There has been an on-going concern over the under-taxation of the digital economy and digital multinationals who pay lower worldwide income tax compares to other industries.

These concerns have grown with the digital economy’s increasing size over the years.

The government has been attempting to eliminate such deficiency in the current tax rules to ensure everyone pays their fair share of tax.

In order to achieve this, the government is considering some changes to the current tax rules.  Last Friday the Government released a discussion document relating to these issues. The discussion document considers two proposals for this including Digital Services Tax (DST) and OECD proposal.

Digital Services Tax

New Zealand’s DST would be charged at a low rate of 3% of the gross turnover attributable to New Zealand from certain highly digitalised business activities. This is targeted at:

  • Inter mediation platforms – Trade Me, eBay etc.
  • Social media platform – Facebook
  • Content sharing sites – YouTube and Instagram etc.
  • Search engines and the sale of user data

DST would be payable by a non-resident as it doesn’t require a physical presence in New Zealand. DST would not be an income tax and therefore could not be credited against other income tax however, DST would be classed as a business expense and would be deductible in accordance with ordinary income tax deduction rules.

OECD proposal

The second proposal is to change the international tax rules which have been agreed to by countries.

The government prefers an international agreed solution at the OECD but will consider a DST if there’s no improvement at the OECD.