Netflix won't charge Australians GST

Sparks are flying after Netflix said it would not charge GST on the Australian version of its online television service which launches next Tuesday.

United States-based Netflix, Quickflix, Foxtel Play, Presto and Stan, partly owned by Fairfax Media, are locked in a bidding battle to secure the best programs for their streaming television services and to win over consumers in what is expected to become a fiercely competitive market.

But Netflix will have a 10 per cent cost-advantage over all of the Australian-based services because it will not have to charge viewers GST.

A company spokesman said Netflix would not collect GST in either Australia or New Zealand, where it is also launching a local service, as it was "not a local entity".

"There have been discussions in both countries about changing the law on this to collect even from non-local entities, however that's something to look at in the future," he said.

Stephen Langsford, chief executive officer of Netflix rival Quickflix, told Fairfax Media "most Australians would expect Netflix to pay their fair share of tax" and that it was "more than odd" Quickflix had to pay GST but not Netflix.

He added that it looked like Netflix had structured themselves internationally to minimize tax.

"We note that their 'Australian' emails have an address from The Netherlands," he said. The argument over whether GST should be charged on digital imports, such as online TV, music and games services that are hosted overseas, flared up in January when Assistant Treasurer Josh Frydenberg said the upcoming tax white paper will take another look at the issue with concerns it's costing Australian jobs.

Retail boss Gerry Harvey has also previously said that the government should abolish the GST exemption on imported goods, adding his voice to a chorus of Australian companies against the tax-free threshold on online purchases.

The tax status of Netflix's local service versus Quickflix and other services looks set to highlight what is at stake. Presto, owned by Foxtel, would not comment directly on whether it thought it was unfair that Netflix didn't have to collect GST, instead pointing out that it did have to charge it.

"Presto fully complies with its GST obligations in Australia along with all of the legislative and taxation requirements, and will continue to do so for the life of our business," a Presto spokesman said. A spokeswoman for Stan declined to comment.

Andrew Pirie, spokesman for Spark, which owns internet television service Light box in New Zealand, said it was "yet another example of the lack of a level-playing field in this rapidly changing digital world".

"Lightbox has been set up as a New Zealand-based company, working under New Zealand rules and paying New Zealand tax and we think other companies should be doing the same," he said.

Netflix has registered a subsidiary in Australia that is owned by another Netflix company overseas, but Victoria University of Wellington professor John Shewan said that would not necessarily be enough to make the company's localized television services liable for GST in Australia or New Zealand if the service was delivered from overseas.

But Quickflix, Presto and others like New Zealand's Light box could not avoid GST by moving it overseas, because of their base being in either New Zealand and Australia, he said.

The Australian Taxation Office said it could not comment on the affairs of individual companies.

But it made note of the Base Erosion and Profit Shifting Action Plan currently being developed by the Organization for Economic Co-operation and Development, which is looking at the taxation of intangibles as part of its focus on the digital economy.

It is set to be finalized in December. "This work seeks to understand modern business models, to ensure international tax laws capture modern technologies such as the delivery of digital supplies," a spokesperson said.

South Africa became the first country to "go it alone" in June, when it required overseas firms to register for GST on electronic services they supplied to South African customers.
 

Source: Sydney Morning Herald , Australia, dated 18/03/2015