The minister for finance, Grant Robinson, has released a document canvassing the options for taxing services provided purely digitally, the so called ‘Facebook tax’.
The document, Options for taxing the digital economy, sets out two options:
- applying a separate digital services tax (DST) to certain digital transactions at two or three percent of the gross turnover of “certain highly digitalised businesses that are attributable to the country”;
- changing the current international income tax rules. It says countries have been discussing different ways of achieving this at the OECD.
The discussion paper said any NZ digital services tax would be an interim measure the Government would look to repeal if and when an OECD solution was implemented.
Release of the document fulfils a commitment made by the government in May following receipt of the Independent Tax Working Group report, which said:
“The Government should stand ready to implement a digital services tax if a critical mass of other countries moves in that direction, and if it is reasonably certain that New Zealand’s export industries will not be materially impacted by any retaliatory measures.”
However finance minister Grant Robertson and revenue minister Stuart Nash had already issued, in February 2019, a statement saying they would consult on the design of changes to tax rules that allow multinational companies in the digital services field to do business in New Zealand without paying income tax.
Robertson said in that statement: “The value of cross-border digital services in New Zealand is estimated to be around $2.7 billion. We are determined to ensure that multinational companies involved in this sector of the economy pay their fair share of tax. Our revenue estimate for a digital services tax is between $30 million and $80 million, which depends on how it is designed.”
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Nash said New Zealand was working at the OECD to find an internationally agreed solution for including the digital economy within tax frameworks, and this was the preferred option.
“However, we believe we need to move ahead with our own work so that we can proceed with our own form of a digital services tax, as an interim measure, until the OECD reaches agreement,” he said.
The discussion paper said three proposals were presently under consideration by the OECD and that one, a new regime combining elements of all three, or something different could eventually be adopted.
- A limited proposal for digital services only, focusing on social media, digital advertising, intermediation platforms (also known as multi-sided platforms) and data.
– A broader proposal, which would allow greater taxing rights to market countries (such as New Zealand) based on certain marketing intangibles created there by multinationals. This would apply beyond the digital economy.
– A proposal which provides for apportionment of a multinational’s profit from ecommerce to market countries in which it has a significant economic presence. The apportionment would be based on an agreed formula and would depend on certain factors such as sales, assets and user participation.
The government is seeking submissions on the discussion document by 18 July.
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