While New Zealand tax policy takes a public hiatus for the election, the OECD continues to advance its Base Erosion and Profit Shifting (BEPS) project to address tax challenges arising from the digitalisation and globalisation of the economy. (See our 2019 taxmail for the last public announcements).
The OECD has released three weighty documents on proposals to tax cross-border income. There are two documents which provide “blueprints” for the Pillar One and Pillar Two proposals. Pillar One focuses on new profit allocation rules in an increasingly digital age. Pillar Two focuses on ensuring international businesses pay a minimum level of tax. The third document considers the economic impact of the proposals.
The media focus has been on the impact on multinational companies of Pillar One, as that allocates income to the market countries. It is an alternative to digital services taxes, which a number of countries (including New Zealand) are either considering or have implemented.
There are three potential impacts for New Zealand.
Pillar One and Pillar Two both contain proposals which will affect a wide range of New Zealand exporters, not just digital service companies with significant global turnover. They will affect the taxation of cross-border transactions generally. If you do business outside of New Zealand, they may apply.
If implemented, the proposals may raise tax revenue for New Zealand. On the flipside, they may adversely impact economic activity as businesses consider the effect of the tax changes. The headline fiscal gains, if any, need to be considered against possible economic losses.
There is, as yet, no consensus on the proposals. Reading the tea leaves on whether that will occur is difficult. The risk is that consensus will not be achieved so that individual countries proceed with their own measures, such as digital services taxes. That in turn raises the risk of retaliation. The United States, for example, has intiaited Section 301 trade investigations. In short, New Zealand exports could become more expensive to customers because of foreign tariffs.
These potential impacts mean it is worth keeping an eye on progress and engaging with New Zealand Officials or making submissions to the OECD.
The detail of the OECD Pillar One and Pillar Two proposals is summarised in the following KPMG reports:
KPMG webinar: Pillar One and Pillar Two blueprints – ASPAC and European perspectives
Please join us for our webinar, where KPMG presenters from around the world will examine the big-picture impact of the proposals, the key details of Pillar One and Pillar Two, and what remains to be done in order to bring these proposals to fruition:
Pillar One and Pillar Two blueprints – ASPAC and European perspectives
October 20, 2020, 8pm NZT / 6pm AEDT
Register for a spot here.