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COVID-19 lockdowns have propelled online marketplaces – the web platforms that match sellers and buyers and process sales online – to new heights in growth and profitability. The growth of platform businesses is often fuelled by their collaboration with influencers. Influencers are individuals, not always celebrities, who have the power to influence online audiences’ purchasing or viewing decisions, which in turn drives the sale of online marketplaces’ services to other businesses. The collaboration between influencers and marketplaces may be organised through employment, service contracts or partnerships.

Among all of the facilitation activities in which influencers are engaged, ‘live commerce’ is the most prominent. Live commerce is a business model where influencers, through their online channels that are linked to an online marketplace, engage live with potential buyers online and promote consumer goods that are listed on that online marketplace.

The opportunity to engage online and with many buyers at once makes live commerce a very attractive business model for influencers, the sellers of goods and services and online marketplaces. Many influencers earn millions per year from hundreds of millions of dollars of sales on online marketplaces, but these earnings are only a fraction of the amounts the sellers pay for services that online marketplaces provide directly or through influencers. Large online marketplaces may work with thousands of influencers and generate multi-million profits from the online activities of these influencers alone.

When an online marketplace operates wholly within a single country, engaging only with local influencers, sellers, and buyers, that country reaps all tax revenue from this marketplace’s operation. Online marketplaces, however, typically link buyers and sellers from many different countries. The cross-border operations of online marketplace raise a variety of complex questions about which country has the right to tax which parts of the income generated by the buyers, the sellers, the influencers, and the online marketplaces. This article focuses only on the taxation of business profits of non-resident online marketplaces in New Zealand from services provided to local sellers through non-resident influencers.

Viya’s visit to New Zealand: No tax from Alibaba

In August 2019, New Zealand media reported an extraordinary event. Alibaba’s top influencer Viya, who lives in China, visited New Zealand. During her visit, she hosted a single four-and-a-half hours online session with her audience in China via her channel on Alibaba’s Taobao marketplace. Livestreamed out of Viya’s hotel room in Auckland, this session reportedly resulted in close to NZ$30 million worth of sales of consumer goods produced in New Zealand and Australia.

No doubt, Viya’s visit had a positive impact on New Zealand tax revenue because the local sellers’ profits were taxed here. Nevertheless, my research concluded that New Zealand could not tax Alibaba’s profits from the sales and marketing services provided to sellers in New Zealand through Viya, even though she was a dependent agent of one of Alibaba’s entities.

Like most other countries, New Zealand has entered into many double taxation agreements and has statutory rules that limit its right to tax non-residents’ business profits. In recent years, New Zealand has tried to relax these limitations. Its actions included joining the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI); amending the statutory permanent establishment rules; introducing a new anti-avoidance rule to curb avoidance of dependent agent permanent establishments in New Zealand (section GB 54 of the Income Tax Act 2007); and negotiating a new double taxation agreement with China. None of these measures appears to have been sufficient to enable the taxation of Alibaba’s influencer-related income.

An influencer that is present in New Zealand and facilitates sales on an online marketplace located outside New Zealand might in principle create a taxable business presence for this marketplace in New Zealand. However, Viya’s activities in New Zealand, despite being in the business nature, did not result in there being an ordinary permanent establishment in New Zealand for the non-resident entity that was part of Alibaba because the business was not carried on through a ‘fixed place’. Secondly, a service permanent establishment also did not arise in New Zealand because of Viya’s short stay there. Thirdly, Alibaba could legitimately take the position there was no dependent agent permanent establishment in New Zealand, and avoid therefore the effects of section GB 54 of the Income Tax Act 2007, if the contracts with the New Zealand sellers were entered into or facilitated online or from overseas – which was likely the case.

A collaboration with domestic influencers provides an avenue for taxation of Alibaba’s profits in New Zealand but may not generate substantial (if any) income tax revenue there. Even if such collaboration results in a permanent establishment for a non-resident entity of online marketplace in New Zealand, the existing transfer pricing rules and deductibility of amounts paid for local influencers’ services allow the online marketplace to reduce the profits attributable to this permanent establishment to almost zero.

Intricacy of the tax problem

Should the tables turn, and if New Zealand were to have its own ‘Alibaba’ operating in China remotely, or through ‘visiting’ influencers, no tax problem would exist for New Zealand. The treaty limitations on China’s right to tax New Zealand businesses operating in China, but without the requisite level of physical presence, means that these marketplace businesses’ profits would be taxed solely in New Zealand. This scenario, of course, would only be possible if China opened its digital services market to New Zealand businesses, and New Zealand had a firm that could compete with online marketplaces operating in China. So far, New Zealand is missing out on the opportunity to tax profits of non-resident online marketplaces operating remotely or through ‘visiting’ influencers and cannot compensate this revenue loss by taxing online marketplaces tax resident in New Zealand but operating in China.

Viya’s visit to New Zealand highlights the wide-spread imbalances in trade in online marketplaces’ services among countries. These imbalances impact the revenue-raising abilities of trading partners in different ways. Like New Zealand, Australia may be unable to tax profits from services of foreign online marketplaces provided to Australian customers directly or through influencers. A heavy presence of Australian online marketplaces in New Zealand might mitigate Australia’s possible discomfort about online marketplaces penetrating foreign markets of consumer goods and services, but only if Australian revenue from taxation of domestic online marketplaces operating abroad compensate for the tax losses from the presence of foreign online marketplaces in Australia.

When it comes to online marketplaces, the existence and severity of the tax problem discussed in this article is a matter of perspective and each country’s economic circumstances. This intricacy complicates finding a solution about the taxation of online marketplaces operating across national borders.


This blog is based on: Plekhanova, V 2020 ‘Viya’s Visit to New Zealand: Can New Zealand Tax Alibaba’s Profits?’, New Zealand Journal of Taxation Law and Policy, vol. 26, no. 4; For discussion of solutions to the tax challenges of cross-border operation of online marketplaces see Plekhanova, V 2020 ‘Digital Services Taxes and the Unified Approach under Pillar One Proposal: Exploring the Nexus Frameworks through the Example of Alibaba’, Australian Tax Review, vol. 43, no 4.

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