Australia’s recent decision to not pursue a digital services tax has led to speculation that a similar levy under consideration by New Zealand might never come to fruition.
On February 18 New Zealand Revenue Minister Stuart Nash said the Cabinet would publish a discussion draft on the design of a DST. Government officials pointed at the time to similar proposals already adopted or under consideration by other countries, most notably Australia.
In October 2018 the Australian government started a consultation on the merits and implications of an interim unilateral approach to deal with the digital economy. At that time, Treasurer Josh Frydenberg emphasized Australia’s commitment to the OECD’s ongoing work to reach consensus on a long-term solution to the issue by 2020.
But on March 20 Frydenberg said feedback from the consultation process and international developments reinforced the government's decision to focus on a multilateral process. “Many stakeholders raised significant concerns about the potential impact of an Australian interim measure across a wide range of Australian businesses and consumers, including discouraging innovation and competition, adversely affecting start-ups and low-margin businesses, and the potential for double taxation,” the Treasury said in a statement.
News website Stuff.co.nz reported March 27 that New Zealand Finance Minister Grant Robertson said that despite Australia's decision to abandon its plans for a DST, his government still intends to consider a digital tax of its own.
Stuff.co.nz reported that copies of two confidential discussion papers prepared for the New Zealand Cabinet by the ministries of Finance and Revenue and obtained under the Official Information Act say a DST would be introduced only if the OECD is unable to come up with an international solution within a reasonable time frame and a pivotal number of other countries also adopt DSTs.
Tax Notes reviewed copies of the documents, which were dated December 13, 2018, and January 29, 2019. The second paper says there may be benefits to adopting a DST “as an interim measure in advance of an OECD solution” if a critical mass of other countries, “particularly Australia ([in order] to reduce the reputational risks of adopting a DST),” do likewise.
Brendan Brown, chair of the Russell McVeagh national tax practice in Auckland, told Tax Notes that because New Zealand is small and dependent on trade, it has a strong interest in ensuring that the rules — including those related to tax — are as simple, stable, and certain as possible and do not create barriers to international trade and investment. “So in my view, New Zealand should proceed very cautiously in respect of a digital services tax,” he said. Enacting a DST "would raise relatively little revenue, with the increased tax and compliance costs being at least partly passed back to New Zealand consumers and businesses in any case, while adding to the pressure on the existing international tax framework which has served New Zealand well.”
Australia's decision to drop its plans for a DST and the U.S. government's complaint that such taxes are in breach of international law are further reasons for New Zealand to proceed cautiously in its consideration of whether to implement its own digital tax, Brown said.