OECD rules have little effect on NZ firms

An OECD decision that companies with web servers in other countries can be taxed in those nations shouldn't have much effect on New Zealand companies doing online business abroad.

The OECD decision rulesthat companies with web servers in other countries can be taxed abroad won’t effect local companies doing online business overseas, according to one local web developer.

Member countries of the OECD’s committee on fiscal affairs earlier developed guidelines on how to apply existing tax treaties to web transactions. They agreed that the place where computer equipment like a server is located may in some circumstances constitute a permanent establishment and make it liable to tax, this requires that functions performed at that place be "significant" as well as an essential or core business activity. However, if a company’s website is hosted by a server provider this does not constitute a permanent establishment and so is not liable to tax.

Craig Meek, vice-president of technology for Auckland web developer Virtual Spectator, says most New Zealand companies with a web presence abroad will be hosted, meaning they won’t be affected by OECD guidelines.

Meek says the decision may have had a significant effect on New Zealand businesses 12 months ago, but now most companies would be hosted and would not have their own servers overseas.

Consultancy PricewaterhouseCoopers has warned that as a result of the decision any business that sells or is planning to sell online must think carefully about the tax consequences of whether or not it wants to own or rent its servers and, if so, where they should be located.

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