Date posted: 2/04/2019 4 min read

Taxing Digital: Update on March Edition

Last month we outlined our digital taxation concerns, now international sentiment is rapidly shifting.

In Brief

  • Last month we briefly outlined some of CA ANZ’s concerns about possible digital services taxes and the OECDs approach for New Zealand
  • Since then, Australia and the EU have both stepped back from the digital services tax route, focusing on the OECD options
  • Where does this leave NZ?

Where we finished last time...

Last month we included a spotlight on the international response to digital taxation as an extension of the base erosion and profit shifting measures, following the Prime Minister’s announcement in February that New Zealand would be consulting on digital services taxation from May. 

NZ Tax Leader, John Cuthbertson, said New Zealand needed to be careful in our considerations.  “The risks at this stage do not outweigh the possible reward of an estimated $30 - $80 million in revenue from digital services. We should not be adopting unilateral measures in haste.

”New Zealand needed to work with the OECD, he said. “We need to ensure that the options put forward are workable, and that we are not detrimentally impacted by a mechanism ultimately adopted to share the international tax pie.”

There have been several developments internationally since last month’s edition of NZ Tax News that will inform and shape our consultation. 

Australia and the EU

Australia recently consulted on “The digital economy and Australia’s corporate tax system”. When we reported last month, both Australia and the European Union were considering implementing a digital services tax separate to the OECD multilateral response to the digitalisation of the economy. However, shortly after, both Australia and the European Union decided not to proceed with an interim digital services tax measure. While the EU’s decision not to proceed was influenced by some nations, such as Ireland and Germany, opposing the digital services tax, during the recent consultation, Australian stakeholders raised “significant concerns” about the impact of an interim measure for businesses, including, double taxation, discouraging innovation and detrimental impacts for start-ups and low-margin businesses.

Both Australia and the EU will focus efforts on engaging in the OECD multilateral process – and with good reason. A digital services tax risks double taxation, breaching trade agreements and WTO rules. 

So, what about us?

In the New Zealand announcement by the Prime Minister and Minister of Revenue, it was noted that “this is the same approach being considered by Australian authorities”. Now Australia has changed course, can we still expect a discussion on digital services taxes in May? And what could happen if we continued — almost alone — in implementing an interim digital services tax?  

Cuthbertson said: “As a small trading nation, it is important that we do not act alone and invite the risk of disproportionate retaliatory measures. The amount of revenue at stake is minimal and the costs may ultimately be borne by New Zealand consumers.”

It will be crucial that the discussion document, when released, is subject to a detailed consultation period to ensure the best outcomes for New Zealand.