On 10 March 2022 the OECD published the VAT Digital Toolkit for Asia-Pacific. The Toolkit, which was produced by the OECD in partnership with the World Bank Group, aims to guide Asia-Pacific tax administrations on implementing reforms for collecting value added tax (VAT) on e-commerce activity.
Policy framework
The Toolkit notes that countries must put in place the legal basis for collecting VAT on services and digital products provided by non-resident businesses to private consumers in their territory, defining the place of taxation of those supplies by reference to the place of residence of the customer. Clear criteria must be used, referring to data that the online suppliers would collect in the normal course of their business. The online suppliers should be responsible for collecting VAT.
Digital platform operators should be required to collect VAT on online sales made through their platform by non-resident online suppliers. Reporting requirements should be introduced, including for sharing and gig economy activities, ensuring greater visibility of the informal economy. VAT compliance should be encouraged by implementing simplified registration and collection for non-resident suppliers and digital platforms.
The non-resident suppliers and digital platforms should also be required to collect the VAT on low value imported goods at the point of sale and remit the VAT to the jurisdiction of importation. This ensures that these goods cannot be imported and sold free of VAT (e.g. due to a low-value consignment relief) by non-resident suppliers. It also means that customs do not need to collect this VAT at the border, thereby reducing opportunities for fraud from undervaluation of imported goods.
Generally, international consistency in the design of the rules can optimise compliance and safeguard revenues.
Implementation
The implementation of the VAT reform concerning digital trade should be sequenced, focusing first on the collection of VAT on services and digital products from non-resident online suppliers and digital platforms; and then extending the requirements to the collection of VAT on low-value imported goods. A simplified VAT registration and collection procedure should be implemented for non-resident online suppliers, and it should limit the requirements to those that are strictly necessary for effective collection of the VAT.
Strategies to enhance compliance
Countries should use a multi-channel communication strategy to inform non-resident suppliers and digital platforms of their responsibilities under the VAT reform. Clear guidance should be provided on the scope of the VAT regime and on the services and digital products that are within the scope of the regime. Criteria for determining a customer’s status and location should be clarified, and the applicable VAT rates and exemptions. Close alignment of the rules with OECD guidance can facilitate compliance.
Effective strategies should be in place to manage compliance risks by non-resident suppliers and digital platforms. These strategies could include the identification and assessment of risks, and the development of targeted strategies to deal with them. Third-party data should be used to support a risk-based compliance management strategy; to identify non-resident suppliers that are within the scope of the regime; and to detect non-registration and monitor overall compliance. Relevant Information should be obtained from tax authorities in other jurisdictions through exchange of information.
Enforcement can be enhanced through international administrative co-operation, using in particular the Multilateral Convention on Mutual Administrative Assistance in Tax. Cooperation could include the exchange of information and assistance in the recovery of foreign tax claims.
