“Facebook tax”: government proposes taxes for digital giants as it calls for submitting proposals
Facebook, Google, Uber and Airbnb could all pay more taxes in New Zealand thanks to a “digital services tax” on which the government is now soliciting bids.
The tax would apply to New Zealand revenues from social media companies, online advertising companies and “gig economy” platforms.
But the tax is facing stiff opposition from critics, including the country’s main accounting body, who have warned that such a tax could lead to retaliation and backfire on New Zealand exporters.
Prime Minister Jacinda Ardern first announced in February that the government would release a discussion paper on the possible new tax and Finance Minister Grant Robertson said it could raise between $ 30 million and $ 80 million per year , depending on how it was applied.
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The initiative stems from fears that it is still too easy for Internet giants to account for their profits in low-tax countries, despite an OECD crackdown on corporate tax breaks.
Discussion paper offers two options.
One would be to apply a 3% digital services tax to “certain revenues received by highly digitized multinationals operating in New Zealand”.
The other is to change “current international income tax rules” to allow more taxation – an option currently being discussed by the OECD and the G20.
Ardern pointed to the possible tax in April as proof that the government still had ideas on how to improve the fairness of the tax system after suspending a capital gains tax that would have mainly affected the rich.
A digital services tax appeared to have some of the rug ripped from under its feet a month earlier when Australia announced it decided not to follow the same path.
A Cabinet document issued under the Official Information Act had suggested that there would be no benefit to New Zealand in introducing such a tax unless “a critical mass of other countries, particularly Australia “also did.
New Zealand officials have repeatedly warned that introducing a digital services tax outside of an international agreement could violate tax treaties New Zealand has signed with other countries or the rules of the World Trade Organization (WTO).
Some other countries – including India – have unilaterally introduced similar taxes, where they have been observed to be more akin to a tariff than a conventional corporate tax.
Robertson said the government’s “number one preference” for better taxation of the digital economy remained an internationally agreed solution, achieved through the OECD.
“However, if the OECD cannot make sufficient progress this year, we need an interim solution. Other countries have already taken this step,” he said.
“Modern business practices, digitalization in particular, allow a business to become meaningfully involved in the economic life of a country without paying income or turnover tax.”
The OECD is developing proposals that could look like an agreed digital services tax by the end of next year.
It originally justified the work on the basis that social media and internet advertising companies derive a significant portion of their value from content uploaded by users – and not just their own research and efforts which would remain taxed. where this activity was taking place.
But US officials have suggested that any new tax should apply to a wider slice of multinationals that derive value in foreign markets from “commercializing intangibles,” such as their brands.
Tax advisor and former Inland Revenue Deputy Commissioner Robin Oliver said the message from the United States seemed to be “if you tax Google, we’ll tax BMW.”
There have been concerns that a larger tax based on the marketing of intangibles could also lead to sales of New Zealand milk attracting additional taxes in foreign markets.
Chartered accountants in Australia and New Zealand called on the government to drop the idea of a stand-alone digital services tax last month, saying the European Union as well as Australia had backed down.
Instead, the country should seek to work with small, like-minded and similarly affected trading nations to present “a strong and consistent voice” to the OECD, its tax chief John Cuthbertson said.
“The proposals for taxes on digital services around the world have quickly turned into a broad international debate on how countries allocate tax revenues over the profits of international businesses,” he said.
“The very real danger for New Zealand is that these talks are now moving towards a global taxation system based on where customers are located.
“As an exporting country, a customer-centric tax system poses a very damaging threat to our tax base.”
According to the US proposal, currently favored at the OECD, part of the tax revenues paid by exporters, such as Fonterra and Zespri, “risked migrating abroad,” Cuthbertson said.
But Don Christie, director of NZRise, a lobby group that represents domestic tech companies, said a tax properly targeting multinationals that are avoiding tax at the moment would be welcome.
He questioned whether the proposed rate of 3 per cent on sales would be sufficient.
Nash said if the government enacted a stand-alone tax, it would be an interim measure until an international agreement was reached.
“The government would seek to repeal it if and when the OECD international solution is implemented,” he said.
Submissions on the discussion paper close July 18.