A New Zealand internet business is operated through their own server located overseas.
A New Zealand-resident business purchases and installs a server in Australia, develops their website and hosts it on that server. The business only supplies digitised books online. The website performs various business functions such as:
- displaying all available books
- receiving orders
- receiving payment for purchases, and
- delivering the product by downloading.
In this example the server is in place for sufficient time to satisfy the requirements of a fixed place of business.
What is the business's tax liability?
The business operations could be considered to be completely carried out on the site, and the profits liable for tax in the country where the server is based.
However, this tax position is not entirely clear and the answer will depend on the particular facts of the case.
It could be that the activities in New Zealand (which may include sourcing for books, material and content, uploading and updating and maintaining information on the website) should also be taken into account when considering the question of business operations and permanent establishment.
As the tax outcome will depend on the particular circumstances of each case, you may need to contact us to discuss your situation.
The New Zealand resident business must return its worldwide income for New Zealand tax purposes. They could, however, obtain a credit for tax paid in the overseas country. This is limited to the lesser of the tax paid overseas, or the New Zealand tax payable on that income.
Date published: 03 Dec 2007