In a bid to make the country’s tax system fairer, Minister for Finance, Grant Robertson, has confirmed that the government will be introducing legislation for a proposed digital services tax on large multinationals that make money off of Kiwi users of internet search engines, social media platforms, and online marketplaces. It would apply to such technology multinationals like Google, Microsoft, Apple, and Meta.
The government has noted that there is a need to keep up with modern business practices as more organisations embrace digital business models. While everyday Kiwis are paying their fair share of taxes, it is unfair that large multinationals have no tax liability.
Robertson said that though New Zealand was participating in G7 and OECD negotiations for a multilateral agreement, progress was slow. He affirmed that the country would only take unilateral measures to implement the digital services tax if the OECD process did not succeed by 1 January 2025.
Complex international tax rules and accounting have allowed tech multinationals that are being targeted to pay little, if any, taxes in New Zealand. This is despite making large profits from Kiwi users of their services and products. A case in point is Apple, which in 2017 was found to have made sales of over $4 billion during the ten years before. The tech giant however paid no taxes to the country during this period.
The proposed tax is expected to generate $222 million in tax revenue over the first four years. This is from multinationals that make over €750 million from global digital services, with New Zealand contributing more than NZD$3.5 million per year. The tax would be applied as 3 per cent on gross digital services revenue and would be payable alongside normal taxes paid on profits made by all businesses in the country, including local subsidies of multinationals. The UK and France have already instituted a similar tax rate.
As the OECD process is taking longer than expected, Robertson said that the government had decided to proceed with legislation for the digital services tax. Though the multilateral agreement would be preferable, the government has opted not to just wait around and find out, but rather prepare for the possibility of the OECD process failing.
During consolations for the proposed tax in 2019, some local businesses, such as Air New Zealand, Trade Me, and Fonterra, did express concern that a unilateral move could have a chilling effect on investment. They claimed the tax could incite retaliation or otherwise backfire.
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