Hon Stuart Nash
Minister of Revenue
By Email firstname.lastname@example.org
Dear Mr Nash
Options for taxing the digital economy
The American Chamber of Commerce in New Zealand (AmCham NZ) understands the public and political interest in ensuring that multinational groups pay taxes in the countries where they operate. We support the overarching principle of ensuring that tax should be levied where value is created.
Digitalisation poses challenges to the international tax system and it is important to examine whether new value creation factors exist in certain circumstances. All businesses are digitalising and any solutions will therefore impact all business and consumers.
With this in mind, we support reform of international tax law through the OECD. However, we do not support the unilateral digital services tax proposed in the Discussion Document - Options for Taxing the Digital Economy. It is important that New Zealand works with the other 131 countries who have committed to examine solutions together. A unilateral approach, even on an interim basis, diverts resources and undermines this multilateral approach.
The United States is New Zealand’s third largest trading partner (after China and Australia) and so its views are important. Economic relations span a wide range of commercial activities, including trade in goods and services, and direct foreign investment across all major sectors from heavy manufacturing to agriculture. The potential weakening of New Zealand’s relationship with the United States and any related trade consequences which could follow due to our implementation of a digital services tax, will likely exceed the expected revenue gains from the tax.
On this issue, the US Treasury Secretary Steven T. Mnuchin has said:
“I highlight again our strong concern with countries’ consideration of a unilateral and unfair gross sales tax that targets our technology and internet companies. A tax should be based on income, not sales, and should not single out a specific industry for taxation under a different standard. We urge our partners to finish the OECD process with us rather than taking unilateral action in this area.” 1
New Zealand is not alone in considering a unilateral digital services tax, with legislation recently passed in France and introduced in the United Kingdom. In both cases the United States has immediately responded.
In respect of the French digital services tax, the United States Trade Representative (USTR) has initiated an investigation under Section 301 of the Trade Act of 1974. Announcing the review, the USTR noted that “The United States is very concerned that the digital services tax …. unfairly targets American companies” before going on to say that “The President has directed that we investigate the effects of this legislation and determine whether it is discriminatory or unreasonable and burdens or restricts United States commerce”.
Regarding the United Kingdom, Sen. Ron Wyden (Ore.), the top Democrat on the Senate Finance Committee, has commented: “I met with the U.K. officials earlier, and said, ‘You expect a trade agreement with the United States and the U.K. It will not happen with your digital services tax. Period. Full stop.” 2
The Section 301 investigation shows that the risk of retaliation by the United States against New Zealand for imposing a DST is more than theoretical or remote.
We are deeply concerned that a departure from internationally agreed principles would make investment in New Zealand and the provision of services to people and businesses more costly.
We encourage the New Zealand Government to maintain its long standing support for a multilateral rules based approach to trade, rather than create new non-tariff barriers. We therefore endorse the continuation of discussions involving NZ, the US and other important stakeholders at the OECD, rather than unilateral measures.