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Inland Revenue

Tax Policy

Chapter 4 - A new place of supply rule

4.1 As discussed previously, the consumption of goods and services within New Zealand should be subject to GST. However, in relation to cross-border services and intangibles, there is some uncertainty over which country has the right to apply GST as it is often unclear where the consumption of the service or intangible occurs. Consistent with the OECD guidelines and growing international practice, it is proposed that New Zealand should apply GST to “remote” services supplied to a “New Zealand-resident”.

4.2 This chapter discusses the use of a person’s tax residence as a proxy for place of consumption and why the rules only apply to “remote” services. The chapter also discusses the legislative framework for implementing the proposal, and Chapter 5 discusses what specific services should be included or excluded from the proposed rules.

Cross-border services and intangibles supplied to New Zealand-residents

4.3 The current rules for services generally apply GST only on the basis of where the services are physically performed (known as the “place of supply” rules). Supplies of services physically performed outside of New Zealand by a non-resident are not subject to GST even if they are supplied to a New Zealand-resident.

4.4 The OECD draft guidelines and growing international practice suggest that New Zealand should apply GST to cross-border services and intangibles supplied to a New Zealand-resident. This is because residence is regarded as a reasonable proxy for determining where a cross-border service or intangible will be consumed. Using residence as a proxy is also considered to be relatively simple for offshore suppliers to apply in practice.

4.5 While other proxies could be used to determine where a person consumes a cross-border service or intangible (such as the physical location of the consumer when the service is received), it is proposed that New Zealand follows international consensus. Following international guidance and practice will better ensure that cross-border services and intangibles are only subject to GST/VAT in one country, thus avoiding double taxation or double non-taxation.


Elizabeth is a resident of Country B but is on holiday in Country A. She receives and pays for a cross-border service from a supplier located in Country C.

Consider the scenario where Country A applies GST on the basis of the customer’s physical location and Country B applies GST on the basis of the customer’s residency. Country A will seek to apply GST to the service since Elizabeth is located in Country A and Country B will also seek to apply GST to the service since Elizabeth is a resident of Country B.

In this situation, GST may be applied to the service in two different countries. Alternatively, no country would seek to apply GST if instead Elizabeth was a resident of Country A and on holiday in Country B.

4.6 The potential for double taxation and double non-taxation is particularly evident in places like Europe where consumers can easily travel across borders. The issue is also relevant for New Zealand when New Zealand residents receive cross-border services while traveling abroad.

4.7 The proposed rules would, however, only apply to “remote” services and would exclude “on-the-spot” services. Therefore, a clear understanding of the distinction between “remote” and “on-the-spot” services, and their preferred GST treatment, is required.

“Remote” and “on-the-spot” services

4.8 As well as concluding that “remote” services ought to be regarded as being consumed in the country where the recipient has his/her usual residence, OECD draft guidelines conclude that the place of consumption for “on-the-spot” services should be based on where the services are physically performed.

“On-the-spot” services

4.9 On-the-spot services are services physically performed at a certain location and typically consumed at the same time and place as they are physically performed. Generally, the recipient is required to be in the same location as the supplier in order for the services to be physically performed. The OECD recommends that for these types of services, the place of physical performance generally determines the place of consumption.

4.10 The OECD lists examples of “on-the-spot” services, which include:

hairdressing, massage, beauty therapy, physiotherapy, accommodation, restaurant and catering services, entry to cinema, theatre performances, trade fairs, museums, exhibitions, and parks, and attendance at sports competitions.

4.11 On-the-spot services that are physically performed in New Zealand are already subject to GST, and services physically performed outside New Zealand are not subject to GST.[8] The current rules relating to on-the-spot services generally produce the right outcome in that they tax consumption of services in New Zealand and do not tax consumption outside of New Zealand.


Danny is a New Zealand resident and goes on holiday to Australia. While in Australia Danny pays for and visits a theme park.

The theme park visit is considered to be an “on-the-spot” service. The OECD draft guidelines suggest that the place of consumption is in the place where the service is performed. Therefore, despite the fact that the theme park visit is consumed by a New Zealand resident, Australia has the right to tax that service.

“Remote” services

4.12 Any new rule would be targeted at remote services. These services are generally not consumed at the place where they are physically performed and the recipient is not generally required to be in the same location as the supplier in order for the service to be performed. For remote services, the OECD considers that the supplier’s location does not provide a good indication of the likely place of consumption.

4.13 Instead, the place of residence of the customer is considered to be the appropriate proxy for the country in which the consumption occurs, as it can be assumed that these types of services will ordinarily be consumed in the country where the customer has his or her usual residence.

4.14 The OECD lists examples of services that could be provided remotely. These include:

consultancy, accountancy and legal services, financial and insurance services, long-term rental of movable property, telecommunication and broadcasting services, online supplies of software and software maintenance, online supplies of digital content (movies, TV shows, music), digital data storage and online gaming.

4.15 To ensure New Zealand’s rules are consistent with the above principle, a new place of supply rule would be required that would apply GST to remote services supplied to a New Zealand resident. The new rule would apply when a remote service or intangible was supplied by a non-resident supplier to a New Zealand resident.


Danny often purchases and downloads songs from a website based in the United States.

The song download is regarded as a “remote” service. The OECD draft guidelines suggest that the place of consumption of the song will be in New Zealand since Danny is a New Zealand resident. Therefore, New Zealand has the right to tax that service.

“Place of supply” options

4.16 In general, the New Zealand GST Act adopts an iterative approach to determining the place of supply. That is, we have very broad rules for determining in the first instance whether the place of supply is in New Zealand and these are followed by a range of exclusions to determine the outcome.[9]

4.17 Under this framework, there are two main options for a new place of supply rule:

  • Option one: Treating all supplies by a non-resident to a New Zealand resident (both remote and on-the-spot services) as being prima facie subject to GST, but then excluding the on-the-spot services by, for example, making them zero-rated; or
  • Option two: Only seeking to impose GST on the remote services – and treating any on-the-spot services received by a New Zealand resident offshore as being outside the GST net altogether.

4.18 Either option would make offshore suppliers liable to return GST because, at the very least, remote supplies would be treated as “taxable” for New Zealand GST purposes. Option two, however, would leave the existing settings in place for on-the-spot services, meaning that on-the-spot services performed in New Zealand would remain taxable and on-the-spot services performed outside New Zealand would not be taxable.

4.19 On balance, we consider that option two is preferable because:

  • It is more closely aligned with our understanding of the European Union’s approach and may therefore be more accessible to offshore suppliers.
  • It would obviate the need for a new zero-rating rule. On-the-spot supplies by a non-resident to a New Zealand resident offshore would be subject to the existing rules – they would be outside the scope of GST. There may be very little practical difference between zero-rated supplies and those that are not subject to GST (particularly if, as discussed in Chapter 5, zero-rated supplies do not count towards any registration threshold). However, to avoid any uncertainty, it is considered preferable to have on-the-spot suppliers that have no connection at all with New Zealand outside the GST net in the first instance.
  • Either option would require some sort of definition of “remote services”, either positively or by exclusion. Option two allows on-the-spot services to be excluded from the scope of GST and other cross-border supplies by non-resident suppliers treated as “remote” and taxable (with subsequent exclusions as outlined in the next chapter).

4.20 A special input tax rule may be required if option two were to be adopted. The rule would ensure that input tax deductions would be available to offshore suppliers of on-the-spot services to the extent that the supplies would be taxable if they were made in New Zealand. This would be consistent with the business-to-business neutrality rules introduced in 2014.[10]


Do you agree with the proposed approach for taxing cross-border services and intangibles?

Do you think an approach that distinguishes between “remote” and “on-the-spot” services will produce the right outcomes and do you consider there will be problems in practice in making this distinction?

Do you prefer an approach that excludes on-the-spot services so they are outside New Zealand’s tax net, or an approach that treats all supplies as being subject to GST, but then excludes on-the-spot services by making them zero-rated?


[8] Note that if services are performed by a New Zealand resident they are deemed to be supplied in New Zealand (see section 8(2) of the GST Act) but will typically be zero-rated if they are performed outside New Zealand (see section 11A(1)(j) of the GST Act).

[9] Section 8 (Imposition of tax), section 11 (Zero-rating of goods), section 11(A) (Zero-rating of services), and section 14 (Exempt supplies).

[10] See section 20(3L) of the GST Act.