The government has released its options for the proposed digital services tax (DST) to apply to foreign digital platforms operating in New Zealand.
Finance minister Grant Robertson and Revenue minister Stuart Nash today proposed two options to ensure offshore digital companies no longer enjoy tax breaks not available to local businesses.
“Our number one preference remains an internationally agreed solution through the OECD,” said Robertson. “However if the OECD cannot make sufficient progress this year we need an interim solution."
Other nations have already taken this step, he said. The UK announced it would introduce a two per cent DST from April 2020 while Austria, the Czech Republic, France, India, and others have also enacted or announced DSTs.
“We need to protect our economy and the integrity of our tax system," Robertson said. "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."
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, Airbnb and eBay. They would also apply to social media platforms such as Facebook.
Content sharing sites like YouTube and Instagram and companies which provide search engines and sell data about users would also fall within its net.
A DST 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,” Robertson said.
Revenue minister 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 program from the G20 group of large economies at a meeting in late June.
The progress made at the OECD to date, however, has not been sufficient to allay the concerns of several countries, who have announced or introduced DSTs as interim measures.
The two options are, first, to change the current international income tax rules, to allow more taxation in market countries. This is the option is being discussed by the OECD and the G20 group of large economies.
The second is applying a separate DST of three per cent to certain revenues earned by highly digitalised multinationals operating in New Zealand.
“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,” Nash said.
“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."
Government has already 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.
It also has legislation before parliament to ensure the collection GST on low-value imported goods.