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New Zealand considers turnover tax for digital services companies

Thursday, 6 June, 2019

New Zealand's government is pushing ahead with plans to apply a 2-3 per cent turnover tax to highly digitalised multinationals doing substantial business in the country.

It estimates that NZD2.7 billion-worth of digital services are being sold into New Zealand by companies such as Airbnb, eBay, Facebook, Google, Instagram, Uber and YouTube each year. Some of these, it says, pay little or no New Zealand tax on the income generated from their activities.

Minister of Finance Grant Robertson and Minister of Revenue Stuart Nash say their preferred option remains an internationally agreed solution through the OECD. The OECD's current workplan calls for agreement on an outline of the architecture for the new rules in January 2020, and full consensus on specific rules by the end of 2020.

However, New Zealand says it is concerned that the OECD will not make sufficient progress this year, and the subsequent implementation of its agreement may not happen until 2025. Consequently, it is considering the special turnover tax as an interim solution as other nations such as France, India, Italy, Spain and the UK have already done. The tax would be repealed once agreement is reached at OECD level.

It would not apply to sales of goods or services, only digital platforms who depend on a base of users for income from advertising or data. The government puts the estimated revenue generated at NZD30-80 million, depending on the options chosen.

The finance ministry now invites feedback on how the Digital Services Tax (DST) might work in practice. It has already decided that it will ‘seriously consider’ a flat rate of 2 to 3 per cent on gross turnover, in addition to any corporate income tax paid by the group. However, the company could treat it as a business expense deductible in accordance with the usual income tax deduction rules.

It would also not apply where a group's consolidated annual turnover did not exceed EUR750 million, or where its New Zealand-specific annual turnover is less than NZD3.5 million.

Consultation on the proposed DST closes on 18 July 2019.

Sources