New Zealand is taking steps to implement a digital services tax on large multinational companies starting in 2025, as a result of the delays in the planned international tax rules overhaul.

While a global tax accord was reached in 2021 to redefine the taxation of multinational companies worldwide, negotiations have been sluggish. Last month in Paris, most countries agreed to delay the implementation of the tax accord’s initial phase until 2025.

Acknowledging the slow progress, New Zealand’s Finance Minister Grant Robertson stated that they will continue to work towards a multilateral agreement but will not wait indefinitely. As a result, New Zealand is preparing to introduce legislation for the proposed digital services tax later this week, ensuring readiness if the Organization for Economic Cooperation and Development (OECD) process does not yield the desired outcome.

In contrast, Canada aims to impose a digital services tax early in 2024 and has expressed its unwillingness to support further delays.

Currently, companies in the information technology sector have the ability to operate globally while channeling their profits through low-tax jurisdictions or their home countries, resulting in minimal tax payments in the countries where they have a significant user base.

New Zealand’s proposed tax will levy a 3% fee on multinational companies that earn more than 750 million euros ($812 million) annually from global digital services and generate at least NZ$3.5 million ($2.1 million) per year from digital services provided within New Zealand.

The tax will primarily target large companies that earn revenues from New Zealand users of social media platforms, internet search engines, and online marketplaces. If implemented as planned, it is projected to generate approximately NZ$222 million over a four-year period.

Overall, New Zealand’s decision to enforce a digital services tax is a response to the slow progress in global tax reform efforts. The country is taking proactive measures to ensure a fair taxation system for multinational companies operating within its jurisdiction.

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