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UK to introduce "digital services tax"

30 October 2018

Death and taxes are the only certainties in life, or so they say.

For many hi-tech companies, taxes are something they've managed to carefully minimize, to such an extent that giants like Apple effectively pay virtually no tax on their significant volume of sales here in New Zealand.

Most developed nations around the world are being similarly affected by the ability of tech-giants to "sidestep" the taxes that most other entities are forced to pay so now some governments are getting creative in how they claw back that money.

In the UK, a "digital services tax" is being planned as a way of ensuring that tech companies do contribute to the tax-take and it is expected to deliver almost half a billion quid a year to the nation's coffers.

Will we see New Zealand following in the footsteps of the Brits?

According to the UK's Chancellor of the Exchequer Philip Hammond, this tax would not be a sales tax -- although he has not disclosed exactly how it would be applied.

Commentators have suggested that it would be a tax on revenues rather than profits, since the companies concerned seem able to minimise those profits through what could best be described as "careful accounting".

Whilst applying this interim method of mitigating the tax-losses being endured as a result of such careful accounting, the UK continues to work with other nations and the OECD as they all seek a way of making sure tech companies pay their fair whack of tax. It is important that any long term changes to plug the holes are agreed on by all nations or companies will simply restructure to take advantage of the policies of those who fail to join the consensus.

Of course the tech industry has come out bitching and moaning, claiming that the introduction of this tax will damage the UK's competitiveness on the global stage.

The vast majority of regular folk and other industries agree however, that this new tax is long overdue and goes some way towards providing tax parity across the board.

Meanwhile, here in New Zealand, it seems that our government is trying hard to address the tax situation for multinational tech companies and a few months ago it passed new laws designed to close some loopholes. Right now however, it's too soon to see if this is going to have any real effect, however Google has said that it will no longer be billing NZ customers through Singapore, which is a start.

No word from Apple though... which has paid a big fat total of $0 to the government by way of tax, despite selling over $4 billion dollars worth of kit into this country over the past decade.

It will be exceedingly interesting to see whether the next annual tax returns submitted by profit-shifting tech companies are all that much different to the last ones. Some are optimistic. Me? Not so much.

Of course NZ will soon have its Amazon Tax... but that's not a tax on tech-companies' profits. It's a tax (GST) on consumers so although it will mean more cash in the consolidated fund, it doesn't change the tax position of the companies concerned one single bit.

One also has to wonder why it is that groups like the OECD and G20 are taking so very long to move against this strategy of base erosion and profit shifting (BEPS). Could it be that those making the decisions have strong portfolios of the stocks that would be most disadvantaged?

We wait with bated breath!

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