Trump threat risk to NZ

President Donald Trump’s threat to retaliate against France’s ‘‘digital services tax’’ demonstrates the big risk that New Zealand would be taking if it decided to press ahead with a near identical tax on technology multinationals, tax experts are warning.

French president Emmanuel Macron signed a law last week that will impose a 3 per cent tax on the revenues of large internet advertising companies and digital platform providers, with the tax applying retrospectively from the start of this year.

Companies would pay the tax if their qualifying global annual revenues exceeded €750 million (NZ$1.26B) and their revenues in France were above €25m.

US trade officials believe about 30 multinationals would fall under the net of the French tax and that most of them would be American.

Trump responded in a tweet on Saturday that the US government would impose ‘‘substantial retaliatory action’’, hinting that could include tariffs on French wine.

The New Zealand government has been consulting on imposing a similar 3 per cent tax on the New Zealand revenues of technology giants such as Google, Facebook, Airbnb and Uber.

That tax would be in addition to the taxes that the New Zealand subsidiaries of those technology multinationals already pay on their local profits.

New Zealand’s proposed tax – often referred to as a ‘‘Facebook tax’’ – would also target companies with global revenues exceeding €750m, but with the New Zealand revenue threshold set at $3.5m to reflect the smaller size of the local economy.

The proposal has hit a wall of opposition from tax experts.

Government officials have previously cautioned the proposed digital services tax could breach international trade rules or tax agreements and invite retaliation, and PWC tax partner Geof Nightingale said Trump’s response showed that risk of retaliation was real.

Trump’s tweet was evidence of the ‘‘exact risk’’ that New Zealand tax practitioners were worried about, he said. ‘‘It is one thing for France and the US to get involved in a tit-for-tat around that stuff, it is another thing for New Zealand.’’

Inland Revenue has estimated New Zealand’s digital services tax would raise between $30m and $80m a year and Nightingale said it was not worth the risk of provoking the sort of response threatened by Trump for that sort of money.

Nightingale was a member of the Tax Working Group chaired by Sir Michael Cullen, where he supported its consensus for a broad-based capital gains tax that would have mainly targeted the wealthy.

Russell Mcveagh partner Brendan Brown noted the Tax Working Group advised that New Zealand should stand ready to implement a digital services tax if a critical mass of other countries did, but only if it was ‘‘reasonably certain that New Zealand’s export industries will not be materially impacted by any retaliatory measures’’.

‘‘I think when you look at how the US has reacted to France’s digital services tax, I just don’t think that condition can be satisfied. We could not be satisfied our exporters wouldn’t face retaliatory action – New Zealand exports wine too.’’

The OECD and officials from countries including the United States are attempting to broker an international agreement that would see new taxes imposed on digital giants but which could also apply much more broadly to a far wider range of exporters.

Finance Minister Grant Robertson has said the Government’s preference is for an international agreement and not to act unilaterally, but that the digital services tax might be required as an interim measure before the OECD came to an agreement.

OECD tax director Pascal Saint Amans told Stuff last month that New Zealand’s decision to consult on a digital services tax might be smart if it was a negotiating tactic in those international talks, but cautioned that acting unilaterally had proved a hard road elsewhere.

He also said that some countries that initially thought they might gain from a new international approach to taxing the digital economy might in fact lose out, now that the focus of the OECD initiative had broadened.

Australia decided against imposing a unilateral digital services tax earlier this year.

Submissions on the digital services tax proposal closed on July 18.