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Digital giants to face DST

Paul Brislen, Editor. 05 June 2019, 8:53 am

The government has released its discussion paper on any future "digital services tax" and is calling for submissions.

Already a contentious issue, with economists questioning whether such a tax is "fair" or just a political stunt designed to assuage the constituency, the paper proses two ways to deal with the question of multinational companies such as Facebook, Apple, Google, Uber and many others, claiming to make little profit in New Zealand and so avoiding paying tax here in a legal but questionable way.

While all the major players are at great pains to say they work within the law and do not avoid paying tax but minimise their tax burdens, these companies are coming under increasing pressure to do more. Google recently announced it had made a loss of $1 million in New Zealand on revenues of $17 million and so paid $398,341 in tax for the year.

Google, of course, earned far more in New Zealand than that, but through careful managing of internal licensing arrangements and other perfectly legal avenues has managed to move its tax burden to regimes that tax the company at a lower rate.

The government's response is to change the rules so that income earned in New Zealand is taxed in New Zealand - something the tech giants would very much like to avoid.

The issue facing New Zealand is whether to wait for a combined, OECD-led multinational response, or launch a tax of our own locally in the meantime. Given how long multinational models take to build and how easy they are to pull apart, the government's short-term fix includes a separate "digital services tax" of around 2-3% of the gross turnover and would account for an estimated $30-$80 million a year.

Local providers of digital services have long called for such an action as they pay far more tax on far smaller sales here in New Zealand. Don Christie, co-founder of Wellington provider Catalyst and co-chair of tech lobby group NZRise, welcomes the move but economists are warning that any unilateral move would threaten the global tax regime and would lead to a tit-for-tat battle based on where consumers are rather than the current model which favours an exporting nation such as New Zealand.

The government has indicated that its preference is to work with the OECD tax group to come up with a group-wide solution, but has said that if the group cannot make good progress by the end of the year it will look to launch an interim measure on its own.

Submissions are due in by July 18


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