Mobile money and e-payments
Mobile money and e-payments
The development of the technology to allow electronic payments affects not only the way that goods and services are rendered but also how these supplies are paid for by customers. Today, payments can be made any time, using any device, by customers located anywhere.
Mobile money consists of making payments or managing cash via mobile devices. Each has specific VAT /GST consequences and can include: mobile money at the point of sale (e.g., mobile wallets, and smart phones used at the cash register); mobile payment platforms (e.g., solutions to send money from consumers to merchants or from person to person via mobile devices); direct carrier billing (e.g., paying digital merchants by adding items to the user’s phone bill) and closed loop mobile payment (e.g., mobile store-specific credit cards).
Key indirect tax issues
VAT rules in this area are complex with little consistency between countries. Inevitably, the VAT/GST rules lag behind commercial developments in the field. Unexpected VAT/GST liabilities may result in margin erosion or less competitive pricing and failure to comply with any VAT/GST compliance obligations may lead to penalties and reputational damage.
Mobile money comes at the merger of two different sectors (financial services and telecommunications) — each having its own specific indirect tax and commercial issues. Depending on where the different stakeholders stand in the supply chain, the VAT/GST consequences may vary and have significant impacts.
Each party must consider the capacity in which they are acting and assess their VAT/GST liability in light of any new income streams. Contractual and commercial relationships need to be agreed carefully and clearly defined.
While these developments represent significant progress for customers, they can present significant challenges for merchants that have to deal with several different providers of payment solutions, each of them supplying a different range of services subject to different VAT/GST rules. VAT/GST challenges also exist for service providers.
Although this type of service is generally considered to be exempt from VAT, the scope of any such exemption has often provoked questions that have also been brought to the CJEU, creating uncertainty for affected businesses.
Notwithstanding the criteria provided in the past by the CJEU, recently the Court has been asked to respond to questions in two new cases (C-607/14 and C-130/15) aimed at clarifying the scope of the EU VAT exemption for card handling services.
On 6 May 2016 the Treasurer released a discussion paper flagging potential changes to the GST law to enable digital currencies to be treated in the same manner as conventional currencies. Currently, digital currencies are subject to GST in Australia because the ATO considers them to be "intangible property" for GST purposes. As such, the supply of digital currency is subject to GST, whether or not the supply is in exchange for money or other goods and services. As a result, consumers using digital currency to pay for other goods and services pay GST twice – once on the acquisition of the digital currency and, subsequently, on their use.
The discussion paper states that if digital currency is treated as money, a payment in digital currency will not be a supply for GST purposes, other than when digital currency is exchanged for other money, in which case it will be an input-taxed supply.
How EY can help
We can help businesses understand and plan for the VAT implications of digital financial services. This includes adopting new ways of doing business online and aligning financial products and business models.
By identifying VAT technical issues and incorporating the most favorable treatment, we can help businesses mitigate risks, reduce VAT costs and improve cash flow. Targets include traditional financial service companies (e.g., banks) and new entrants to the sector (e.g., telecommunications and fintech companies).
We can help address VAT issues relating to:
- The treatment of electronic payments
- Helping online payments and retail payments
- Mobile wallets, mobile financial services, crypto currencies, block-chains and multi-purpose vouchers
- Reducing VAT recovery restrictions on costs
- Supplies made to and by intermediaries