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Fonterra, Xero may be affected by G7 tax proposal, expert says

A tax expert is warning the G7 proposal to establish a digital services tax could have implications for some of New Zealand's biggest companies.

Source: 1 NEWS

By Harry Lock of rnz.co.nz

Finance ministers from some of the world's biggest economies have met in London to settle on an agreement designed to stop multinational companies avoiding tax.

There are two parts to the plan.

Firstly, the G7 will aim to make companies pay more tax in the countries where they are selling their products or services, rather than wherever they end up declaring their profits.

Secondly, they want a global minimum tax rate (15 percent) so as to avoid countries undercutting each other with low tax rates.

"Not being drawn into a competitive downward spiral in corporate tax is a great thing," Trade Minister Damien O'Connor said.

"That's a good statement, I think it is a good day for trade and to ensure that we have some bottom lines here."

But PWC tax partner Geof Nightingale said the implementation of a tax whereby companies are taxed in the countries where they do business could have an impact on some New Zealand companies as well, such as Fonterra and Xero.

"We've got some big exporters, so it's not all one-way traffic. It's not just about the inbound multinationals into New Zealand, we also need to think about our own outbound.

"We'll have to work out if that provides a net benefit for New Zealand, or a net detriment."

Largely, however, Nightingale said the G7 announcement was "probably" good news for New Zealand.

In 2018, the government announced it was looking at introducing its own digital services tax, which would work in much the same way the new tax announced by G7 is aimed at doing.

"The problem with those is they tend to provoke trade retaliations, from the US in particular. So if we can avoid having to do a unilateral response, and get in behind this multilateral response, I think that's a much lower-risk strategy."

The implementation of such a tax could still be some way off, however. The agreement will next be discussed in detail at a meeting of G20 finance ministers in July in Venice.

It could also hinge on any policy set out by the OECD, an intergovernmental economic organisation, which has been working on updating global tax rules for a number of years.