On 24 February 2015 the OECD published on its website the comments received on its consultation document on aspects of the International VAT/GST Guidelines. Almost fifty responses were received from professional firms, trade and professional bodies and multinational enterprises.

The OECD published a discussion draft on these issues on 18 December 2014 and invited comments from interested parties on two elements of the VAT/GST guidelines. The first concerned the place of taxation of business to consumer supplies of services and intangibles, and the second contained provisions to support the application of the VAT/GST guidelines in practice.

The issues of taxation of business to consumer supplies of services and intangibles has been identified as an important issue in action 1 of the action plan on base erosion and profit shifting (BEPS) which is looking at tax challenges of the digital economy. The discussion draft set out a set of principles that conform to the destination principle, the principle that these types of supply should be taxed in the jurisdiction where the customer is based. The draft recommended that foreign suppliers of services and intangibles should be required to register and remit the tax in the jurisdictions where their supplies are taxed. As this requirement puts a compliance burden on the suppliers the discussion draft also recommended that countries should introduce a simplified registration and compliance regime to reduce the compliance time and cost for suppliers.

The second element of the draft outlined the supporting provisions. These are the approaches for the correct implementation of the VAT/GST guidelines into national legislation.

One problem highlighted by commentators in their responses is the definition of business to business and of business to customer supplies. As this distinction is crucial for the VAT treatment of the services it is necessary to ensure that it is clear. Some private individuals carry on businesses and it is important to distinguish between their business and private activities. In other cases an organization such as local government performs some activities that are classified as business for VAT purposes while other activities are not within the scope of VAT as they are not regarded as business supplies. The definition in the draft document is that a business for this purpose is one which is recognized as a business for VAT purposes or by national law; however this is not precise enough to ensure that all cases are treated correctly. This may therefore require further examination.

This would also affect the guidance on how suppliers may establish the VAT status of their customer and therefore apply the rules correctly. The discussion draft suggests that this could be determined on the basis of the VAT identification number of the customer. However this would not necessarily be enough in the case of a private individual who carries on a business. Also there are situations where a business with a VAT registration number would not be VAT registered because it falls within the conditions for a particular scheme and is not subject to the general rules. The rules may therefore need to be more flexible than merely relying on the provision of a VAT registration number or tax identification number. There is experience in the European Union of implementing similar rules in practice and the practical problems arising there need to be examined before finalizing the international rules.

The question of establishing the status of a customer as business or private is important for suppliers and they need some reassurance that if they have made efforts in good faith to establish the customer’s status the VAT treatment they apply should not be challenged by the tax authorities. Also in cases where the customer has deliberately given misleading information on its VAT or residence status the supplier should not be subject to penalties if efforts have been made in good faith to obtain all necessary information. Some commentators therefore suggest that the guidelines should provide clarity and certainty for suppliers on this point.

Suppliers will need to have comprehensive information about the VAT or GST systems in the countries where they have customers, to enable them to properly comply with place of supply rules. Complications will also arise in practice from countries, for example some with federal systems that have indirect taxes at the federal and state level. Complex issues arising will include pricing issues, data protection and collection of information on VAT status and residence of the customer. The guidelines should therefore contain detailed guidance to help clarify and simplify these issues.

A public consultation on the issues raised by commentators was held on 25 February 2015.