A Week in Review

Taxation of digital services

Close on the heels of Budget 2019, in which the Government signalled its intention to progress public consultation on a digital services tax (“DST”), the Ministers of Revenue and Finance have released a discussion document titled “Options for taxing the digital economy”.

The topic itself is presently on the OECD/G20 agenda, and while the Governments preference would be to implement an internationally agreed solution through the OECD, it is also seeking public feedback on introducing a DST as an interim measure, particularly if the OECD cannot make sufficient progress on the issue during the remainder of 2019.

Interestingly, our Aussie cousins have just completed their cycle, introducing their discussion document in October 2018, with a decision by the Government in March 2019, not to proceed with a DST, submitters to the discussion document overwhelmingly in favour of supporting Australia to continue with its engagement in the multilateral process at the OECD instead.

Returning to NZ’s proposed DST, the option presently being explored is a 2-3% tax on certain revenues earned by highly digitalised multinationals operating in NZ, the rules narrowly targeted however, towards digital platforms that depend on a base of users for income from advertising or data, and not to general sales of goods or services themselves via a digital platform. Examples of those businesses likely to be impacted by the introduction of a DST, include Uber, Airbnb, eBay, Facebook, YouTube, Instagram and companies which provide search engines and then sell the data about users collected. So offshore outsourcing accounting services provided via the cloud, would not be subject to a DST.

It should be noted that a DST would only be an interim measure, likely to be repealed once the OECD’s international solution was implemented.

Submissions on the proposals are requested to be filed no later than 18th July 2018.