New Zealand is taking bold steps to ensure that large multinational corporations pay their fair share of taxes with the introduction of new legislation this week. Finance Minister Grant Robertson announced the forthcoming implementation of a digital services tax, though it won’t come into effect until 2025.
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The proposed tax is designed to target multinational enterprises with substantial global digital service revenue, according to Bloomberg. To be subject to this tax, businesses must earn over EUR 750 million (approximately $810 million or Rs 6,000 crore) annually from global digital services and generate more than NZ$3.5 million (around $2 million) per year from digital services provided to New Zealand users.
Once in effect, the tax will be set at 3 percent of gross taxable digital services revenue in New Zealand, mirroring similar taxation approaches adopted by countries such as France and the United Kingdom. Over the course of four years, it is expected to contribute NZ$222 million to New Zealand’s coffers.
This move by New Zealand reflects a growing global concern that tech giants like Google and Facebook aren’t contributing their fair share of taxes or doing so in the appropriate jurisdictions.
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The existing global tax framework is perceived as outdated and ill-suited to capturing the revenue generated by these digital giants.
Finance Minister Robertson acknowledged this issue, stating, “It’s clear that the international tax framework hasn’t kept pace with changes in modern business practice and with the increasing digitization 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.”
New Zealand has been actively participating in negotiations at the Organisation for Economic Co-operation and Development (OECD) aimed at forging a multilateral agreement to address these tax challenges. However, Robertson noted that progress in these negotiations has been slow. Consequently, New Zealand is preparing legislation that can be deployed if the OECD process doesn’t yield satisfactory results.
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While the tax won’t take effect until 2025, this proactive approach by New Zealand reflects the urgency many countries feel in ensuring that multinational tech companies contribute their fair share to the countries where they do business.
