New tax rules relating to OTAs
Written By
Partner
Australia
With over 25 years' legal experience, I am a senior partner in our Asia-Pacific team, head of the Real Estate practice in Australia/Asia and Global Co-Head of Real Estate.
Until recently, global online travel agencies (OTAs) did not have to add Australian goods and services tax (GST) when processing Australian-based accommodation and hotel bookings on the basis that the merchant service was being provided outside of Australia.
Based on the above, domestic booking platforms claimed that offshore OTAs operated in a more favourable environment as offshore OTAs were able to offer lower prices for the same hotel accommodation.
Amendments to Australian goods and services tax
On 1 July 2019, the Australian government amended the federal tax laws so that OTAs were subject to Australian GST on all Australian hotel reservations. The new amendments require OTAs to collect GST on the sale of Australian hotel reservations once the aggregated sales exceed AU$75,000 irrespective of whether the accommodation was booked through a domestic or an offshore seller. In theory, this is intended to remove any competitive advantage offshore OTAs may have had over their local counterparts.
Commentary on Amendments
While the amendments were generally viewed favourably, certain structuring options may allow OTAs to continue to not include GST on transactions.
The amendments only apply to "suppliers" of services and not to offshore entities acting "as an agent on behalf of a hotel". This carve-out means that existing offshore entities may continue to be exempt from collecting GST if they refer customers from their online platform directly to the hotel operator's booking website (and be paid a commission by the hotels).
In light of the above, many OTAs may not be required to collect GST if they adopt an 'agency' structure.
Despite commentary by some on the perceived effectiveness of the legislative amendments, OTAs continue to provide an attractive platform for operators. This is due to the large marketing budgets and market power of these OTAs. It is for this reason that a large number of operators agree to utilise the services of OTAs and pay the required booking commissions.
