Taxing the big tech companies

NZ –– The most up to date accounts we have for Facebook’s operations in New Zealand come from 2014.

That year, the social media giant –– which took in more than $12 billion in revenue world wide –– ended up paying about $43,000 in tax in New Zealand.

It might seem unbelievable, but mammoth digital services companies such as Facebook, Google and Amazon are practised and skilled in the art of manipulating global tax laws –– entirely legally, it should be said –– to pay as little tax as possible.

In a sense, it’s good business: the aim of these publicly listed companies is to return as much value to shareholders as possible. Minimising the amount of tax they pay is a key component of that.

But there is a growing consensus that these humungous entities, whose borderless products can earn hundreds of millions in revenue while maintaining a skeleton staff on shore, are skirting their obligations.

Numerous ideas have been floated to force these corporations to pay more: Australia and the UK introduced “Google taxes”, aimed at forcing companies that channel their profits through offshore administrations to pay a higher tax rate.

Some countries, such as France, considered a “digital services tax”, or DST, which would charge a flat percent on revenue accrued in a country.

That raised the eyebrows of US authorities, which said the DST discriminates against US digital companies such as Google, Apple, Facebook and Amazon –– and it was also inconsistent with prevailing tax principles.

One of the reasons was its application to revenue rather than income, another was because it applied to companies outside their base country of operations.

But earlier in July, the G20 and OECD unveiled a new idea –– to introduce a global minimum tax rate of 15 per cent.

So – how would this tax work? How do these digital giants manage to pay so little to the countries they operate in?

Yesterday on The Detail, Emile Donovan spoke to the NZ Herald business and technology writer Chris Keall about what’s being floated, and whether this new scheme will really be as transformative as is hoped.

The online advertising market in New Zealand is worth north of $750 million, Keall says, and it’s fair to estimate Google’s share of that is more than half a billion dollars in revenue.

But the search engine giant has never paid more than a couple of million dollars in tax in this country.

Historically, this may have been because of accounting trickery –– booking revenue made in New Zealand to other tax jurisdictions.

But Keall says that was all meant to change in 2019 after a meeting between Google executives and New Zealand politicians.