The proposed Digital Services Tax, touted by the Government as a way to ensure multinational companies pay their fair share of tax, will also ensnare large Kiwi businesses, along with their customers, warns Chartered Accountants Australia and New Zealand (CA ANZ).
"The Government has already admitted as much, because failing to include New Zealand businesses would mean running foul of our international fair trade obligations," said John Cuthbertson, New Zealand Tax Lead for CA ANZ. "The design of a Digital Services Tax, like digital services themselves, will be difficult to constrain."
"This is not exactly what many New Zealanders would have in mind when it comes to making multinationals pay their fair share of tax, particularly as the extra tax is likely to be passed down to consumers."
"The Kiwi companies that get caught in the Digital Services Tax net also might not share the Government's view that the tax's impact will be limited in practice."
"A digital services tax will not encourage Kiwi businesses to innovate or embrace digital opportunities," Cuthbertson said.
He said "It will be a challenge for Government to weave a DST into our tax base that is principled and does not fall foul of our tax treaties and WTO obligations. Consequentially, this tax cannot be an income tax or construed as a barrier to free trade."
"The New Zealand companies caught will be subject to double taxation – the DST, by design, cannot be credited against income tax."
"It will be an ugly tax."
New Zealand out of step
"We do not believe it is worth the questionable 30 to 80 million dollars the Government expects to get, plus putting New Zealand out of step with our main trading partners with a go-it-alone approach," Cuthbertson said.
"Australia and other OECD countries have already pulled back from a unilateral approach for good reason. Aside from the risk of double taxation, and the need to meet our WTO obligations, the US has clearly signalled an intention to impose retaliatory measures on nations who they believe are unfairly targeting their businesses."
"It is not a good time to be an early adopter."
The Government’s DST discussion document proposes a 'go-it-alone' Digital Services Tax charged at a flat 2–3% rate on gross turnover from "certain digital platforms". It also has de minimis thresholds so the tax will only apply to large businesses. The Government says it prefers to be part of an internationally agreed solution, but wants an interim solution based on a DST as a backup in case of slow progress.
"As a small exporting nation we need to be wary of the risks a DST carries for Kiwi businesses," Cuthbertson said.
CA ANZ's preference is for the Government to continue working with the OECD, and countries with similar economies, to reach a multilateral solution to the taxation of the digital economy.
"If the preferred OECD option is adopted – potentially a permanent reallocation of international taxing rights – we need to understand what impact that will have for New Zealand."
"The level of agreed detail (or lack of it) will be an important consideration as to how other countries adopt and apply these rules going forward."
"Again New Zealand should be mindful of the other countries' self-interest."