Digital services tax proposals to target multinationals

The avoidance of paying tax by multinational companies is well known, but an effective solution is difficult to come up with. The Government has proposed two options.


Ensuring multinationals pay their fair share of tax

Finance Minister Grant Robertson and Revenue Minister Stuart Nash today proposed two broad options to ensure offshore digital companies no longer enjoy tax breaks which are not available to local businesses.

“Our number one preference remains an internationally agreed solution through the OECD,” says Mr Robertson. “However if the OECD cannot make sufficient progress this year we need an interim solution. Other nations have already taken this step.”

“The UK has announced it will introduce a two percent DST from April 2020. Austria, the Czech Republic, France, India, Italy and Spain have also enacted or announced DSTs.

“We need to protect our economy and the integrity of our tax system. 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.

“Multinational companies like social media platforms and e-commerce sites generate income through cross-border digital services rather than face-to-face retail,” says Mr Robertson.

The DST outlined in a discussion document released today would apply to:

  • platforms which facilitate the sale of goods or services between people, such as Uber and Airbnb and eBay;
  • social media platforms like Facebook;
  • content sharing sites like YouTube and Instagram; and
  • companies which provide search engines and sell data about users.

“A DST would be narrowly targeted at certain highly digitalised business models. It would not apply to sales of goods or services, but to digital platforms who depend on a base of users for income from advertising or data.

“The value of cross-border digital services in New Zealand is estimated to be around $2.7 billion. The estimated revenue of a DST is between $30 million and $80 million, depending on the design,” Grant Robertson said.

Revenue Minister Stuart Nash says the Tax Working Group concluded New Zealand should continue to participate in the OECD discussions but also stand ready to implement a DST if a critical mass of other countries move in that direction.

“The OECD is seeking approval for its digital economy work programme from the G20 group of large economies at a meeting in late June. The progress made at the OECD to date has not been sufficient to allay the concerns of several countries, who have announced or introduced DSTs as unilateral interim measures.

“Any DST in New Zealand would be an interim measure. The Government would look to repeal it if and when the OECD’s international solution was implemented,” says Mr Nash.

The two options are:

  • Changing the current international income tax rules, to allow more taxation in market countries.  This option is currently being discussed by the OECD and the G20 group of large economies.
  •  Applying a separate DST of three per cent to certain revenues earned by highly digitalised multinationals operating in New Zealand. The discussion document seeks feedback on how a DST might work in practice.

“The Government is committed to future-proofing the tax system to ensure it can handle changes to how people work and how business is done,” Mr Nash says.

“The significance of the digital economy is only going to grow over the coming decades. We need to keep adapting to ensure multinationals who do business here are paying their fair share of tax.

“We’ve passed legislation to collect GST on remote services, and to ensure multinationals pay their fair share of tax if they have a physical presence in New Zealand, and we have legislation before parliament to ensure we collect GST on low-value imported goods,” says Mr Nash.

The discussion document can be found at taxpolicy.ird.govt.nz. Consultation closes on 18 July 2019.