NZ talk of taxing digital giants smart if it's a negotiating tactic, OECD tax boss suggests

Friday, 21 June 2019

Countries that have lobbied for new taxes on the likes of Google and Facebook may get their way but find they lose out from taxes imposed on their exporters, the OECD's top tax official has warned.

Speaking to The Sunday-Star Times from Rome, OECD tax director Pascal Saint-Amans responded cautiously to the New Zealand government's decision to consult on a digital services tax that could impose a 3 per cent tax on the New Zealand revenues of firms including Facebook, Google, Airbnb and Uber.

The discussion document released by Finance Minister Grant Robertson this month could prove constructive if it helped encourage countries including the United States to instead back a multilateral approach to taxing the digital economy, Saint-Amans said.

Robertson has forecast the tax could raise between $30 million and $80m a year, depending how it was implemented.

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But Saint-Amans said that other countries that had considered unilateral measures similar to the one now being contemplated as a fall-back or interim solution by the New Zealand government had found the going tough.

'A number of countries in Europe and elsewhere such as Australia and New Zealand have been thinking of introducing unilateral measures because we have been working for years on the tax challenges of the digital economy without clear progress.'

But all the countries that had gone down that track were a bit hesitant, he said. 'The European Union was not able to adopt a directive. The French passed legislation but committed to dismantle it as soon as there was a global solution.

'Italy passed legislation but it has been suspended for one year, the same as the UK.' Australia dropped the idea of a unilateral tax after public consultations.

The lesson was it was not as easy as countries would think, he said.

Saint-Amans said it should become clear by the end of the year whether the OECD would instead be able to broker an international political agreement.

The US initially had a 'very negative position'.

But for reasons that were connected to domestic US tax reforms, the Trump administration was now trying to broker a deal that would give more taxing rights to jurisdictions including New Zealand, he said.

'There is now a good hope that we can reach a solution because the US which was the main obstacle is now not only ready to negotiate but is actually leading the negotiations.'

But Saint-Amans said the approach being promoted by the US would see multinationals other than digital giants face new taxes around the world.

The approach could see a swathe of firms taxed on something similar to the contribution of 'marketing intangibles', such as their brands, in different markets, and face a minimum rate of tax on their profits in each country

Former Inland Revenue deputy commissioner Robin Oliver has described the message from the US as being 'if you tax Google, we will tax BMW'.

Saint-Amans believed it would be wrong to think that the discussions risked leading to a free-for-all in international taxation, however.

Companies other than digital giants, such as Starbucks, had also structured themselves in ways to book profits through distributors in tax havens and low-tax countries, he said.

The US position was that if countries wanted something 'new and significant' to tax, there was no reason to apply new taxes to Google and not Starbucks, Nike, BMW or Siemens, he said.

'The US has a very consistent approach, and it is not doing this to create a tax war, but precisely to avoid one and make sure India and the rest of the world are able to buy into a solution.

'Saying 'we are going to take unilateral measures on digital because we want to tax Google, but we don't want other countries to tax our companies', is not really fair is it?'

Saint-Amans agreed 'tensions were everywhere' in trade and on geopolitical issues at present.

But he rejected the suggestion that made it the wrong time to risk a shake-up of international taxation by promoting novel approaches to taxation rights.

'I would say the opposite. On tax, you have the US saying 'we must have a multilateral solution, we do not support unilateral measures'.

'Rather than saying 'the environment is too complex let's not open that Pandora's Box', the Pandora's Box of unilateral measures is open, as is the case in New Zealand, and what is very important is to open another front which is these multilateral negotiations.'

Success would be 'extremely difficult' because there might be winners and losers, he said.

'You may have countries that initiated the project saying they wanted to tax Google that, at the end of the day, may do that but lose taxing rights on their own companies.

'But if we do not act the outcome will be unilateral measures on all fronts, and not limited to digital, which frankly speaking is not great.'

National Party revenue spokesman Andrew Bayly said he had 'grave concerns' about New Zealand unilaterally imposing a digital services tax without the support of other countries doing the same thing.

'Moving to a model where companies are taxed on their revenue rather than their profits would change the world order of tax rules, developed over decades,' he said.

'It's worrying that US officials have suggested any new tax should also apply to a wider tranche of multinationals.'