The digital economy poses a number of opportunities and challenges for governments and regulators, and New Zealand is no exception. The digital economy calls into question the traditional model of taxing multinational enterprises based on “bricks and mortar” presence. Companies may have a sizeable digital reach into a country without physical presence, and this can inevitably give rise to concerns about foreign multinationals paying their “fair share” of tax in New Zealand. The perception is that value is created in New Zealand but not taxed under the traditional model.
The New Zealand government recently put out a discussion document with two broad questions on the digital economy.
A number of countries have announced or implemented digital services tax regimes, including France and the UK. Notably, Australia considered but ultimately rejected a digital services tax. The argument for a digital services tax is that countries separately adopting a digital services tax will help bring about an international consensus through the OECD.
There are those who believe that from a tax policy perspective, a digital services tax would be inefficient and unfair because (1) it would apply to turnover (not profit) and select activities; (2) the projected revenue would not be significant; and (3) the design of this tax could catch New Zealand companies, thus raising the possibility of double tax (collateral damage). Reaching and, when possible, influencing international consensus through the OECD is viewed by some as a priority. However, the OECD process is not “risk-less” for New Zealand. Any solution is likely to be driven by the interests of the major players. This discussion is not just a narrow tax question of how multinationals are to be taxed. There are important economic questions as well as implications for New Zealand’s trade and international relations.
Read a July 2019 report prepared by the KPMG member firm in New Zealand
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