NZ 'Facebook tax' on digital giants dealt blow after Australia rejects the idea

Wednesday, 27 March 2019

Facebook and Google have reason to cheer after Australia rejects the idea of taxing their local revenues.

Finance Minister Grant Robertson says the Government still intends to consider a 'digital services tax' on multinationals such as Google and Facebook, despite the Australian government rejecting the idea.

Prime Minister Jacinda Ardern announced last month that the Government would release a discussion document in May that would canvass the possible new tax.

It could apply at the rate 2 or 3 per cent to the New Zealand revenues of overseas social media and online advertising companies, and could raise between $30 million and $80m a year according to officials.

But a Cabinet paper released under the Official Information Act last week suggested there would only be benefits in New Zealand introducing a digital services tax if 'a critical mass of other countries, particularly Australia' also did so.

* NZ needs to seek the safety of the pack in changing the rules of international taxation

* Facebook and Google could face higher tax rates in New Zealand**

The paper said the Government saw 'real benefits' in aligning New Zealand's position with Australia.

The Australian government released a consultation paper on a digital services tax in October.

But Australian federal treasurer Josh Frydenberg said that after the reviewing the 38 submissions it received, it had decided not to proceed with the idea at this time.

Instead, the Australian government will pin its hopes on the Organisation for Economic Cooperation and Development (OECD) reaching a new international agreement on how to better tax the digital economy.

Australian Treasurer Josh Frydenberg has decided against acting unilaterally after reviewing submissions on multinational taxation.

Russell McVeagh partner Brendan Brown said Australia's decision might not have killed the idea of a digital services tax here, but 'there would seem to be even further reason for New Zealand to proceed very cautiously in this area'.

Frydenberg said the submissions the Australian government received 'overwhelmingly supported Australia continuing to engage in the ongoing multilateral process led by the OECD and the G20'.

'Many stakeholders raised significant concerns about the potential impact of an Australian interim measure across a wide range of Australian businesses and consumers, including discouraging innovation and competition, adversely affecting start-ups and low-margin businesses, and the potential for double taxation,' he said.

Robertson reiterated that an international agreement also remained the New Zealand Government's preferred option.

Finance Minister Grant Robertson says the Government will still release a discussion document in May, despite a Cabinet paper highlighting the importance of moving alongside Australia.

'Our preference is to continue working with other countries through the OECD framework.

'However, it is important that we move ahead with our own work as an interim measure until agreement can be reached at the OECD, just as a number of other countries are doing,' he said.

Officials have repeatedly warned that introducing a digital services tax outside of an international agreement could breach tax treaties New Zealand had signed with other countries, or World Trade Organisation (WTO) rules.

United States treasury officials underscored that point this month, according to a Voice of America report.

The US officials said such taxes were 'discriminatory' and warned other countries considering them, such as France, that it was weighing up making a complaint to the WTO.

The common accounting rorts that have allowed US technology and pharmaceutical businesses to shift hundreds of billion of dollars of untaxed profits to tax havens over a period of decades have largely been closed by the OECD through its 'Beps' programme, which aimed to ensure all profits were at least taxed somewhere.

But OECD tax policy director Pascal Saint-Amans has said additional measures on taxing the digital economy – if agreed by the OECD – would change the way the tax 'pie' was carved up between countries.

KNOW YOUR DIGITAL TAXES

'Netflix tax' – the requirement for foreign firms such as Netflix to levy GST on the sale of digital services such as music, internet TV and software subscriptions sold to New Zealanders from overseas. This was introduced in New Zealand in 2016 and is raising about $130m a year and is generally perceived as a 'success'.

'Amazon tax' – the requirement for foreign firms such as Amazon to levy GST on low-value items they sell to New Zealanders from overseas. Legislation currently going through parliament would see hits this introduced in October, but many tax experts are calling for a short delay. It is viewed as riskier than a Netflix tax. It is expected to raise $100m in its first full year but concerns remain about whether foreign firms will play ball.

'Facebook tax' – also known as a 'digital services tax' or 'equalisation tax'. This is a tax on the local sales of foreign digital giants and can be intended to compensate for the fact they may arrange their international affairs to minimise tax on their profits in higher-tax countries. The Government will release a discussion document in May. But this type of tax is controversial and has been described as being more like a trade tariff than a conventional tax in its impact.