- Government is seeking feedback on the ‘Options for taxing the digital economy’ discussion document. While Government supports an internationally agreed solution to how to tax the digital economy, they are considering implementing a unilateral digital services tax (DST) as an interim measure
- CA ANZ does not support implementing a unilateral DST due to the high risk of double taxation, breaching of WTO rules and retaliation from other nations through tariffs or levies
- CA ANZ welcomes feedback from members on this discussion document before 1 July 2019
Options for taxing the digital economy
Government is seeking feedback on the 'Options for taxing the digital economy' discussion document released on 4 June. A short summary of this discussion document is below. While Government supports an internationally agreed solution to how to tax the digital economy, they are considering implementing a unilateral digital services tax (DST) as an interim measure.
CA ANZ does not support implementing a unilateral DST due to the high risk of double taxation, breaching of WTO rules and retaliation from other nations through tariffs or levies. In our view, the issue is wider than just digital service providers and in reality, what we are discussing at an OECD level is the future international allocation of taxing rights, or "how to cut the tax pie". Therefore, we believe NZ's time and energy would be best spent working within the OECD to secure an outcome that is favourable for a small, isolated exporter nation such as New Zealand.
We have published a series of articles discussing our concerns and if you missed them, links can be found below.
CA ANZ welcomes feedback from members on this discussion document before 1 July 2019. You can email the NZ Tax Team directly at TaxTeamNZ@charteredaccountantsanz.com or you can join the conversation on MyCA.
Options for taxing the digital economy: A Government discussion document.Read the discussion document
International options on the table
On the international stage two measures are being considered. The first, to allocate greater taxing rights over a multinational's profits to market countries has three options and the OECD may agree on one or a combination of these:
- A narrow proposal for digital services only (this option was preferred by the United Kingdom)
- A broad proposal which would apply to the wider digital economy (not just digital service providers) and would allocate greater taxing rights to market countries based on the marketing intangibles created there.
- Apportionment of profit to market countries where a multinational has a significant economic presence.
The second option is to implement a minimum tax to ensure multinationals pay a minimum level of tax on profits earned in low tax countries.
With the exception of the United Kingdom's preferred approach all options acknowledge that the digital economy is now almost synonymous with 'the economy' as businesses across all industries are becoming highly digitalized.
Proposed design of a Digital Services Tax for NZ
The discussion document notes that any DST introduced needs to comply with the OECD guideline, set out to limit the adverse consequences of a DST. These guidelines suggest that any DST should:
- Be compliant with our international obligations, this means the DST could not be part of an income tax but could be an excise tax
- Be repealed when an international consensus is reached
- Be targeted at business models which pose the greatest challenges to the current permanent establishment (or deemed PE) model of international taxation
- Be charged at a low rate
- Minimise impact on start-ups and small businesses (therefore de minimis thresholds need to apply)
- Use existing collection mechanisms (such as GST) to minimise complexity.
The discussion document also states that New Zealand should align any DST with DST's adopted by other countries to reduce the risk of double taxation, reduce reputational damage to NZ and make it easier for multinationals to comply.
|Country||DST Status||DST Rate (if applicable)||Applies to|
|Australia||Undertook consultation in 2018, announced on 20 March 2019 that it will not adopt a DST||Not applicable||Not applicable|
|European Union||Introduced a proposal for a DST in 2018 but has been unable to reach a consensus.||Not applicable||Not applicable|
|Ireland||Does not support the European Commission's proposal for an interim DST||Not applicable||Not applicable|
|United Kingdom||Expected to introduce a DST from April 2020||2%||Three categories of business: search engines, social media platforms, online marketplaces|
|France||Draft bill introduced to French parliament in February 2019, may apply retrospectively from 1 January 2019||Dependent on turnover, not more than 5%||Groups operating in the digital economy with an annual consolidated turnover of >€750m and at least €25m turnover in France|
|Spain||Government approved DST Bill in January 2019||3%||Applies to online advertising services, online intermediation services, platforms where ecommerce purposes can be promoted, data transfer services|
|Italy||DST introduced January 2019||3%||Applies to digital services supplied by businesses (companies and groups) with annual revenue of >€750m and >€5.5m revenue from digital services in Italy|
The digital services tax is proposed to apply at a flat tax rate of 3% on the gross turnover attributable to New Zealand by certain digital businesses on a consolidated group basis. There is a very narrow scope of businesses that would be in scope. Intermediation services (e.g. eBay), social media platforms (e.g. Facebook), content sharing sites like Instagram and, search engines.
The following two proposed de minimis thresholds must also be met:
- €750m of consolidated annual turnover
- A NZ specific threshold of $3.5 million
Tax in throes of catching up with digital age.
What was originally a narrow discussion on how to tax digital services has morphed into a wide-ranging one on how countries carve up tax revenues on international business profits.Read more
International digital services tax - a Trojan horse for New Zealand?
Real danger for New Zealand as OECD Digital Services Tax talks are now heading down the path of a worldwide taxation system based on where customers are located.Find out more