even 5% of my digital purchases attracting GST.

    • You are ignoring the fact that Netflix, AWS, eBay etc all have a foot print here and that is what allows the gov to enforce their legislation.

      Netflix actually has CDN caches in several major aussie ISP’s plus uses Australian AWS services to support those CDN caches so AIUI in theory the gov could seize that equipment or legally block its use until a tax bill was paid.

      • Only if you buy from their Australian registered stores though. The government cannot police it if a consumer chooses to purchase from an offshore store where there is no obligation for them to collect GST.

        I just cannot see this working properly. There is a real risk that administering it will cost more than the likely revenue generated.

      • Theres a slight issue in that the businesses you typically sign a contract with arent the ones that actually have a presence in Aus. AWS aside, who now have a physical data warehouse, the rest are all pretty much just middlemen for the overeas entity.

        Heres how it works. Netflix convinces you to set up an account. That account is actually set up through Netflix Ireland, who sub contract to Netflix Singapore to supply the movies.

        The local caches have nothing to do with you, thats another contract between Netflix Singapore and Netflix Australia, which is merely a convenience. You dont necessarily have any right of access to that local content though.

        End of the day, you’re connecting to a foreign entity who’s importing the supply into Australia, not the local footprint. Thats how they do this, with the foreign company responsible for tax laws wherever they are based. The fact that every country has their own sets of laws and incentives does the rest.

        Even with someone like AWS, they are still largely the middleman for the foreign conglomerate, with cloud computing blurring the line on where the service is provided.

  10. There is no escaping the GST! Netflix is cheep to begin with but adding all these taxes will inflate that very quickly. Came across this website which has full lists of streaming services and Netflix related content http://streamingservices.com.au/

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