KEY POINTS:
The Government has issued a discussion paper setting out options for ensuring business-to-business transactions are neutral in terms of GST.
Revenue Minister Peter Dunne said it was a fundamental principle of the system that GST was neutral for businesses whose supplies were subject to the tax.
"That means businesses should not bear the cost of the tax," he said. "The GST they charge on taxable supplies is balanced by input tax claims. GST should not be a permanent business cost in these circumstances."
Dunne said if tax rules did not clearly provide neutrality for businesses, they could face unexpected GST payments or tax penalties.
"When there is a large claim but no corresponding payment, that may be for legitimate reasons, the result for example of liquidation or bad debts," he said.
"It may also be for other reasons, such as the exploitation of timing mismatches or through the ... deliberate use of 'phoenix' entities to avoid paying GST."
Dunne said the document would be of interest to tax professionals and businesses that bought and sold significant assets.
www.taxpolicy.ird.govt.nz
