Government dusts off plan for new revenue tax on multinational technology giants

Tuesday, 29 August 2023

NZ’s preparations for a digital services tax are a further sign that patience for a global agreement on tax reform may be running out.

The Government will introduce a bill on Thursday that would allow it to impose a 3% “digital services tax” on the revenues of large technology multinationals such as Google, Meta, Microsoft and Apple.

It first mooted the idea of the tax in 2019 as a back-up option, in case the final leg of an international drive by the OECD to reform the way large multinationals are taxed failed.

The G7 and the OECD have been working for several years on a two-pronged plan designed to address concerns that technology multinationals, in particular, are finding it easy to pay little tax, and that taxes on their profits are spread between countries unfairly.

One pillar of the OECD plan would ensure multinationals paid tax at a minimum rate of 15% on their profits in any country.

The other – on which it has proved harder to get international agreement – would give countries a share of the global tax on the very largest multinationals, even if they were not entitled to tax under the current international tax system.

That system, which has been in place for more than 100 years, is based on the principle that businesses pay tax in the countries responsible for creating profits, including those where they may have developed their intellectual property, rather than where they make sales.

The Government had previously made clear that its preference was a multilateral solution to multinational tax reform, but that it could join other countries such as India and France in going it alone with its own tax if the OECD did not deliver.

A spokesperson for Finance Minister Grant Robertson said the Government had chosen to advance legislation for a digital services tax now because “the OECD process is taking longer than expected”.

The G7 has seized the reins brokering a new deal on multinational taxation (video first published in 2021).

“A multinational solution is still the preference,” she said.

Despite its decision to table legislation, Robertson said that the Government had agreed not to bring in “a unilateral measure” such as the digital services tax until the start 2025.

”While we will keep working to support a multilateral agreement, we are not prepared to simply wait around until then to find out. That is why we have prepared legislation that is ready to go if the OECD process does not succeed,” he said.

If the proposed digital services tax did eventuate, it would be paid by multinational businesses that had global revenues of more than €750 million (NZ$1.37b) a year from digital services and more than NZ$$3.5m a year from digital services provided to New Zealand users, and would be expected to generate $222m over four years, he said.

The tax would be in addition to the normal tax on profits paid by all businesses, including the local subsidies of multinationals.

Fonterra, Spark, Trade Me, The Warehouse and Air New Zealand were among businesses that expressed fears during consultations that such a tax could invite retaliation or otherwise backfire, according to submissions released in 2019 under the Official Information Act.