New Zealand proposes a new Digital Services Tax (DST)
In a surprise move, the current New Zealand Government has introduced the Digital Services Tax Bill (Bill) that will allow a future government to impose a Digital Services Tax (DST) with effect from 1 January 2025.
In broad terms, the Bill proposes a 3% turnover tax, applied to groups that provide taxable digital services to persons in New Zealand. The DST only applies to large groups, being those that have global revenue of EUR750m or greater, and those that are generating digital services revenue of NZD3.5m or more attributable to New Zealand users.
Taxable digital services are defined as:
- Intermediation platforms (eg, online marketplaces);
- Social media and content sharing platforms;
- Internet search engines;
- Advertising on, linked to, connected with, or facilitated by a platform, described above;
- Activities related to user-generated data gathered in connection with a platform, service, engine, or advertising described above;
- Activities incidental to the above.
While this DST clearly directed at the large global digital services players, such as Google, Meta, and Microsoft, it will inadvertently capture other groups.
A number of questions remain unanswered, such as how this tax will work alongside other New Zealand taxes (eg, the GST and remote services rules). Also, while there is no obvious mechanism to give these groups relief from double taxation, there is some relief if the revenue relates to a transaction on an intermediation platform. In that case, the tax paid may be reduced by 50% if it can reasonably be assumed that the amount paid to the intermediation platform is connected to a user who may be assumed to use the platform in a foreign country and is subject to a tax that is substantially of the same nature as the DST.
New Zealand is already well progressed with the implementation of the OECD Pillar Two (Global Minimum Tax) changes. The details of how the Pillar Two changes will implemented are contained in a separate bill (The Taxation (Annual Rates for 2023-24, Multinational Tax, and Remedial Matters) Bill) which is also before Parliament. This means that New Zealand may now be taking a somewhat inconsistent approach, adopting some of the OECD’s recommended changes and not others.
In our view, the Bill is unlikely to represent a final view on New Zealand’s approach to taxing digital services. The New Zealand Government had previously indicated that it would not introduce a unilateral tax on digital services and that it would prefer to follow OECD’s approach to taxing the digital economy and applying Pillar One. While the Bill has been presented as a response to the OECD’s slow progress in relation to the Pillar One, we expect the introduction of this Bill is more accurately attributed to the upcoming general election in New Zealand and the current Government’s desire to demonstrate progress in this area. The Bill will naturally lapse with the dissolution of Parliament and prior to the election. It will be a decision for the next government as to whether it is introduced. The Bill does, however, indicate that New Zealand is likely to tax these types of services in the future.
For anyone interested in this Bill please contact someone in our Tax or Technology and Data team.