Facebook, Google beef up overseas payments
Social media site almost trebles amount sent to Ireland-based unit
Facebook and Google have both reported improved results for their local operations — but both still report revenue well below the size of the local online ad market, which they dominate.
Inhouse service fees, paid overseas, again accounted for much of the difference.
Facebook NZ nearly tripled inter-company payments to a fellow Facebook subsidiary in lowertax Ireland, while the service fee Google NZ paid to its US parent increased by $180 million.
Facebook NZ, ultimately owned by Meta, reported a $2.3m profit on $6.5m revenue from customer contracts for the year to December 31, 2021, versus its $1.3m profit on $5.4m for 2020.
The total NZ ad spend in the social media category — which Facebook dominates, albeit with TikTok rising — rose 37.8 per cent to $163.1m in 2021, according to IAB NZ.
Facebook NZ (which also sells ads for its Meta stablemates Instagram and Messenger) purchased $84.2m worth of services from Facebook Ireland in 2021, according to its Companies Office filing — up from $48.5m in 2020.
Additionally, Facebook NZ listed “intercompany payable” amounts of $4.1m to Facebook Australia (up from $2.8m in 2020) and $30.8m to Facebook Ireland (up from $11.8m in 2020).
Facebook has been approached for comment.
In 2018, with the Government set to tighten tax rules f or multinationals, Google (owned by holding company Alphabet) pledged to book revenue generated in NZ to Google NZ, rather than invoicing it to subsidiaries in lowertax Ireland or Singapore.
But at the same time, the service fee Google NZ paid to its US parent ballooned from $85m in 2018 to $511m in 2019.
A Google NZ spokeswoman said the service fee had increased because of a “new operating model”, which was compliant with tax law.
Reported NZ revenue was net of the service fee, the spokeswoman said.
The service fee hike meant although there was a noticeable change in Google NZ’s numbers (in 2018, the last year under its old model, it reported a net loss of $1m on revenue of $17.5m.
In 2019, it reported an $8.1m profit on $36.2m revenue) its revenue still ran way below an NZ search ad market that IAB NZ put at a total of $688m.
Google NZ’s service fee to its US parent increased to $517m in 2020.
And for the 2021 year just reported, it increased to $697m.
For the 12 months to December 31, 2021, Google NZ made a net profit of $15.1m (versus $7.8m in 2020) on revenue of $57m ($43m in 2020).
The figures are based on estimated tax expense payments to IRD.
The total online search ad market in NZ — which Google dominates — increased by 42.6 per cent to $1.19 billion in 2021, according to IAB NZ figures.
Google could not be immediately reached for comment.
But in a statement on its 2021 result, the company said: “We continue to work with Inland Revenue to ensure that we comply with New Zealand’s legislative requirements.”
The company said it contributed $9.1m in donated Search Ads to the New Zealand Government and New Zealand nonprofits in 2021, and a total of over $20m since the start of the pandemic.
And while Google has yet to join rivals Amazon Web Services and Microsoft in announcing plans for NZ data centres, the company said it invested in its first purpose-built office in Auckland, invested in local cloud infrastructure and expanded its local team to 70.
Earlier this week, Herald publisher NZME said it had finalised a ground-breaking deal which will see Google pay for news supplied to its Google News Showcase platform.
"We continue to work with Inland Revenue to ensure that we comply with New Zealand’s legislative requirements."
This follows a separate commercial deal with Meta signed in April, in which the Facebook owner will provide funding to support NZME’s “subscriber growth and retention”.
The twin deals with Google and Facebook are expected to increase NZME’s annual earnings to be between $67m and $72m.
Although the Government did tighten the rules around revenueshifting in 2018, Massey University School of Accountancy lecturer Dr Victoria Plekhanova told the Weekend Herald that recent big tech results, “Suggest these provisions were an inadequate response to the tax challenges of the digitalisation.”
The Government has a longstanding policy of aligning itself with multilateral measures as its main mechanism to address taxation of multinationals.
In April last year, US President Joe Biden unveiled plans for a new global tax regime that would force multinational companies to pay national levies based on their local sales.
Biden’s plan, supported by New Zealand, would set a minimum global corporate tax rate of 15 per cent. But it is unclear whether Biden will ever get his plan through the US Senate, where it needs twothirds support.
The OECD has been trying to implement a similar global minimum tax plan for more than a decade.
This week, Revenue Minister David Parker told MPs that the first phase of the OECD plan, scheduled for next year after many delays, had been pushed back to 2024.