Frequently, when analysing cross border GST situations, there are multi-party contracts involved. That can complicate the analysis. This article looks at the three common types of multi-party contractual arrangements.
In this regard, three categories are helpfully set out by Laws J in Reed Personnel [1995] BVC 222 at 225. There the judge summarised the options as being:
- Where A is contractually obligated to provide services to B but does so by means of the acts of their party, C. This may be described as the “vicarious performance” situation.
- Where C as agent for A enters into a contract obliging A to provide services to B. This is the “agency” situation.
- Where A acts no more than as an intermediary between C and B, introducing the two so that C may enter into a contract by which he undertakes to provide services to B. This I will call the “intermediary” situation.
There are more. For example, there can be a situation where there is a simple “chain of acquisition” of goods and reselling down the line.
In GST terms, one is wanting to know who supplied what to whom and for how much. So in a multi-party situation, that same identification process needs to happen.
When the multi-party situation is a vicarious performance situation then person A is the supplier of the services and person B, is the recipient. B does not have a contractual relationship with C. A remains liable for any breach of the contract between A and B. The payment is from B to A.
In an agency situation, there is the overlay of deeming provisions in the GST Act. Section 60 of the GST Act deems the supply made by the agent on behalf of the principal to be made by the principal and not the agent. Therefore, using the lettering from the second bullet point above A is deemed to have supplied the goods and services to B. Person C drops out of the picture.
This is unless they agree in writing that the “chain of acquisition” approach be used. If that election is made the supplies are treated as being from the principal A to the agent B, and then from agent B to the recipient C.
The position just described is modified where the agent is resident in New Zealand and supplies distantly taxable goods or remote services to a person resident in New Zealand on behalf of a non-resident. In this situation, the agent and principal can agree amongst themselves that the agent and not the principal is making the supply.
The “intermediary” situation is also covered by deeming legislation. The legalisation calls some instances of an intermediary situation a market place. This occurs when there is an electronic market place or an approved market place under s 60D of the GST Act. The key under s 60D being that the market place is being operated by a New Zealand resident and the underlying supplier is a non-resident and the recipient is a New Zealand resident. In those circumstances, the intermediary, the market place operator is treated as being the supplier.
Thus rather than the supply being from A to C party B, the intermediary is treated as the supplier.
The vicarious performance model will often mean that the non-resident supplier ends up being treated as tax resident in New Zealand. This will occur when the overseas supplier has a fixed or permanent place in New Zealand from which the goods or services are supplied. It will also happen if the goods are in New Zealand at the time of supply, or the goods are distantly taxable goods to which s 4E[1] does not apply, or the services are physically performed in New Zealand or the services are remote services: see s 8(3).
When these provisions deem the non-resident to be a New Zealand tax resident the advisor has the often difficult task of telling a non-resident that they have a GST registration obligation and often GST to pay. In the authors experience the non-residents in that situation have been remarkably honourable in registering and paying New Zealand GST. It would be interesting to see what enforcement would follow in the case of foreign clients who did not have the same level of integrity.