Griffin on Tech: Digital services and gambling taxes poor substitutes for global tax reform
Taxation policies have been in the spotlight this week as the National Party laid out its plans to change the tax rules to aid the “squeezed middle”.
But tech multinationals will be in for a squeeze themselves if Labour gets back into Government, with its plan to introduce a digital services tax in for 2025.
The tax would be applied at 3% on gross taxable New Zealand digital services revenue. That’s similar to what the government levies in France and the United Kingdom.
It would be paid by multinationals that make over €750 million a year from global digital services and over NZD$3.5 million a year from digital services provided to New Zealand users. Labour estimates it would generate $222 million in tax over a four-year period, so around $50 million a year.
Google, Meta, Microsoft, Amazon, Netflix and the other digital giants would easily meet that revenue threshold and be told by IRD to pay up. While finance minister Grant Robertson cooked up the plan for a digital services tax a few years back, it was put on ice in favour of an OECD multilateral tax agreement that has been negotiated since 2021.
Adding to the Netflix tax
But it is taking a long time to progress that deal, in large part due to opposition from the US. A key plank of the OECD agreement would allow member nations to claim tax on revenue multinationals generate from citizens in their country, rather than multinationals being allowed to shift revenue to lower-tax jurisdictions to lower their tax burden.
It addresses a long inequity in how international tech companies account for their revenue, using transfer pricing to book most of their revenue in countries like Ireland that have a low corporate tax rate. Google and Meta in particular generate much more advertising and services revenue in New Zealand than they are taxed locally for.
A 3% tax isn’t much, but in the absence of an OECD agreement in place, it's better than nothing. Labour introduced its Digital Services Tax Bill yesterday. Voters will no doubt like the idea of taxing multinationals, and National introduced the ‘Netflix tax’ in 2016, applying GST to digital products and services offered by overseas companies generating more than $60,000 in revenue a year here. So there should be cross-party support for a digital services tax. The Netflix tax yields $38 million a year.
National for its part is banking on a tax on online gambling providers making up 5% of the cost of the tax package it unveiled this week. While online casinos already pay the Netflix tax, National wants to apply corporate tax and casino duties to them as well.
Geoblocking gambling sites
But enforcing compliance will be a hard task, with a large number of accessible gambling sites available to NZ users. The government would have to look to geoblocking technology to block access to websites that haven’t agreed to pay the extra taxes.
Both plans are poor substitutes for the larger international tax overhaul the OECD has been working on which aims to create a more equitable tax system globally.
When may we actually see a global deal that irons out some of these issues? The OECD last month trumpeted the fact that 138 countries and jurisdictions had agreed on an “historic milestone”, an outcome statement outlining the main agreed tax proposals countries have been haggling over. The agreement, says the OECD, is finally ready for countries to sign.
The outcome statement suggests the terms of the agreement could be incorporated into “OECD Transfer Pricing Guidelines by January 2024”.
Grant Robertson clearly isn’t holding his breath for that happening. His digital services tax may quickly be superseded, but in the midst of an election campaign, there’s political capital to be gained in appearing to be doing something to make the vastly profitable tech giants bolster our tax coffers.