The Times Australia
Business and Money
The Times Real Estate

.

Australia and New Zealand are signing up for an international tax on the tech giants — but will it be enough?

  • Written by Victoria Plekhanova, Lecturer, Massey University
Australia and New Zealand are signing up for an international tax on the tech giants — but will it be enough?

Australia, New Zealand and many other countries are losing hundreds of millions of dollars in revenue each year by not adequately taxing the profits of digital giants doing business in their jurisdictions.

Australia has opted not to impose[1] a digital services tax (DST) on the likes of Google, Facebook, Amazon, Uber and Airbnb. Meanwhile, New Zealand has been sitting on the fence[2]. But things may be about to change.

On July 1, 131 countries – including Australia and New Zealand – agreed in principle[3] to a tax scheme negotiated under the auspices of the G20[4] and OECD.

More detail may emerge from a meeting of the G20 finance ministers on July 9-10. If approved, the scheme will be finalised next year and implemented in 2023.

The scheme is designed to “create a single set of consensus-based international tax rules” to address the problem of multinational companies moving profits to low-tax jurisdictions — a practice known as “base erosion and profit shifting” (BEPS[5]).

Read more: Google and Facebook pay way less tax in New Zealand than in Australia – and we're paying the price[6]

Specifically, such a BEPS scheme would target 20% to 30% of the net profits (above a 10% sales margin) of large multinationals engaged in automated digital services and the direct sale of goods across international borders.

This tax base would then be divided proportionately among the individual countries in which the multinationals have their customers. Local company income tax rates would then apply.

In exchange for a new right to tax the profits of the digital giants, however, countries would give up any unilateral tax measures they might already have in place — or might have been considering imposing on such firms in the future.

Unanswered questions

The most popular alternative to the BEPS scheme is a digital services tax imposed by individual countries directly on firms with annual revenue of more than €750 million (about A$1.2 billion), a threshold first suggested by the OECD and used in most DST legislation.

Usually set at 3%, such DSTs provide relatively small but easy to monitor tax revenue streams.

Like most taxes, a DST is imperfect[7]. But would the BEPS scheme be better? The New Zealand and Australian governments haven’t released impact assessments of the scheme on their domestic businesses, national economies and tax systems. This leaves several unanswered questions:

  • will a BEPS tax scheme improve or undermine the competitiveness of Australian and New Zealand suppliers of automated digital services?

  • what would its other likely impacts be on domestic businesses and national economies in the short, medium and long term?

  • how much will it cost to introduce and administer?

  • how much tax revenue would it actually generate?

  • how would that compare with a unilateral tax measure such as a 3% DST?

Read more: A new levy on digital giants like Google, Facebook and eBay is a step towards a fairer way of taxing[8]

How a digital services tax compares

As currently drafted, it appears the BEPS scheme would generate considerably less revenue than a 3% DST. The exact difference would depend on the total and domestic annual sales revenue and profits of the business in question, as well as the country’s corporate income tax rate.

But let’s assume, for example, the total net profit of a large multinational firm is A$15 billion, and 1% ($1 billion) of the firm’s $100 billion sales revenue comes from Australia.

Under the BEPS scheme, the Australian portion of the firm’s profits would be just $10 million. Taxed at Australia’s corporate rate of 30%, that would generate $3 million.

By comparison, a 3% DST on the firm’s $1 billion of Australian sales would generate $30 million — ten times the tax revenue of the BEPS scheme.

Read more: The U.S. takes aim at Facebook — here's why the big tech giants must be reined in[9]

When Australia[10] and New Zealand[11] discussed introducing a DST in 2018-19, business and advisory groups in both countries criticised the idea. In particular, it was argued such a tax earns too little revenue relative to the cost of implementation.

And yet, the new BEPS tax scheme would generate even less revenue while still requiring a complex system of rules. This complexity risks imposing high compliance costs on countries, creating opportunities for avoidance and increasing tax disputes.

Ideally, a BEPS scheme should at least promise more tax revenue than a 3% DST. The portion of profits allocated to individual market jurisdictions should be increased, and efforts made to ensure low margin but profitable giants such as Amazon don’t escape paying tax where they do business.

Compensation for personal data

Finally, a BEPS scheme should account for the free use of data extracted from local internet users by these digital giants.

The common assumption that personal data and attention have no (or trivial) economic value is wrong. Google might claim it charges customers for access to its infrastructure and algorithms, but these are often of little value without the personal data they process in the first place.

Uber wouldn’t exist without access to data about passengers and drivers. Facebook couldn’t generate multi-billion dollar revenues without the information exchange and attention of its millions of users.

Read more: US lawmakers are taking a massive swipe at big tech. If it lands, the impact will be felt globally[12]

Personal data and attention are key resources for the provision of automated digital services. An adequate tax on those service providers is fair compensation.

More importantly, any final international agreement on a BEPS scheme should be conditional. Countries need an opt-out provision allowing them to switch to a DST (or other unilateral measure) if the new system fails to generate sufficient revenue.

This would both protect national interests as well as create a disincentive for the big multinational firms to avoid paying their fair share of tax wherever they make a profit.

Authors: Victoria Plekhanova, Lecturer, Massey University

Read more https://theconversation.com/australia-and-new-zealand-are-signing-up-for-an-international-tax-on-the-tech-giants-but-will-it-be-enough-162507

SME Business News

Brand Storytelling: How Video Marketing Can Enhance Your Brand Identity

In the competitive landscape of 2025, building a strong and recognisable brand identity is crucial for standing out in the marketplace. One of the most effective ways to shape and communicate y...

Future-Proofing Your Business with Strategic Defence Insight

In an era marked by rapid technological change, global uncertainty, and evolving security risks, the need for long-term resilience in business has never been greater. Organisations across indu...

Maximise Your Amazon Profits with These 5 Simple Seller Strategies

Selling on Amazon offers countless opportunities for individuals and businesses to grow their income. But with so many sellers joining the platform every day, it’s not enough to just list your ...

Why Professional Mining Electricians Are Critical for Mine Safety and Operations

The mining industry, with its complex and hazardous environments, demands high standards of safety and efficiency. One pivotal role in ensuring these standards is that of professional mining el...

The Times Features

Why Regional Small Businesses in Bendigo Deserve Better Access to Finance in 2025

In the heart of regional Victoria, Bendigo has long stood as a beacon of innovation, resilience and community spirit. As we step further into 2025, the importance of nurturing sm...

Is It Time for a Deep Cleaning? Signs You Shouldn’t Ignore

Most people know they should visit the dentist for a regular check-up and cleaning every six months. But sometimes, a standard cleaning isn’t enough. When plaque and tartar build...

The Hidden Meaning Behind Popular Engagement Ring Cuts

When it comes to engagement rings, the cut of the diamond is not just about aesthetics. Each shape carries its own symbolism and significance, making it an important decision for...

Annual Health Exams in the Office: How They Can Reduce Sick Days and Healthcare Costs

Regular health check-ups, especially annual health exams in the office, can significantly impact the overall well-being of your workforce. A proactive approach to employee health...

Best Deals on Home Furniture Online

Key Highlights Discover the best deals on high-quality outdoor furniture online. Transform your outdoor space into a stylish and comfortable oasis. Explore a wide range of d...

Discover the Best Women's Jumpers for Every Season

Key Highlights Explore lightweight jumpers for spring and summer, ensuring breathability and ease. Wrap up warm with cozy wool jumpers for the chilly autumn and winter season...

Business Times

Brand Storytelling: How Video Marketing Can Enhance Your Brand Id…

In the competitive landscape of 2025, building a strong and recognisable brand identity is crucial for standing out in the ...

Future-Proofing Your Business with Strategic Defence Insight

In an era marked by rapid technological change, global uncertainty, and evolving security risks, the need for long-term res...

Maximise Your Amazon Profits with These 5 Simple Seller Strategie…

Selling on Amazon offers countless opportunities for individuals and businesses to grow their income. But with so many sell...

LayBy Shopping