New GST rules ‘level the playing field’ for independent hotels, ATO says

The tax office says new rules forcing some online travel agencies to pony up sales taxes has ‘levelled the GST playing field’ between the multinational companies and local accommodation providers. 

But the new laws fall short of requiring agents such as Booking.com to issue tax invoices to Aussie customers, amid concern online travel agents will be able to wiggle out of the crackdown.

Under reforms passed through federal parliament in September — spruiked as an effort to make multinationals pay their “fair share” of tax — online travel agents providing merchant services have been brought under the sales tax blanket and are now required to register, collect and remit.

It follows similar GST laws which brought low-value transactions running through global marketplaces, such as Amazon and eBay, under GST last year. 

Tax office deputy commissioner Deborah Jenkins said they’re happy the accommodation “loophole” has been closed in a statement outlining the changes, published Thursday.

“This change removes the competitive advantage that offshore sellers had over domestic accommodation providers. It also allows businesses that book accommodation through offshore sellers to obtain a tax invoice and claim GST credits,” Jenkins said.

However, it is not immediately clear which online travel agent brands will fall under the new laws because they don’t apply to travel agents operating as agents.

While Expedia and Booking Holdings, the two largest online travel agency companies in the world, account for the vast majority of the online accommodation market in Australia, both companies maintain different operational models and themselves have dozens of subsidiary brands, such as Aussie-founded Wotif and Priceline.

Expedia is known for its merchant model, where it essentially up-sells accommodation by purchasing it directly from independent providers and re-selling it, but Booking.com characterises itself as an agent, meaning it acts as a facilitator, officially providing “online reservation services”.

Basically, agents such as Booking.com, which organise accommodation on behalf of domestic providers and then invoice them later, won’t be required to collect and remit GST on those bookings, and in lieu of an agreement to do otherwise, independents are still required to issue their own invoices in these cases.

The laws passed parliament without amendment despite concern from industry that multinational online travel agents would be able to skirt the requirements.

The Accommodation Association of Australia (AAOA) submitted last year its view that Australian-based accommodation providers may actually bear the cost of the reforms.

“If there is any risk these two global giants will pay more tax to the Australian Government, the likely outcome is that Expedia and Booking Holdings will simply ensure all of their Australian online travel agencies businesses operate under the agency model, where online travel agencies will not be subject to this taxation changes,” the lobby group said.

Association chief executive Dean Long tells SmartCompany the reforms are a “good first step” but don’t go far enough.

“It makes very clear that the government’s expectation is that all multinationals pay their fair share,” he says.

Long says the association is monitoring the industry closely to see how agents such as Expedia respond to the new laws, including whether they turn to agent services.

Online travel agents such as Booking.com have come under fire from the local accommodation industry in recent years, amid significant concern across the industry they’re using market power to lean on independents.

As SmartCompany has previously reported, online travel agency marketing budgets and price parity clauses have left independent operators feeling like they have no choice but to utilise the services, despite having to pay commissions that can run in excess of 30% of their fees.