New Zealand Law Society - Options to tax offshore digital companies outlined

Options to tax offshore digital companies outlined

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The Government has released proposed options for a digital services tax (DST) which would target multinational digital companies which do substantial business in New Zealand but pay no tax on income or revenues.

Consultation has opened on a discussion document on the options. This closes on 18 July 2019.

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 3% 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.

Finance Minister Grant Robertson says the number one preference remains an internationally agreed solution through the OECD.

“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.

What DST would apply to

The DST outlined in the discussion document 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," Mr Robertson says.

“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."

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