Skip to main content
Inland Revenue

Tax Policy

Chapter 1 - Introduction

1.1 The Government wants to build a productive, sustainable and inclusive economy, while at the same time supporting a sustainable revenue base to fund improvements to the wellbeing of New Zealanders and their families. This means it is important for everyone to pay their fair share of tax in New Zealand.

1.2 There has been significant international concern over the under-taxation of the digital economy, and digital multinationals in particular. This under-taxation is mostly caused by deficiencies in the current international tax rules, which have not kept up with digitalisation and other modern business developments.

1.3 The “digital economy” is a term used to refer to economic activity that is significantly reliant on information and communication technology. It broadly encompasses e-commerce, including the sale of both digital and physical products and services over the internet or via apps, online advertising, social networks, and intermediation platforms (such as Airbnb and Uber).

1.4 The digital economy provides many benefits to New Zealanders, and it is an important source of future growth for the country. However, its under-taxation impacts the sustainability of Government revenues and the fairness of the tax system. It also distorts investment in favour of digital multinationals, which pay lower worldwide income tax compared with other industries.

1.5 The Government is committed to ensuring everyone pays their fair share of tax, including digital multinationals. Achieving this will require changes to the current tax rules. There are two options for this:

  • The first option is to apply a separate digital services tax (DST) to certain digital transactions. A DST taxes at a low rate (for example, 2% to 3%) the gross turnover of certain highly digitalised businesses that are attributable to the country.
  • The other option is to change the current international income tax rules, which have been agreed to by countries (usually referred to as “the international tax framework”). Countries have been discussing different ways of achieving this at the OECD.

1.6 The Government supports an internationally agreed solution at the OECD, but it will seriously consider a DST if the OECD cannot make sufficient progress this year.

1.7 This discussion document seeks feedback on two options for taxing the digital economy. The Government will take this feedback into account when it decides how to tax the digital economy.

1.8 Appendix 1 sets out some background information on what the digital economy is, along with its importance and size in New Zealand and globally. Appendix 2 sets out New Zealand’s policy for taxing multinationals, some recent tax measures aimed at multinationals, and explains how the measures in this document fit in with our economic framework for international tax.

Summary of options

Digital services tax

1. The DST would be a flat tax charged at a low rate (2–3%) on gross turnover from certain digital platforms (to the extent they are attributable to the users in the relevant country). A DST applies to digital platforms whose value is dependent on the size and active contribution of their user base. Specifically, the DST proposed in this document would apply to:

  • intermediation platforms, which facilitate the sale of goods or services between people (like Uber and eBay);
  • social media platforms like Facebook;
  • content sharing sites like YouTube and Instagram; and
  • search engines and the sale of user data.

2. This means the DST is narrowly targeted at certain highly digitalised business models. It would not apply to sales of goods or services (other than advertising or data) over the internet, such as accounting services delivered via the cloud.

3. The DST will likely need to also apply to some New Zealand companies, in order to comply with our international obligations. We expect the impact of this to be limited in practice, because of the kinds of activities to which a DST applies.

4. The DST is an interim measure for taxing the digital economy. The Government would look to repeal it if and when the OECD’s international solution was implemented.

OECD proposals

5. There are two broad measures being considered at the OECD:

  • A measure to allocate greater taxing rights over a multinational’s profits to market countries. The measure would not require the multinational to have a physical presence in the country. Three proposals have been considered for this purpose (only one of which would be adopted):
    • A limited proposal for digital services only, focusing on social media, digital advertising, intermediation platforms (also known as multi-sided platforms) and data.
    • A broader proposal, which would allow greater taxing rights to market countries (such as New Zealand) based on certain marketing intangibles created there by multinationals. This would apply beyond the digital economy.
    • A proposal which provides for apportionment of a multinational’s profit from ecommerce to market countries in which it has a significant economic presence. The apportionment would be based on an agreed formula and would depend on certain factors such as sales, assets and user participation.

It is possible that the OECD may adopt an option that incorporates elements of more than one of the three proposals, or an alternate proposal not yet considered.

  • A minimum tax measure. This proposal would apply beyond the digital economy and would ensure that multinationals pay a minimum level of tax on profits earned in low tax countries. This measure could be adopted in addition to one of the three proposals above.


1.9 The Government seeks submissions on the proposals set out in this discussion document.

1.10 Submissions should include a brief summary of the major points and recommendations. They should also indicate whether it would be acceptable for Inland Revenue and Treasury officials to contact those making the submission to discuss the points raised, if required.

1.11 Submissions should be made by Friday 18 July 2019 and can be emailed to [email protected] with “Options for taxing the digital economy” in the subject line.

1.12 Alternatively, submissions may posted to:

Options for taxing the digital economy
C/- Deputy Commissioner, Policy and Strategy
Inland Revenue Department
PO Box 2198
Wellington 6140

1.13 Submissions may be the subject of a request under the Official Information Act 1982, which may result in their release. The withholding of particular submissions, or parts thereof, on the grounds of privacy, or commercial sensitivity, or for any other reason, will be determined in accordance with that Act. Those making a submission who consider that there is any part of it that should properly be withheld under the Act should clearly indicate this.

1.14 In addition to seeking written submissions, Inland Revenue and Treasury officials intend to discuss the issues raised in this discussion document with key interested parties.