Australia has been one of the frontrunners in terms of regulating digital currency, which has proven to be a very difficult task if you want to do it properly. At the end of 2014, a decision was made to tax Bitcoin in such a way that a fee would have to be paid when sending funds to pay for goods or services, and another fee would be invoked for providing an intermediary service for customers. Needless to say, this upset quite a lot of Bitcoin enthusiasts and companies.
As a result of that decision at the end of 2014, the Bitcoin landscape in Australia changed dramatically. Because any service provider would be taxed twice – 10% each time, mind you – for providing goods and/or services to customers in exchange for digital currency payments, the situation became unbearable for most companies.
And if the situation becomes unbearable, your company is left with two choices: move your base of operations outside of Australia, or cease all operations immediately. Unfortunately for most smaller companies, the latter option was the only choice they had. One of the most notable victims of this decision was popular service Living Room of Satoshi.
But the story didn’t end there for Living Room of Satoshi, as the company announced a “positive future” a few months later. Without going into much detail regarding what that meant for the company, the team firmly believed they could keep offering their business model to Australian customers as long as there was a demand for it.
Despite that prior GST ruling, there were several members of the Australian Senate who did see the upside of Bitcoin and digital currency, especially when it comes to small businesses and job creation. As a result of this shift in attitude, the Senate held an official investigation into the matter of digital currency as a payment method, which was concluded at the end of March 2015.
Because of this inquiry, The Australian Securities and Investments Commission made it crystal clear that Bitcoin exchanges based in Australia were not subject to traditional licensing requirements. Furthermore, they stated that digital currency is not defined as a financial product compared to traditional currencies.
Needless to say, this announcement by the Australian Securities and Investments Commission hinted at a very bright future for Bitcoin and digital currency regulation in the near future. But that hope was obliterated rather quickly when an announcement regarding the extension of GST to intangible supplies surfaced online.
Do keep in mind that this comment – made by Joe Hockey, The Federal Treasurer of Australia – does not mean the taxation of intangible supplies has been confirmed at this point. This comment only acts as an indication of what may be coming in the [near] future, and many details still need to be confirmed at this point in time.
However, if the comment holds any merit, Australian GST may very well extended to cover intangible supplies such as digital content – games, movies, software, e-books, etc. -, services performed remotely for customers in Australia and contractual rights granted from outside Australia – which could even go as far as including intellectual property rights.
While it remains unclear what this will mean for digital currency exactly – which is also an intangible supply in its own right – the consequences for non-residential supplies could be rather severe. If you supply digital currency to Australian customers from abroad, your “supplies” could become subject to GST later this year.
But it’s not just digital currency itself that could get caught in the crosshairs, but also business-to-business contracts. Any Bitcoin-related company employing Australian residents will have to quote their prices on a GST-exclusive basis and include “gross up” clauses. This would allow GST to be passed on to Australian customers as an additional cost. [This is only valid for B2B contracts].
And on the topic of B2B contracts, non-residents can include a “reverse charge” provision which forces an Australian business customer to pay taxes on behalf of the non-resident – assuming certain conditions are met. If there would ever be such an agreement, it has to be recorded in writing, as verbal agreements will not be deemed valid.
Once again, none of these measures have been confirmed at the time of publication. They serve merely as an indication of what could be in store later this year.
Source: DLA Piper
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