Visa: Sorry, We Can’t Help Australia Collect Sales Tax

Written by Frank Hayes
August 3rd, 2011

E-tailers aren’t the only ones facing demands that they charge customers sales taxes that are hard for anyone else to collect. Visa has sent a letter to Australia’s Productivity Commission explaining why the card brand can’t collect the country’s goods and services tax (GST) on overseas transactions done with Visa cards. This response comes after the commission asked for technical details about whether that tax collection would be possible. Visa’s pointedly polite explanation: It can’t be done, at least not by Visa.

Visa’s response comes in the context of increasing efforts on the part of taxing authorities trying to deal with E-Commerce that stretches beyond their borders. In the case of Australia, any overseas transaction less than $1,000 has been exempt from the GST. Although local brick-and-mortar retail chains are pushing to end that exemption, Australian tax bureaucrats have already concluded it’s impractical to collect the GST on small purchases—it would cost more to collect than the tax would bring in.

But what about getting “financial intermediaries” like Visa to cough up information about overseas purchases, much the way North Carolina asked Amazon to reveal details about Internet purchases so North Carolina residents could be billed for sales tax due? Amazon fought that successfully in court, arguing that customers’ First Amendment rights would be jeopardized.

Visa’s explanation is simpler: Detailed data about overseas purchases just isn’t there in Visa’s transaction records. “VisaNet essentially processes the total invoice amount associated with a sale and not the individual sub-items, services or taxes included within that amount,” said the letter from Adam Wand, head of public affairs for Visa’s Australia, New Zealand and South Pacific region.

“For example, a transaction between an Australian online shopper and an online trader based in Germany for $122.50 may be entered into VisaNet by a German acquiring bank. However, from this entry, it is not possible to extrapolate that the imposition of a 10 percent GST levy would require the transaction to be increased by $12.25, as the original amount of $122.50 will almost certainly have been made up of goods, some of which may have been and some of which may not have been subject to GST. In addition the total transaction amount would include payments of local taxes and charges, shipping costs, any local credit or debit card usage surcharges, Dynamic Currency Conversion fees and exchange rate costs, among many other things.”

The letter adds, “With Visa cards being accepted in (more than) 200 different jurisdictions, the quality of the merchant- and acquirer-entered data across many of these jurisdictions varies widely in terms of content and accuracy. As such, the technical data upon which Visa would attempt to levy and collect any additional fees, taxes or charges could not be relied upon to be complete or accurate for the proposed purpose.”

In other words, even if there were data on what’s taxable and what isn’t, it would be unreliable, and there’s no practical way for Visa to change its own processes to make it any better. Collecting sales tax by sifting through payment-card data just can’t be done.

Unfortunately for anyone wanting Australia to collect GST on overseas E-Commerce, that cuts out the last easy way to do it. Overseas online retailers don’t fall under Australian tax control—they have no reason to collect the tax. Customers aren’t inclined to voluntarily report those E-Commerce purchases.

And package-forwarding services—the ones that let Australian customers buy from U.S. E-tailers and have packages shipped to a U.S. address, then ship container-loads of those packages back to Australia, where they’re forwarded to individual customers—don’t have any way to know how much customers have spent, because all they do is transship packages.

That leaves it to Customs—which is the group that would probably spend more money trying to enforce a tariff than it would collect. It turns out that the average value of purchases by Australian online shoppers from overseas E-tailers is less than $100. For tax revenue of less than $10, a customs inspector can’t even afford to fill out the paperwork.


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