Instruction: Please read the passage below and answer the questions.

Global Indirect Tax Developments in 2021 and Beyond

Gig Economy

New Zealand has successfully implemented goods and services tax (GST) rules for supplies of remote servicesknown globally as electronically supplied services (ESS) rulesand the low-value imported goods (LVIG) rules. This article will be an examination of the best approach in relation to GST and the gig economy, and specifically if an information-sharing rather than a joint (or even full) liability model will be explored.

Some countries (e.g., Australia) are starting to take strides in this area and will introduce reporting regimes for platforms from 2022. In Australia the reporting regime passed through the House of Representatives in October 2021 and is now being considered by the Senate. It will broadly apply to transactions that relate to a supply connected to Australia of:

• taxi travel (including ride-sourcing/ride-sharing) and short-term accommodationfrom July 1, 2022; and
• asset sharing, food delivery, task-based services, and all other suppliesfrom July 1, 2023.

Other countries (e.g. India) will impose a liability on platforms for certain types of services such as food delivery (from January 1, 2022).

Non-Fungible Tokens and Indirect Taxes

One of the most significant global indirect tax developments in 2021 has concerned the application of the various indirect tax rules to non-fungible tokens (NFTs). In simple terms, an NFT is a unique digital asset and its ownership can be both demonstrated and verified via distributed ledger technology (DLT). The owner of an NFT owns the token, which is a digital entry on the DLT.

The main issue is that NFTsincluding various sports tokenscan have multiple characteristics and take various digital forms, and can be traded on platforms, online auction houses or acquired directly from artists and creators. There are various related services performed by parties involved in the process adding to the rich dimensions in this area.

NFTs have presented complex regulatory issues globally. The position with respect to tax is still emerging, and in many countries the main issue relates to whether NFTs are covered by the definition of cryptoasset or not (if there is such a definition).

The main issue from a value-added tax (VAT)/GST perspective is the what: what is being supplied when an NFT is created or sold? Is it the underlying assets or services (including intangibles), a unique digital right, a financial instrument or security, a membership, rights to digital products, or a combination of some of these?

Depending on the nature of the what, the place of supply rules will be a paramount consideration, and potentially the delivery channel could have a significant impact as well.

By and large, the VAT/GST position in relation to NFTs is just starting to develop. The emerging position is that the various ESS (or remote services) rules are likely to apply to NFTs, unless a relevant exemption exists. The ESS rules typically apply to business-to-consumer (B2C) transactions; however, business-to-business (B2B) transactions can also be caught but the collection mechanism may differ (i.e., vendor registration model versus reverse charge).

Practically, some online intermediaries who offer the sale of NFTs have decided that it is easier to register for VAT/GST rather than not (even if they do not meet the literal definition of electronic marketplace (or facilitator) in the relevant overseas country).

In the EU, when performing an ESS in a B2C context, a simplified registration and compliance procedure is available in the form of a so-called One-Stop Shop, where a supplier can register in one EU member state and pay VAT for all EU member states through that registration.

New Zealands GST position on NFTs is instructive, as the definition of cryptoasset (excluded from GST in the Taxation (Annual Rates for 202122, GST, and Remedial Matters) Bill) refers to something that is fungible. As NFTs are typically non-fungible, it follows that sales of NFTs would follow this framework:

• NZ domestic transactionsstandard GST obligations in a domestic context;
• NZ inbound transactionsobligations under the remote services rules for offshore sellers/platforms (if sold to New Zealand consumers); and
• NZ outbound transactionsoffshore ESS/remote services obligations (in many countries) for sales to nonresidents of New Zealand.

What remains to be seen is whether New Zealand law will exclude NFTs that confer voting rights like shares.

In terms of the U.S. sales tax position under the Wayfair principles (South Dakota v Wayfair, Inc. (U.S. Supreme Court, June 2018)) and associated rules, the main issues relate to characterization and sourcing. Assuming revenue from an NFT sale was sourced to a customer in a U.S. state then it is likely to have Wayfair/nexus implications.

In addition, the characterization analysis is complicated, but the conservative viewpoint is that NFTs may be characterized as digital goods, which are taxable in over half the U.S. states that have a sales tax (or equivalent).

As a starting point, the emerging trend is that revenue from NFT sales to U.S. customers could likely have nexus and sales tax implications for foreign companies.

Environmental Factors

The combination of tax and environmental matters is expected to be more prominent globally, as governments, policy makers and businesses grapple with aligning environmental and social factors with tax behavior and policy. The use of tax policy as an instrument for change will be an important feature of the state in future.

New Zealand reformed the GST rules on emissions trading units (ETUs) over 10 years agoessentially adopting a zero-rated treatment in virtually all cases. ETUs were seen to be unique and do not warrant standard-rated or exempt GST treatment. This was seen as innovative at the time, and it also helped reduce market distortions and gave prominence to understanding the emissions trading scheme.

Following the recent COP26 declarations, an important future consideration will be to ensure that the tax rules in relation to emissions trading are clear and do not cause distortionsthe New Zealand GST experience will be instructive.

Global Indirect Taxes Policy Trends

As country economies and supply chains look to bounce back in 2022, it is widely expected that technology and digital innovation will play a vital role. More change is expected globally in relation to VAT/GST rules concerning digital imports (both goods and services), and significant change is expected in relation to the platform and gig economies.

As part of this, the expectation is that more countries will explore their indirect tax rules concerning cryptocurrencies and fintech.

E-invoicing and real time reporting is expected to become a natural part of the indirect tax landscape. This echoes remarks made by the Organisation for Economic Cooperation and Development on the importance of digital innovation and technology to future tax systems, both in terms of tax policy design and tax collection.

Across the globe, we can expect tax authorities to share more information and to seek more information from payment processors and platforms. These mushrooming obligations will require careful planning and an organized, tech-enabled and innovative approach to systems and data management.

In conclusion, embracing the debate on tax policy issues and being ready for future tax changes will become part of the norm. Governments will undoubtedly have tax reform at the top of the list and focus on indirect taxes is expected to become a key priority.

Questions

(32) According to the passage, what future global indirect tax trends are taking shape?