Tax Updates: 4th September 2023

Welcome to this week’s review of tax issues where Richard comments on what’s been happening in the world of tax over the past week. If you have a question or would like a second opinion on any national or international tax issues, please contact Richard via email at richard@gilshep.co.nz.

Introducing a digital services tax

Well, it is apparent that the Government has lost its patience with the Organisation for Economic Co-operation and Development (OECD) and has decided to introduce its own digital services tax (DST). The comments from the Ministers of Finance and Revenue were that “It’s clear that the international tax framework hasn’t kept pace with changes in modern business practice and with the increasing digitalisation of commerce”.

However, while patience may have been lost, and a Bill has been introduced, the Government will also not renege on its commitment to the OCED to not introduce a unilateral measure to deal with digital services provided by MNEs until 1^st January 2025. Consequently, the legislation contained within the Digital Services Tax Bill will only come into effect if the present multilateral agreement the OECD has been trying to progress fails.

The DST proposed:

• will target large multinational businesses that earn income from NZ users of social media platforms, internet search engines, and online marketplaces;
  
• would be payable by multinational businesses that make over €750 million a year from global digital services and over NZ$3.5 million a year from digital services provided to NZ users, and,
  
• would be applied at 3% on gross taxable NZ digital services revenue.

While the DST Act is to come into force on 1^st January 2025, its commencement date can be deferred for up to five years. The DST would be administered by Inland Revenue, and would be paid and reported via the self-assessment regime, with members of the digital services group jointly and severally liable for the DST.

This article was originally published through the ‘A Week In Review’ newsletter. If you would like to receive Richard’s tax updates every Monday morning, you can subscribe here.