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US push for global tax rules could catch New Zealand’s film industry
April 7, 2021
US calls for a new global tax regime – potentially the biggest overhaul in 100 years – should be viewed as good news for New Zealand, says Professor Craig Elliffe.
However the call by USTreasurer Janet Yellen for a minimum global corporate tax rate could create tension for our subsidised film industry.
It could also create issues with our current lack of capital gains tax, said Elliffe, a tax law specialist with the University of Auckland Faculty of Law.
Yellen’s call – which coincides with the new administration’s more immediate plans to raise the corporate tax rate in America – also brought the US back into multi-lateral OECD talks about the taxation of digital companies like Google and Facebook, Elliffe said.
The US is pushing for a multilateral agreement on digital taxation at the OECD by the summer, but Yellen’s pitch for an even broader deal on corporate taxation encompassing the G20 and other countries is likely to take longer.
That could represent the biggest overhaul international tax rules since the 1920s, Elliffe said.
“So it’s been a hundred years with the existing tax rules. They are often termed ‘the 1920s compromise’.”
Back then the talks had taken five years to complete, he said.
The OECD had been working on this for a couple for years before the process stalled when the Trump administration pulled out last year.
“So it is a big deal to have the Americans back,” Elliffe said.
“It’s more co-ordinated and better policy when everyone is applying the same rules. It will be more harmonious with less double taxing.
“This is very much in our interests and would mean that we don’t have to do our individual digital services company tax.”
The bulk of the world’s big tech companies were American so the US had been a net beneficiary of the current tax regime, Elliffe said.
But, given that change seemed inevitable, they would sooner have a clear OECD regime “rather than be dealing with 45 different digital services taxes in jurisdictions around the world”.
Overall New Zealand had a good robust controlled foreign companies regime which effectively taxes passive income in other jurisdictions, Elliffe said.
“So there would not be a huge amount of additional revenue for us in it.”
Politically there has been a shift to higher-tax regimes as countries looked to cover the enormous cost of Covid recovery.
That removed any pressure the Government might have been feeling to drop corporate tax rates, Elliffesaid.
But Deloitte tax partner Bruce Wallace said he didn’t see much upside for New Zealand in the US policy push.
He was concerned it could create extra compliance costs for large New Zealand companies operating offshore.
The proposed regime would see multi-national companies required to top up tax payments in their home jurisdiction, to meet any minimum requirements.
That could potentially be complex and costly, Wallace said.
G20 meetings were scheduled for April and there would be a clearer signal around about the middle of July, Elliffe said.
“We will know then whether there is political agreement and then they’ll have to nut out the rest of the rules which will no doubt take a few years.”
Where any country was offering an incentive, or a tax holiday or break, it becomes a question of whether that is carved out, he said.
There were not many areas like this in New Zealand but our film industry was one of them.
“We don’t have the detail yet but it will come and I’m sure there will be some tension,” he said.
The current regime allows film producers – mostly Hollywood studios – to claim a subsidy from the Government of up to a quarter of spending on screen work conducted in New Zealand.
It has helped attract big budget productions such as James Cameron’s Avatar series and Amazon Prime’s new Lord of the Rings series.
New Zealand’s lack of a capital gains tax could also be viewed as another form of tax concession given that most other OECD countries had one in place, Elliffe said.
These would be the kinds of issues that would need to be worked through as part of OECD talks.