Govt plans to tax Facebook, Uber, YouTube, etc... at rate of 2% or 3%

Business

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

18th Feb 19, 5:42pm by Jenée Tibshraeny

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

by Trapped Millennial | 18th Feb 19, 6:02pm 1550466127

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...

by Kate | 18th Feb 19, 6:55pm 1550469355

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

by GV 27 | 18th Feb 19, 6:31pm 1550467876

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.

by areyouserious | 18th Feb 19, 6:58pm 1550469482

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

by GV 27 | 18th Feb 19, 7:04pm 1550469872

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

by powerdownkiwi | 18th Feb 19, 7:30pm 1550471411

https://www.washingtonpost.com/us-policy/2019/02/16/amazon-paid-no-fede…

by JimboJones | 18th Feb 19, 7:48pm 1550472539

No new taxes in the first term?

by powerdownkiwi | 18th Feb 19, 9:15pm 1550477734

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.

by Nzdan | 19th Feb 19, 6:01am 1550509279

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.

by Kate | 19th Feb 19, 8:04am 1550516672

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

by YourHomeLoan | 19th Feb 19, 9:05am 1550520310

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

by Zachary Smith | 19th Feb 19, 9:40am 1550522413

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.

by kiwimm | 19th Feb 19, 10:22am 1550524953

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

by GV 27 | 19th Feb 19, 6:59am 1550512753

by Believer1980 | 19th Feb 19, 12:23pm 1550532228

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.

by JimboJones | 19th Feb 19, 4:56pm 1550548562

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?

by saving4AUhouse | 19th Feb 19, 6:38am 1550511526

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.

by GV 27 | 19th Feb 19, 6:56am 1550512608

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

by Pragmatist | 19th Feb 19, 7:05am 1550513128

Block a few subnets if needed.

by saving4AUhouse | 19th Feb 19, 7:20am 1550514005

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

by Pragmatist | 19th Feb 19, 7:39am 1550515178

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

by saving4AUhouse | 19th Feb 19, 7:43am 1550515425

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.

by powerdownkiwi | 19th Feb 19, 7:57am 1550516252

I pointed our why in my post above.

by Pragmatist | 19th Feb 19, 8:22am 1550517722

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.

by nymad | 19th Feb 19, 8:35am 1550518508

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.

by saving4AUhouse | 19th Feb 19, 9:39am 1550522397

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.

by saving4AUhouse | 19th Feb 19, 10:04am 1550523869

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.

by powerdownkiwi | 19th Feb 19, 8:19am 1550517580

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?

by saving4AUhouse | 19th Feb 19, 9:51am 1550523100

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

by refactornz | 19th Feb 19, 9:10am 1550520611

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.

by saving4AUhouse | 19th Feb 19, 9:47am 1550522862

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.

by Pragmatist | 19th Feb 19, 9:52am 1550523146

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?

by saving4AUhouse | 19th Feb 19, 10:06am 1550523962

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

Professional salaries are stagnating in NZ very badly.

by Pragmatist | 19th Feb 19, 11:01am 1550527294

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.

by saving4AUhouse | 19th Feb 19, 12:00pm 1550530822

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?

by Pragmatist | 19th Feb 19, 6:02pm 1550552529

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.

by saving4AUhouse | 19th Feb 19, 7:19pm 1550557152

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.

by refactornz | 19th Feb 19, 10:11am 1550524307

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

by Pragmatist | 19th Feb 19, 11:00am 1550527247

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.

by RickStrauss | 19th Feb 19, 10:52am 1550526754

How do you lower taxes on companies not paying tax?

by EdgieEdge | 19th Feb 19, 9:17am 1550521058

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.

by RickStrauss | 19th Feb 19, 10:53am 1550526810

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.

by saving4AUhouse | 19th Feb 19, 12:01pm 1550530869

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.

by bilbo | 19th Feb 19, 2:13pm 1550538810

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.