NZ Labour Party promises digital services tax if international consensus not reached

International Tax Review is part of Legal Benchmarking Limited, 4 Bouverie Street, London, EC4Y 8AX

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

NZ Labour Party promises digital services tax if international consensus not reached

Sponsored by

sponsored-firms-russel-mcveagh.png
The Senate has established rules surrounding digital nomads

Brendan Brown and Mitchell Fraser of Russell McVeagh consider the role of tax in political parties' manifestos prior to New Zealand’s October 2020 general election, with a particular focus on a possible digital services tax.

The Labour Party, which is the larger of the two parties in New Zealand's coalition government, has released its tax policy ahead of the upcoming New Zealand general election to be held on October 17 2020. The aspect of the policy that has attracted the most attention from voters is a proposal to increase the top personal tax rate from 33% to 39%, with the new 39% rate applying to income over NZ$180,000 (US$120,000) per annum.

Of arguably greater significance to businesses, though, is the Party's policy on the taxation of multinational enterprises. The Party has said it will "proactively work" with the OECD on "the issue of multinational corporations not paying their fair share of tax". However, if a multilateral solution cannot be found, the Party has said it "will work towards implementation of a digital services tax".

Design of a digital services tax

The Labour Party has not released details as to the form of a digital services tax (DST) except to say that the rate at which the DST applies would be set "once the international position is clear". It is reasonable to assume, though, that a unilateral DST would be based on the framework set out in the government discussion document: 'Options for taxing the digital economy', which was released in June 2019.

In that discussion document, the government proposed a DST at the rate of 3% on the New Zealand proportion of a multinational group's gross revenue from certain digital businesses, including intermediation platforms, social media platforms, content sharing sites and search engines. The discussion document proposed that the DST would apply to businesses with a global consolidated annual turnover of at least €750m (US$887m), and annual revenues attributable to New Zealand from activities within the scope of the DST of at least NZ$3.5m (US$2.3m).

The DST proposed in the discussion document was projected to raise between NZ$30m and NZ$80m (US$20m to US$54m) in tax annually. The government's total tax-take is over NZ$80b, meaning that even at the top end of the range, a DST could be expected to represent no more than 0.1% of the government's total tax-take.

Next steps

New Zealand has a mixed member proportional electoral system under which a political party's representation in parliament broadly reflects the proportion of votes cast for that party nationally. Ordinarily, no one party secures an outright majority in parliament, meaning a major party will usually require the support of one or more smaller parties to secure a majority and form a government.

The Green Party, who are a support partner of the coalition government, proposes in its tax policy to close "loopholes and areas of under-taxation" for "digital giants". The Green Party proposes either a unilateral DST of 3% on gross revenues attributable to New Zealand users, or a multilateral solution through the OECD "if international progress can be achieved".

The leader of the largest of the opposition parties, the National Party, has recently acknowledged the challenge of applying existing tax rules to the digital economy, stating that “[s]ome of these big multinationals now are paying almost no tax anywhere, really, including New Zealand…".  The National Party has, however, promised to introduce no new taxes in its first term of government, if elected, and the party's leader has suggested that it would be unlikely to implement a unilateral DST.

Commentators have expressed concern at the prospect of New Zealand implementing a unilateral DST. The DST is seen as problematic from a tax policy perspective: it is a tax on turnover rather than profit, it poses a high risk of double taxation since it is unlikely to be creditable against income tax, and it runs the risk of contravening New Zealand's obligations at international law (under double tax agreements or trade-related agreements). Moreover, other countries that have legislated, or even proposed, a unilateral DST have drawn the threat of retaliatory measures from the US.

With progress at OECD level looking uncertain, there is a real prospect of the Labour Party, if it forms part of the government after the election, proceeding to implement a unilateral DST. It is to be hoped that the government would carefully consider the costs and risks of implementing a DST, in light of the relatively small amount of tax revenue a DST would raise.

 

Brendan Brown

T: +64 4 819 7748

E: brendan.brown@russellmcveagh.com



Mitchell Fraser

T: +64 4 819 7335

E: mitchell.fraser@russellmcveagh.com

more across site & shared bottom lb ros

More from across our site

Heads of tax need to push their teams forward as strategic business advisers to add value across the organisation, says Sandy Markwick
Scott Bessent reportedly felt undermined by Musk naming Gary Shapley as acting IRS commissioner; in other news, Baker Tilly will combine with a top 15 US firm
The promise of nine years’ tax certainty and a ‘rational and pragmatic’ government process makes APAs a no-brainer, Indian tax advisers tell ITR
Despite garnering significant revenues from multinationals, Italy’s digital services tax presents pressing double taxation issues, say Stefano Simontacchi and Francesco Saverio Scandone of BonelliErede
ITR’s research shows that in-house tax counsel in Asia also feel underserved by their advisers’ international networks
World Tax global head of research Jon Moore tells ITR how his team spots standout submissions, and gives early statistical insights into this year’s entries
Australia’s conservative opposition will repeal controversial tax agent reporting rules if elected in the country’s May general election
Shapley would be the fourth person to hold the job this year; in other news, UK tax advisory firm MHA raised fewer funds than expected from its London IPO
The US needs to be involved in pillar one for there to be more international acceptance of the project, Michael Masciangelo says
The UK regulator is investigating EY’s auditing of the national postal service as it relates to the high-profile Horizon scandal, which saw hundreds wrongfully convicted
Gift this article