Government expects to earn up to $80 million a year by taxing multinationals that provide digital services in NZ but don't pay income tax here

Government expects to earn up to $80 million a year by taxing multinationals that provide digital services in NZ but don't pay income tax here

The Government plans to tax international companies like Facebook, Uber, Airbnb and YouTube, that provide $2.7 billion of digital services in New Zealand a year, but don’t pay income tax.

However with the tax rate it's proposing to apply being 2% or 3% of a company’s gross revenue, it only expects to generate between $30 million and $80 million of tax revenue a year.

This low rate is in line with international standards.

The UK, Spain, Italy, France, Austria and India have introduced digital services taxes, while the European Union and Australia are consulting them.

The OECD, with New Zealand’s involvement, is also trying to come up with an internationally-agreed regime.

Speaking at a post-Cabinet press conference, Prime Minister Jacinda Ardern said she expected the OECD to report back in July. But with progress at the international level slow, the Government is trying to introduce a tax in New Zealand in the interim.

Revenue Minister Stuart Nash said he planned to release a document for public consultation in May, with the intention of having a law passed by next year.

Digital services taxes apply to digital platforms that depend on a base of users.

These include, but aren’t limited to, social media sites like Facebook, content sharing sites like YouTube and Instagram, platforms that offer intermediary services like Uber, Airbnb and eBay, and others that earn income from online advertising.

“Highly digitalised companies... currently earn a significant income from New Zealand consumers without being liable for income tax," Finance Minister Grant Robertson said.

"That is not fair, and we are determined to do something about it.

“International tax rules have not kept up with modern business developments. In the longer term this threatens the sustainability of our revenue base and the fairness of the tax system.

“The current tax rules also provide a competitive advantage to foreign companies in the digital services field compared to local companies who offer e-commerce, online advertising, and social networking services."

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44 Comments

3% of revenue sounds right. At a 10% gross margin your talking about a 30% tax rate. I would think these guys are doing better then 10% but you never know...

I thought it sounded reasonable as an opening initiative. Glad they are moving ahead - it can't come soon enough.

So the OECD reports back in July. We can expect a consultation document in May. Was this so urgent that a potential consensus on this couldn't wait two months? Sorry, but this announcement smacks of trying to diffuse any potentially bad news from the Colmar Brunton poll tonight.

Ha. So much delusion coming from the Mike Hosking brigade at the moment.

Let me know when you have some sort of point I guess.

No new taxes in the first term?

Can we raise it above those snide little partisan comments?

So kind.

This is actually about taxing offshore corporates, and it's a very important point. They are free-riding on all the things taxpayers fund - law, courts - without which they couldn't operate. They've avoided and they need reeled back in. End of story.

But Jimbo does have a point, a bit like when John Key was on the record quite categorically saying that he won’t be raising GST, Labour did say no new Taxes in their first term.

A childish argument but that aside, company tax is not new.

If they were paying company tax it would be 28%. I would love to pay a revenue tax of 3% on my business but because it’s based in NZ and not run through a shell company in Ireland that’s not happening

Wont they just add the tax on to the price for New Zealanders? The oversea's companies wont pay the tax, Kiwis will. An often over looked aspect of taxation.

So your argument is that their prices should include being able to pay tax the same as local compnies do?

x

True. Yet this truth ignore the other-side of the coin. Almost all those things you mention benefit from free for all technologies (e.g. they are much cheaper or more effective or both because enabling technologies) . The simplest that comes to mind is emails. The whole internet is made possible and expanded by these tech giants.
It is true that they make profit from doing business in NZ (the reason they are here in first place). But NZ also makes profit from using their products (the reason we continue to use them). And I think overall, the benefit to NZ outweighs the profit they make from NZ market.

It is quite short-sided and frankly very selfish to just focus on profits they make without even trying to estimate how much NZ benefits from using them at no or very small charge.

I'm actually quite happy for them to bring in this tax. I'd prefer the rate to be higher.
But isn't it breaking a promise and giving ammunition to the opposition?

How on earth are you going to enforce this?

If I offered services from overseas to NZ, and the government came to me asking for tax money, I would laugh in their face. What are they going to do, send special agents in to kidnap me?

Toothless, delusional and populist. We can't even make brick and mortar businesses in Queen Street pay tax properly, yet we expect to take on off-shore digital companies.

It's easy: You scream "PAY YOUR FAIR SHARE!!!" over and over again to hand-picked audiences until something changes.

Block a few subnets if needed.

Maybe we need Huawei after all - for the great firewall of Aotearoa. Though Antifaschistischer Schutzwall would probably appeal more to greens and labour voters.

just block the ad servers and the payment servers. If they won't pay taxes on the income, then bye-bye income.

Great, I look forward to browsing facebook on a VPN like I'm living in bloody communist china.

Why exactly should an overseas company pay a new zealand income tax, again? I mean other than jealousy and populism.

I pointed our why in my post above.

Do you want a NZ economy that is based on shipping all our wealth overseas as quickly as possible?

May as well just flip a coin and decide who we are going to become a territory of.. USA or China.

Who is paying for the UFB that enables HD streaming video services to actually get to most of the population.. hint, its not netflix. they are leveraging off the infrastructure we are paying for via taxes, its only reasonable they should contribute to the costs of building the infrastructure they use.

Don't you argue that we should be taxing property?

Seems a bit weird that you object to this, but are all for taxing assets.

Like PDK said above. These companies operate in NZ and receive all the benefits of doing so; healthy business environment, infrastructure, rule of law, etc.
However, when they don't pay tax(es), they receive all of this for free; effectively subsidised by the generous citizens of NZ.

I mean, we love to subsidise business here. Absolutely love it.
If NZ had a favourite past time apart from tax avoidance, it would definitely be privatising profits and socialising losses.
But. We sort of need to draw a line in the sand.

Don't you argue that we should be taxing property?

My position is that overall we tax far too highly. It's also my position is that tax is a necessary evil, and land value tax is one of the least evil options. It's a tax that incentivises the right thing - more efficient use of land. Likewise I would be in favour of road taxes, and fuel taxes (though they seem horribly unfair right now, piled on-top of everything else).

I am against taxing income in general - why should you be punished for doing better in your career? Becoming more skilled doesn't take anything away from anyone. Ditto with corporate tax. Having a successful company doesn't use up a finite success resource (unless it does, in which case a resource tax like land/road/fuel would take care of it).

Tax-avoidance is for the large corporations - anyone wanting to make it on their own faces an uphill battle. Likewise this tax will barely hit google or facebook at all, but will punish smaller companies all over the world that will now need professional help to comply with a foreign tax or be locked out of the market. In the end it's the consumer that suffers.

I propose a few more taxes:

Crying baby tax - 5% of the yearly combined income of both partners each time a baby cries in public

Good looking people in Media tax - everyone younger and better looking than me should be taxed everytime their content is used in NZ. PaY yOuR fAiR sHaRe.

Election Promise Breaking tax - 100% of income for each promise broken. John Key alone could fill our coffers for years.

I propose a tax - in favour of future generations and their rights to some kind of unpolluted, resource-available lives.

If we take 'seven generations hence' as the yardstick, the proposal is a tax of six times the current price (at the pump) of a litre of fossil fuel, atop the current price.(It will be self-sorting - energy underwrites everything done). Watch all these left-right little pot-shotters vanish when faced with the real ramifications of their collective draw-down. Monstrous, I agree. Financial collapsing, I agree. But that is the physical reality, vis-a-vis our progeny's progeny.

We didn't get cognisant or mature enough, fast enought, did we?

Drop income and corporate tax, and I would support this.

How about lowering taxes instead, and encourage multinationals to bring high paying jobs to NZ. That seems to have worked well for a couple of other countries.

I am trying to think of a likely outcome in NZ. Bracket creep will get to the point where everyone on the minimum wage will pay the highest amount. But at the same time no one will stand up to the pension ponzi scheme, so they'll have to raise income and GST (50% income and 25% GST tax sounds likely within a few decades). What a paradise that will be.

What sort of jobs do you think Netflix, Amazon, Ebay etc would ever bring to NZ, apart from perhaps a few marketing and sales positions?

Maybe a bit of netflix work for Weta workshop or some location shooting?

Apart from marketing, sales, IT jobs... why none at all.

Professional salaries are stagnating in NZ very badly.

There will be no IT jobs.. they already ship caching servers (built oversea) to data centres, get the ISP to plug them in and remotely manage/access them. So yeah, once again, nothing but a few insignificant marketing and sale roles.. and even most of that would probably be driven out of Sydney.

You realise that this isn't 1999 and there are more IT jobs than just the guy who plugs cables in the server room, right?

Yeah, there are plenty of IT jobs.. but not going to be any generated in NZ from Netflix.. that was my point, they have no need of IT jobs in NZ . A bit of preconfigured hardware plugged into a network, exactly the same as their hardware in every datacenter everywhere else in the world, doing exactly the same job.. They are essentially appliances that a trained monkey could install. ~4bolts, a power cable and a couple of ethernet cables/fibres.
There is nothing special about NZ that needs local skill, knowledge or management.

You have zero idea about what a huge tech company like netflix requires. Or about IT in general. I mean I'm not an expert in horticulture so I keep my mouth shut about it - so I suggest you do the same.

Google employ over 7000 people in Ireland. That sounds like a bit more than a few marketing and sales positions.

To service the entire EU, (population 1/2 a billion), and no, not 7000, about 2500. The 7000 is the number google tried to pump out when people starting looking at tax evasion and what these companies are actually paying.

https://www.idaireland.com/how-we-help/case-studies/google
or
http://www.finfacts.ie/Irish_finance_news/articleDetail.php?Does-Google-...

So scaling that to NZ population.. about 3 employees. Big effing deal.

How do you lower taxes on companies not paying tax?

I don't understand how we have any more claim on the revenue the FANGs make here, than other countries would on the revenue Fonterra make there.

The profit on the premium of the Anchor brand belongs to NZ (at least the Farmers/Fonterra), and should be taxed here, and not elsewhere.

On that basis you simply incentivise more NZ companies to put a nominal head office in Bermuda and using profit shifting to avoid tax in NZ.

Now that's what every mum and dad operation is going to have to do if they don't want to be taxed like the largest companies the world.

While they should be taxed I don't see this going well. NZ doesn't hold many cards here. Google could shut down for a day and cause a lot of disruption.

The upcoming GST on online goods is fair enough but the way it's implemented with make NZ even more of a banana republic. Access to decent retail prices is a joke. No medium sized offshore shops are going to bother collecting tax for some place they've never heard of. This will make Amazon and a few others virtual monopolies.