International Tax Review is part of the Delinian Group, Delinian Limited, 4 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2023

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

New Zealand proposes interim digital services tax

Sponsored by

sponsored-firms-russel-mcveagh.png
new-zealand.jpg

The New Zealand government has released a discussion document proposing a digital services tax (DST) as an interim measure while OECD discussions continue on possible changes to the international tax framework to address the digitalisation of the global economy.

The New Zealand government has released a discussion document proposing a digital services tax (DST) as an interim measure while OECD discussions continue on possible changes to the international tax framework to address the digitalisation of the global economy.

The discussion document, entitled 'Options for taxing the digital economy', also comments on the measures the OECD is considering.

The DST would be imposed at the rate of 3% on the New Zealand proportion of a group's global turnover from certain digital businesses, such as intermediation platforms, social media platforms, content sharing sites and search engines. The DST is intended to catch business activities whose value is dependent on user contribution and user base size.

Form of the DST

The DST would be a new tax, imposed by reference to gross revenues rather than net income. It would apply only to businesses meeting two de minimis thresholds: (i) a global consolidated annual turnover of €750 million ($850 million) per year; and (ii) NZ$3.5 million ($2.3 million) of in-scope revenue (i.e. from business activities within the scope of the DST) attributable to New Zealand per year.

The discussion document proposes that gross turnover attributable to New Zealand could be based on the proportion of global users in New Zealand. A suggested alternative for attributing turnover is to use the actual contribution of users in New Zealand to global turnover.

Potential effects of a DST

The discussion document concedes that a DST would be unlikely to raise a significant amount of tax; it is estimated to raise NZ$30 million to NZ$80 million per annum. The discussion document, however, refers to other asserted benefits of introducing a DST including:

i) improving public confidence in the tax system; and

ii) avoiding a delay while waiting for a solution at OECD level.

The government may be especially sensitive to the question of whether large businesses are paying enough tax, given its decision in April not to implement a capital gains tax as had been recommended by a tax working group.

As a DST would apply to both New Zealand resident and non-resident businesses (to comply with World Trade Organisation and free trade agreement obligations), it would apply to New Zealand businesses meeting the de minimis thresholds in addition to income tax. Although the DST may be a deductible expense for the purposes of computing income tax liability, the DST would not be creditable against income tax or vice versa. Consequently, New Zealand businesses that offer in-scope services and exceed the de minimis thresholds will be subject to a greater New Zealand tax burden than other businesses. This feature of the proposal will likely attract criticism.

Another controversial aspect of the proposed DST is that the US (one of New Zealand's largest trading partners) has stated that it regards DSTs such as that proposed by New Zealand as discriminatory and contrary to international law. It will be interesting to see how the New Zealand government manages these and related concerns, especially given that another of New Zealand's largest trading partners, Australia, recently shelved plans to introduce its own DST.

Next steps and implementation

Submissions on the discussion document close on July 18 2019. The government has indicated that it intends to make a decision regarding the DST in the second half of 2019. If the government decides to proceed with a DST, it is likely to introduce legislation in 2020.

more across site & bottom lb ros

More from across our site

PwC publishes detailed accounts of its behaviour in the tax scandal in Australia, while another tax trial looms for pop star Shakira.
The winners of the ITR Europe, Middle East, and Africa Tax Awards 2023 have been announced!
The winners of the ITR Asia-Pacific Tax Awards 2023 have been announced!
Mauro Faggion appeared cautiously optimistic as the European Commission waits to see whether all 27 member states will accept its proposal.
The global minimum rate also won’t entirely stop a race to the bottom, according to a tax director speaking at an ITR conference in London.
The country’s tax authorities are not interested in seeing transfer pricing studies any more, it was claimed at an ITR industry conference in London.
The controversial measure is being watered down after criticism from the European Central Bank.
More than 600 such requests were made in 2022, while HMRC has also bolstered its fraud service, it has been revealed.
The General Court reverses its position taken four years ago, while the UN discusses tax policy in New York.
Discussion on amount B under the first part of the OECD's two-pronged approach to international tax reform is far from over, if the latest consultation is anything go by.