ANALYSING NEW ZEALAND’S DIGITAL SERVICES TAX PROPOSAL
Abstract
The allocation of taxing rights for cross-border digital profits is a critical issue for the 21st century. The New Zealand government has responded with a discussion document proposing a digital services tax as an interim measure. Given the lack of global consensus on solutions for the issue, a digital services tax is a serious possibility. This article examines the government’s proposal.
The proposal’s rationale is based on active contribution, which is conceptually weak and contains several interpretative issues. The proposal fails to distinguish between traditional businesses and highly digitalised businesses (‘HDBs’) and, as a result, business activities of traditional businesses are, theoretically, in scope. However, high de minimis thresholds ensure that only large HDBs are liable.
Fundamentally, there is a lack of evidence that HDBs are paying tax at a lower effective rate than other businesses. Given this, it is strange that an international effort has been made to tackle HDBs. Furthermore, this unilateral approach could dangerously reduce multilateral cooperation in tax matters.