On April 3, 2019, New Zealand’s Inland Revenue published an Information Release that includes internal discussion papers, dated December 13, 2018, on options for taxing the digital economy.
New Zealand considers that changing the international tax framework is the best option for taxing the digital economy in the long term. It noted the three most recent proposals by the OECD to taxing the digital economy:
- User participation – This proposal focuses on the value created by certain highly digitalized businesses through developing an active and engaged user base, and soliciting data and content contributions from them. The user participation proposal contemplates that this source of value is most significant for social media platforms, search engines, and online marketplaces.
- Marketing intangibles – This proposal addresses a situation where an MNE group enters a jurisdiction, either remotely or through a limited local presence, to develop a user/customer base and other marketing intangibles.
- Significant economic presence – The BEPS Inclusive Framework will also explore a proposal based on the concept of “significant economic presence” described in the BEPS Action 1 final report. According to the OECD, digitalization of the economy and other technological advances have enabled business enterprises to be heavily involved in the economic life of a jurisdiction without a significant physical presence. As a result, existing nexus and profit allocation rules are ineffective.
The New Zealand Government may also consider whether a digital services tax (DST) might be appropriate as an interim measure. The Information Release recommends that the Government publish a discussion document in the first half of 2019 to request public feedback on options for taxing the digital economy. The discussion document should emphasize the following:
- The Government has not yet decided whether it wants to introduce a DST, but is considering this as an option.
- Any DST would be introduced only if the OECD is unable to arrive at an international solution in 2019, and a “critical mass” of other countries also adopt a DST.
- The DST would be an interim measure that would cease to apply once an international solution was fully implemented.
- The Government should align its position with that of Australia.
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