NZ Gov’t takes steps to ensure ‘highly digitalised’ MNCs pay their fair share

International tax rules have not kept up with modern business developments. In the longer term this threatens the sustainability of our revenue base and the fairness of the tax system Finance minister Grant Robertson

New Zealand is to consult on the design of changes to tax rules which currently allow multinational companies in the digital services field to do business here without paying income tax.

According to a report by Reuters, New Zealand plans to update laws so it can tax revenue earned by multinational digital firms such as Google, Facebook and Amazon, extending a global effort to bring global tech giants into the tax net.

Prime Minister Jacinda Ardern said the cabinet had agreed to issue a discussion document about how to update the country’s tax framework to ensure multinational companies pay their fair share.

“Our current tax system is not fair in the way it treats individual tax payers, and how it treats multinationals,” Ardern told reporters at her weekly post-cabinet news conference.

Highly digitalised companies, such as those offering social media networks, trading platforms, and online advertising, currently earn a significant income from New Zealand consumers without being liable for income tax, the government said in a statement released after the announcement.

“That is not fair, and we are determined to do something about it,” says Finance minister Grant Robertson.

“International tax rules have not kept up with modern business developments. In the longer term this threatens the sustainability of our revenue base and the fairness of the tax system.

“The current tax rules also provide a competitive advantage to foreign companies in the digital services field compared to local companies who offer e-commerce, online advertising, and social networking services.

“The value of cross-border digital services in New Zealand is estimated to be around $2.7 billion. We are determined to ensure that multinational companies involved in this sector of the economy pay their fair share of tax. Our revenue estimate for a digital services tax is between $30 million and $80 million, which depends on how it is designed,” he adds.

Revenue minister Stuart Nashsays New Zealand is currently working at the OECD to find an internationally agreed solution for including the digital economy within tax frameworks.

“Our preference is to continue working within the OECD, which was also recommended last year by the interim report of the Tax Working Group. However, we believe we need to move ahead with our own work so that we can proceed with our own form of a digital services tax, as an interim measure, until the OECD reaches agreement.

He says this is also the same approach being considered by Australian authorities, which released a discussion document late last year. The OECD has also released a discussion document on its proposals.

Officials will now finalise the New Zealand document which is likely to be publicly released by May 2019.

“The document will make it clear we are determined that multinational companies pay their fair share of tax. We are committed to finding an international solution within the OECD but would also consider an interim option till the OECD finalises a position,” says Nash (with a report from Reuters)