New Zealand’s largest accounting organisation, Chartered Accountants Australia and New Zealand, is calling on the Government to drop its plans for a go-it-alone digital services tax targeting multinationals.

The international digital tax debate has now expanded and risks damaging the New Zealand tax base, said John Cuthbertson, New Zealand Tax Leader for CA ANZ. “The country needs to urgently prepare to deal with a potentially multi-billion dollar threat to the country’s tax base.

“Protecting our future tax base is fundamentally more important than our current focus on whether or not we introduce a comprehensive capital gains tax.

“Digital services taxes proposals around the world have rapidly morphed to wide-ranging international discussion on how countries carve up tax revenues on international business profits,” he said.

“The very real danger for New Zealand is that these talks are now heading down the path of a worldwide taxation system based on where customers are located, an idea which underpinned digital services taxes.

“As an exporting nation, a customer-centric tax regime represents a very damaging threat to our tax base. There is a high risk that a large part of our business tax base will go offshore.

“The digital services tax could a Trojan horse for countries like New Zealand.

“For example, under the US proposal, currently favoured at the OECD, part of the tax revenue paid by exporters, such as Fonterra and Zespri, is at risk of migrating offshore.”

Taxation based on source, and bricks and mortar, has served the global economy well since the 1920s, but it is becoming out dated as a basis of tax allocation, Cuthbertson said.

The EU and Australia were considering stand-alone digital services taxes as options when the Government announced in February it would investigate such a tax as an interim solution till an OECD consensus was reached. A discussion document is due out next month.

“Ireland, which is similar in size and economy to New Zealand, and Germany, identified concerns with a unilateral digital services tax early on and focused on the OECD option instead,” Cuthbertson said.

“Australia and the EU have since seen the risks and pulled back from a go-it-alone digital services tax.”

He said “New Zealand should do likewise and focus on what is now the main event.

“Rather than chasing a standalone digital services tax, our time would be better spent developing and executing a strategy for NZ Inc in OECD discussions which are currently proceeding under the innocuous banner of digital taxation.

“We should be looking to collaborate with like-minded, similarly impacted small trading nations, to present a uniform strong voice at OECD deliberations.

“We need to be careful what we wish for. New Zealand cannot afford to be distracted by a unilateral digital services tax.

“Our full attention is required to get the best results from the OECD table.”

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