Canada is set to go ahead with the introduction of a digital services tax (DST) this year, after deferring the measure for two years.
Aimed at large multinational corporations such as Google, Facebook, Amazon, Uber, Apple, and AirBnB that are able to move revenue earnt around the world to low-tax jurisdictions, the tax will be levied at a flat 3% rate on revenue over CA$20 million.
The new tax is expected raise around NZ$8.5 billion in tax revenue.
As the vast majority of multinationals affected by the tax are American, the United States has vehemently opposed Canada's DST, to the point of threatening a trade war.
In New Zealand, the incoming coalition government reinstated the Digital Services Tax Bill in December last year, after it lapsed ahead of the general election in October.
It is proposed to come into effect on January 1, 2025. But it could be deferred up to five years if there is sufficient progress on the Pillar One of the Organisation of Economic Cooperation and Development (OECD) two-pillar multilateral treaty to address base erosion and profit shifting (BEPS) by multinational companies.
In Europe, 13 nations already charge a DST at various rates and with different structures, and five more economies are planning to implement the tax.
Implementing Pillar One of the OECD BEPS treaty would see Austria, France, Italy, Spain, Turkey and the United Kingdom drop unilaterally introduced DST, and avoid US retaliatory tariffs.
Should New Zealand introduce a DST, it will also be a flat 3% on gross digital revenue by large multinationals. Multinational businesses that make over €750 million a year from global digital services, and over NZ$3.5 million a year from digital services provided to New Zealand users, will be caught by the tax.
A DST is expected to generate $222 million over four years.
Labour Finance Minister at the time, Grant Robertson, said a DST would target large multinational businesses that earn income from New Zealand users of social media platforms, internet search engines, and online marketplaces.
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