Breakthrough on Google tax
Google has removed a bone of contention over its tax affairs by agreeing to record the revenues that it earns from selling advertising in New Zealand locally, rather than via overseas tax jurisdictions.
The change matches a similar commitment made by Facebook in December.
Google said in a letter to Parliament’s Finance and Expenditure select committee – which is considering changes to tax rules that apply to multinationals – that it was changing the structure of its business in New Zealand.
At present, the company bills Kiwi customers from Singapore, but will in future book sales via its New Zealand subsidiary.
The change will see at least tens of millions of dollars that had previously gone directly overseas routed through its Auckland-based business.
Tax experts have warned that such changes, while likely to be positive for the taxman, may not necessarily amount to a huge bonanza for the Inland Revenue Department in situations where companies add relatively little value to their products or services in New Zealand.
Nevertheless, Revenue Minister Stuart Nash welcomed Facebook’s commitment to book revenues, locally, instead of in Ireland, in December.
Nash – who is travelling in Mexico – said then that he hoped more multinational companies would follow Facebook’s lead.
He confirmed that was one goal of the Taxation (Neutralising Base Erosion and Profit Shifting) Bill that was introduced into Parliament on December 6.
Work on the tax bill began before the election and stemmed from the Beps project that the Organisation for Economic Cooperation and Development kicked off in 2008 to stamp out multinational tax rorts.
Google’s New Zealand policy manager, Ross Young, told the
How Google works now
When a customer buys advertising from Google, they enter into a contract with its Asia-Pacific headquarters in Singapore. Google’s Singapore company earns the revenue from that contract and pays Google NZ for the services it has performed. Profits from those service payments are subject to tax. In 2016 – the latest year for which Google NZ’s accounts are available – the company recorded a loss of $603,000 after receiving service payments of $12.6 million, and recorded a tax bill of $304,000.
What will change
Customers will in future enter into contracts directly with Google’s New Zealand subsidiary, which will book the revenues and pay taxes in line with its role in the transaction. Google NZ’s revenues will be boosted by tens of millions of dollars. But the impact on its profit and tax bill remains to be seen, as more fees will now flow in the opposite direction from
Google NZ to its parent company to recognise the work it does in providing Google’s platform.
select committee that the company had a relatively small presence in New Zealand with its team of about 30 staff members, most of whom were in Auckland providing support to customers who bought advertising with Google.
‘‘Noting the desire of seeing New Zealand-sourced income booked locally, we are pleased to advise the committee that Google intends to shift to a new operating model in New Zealand,’’ he said.
‘‘This will increase transparency on the revenue generated by our business in New Zealand.’’
Microsoft – which is another technology multinational company that has used a so-called ‘‘agency’’ model to structure some its New Zealand operations – has not yet commented on whether it will also follow suit.