The New Zealand government is gearing up to unveil new legislation on Thursday, August 31st, enabling the implementation of a 3% “Digital Services Tax” (DST) on the revenues of prominent multinational technology companies. However, enforcement of this tax is anticipated to commence as early as 2025.
Tax Apply to Biggest Names in Tech
Grant Robertson, New Zealand’s Finance Minister, announced on Tuesday, August 29th, that the proposed tax would be applicable to multinational corporations earning:
– Over 750 million euros (equivalent to 810 million USD) annually from worldwide digital services; or
– Over 3.5 million New Zealand dollars (approximately 2 million USD) annually from digital services provided to users within New Zealand.
This would encompass major multinational enterprises that derive income from New Zealand users on platforms such as social media, internet search engines, and online marketplaces. Notable companies affected include Google, Meta (previously Facebook), Microsoft, and Apple.
Following an International Trend
Robertson clarified that this tax, akin to tax schemes adopted by other jurisdictions like France and the United Kingdom, would constitute a 3% levy on the total taxable digital service revenue in New Zealand. It is projected to yield approximately 222 million New Zealand dollars in tax revenue over a span of four years.
In addition to the regular profit tax paid by companies, the “Digital Services Tax” would be levied, excluding locally provided subsidies.
During negotiations, New Zealand-based corporations such as Fonterra, Spark, Trade Me, The Warehouse, and Air New Zealand raised concerns regarding potential retaliatory measures or unintended consequences arising from such taxation.
Robertson emphasized:
“It’s clear that the international tax framework has not kept pace with the changing landscape of modern business practices and the increasing digitization of commerce. This is a challenge faced by countries worldwide. As more overseas companies adopt digital business models, our ability to tax them becomes restricted, placing the burden on a minority of taxpayers.”
The New Zealand government has participated in negotiations within the Organization for Economic Cooperation and Development (OECD) to establish a multilateral agreement addressing these concerns. However, Robertson acknowledged that progress in these negotiations has been sluggish. He stated:
“While we’ll continue to support a multilateral solution, we’re not prepared to wait indefinitely for an outcome. That’s why we have legislation ready to go, in case the OECD process doesn’t succeed.”
Complex Taxing Solutions for a Complex Situation
The notion of taxing digital services was initially proposed by the New Zealand government in 2019. For years, the Group of Seven (G7) and the OECD have collaborated on a dual-faceted plan.
One facet aims to guarantee that multinational companies pay a minimum tax rate of 15% on profits in any country, while the other seeks to allocate a portion of global tax revenue from the largest multinational corporations to individual nations.The UK government had previously emphasized its preference for a multilateral solution to multinational tax reform. Nevertheless, in the event that the OECD does not fulfill its commitments, the UK is open to cooperating with countries such as India and France to address domestic tax concerns.
