Taxing the Bull by the Horns : Reforming Australia’s Cross-Border GST Rules

This paper critically evaluates the legal design of Australia’s GST (a value added tax) in light of recent OECD work on the consumption tax treatment of cross-border transactions. An emerging consensus from the OECD suggests that, for business to business supplies, consumption taxes should use a ‘Main Rule’ that imposes tax at the location of the customer. A strong preference for collecting the tax from the customer using the reverse charge mechanism is also expressed. A careful consideration of Australia’s place of taxation rules for ‘inbound’, ‘outbound’, ‘wholly domestic’, and ‘wholly foreign’ transactions, and their interaction with the rules on input tax credit entitlements, reveals that Australia does indeed use such a Main Rule. Following a hybrid approach between the European VAT model (for goods) and the New Zealand GST model (for services), the Australian GST is more strongly destination-based than both the European VAT and the New Zealand GST, with which it is compared. However, in eschewing a widespread use of the reverse charge mechanism and requiring the registration of non-residents, the law is clearly overly-inclusive of non-resident suppliers, without necessarily more effectively taxing consumption by domestic consumers, which is the ultimate objective of the tax. The paper therefore ends with suggestions for reform