Digital Services Tax on multinational companies coming

Digital Services Tax on multinational companies coming

“More than $2.7 billion go untaxed” every year

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Wellington, February 19, 2019

Social media companies like Facebook, YouTube and Instagram and others like Uber will have to pay DST (Image Courtesy: Business Insider, Australia)

New Zealand is to consult on the design of changes to tax rules which currently allow multinational companies in the digital services field to do business here without paying income tax.

Finance Minister Grant Robertson and Revenue Minister Stuart Nash said that Cabinet has agreed to issue a discussion document about how to update our tax framework to ensure multinational companies pay their fair share of tax in this country.

Unfair practice now

“Highly digitalised companies, such as those offering social media networks, trading platforms, and online advertising, currently earn a significant income from New Zealand consumers without being liable for income tax. That is not fair, and we are determined to do something about it,” Mr Robertson said.

“International tax rules have not kept up with modern business developments. In the longer term this threatens the sustainability of our revenue base and the fairness of the tax system.  The current tax rules also provide a competitive advantage to foreign companies in the digital services field compared to local companies who offer e-commerce, online advertising, and social networking services,” Mr Robertson said.

He said that the value of cross-border digital services in New Zealand is estimated to be around $2.7 billion and that the government is determined to ensure that multinational companies involved in this sector of the economy pay their fair share of tax.

Working with OECD

“Our revenue estimate for a Digital Services Tax is between $30 million and $80 million, which depends on how it is designed,” Mr Robertson said.

Mr Nash said that New Zealand is currently working at the OECD to find an internationally agreed solution for including the digital economy within tax frameworks.

“Our preference is to continue working within the OECD, which was also recommended last year by the interim report of the Tax Working Group. 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.

Discussion Document

“This is the same approach being considered by Australian authorities, who released a discussion document late last year. The OECD has also released a discussion document on its proposals. Officials will now finalise the New Zealand document which is likely to be publicly released by May 2019,” Mr Nash said.

“The document will make it clear we are determined that multinational companies pay their fair share of tax. We are committed to finding an international solution within the OECD but would also consider an interim option till the OECD finalises a position,” he said.

The Background

Digital Services Taxes are generally charged at a very low flat rate of 2% to 3% on the gross revenue earned by a multinational company in that country. A number of countries including the UK, Spain, Italy, France, Austria and India have enacted or announced a DST.

The EU and Australia are consulting on a DST.

DSTs do not apply to goods or services, but to digital platforms who depend on a base of users. These may include, but are not limited to, social media sites like Facebook, content sharing sites like YouTube or Instagram, those that offer intermediary services like Uber, Airbnb and eBay, and others that earn income from online advertising.

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