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New Zealand to tax multinationals in digital services

New Zealand will be consulting on the design of changes that will be done on the tax rules that currently allow multinational companies in the digital services field to do business in the country without paying income tax.

According to a recent press release, Finance Minister Grant Robertson and Revenue Minister Stuart Nash say that the Cabinet has agreed to issue a discussion document about how to update the tax framework to ensure multinational companies pay their fair share of tax in this country.

As explained, highly digitalised companies, such as those offering social media networks, trading platforms, and online advertising, currently earn a significant income from New Zealand consumers without being liable for income tax.

They find the arrangement unfair and are determined to do something that will address it.

International tax rules have not kept up with modern business developments. In the longer term, this threatens the sustainability of the country’s revenue base and the fairness of the tax system.

Moreover, the current tax rules 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.

The cross-border digital services in New Zealand are estimated to be valued at around NZ$ 2.7 billion.

The New Zealand Government is determined to guarantee that multinational companies involved in this sector of the economy pay their fair share of tax.

New Zealand’s revenue estimate for a digital services tax is between NZ$ 30 million and NZ$ 80 million, which depends on how it is designed.

New Zealand is currently working at the OECD to find an internationally agreed solution for including the digital economy within tax frameworks.

The Government prefers to continue working within the Organisation for Economic Co-operation and Development (OECD), which was also recommended last year by the interim report of the Tax Working Group.

However, they believe that they need to move ahead with their own work so that they can proceed with their own form of a digital services tax, as an interim measure, until the OECD reaches agreement.

This is the same approach being considered by Australian authorities, who released a discussion document late last year.

The OECD has also released a discussion document on its proposals. Officials will now finalise the New Zealand document which is likely to be publicly released by May 2019.

The document will make it clear that the New Zealand Government is determined that multinational companies pay their fair share of tax.

They are committed to finding an international solution within the OECD but would also consider an interim option till the OECD finalises a position.

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