Government to enable digital services tax on multinationals from 2025

Finance Revenue

New Zealand is taking the next step towards a fairer tax system with the introduction of legislation that would enable a digital services tax (DST) on large multinational companies.

“The Government has been focused on making the New Zealand tax system fairer,” Grant Robertson said.

“It’s clear that the international tax framework hasn’t kept pace with changes in modern business practice and with the increasing digitisation of commerce.

“This is a problem faced by countries across the world. With more and more overseas businesses embracing digital business models, our ability to tax them is restricted and the burden falls to smaller groups of taxpayers.

“We have been actively participating in negotiations at the OECD for a multilateral agreement to address these issues. This work is making slow progress. As part of these negotiations, we have agreed not to bring in a unilateral measure such as DST until 1 January 2025.

“While we will keep working to support a multilateral agreement, we are not prepared to simply wait around until then to find out. That is why we have prepared legislation that is ready to go if the OECD process does not succeed.

“We don’t think it’s fair that everyday Kiwis pay their fair share of taxes but there’s no tax liability for large multinationals.

“The proposed digital services tax will target large multinational businesses that earn income from New Zealand users of social media platforms, internet search engines, and online marketplaces,” Grant Robertson said.

The proposed DST would be payable by multinational businesses that make over €750 million a year from global digital services and over NZD$3.5 million a year from digital services provided to New Zealand users. It is expected to generate $222 million over the four-year forecast period.

The tax would be applied at three percent on gross taxable New Zealand digital services revenue, a similar rate to those adopted by other jurisdictions such as France and the United Kingdom.

“This decision builds on a Labour manifesto commitment to find a workable solution to the issue of multinational corporations not paying their fair share of tax,” Barbara Edmonds said.

“We’re committed to future-proofing our tax system to ensure it meet the pace and growth of the digital economy for generations to come.”

The Digital Services Tax Bill will be introduced to the House on Thursday 31 August. The Government consulted on the content of this legislation in 2019.