‘Real risks’ as NZ faces Google tax decision
The Government is about to get advice from officials on whether it should follow moves by the European Commission and impose radical taxes on internet giants.
The advice is being prepared as the European Commission finalises a draft proposal to impose a tax of about 3 per cent on the revenues of companies including Google, Facebook, Amazon, Twitter, Uber and Airbnb.
PwC tax expert Geof Nightingale said there was a risk such new taxes could spark retaliatory action from the United States and China on physical goods, threatening New Zealand exporters.
The Organisation for Economic Co-operation and Development (OECD) has been looking at the taxation of the digital economy since 2013.
But it kicked the can down the road for three years in a longawaited report on Friday, saying it hoped to broker an agreement by 2020 between the 110 countries that had been involved in the talks.
The proposed European Union tax would affect multinational companies that had a turnover of more than €750 million (NZ$1.3 billion) and whose businesses depended on digital advertising, online marketplaces or supporting the ‘‘gig economy’’.
India has already imposed a similar 6 per cent ‘‘equalisation tax’’ on digital advertising sold by Google and Facebook.
If New Zealand followed suit, Google and Facebook could each have to pay tens of millions of dollars in tax in New Zealand.
That would be up from the few hundreds of thousands they have typically paid in the past, or the millions they are likely to pay under new rules already being considered by Parliament.
A spokeswoman for Revenue Minister Stuart Nash said the New Zealand Government agreed with the OECD that solutions based on an ‘‘international consensus’’ would be preferable to avoid the
"The high end of the risk scale is retaliatory taxes and countries going tit-for-tat." PwC tax expert Geof Nightingale
risk of double taxation and to reduce compliance costs.
But she noted the OECD had recognised in its report that countries might want to consider ‘‘interim measures’’.
‘‘Officials will soon provide advice to the Government on the pros and cons of such interim measures so it [can] decide what New Zealand’s position should be.’’
The EU proposal and India’s tax both break from the norm of the international tax system, which has been that companies are taxed on their profits – not revenues – in the countries where those profits are generated.
But OECD tax policy director Pascal Saint-Amans has indicated exceptions could be justified in the case of internet businesses, partly because of the way user participation often contributes to the profits of digital platforms.
Nightingale said the OECD seemed to think there needed to be a new tax framework for digital companies, but there were mixed views among its members.
‘‘Do we just wait until 2020 for the final report and follow along, or is this issue so significant for us a country that we have to do something in the interim?’’
The European Commission’s proposal is not in the interest of the US, given it is US companies that would mostly pay the revenue tax. But Chinese companies could also be affected, Nightingale said.
‘‘If the EU acts unilaterally with interim measures there are real risks. The high end of the risk scale is retaliatory taxes and countries going tit-for-tat, and having it spill out to taxes on physical goods. This a particular risk for New Zealand.’’