GST treatment of services provided in making videos and films in New Zealand under contracts with non-residents

We have been asked what is the correct GST treatment of services provided in making videos and films in New Zealand under contracts with non-residents who are not in New Zealand . Would the GST treatment be different if a representative of the film buyer physically collects the completed film in New Zealand?

Background

A number of short films (which could include advertisements, documentaries, and background footage) are shot in New Zealand every year by filmmakers contracted directly by the overseas purchasers, who own the rights to the film, and who pay the filmmakers from overseas. The raw footage is then edited by a director and exported, usually in the form of a video cassette. The cassette is usually exported in a courier pack which has the appropriate postal customs declaration attached. Sometimes, for reasons of valuation or security, a representative of the non-resident purchaser will collect the cassette in New Zealand and take it out of the country as accompanying baggage.

Inland Revenue view:

Though the terms of contracts vary, in this scenario the fees paid to the New Zealand filmmakers are zero-rated under section 11A(1)(k) of the Goods and Services Tax Act 1985. The services are supplied to non-residents who are not in New Zealand at the time the services are performed. There is judicial support for this approach in Case T 54 (1998) 18 NZTC 8,410. Although the legislation has since been changed by the enactment of section 11A (2) this will not affect the ability of the contractors to zero-rate their supplies.

We have considered whether the zero-rating is lost if a representative of the purchaser physically collects the cassette in New Zealand . Although the final product is reduced to the medium of a video cassette, which would generally be regarded as "goods" - and goods that are supplied to a non-resident who is in New Zealand usually cannot be zero-rated - it is Inland Revenue's view that the payment for this supply can still be zero-rated under section 11A(1)(k).

This is because Inland Revenue considers that the essential nature of the supply (again this would depend on the terms of the contract to produce the film to some extent) relates to the filming and editing services that had been performed before the buyer (or representative) arrived in New Zealand . Provided the representative does nothing materially more than take delivery of the completed work, their presence in New Zealand would be considered a "minor presence" and under section 11A(3) such a minor presence does not prevent zero-rating of services provided to non-residents. The same principle will apply to any exported screen production service provided to non-residents. Where non-resident representatives are present in New Zealand at the time of film production, the issue of whether their presence is more than a "minor presence" is a question of fact and degree of the particular circumstances of each situation.

The GST treatment of video and film services provided under contract to non residents for consumption outside of New Zealand is different in nature to contracts with non residents to provide services for consumption in New Zealand by a third party. Accordingly, the GST consequences will depend on the nature of the supply provided, including the terms of the contract, and whether consumption occurs in New Zealand.