Compliance with the IRD guidelines on electronic commerce may prove too onerous for some online retailers, especially those dealing in high volume, low value transactions.
In its Taxation on the Internet Guide, Inland Revenue states that retailers must confirm that a purchaser of online goods is not resident in New Zealand before the supplier can zero-rate the goods for GST. It recommends three ways of going about this: checking with domainz.net or internic.net to find out where the domain name used by the purchaser originated (an email address alone will be insufficient because New Zealanders can easily obtain an overseas domain name); checking on the origin of the credit card used for purchase; or obtaining an email certification from the purchaser that they are not resident in New Zealand. Penalties for “lack of reasonable care” are implied.
IT lawyer Averill Parkinson, of Auckland firm Clendon Feeney, says each of these steps means time and cost to the retailer, which even if small, could become uneconomic, when multiplied hundreds or thousands of times.
“One thing about the Internet is that it allows you to do very small transactions for not much cost. That could well change if companies are having to comply with the guidelines.”
Meanwhile, KPMG tax partner John Cantin says Inland Revenue can’t expect retailers to be detectives and KPMG will probably make submissions to the IRD.
“The difference between the Internet and standard procedures is that it’s difficult to know where people [purchasers] come from,” Cantin says.
“I would have thought that once someone [a retailer] knows what the new requirements are, they could use a standard form to ask questions [to ascertain whether the purchaser is a New Zealand resident]. They could then have two prices, and once someone confirmed they were a non-resident, the lower price would apply.”
He says that if people lie about being non-residents the fraud is perpetrated by the buyer, not the vendor, who should not be penalised.
He believes IRD has to come out with clearer advice on what buyer information retailers can rely upon.
However, Cantin thinks that, ultimately, the cost of compliance will be marginal.
“If you remember back to GST, there was a flurry of people making sure their systems worked. I think it will be much the same for [e-commerce] compliance and after that the cost will be marginal.”
Meanwhile, in the US, a moratorium on Internet-commerce taxes may end sooner than originally thought — in three years instead of five. The Internet Tax Freedom Act, backed by President Clinton, called for a moratorium on any special taxes to be levied on Internet commerce for the next five years. The Act was authored in opposition to a resolution by the National Governors Association to create a taxation system.