Digital services tax unlikely to be used to bail out local media businesses

Tuesday, 19 February 2019

Finance Minister Grant Robertson has brushed off the idea of using a possible 'Facebook tax' on the revenues of digital giants to fund local media.

Revenue Minister Stuart Nash said in March last year that the Government was getting advice from officials on whether it should follow moves by the European Commission and others to impose new taxes on the local sales of internet businesses such as Google and Facebook.

On Monday, Robertson announced the Government would go a step further by issuing a discussion document on how that could work, saying international tax rules had not kept up with 'modern business developments'.

That was despite officials' advice provided to the Tax Working Group in September that warned a tax of the type now being proposed by the Government risked breaching either New Zealand's international tax treaties, or World Trade Organisation rules, depending on how they were viewed.

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The value of cross-border digital services in New Zealand was about $2.7 billion and a digital services tax on those revenues could raise between between $30 million and $80m a year, Robertson forecast.

In December, the Australian government ordered the Australian Competition and Consumer Commission (ACCC) to hold an inquiry into the impact of digital platforms on competition in the media and advertising markets.

The ACCC said it was concerned about the market power of Google and Facebook on Australian businesses and 'in particular, on the ability of media businesses to monetise their content'.

Communications Minister Kris Faafoi indicated he had similar concerns.

But Robertson said he did not imagine it was likely the proceeds of any new tax would go to media companies to mitigate those impacts.

New Zealand did not have history of 'hypothecated taxes' that directly allocated income received from tax to a particular area of spending, outside the area of roading, he noted.

Digital giants' loss is unlikely to be local media firms' gain.

Google would not comment publicly on the possibility of it facing a digital services tax in New Zealand, and Facebook has not so far responded to a request to comment.

Both companies agreed about a year ago to move away from an 'agency' model in New Zealand and book their local sales through their local subsidiaries, rather than overseas.

That is expected to modestly increase the amount of tax they pay here.

The Organisation for Economic Cooperation Development claims to have made huge strides over the past few years stamping out tax rorts that have allowed businesses including Google and Facebook to route their profits to tax havens.

However, it remains concerned that it is still too easy for digital businesses – whose profits are largely derived from software, intellectual property and so-called 'network effects' – to choose where to locate their business assets based primarily on tax considerations.

Digital services taxes can act more like a 'tariff' than a conventional tax on business profits.

An industry source said internet companies would be highly unlikely to withdraw from New Zealand if they were introduced but might simply pass any extra cost on to local customers.

It has been argued that has generally been the upshot in India, where local customers of Facebook and Google have been asked to deduct its 6 per cent 'equalisation tax' from the amounts they are invoiced by Facebook and Google for digital advertising and then remit that to the Government.