Govt ready and willing to fill the gap on digital services tax if OECD solution fails
By Paul McBeth
June 4 (BusinessDesk) - The government is concerned that a concerted international effort to ensure multinational
digital firms pay their fair share of tax will fail, so will decide this year on whether to go it alone as an interim
Ministers Grant Robertson and Stuart Nash today said they would prefer to be part of a multilateral effort through the
Organisation for Economic Cooperative and Development, but if that doesn't make sufficient progress, the government will
introduce a 3 percent tax on certain digital transactions as an interim measure.
They've issued a consultation paper seeking feedback on whether to wait for the OECD to come up with an internationally
agreed solution, or to apply a separate tax on its own as an interim measure. Submissions are due by July 18.
"Modern business practices, digitalisation in particular, mean that a company can be significantly involved in the
economic life of a country without paying tax on income or turnover," Finance Minister Roberston said in a statement.
"Multinational companies like social media platforms and e-commerce sites generate income through cross-border digital
services rather than face-to-face retail."
The government's view effectively adopts the conclusion of the Michael Cullen-led Tax Working Group, which said New
Zealand should participate in the OECD discussions, but be ready to implement a digital services tax on its own if
enough countries do the same, and if it's reasonably sure local exporters won't be hit by retaliatory measures.
The proposed tax would be imposed on services that facilitate the sale of goods or services such as Uber or eBay, social
media platforms like Facebook, content sharing sites like YouTube and Instagram, and search engines and the sale of user
The tax wouldn't capture ordinary sales of goods or services over the internet, such as through Amazon, which the
government is already targeting in other workstreams. And it would exclude the provision of online content, such as
Netflix. Cloud-based accounting services, such as Xero, would be excluded, as would telecommunications and internet
service providers, standard financial services, and television and radio broadcasting.
Such a tax is estimated to generated between $30 million and $80 million of additional revenue for the Crown. That's
about 0.1-0.3 percent of the $20.8 billion of GST collected in the June 2018 financial year.
"While the revenue raised would not be large, a DST could have other benefits. Much of the recent public concern about
the under-taxation of multinationals has focussed on high-profile digital companies that do not have a physical presence
in New Zealand (and so are not subject to income tax)," the consultation paper said.
"By taxing these companies, a DST could improve public confidence in the fairness of the tax system, which is an
important factor underlying voluntary compliance."
The paper notes there's a risk in waiting to see what the OECD can achieve, and even if a solution is found, it might
not take effect until 2025.
Revenue Minister Nash said if the government proceeds with a digital services tax, it will be an interim measure.
"The government would look to repeal it if and when the OECD’s international solution was implemented," he said.
The discussion document said legislation for a digital tax could be introduced in 2020, which is an election year.