Taxpayers’ Union Warns Against Unilateral Digital Services Tax

Responding to today’s announcement that the Government will implement a unilateral Digital Services Tax (DST) on large multinational companies, Taxpayers’ Union Deputy Campaigns Manager, Connor Molloy, said:

“While we support strengthening multinational tax arrangements as a part of a multilateral approach with other OECD countries, taking a unilateral approach with New Zealand-specific rules risk New Zealand’s position in relation to free-trade or other tax negotiations.

“Where there are genuine loopholes in existing international tax arrangements, other countries are also incentivised to close these and we should work with them to do so. However, if we take a unilateral approach without coordinating with our trading partners, we may be seen as undermining free trade principles and unfairly favouring domestic firms over foreign ones. This has concerning implications for an export-based nation such as New Zealand that is reliant on free and open trade globally.

“If we proceed with this tax in the absence of an OECD-wide agreement, we lose all moral authority to argue against retaliatory protectionist measures from our trading partners with policies that, while neutral on paper, would go against the spirit of free trade through a structure that largely targets foreign firms.

“While the DST will only come into effect OECD negotiations if aren’t completed by 2025, this announcement demonstrates a clear lack of confidence in the multilateral process that we should be helping to lead.

“Most of the firms targeted under this proposal would be large US-owned firms, a country which has not been afraid to use protectionist measures against New Zealand in recent history. At a time where we should be seeking to expand our trading relationships with democratic OECD countries, this proposal puts these relationships at risk and could backfire on New Zealand-owned businesses.

“The proposals also risk raising prices for New Zealand consumers of digital services or seeing a reduction in the quality or quantity of services available as overseas companies direct their efforts elsewhere. Furthermore, larger New Zealand companies such as Xero may soon see themselves hit with retaliatory taxes in other countries leading to double taxation.

“The 2019 Government discussion document ‘Options for taxing the digital economy’ estimated that a DST would raise between $30 million and $80 million in tax revenue – a small amount of revenue in relation to the economic damage that would be caused if angered trading partners were to retaliate.”