Will Labour boycott Facebook?

November 30th, 2012 at 1:00 pm by David Farrar

Ben Chapman-Smith at NZ Herald reports:

’s “tiny” and “barely believable” tax bill this year makes a mockery of New Zealand’s tax loopholes for multinationals, says the Party.

In a statement entitled “Facebook’s tiny tax bill demands action from Dunne”, Labour’s Revenue spokesperson David Clark said the social media site’s New Zealand arm paid a mere $14,497 last year.

Its tax bill in the 2010 financial year was an even smaller $5238, he said.

“For a company that has 2.2 million users in New Zealand and makes billions worldwide, that’s barely believable.”

Sigh – I thought Labour got the Internet. the Internet does not have boundaries. If NZ advertisers choose to advertise on Facebook, that does not mean Facebook pays tax in New Zealand. Just as if a US client pays me for market research in the United States, I pay tax in New Zealand not the US.

But hey if Labour really thinks that Facebook is a tax evader, then they could just boycott it in protest!

The reality is we are in a world where global Internet companies will of course locate in low tax countries. That is one of the reasons who we should have globally competitive tax rates – both companies and individuals are highly mobile in today’s world.

New Zealand can pass as many laws as we want, but we can’t force global companies to register in New Zealand as taxpayers just because they have NZ customers. What would we do – ban Google and Facebook from being accessible in New Zealand because their advertising revenues are not taxed here?

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38 Responses to “Will Labour boycott Facebook?”

  1. Elaycee (4,288 comments) says:

    What would we do – ban Google and Facebook from being accessible in New Zealand because their advertising revenues are not taxed here?

    Amazon, anyone?

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  2. Tauhei Notts (1,602 comments) says:

    That Liabour Party man will become apoplectic when he finds out how much New Zealand income tax Fonterra pays.

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  3. Alan Johnstone (1,054 comments) says:

    Last year I paid many times more tax in NZ than Facebook and Google combined.

    To say there is nothing we can do is a nonsense; if the revenue is being generated in NZ then of course it can be taxed. It just requires political will. Multinational companies pay tax locally on there profits all over the world.

    I used to work for a manufacturing company, we built onshore then sold all out product to a sister company based in the dutch west indies at cost + 1%; it then sold the goods (which we shipped directly of course) to the customers and they paid tax in Aruba.

    This is ethically wrong.

    [DPF: Multinational companies pay tax locally when they have a presence in a country. And hideously complex transfer pricing agreements work out tax paid in each country.

    But Internet advertising is different. They do not need a point of presence. The Internet is global. If NZ advertisers wish to use Google, and NZ Internet users wish to browse Google ads, there is little NZ can do about it]

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  4. bhudson (4,734 comments) says:

    What would we do – ban Google and Facebook from being accessible in New Zealand because their advertising revenues are not taxed here?

    No problem. No doubt Clare Curran would suggest we could have NZ taxpayer-funded alternatives to Google and Facebook, just as she was suggesting last year for NZ music content – an NZ version of iTunes for NZ musicians. (No doubt called iGouge given it would be funded by the taxpayers and not the consumers of the service.)

    Oh, and she was also suggesting a small tax on Internet access to pay for it.

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  5. Grendel (950 comments) says:

    >This is ethically wrong.

    Why?

    what moral or ethical imperative do you have to pay the most tax possible? the fact that there is a cheaper way to pay forced taxation does not make it unethical or immoral unless you are advocating for higher taxes for others, that just makes you a hypocrite (see the morgans for example).

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  6. scrubone (3,044 comments) says:

    A tax expert was on National Radio this morning.

    Apparently this is a tax treaty issue and not one that can be solved in any way by one government.

    So it’s simply Labour making political gain by misleading the public on a complex issue. What a suprise.

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  7. scrubone (3,044 comments) says:

    Oh, and I see via instapundit that half the UK’s millionaires walked when they upped the tax on the rich. Again, what a suprise.

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  8. Manolo (13,325 comments) says:

    I expect Toothy Arden, the other female oracle of the socialists, to start haranguing the government.
    You ought to laugh at the imbecility of these people.

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  9. Alan Johnstone (1,054 comments) says:

    “what moral or ethical imperative do you have to pay the most tax possible? ”

    You misunderstand, It’s not ethically wrong by the companies; It’s ethically wrong by the state to permit it and instead force the tax burden on me.

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  10. smttc (689 comments) says:

    Scrubone, listening to David Clark on National Radio last evening, you would not have even got the impression that he thinks the issue is complex (which it is).

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  11. queenstfarmer (742 comments) says:

    if the revenue is being generated in NZ then of course it can be taxed.

    Not so, Alan. I’m afraid that’s Labour party thinking (sorry, harsh but true). Only tax residents get taxed.

    Put it the other way. If I set up a website selling digital photos, and someone from Australia buys a whole lot of them, do I need to pay tax to Australia?

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  12. Pete George (22,750 comments) says:

    So it’s simply Labour making political gain by misleading the public on a complex issue. What a suprise.

    That seems to be the case here. It has been picked up and pushed too, by No Right Turn, repeated by The Standard, who continue on in ignorance.

    After promoting Clark’s attack lines last night and this morning 3 News took the time to check with an actual tax expert.

    The party’s revenue spokesman, David Clark, says Revenue Minister Peter
    Dunne is refusing to close loopholes but international tax expert
    Maurits van den Berg says it’s not that simple.

    “The future has arrived, we’re dealing with intellectual property and it’s very mobile,” he said on Friday.

    “These big multinational intellectual property companies quite likely have
    minimal or no actual presence in New Zealand – it makes them quite hard
    to tax”.

    Mr van den Berg says Facebook and Google aren’t guilty of tax evasion, or even tax avoidance.

    The problem is that international tax treaties are built around “bricks and
    mortar” companies which have property and employees in different
    countries, he said on Radio New Zealand.

    “It’s easy to tax a multinational company that has a warehouse in New Zealand
    and employs sales staff but these intellectual property companies are a
    real challenge for governments.”

    Mr van den Berg agrees with Mr Dunne, who says New Zealand has to operate under its international tax agreements.

    “Intellectual property needs to be sorted out at an international level, and it’s going to take years,” Mr van den Berg said.

    http://www.3news.co.nz/Facebook-Google-not-cheating-on-tax—expert/tabid/421/articleID/278695/Default.aspx

    It’s not a simple hit job as Clark seems to have thought. He and his advisers have a lot to learn international tax – and New Zealand tax for that matter.

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  13. Pete George (22,750 comments) says:

    And credit to The Standard, there are some there that think and listen and don’t just jump on the bashwagon.

    ianmac:
    According to a chap on Morning Report the trouble is that these entities are not bricks and mortar but are mostly intellectual property which is very difficult to identify let alone tax. He thought it would need a concerted international response.

    insider:
    Oh and once again one of Labour’s intellectual dream team fails to grasp a basic issue relating to his portfolio. And this guy is ex Treasury FFS. Where is the quality control in the Lab caucus or media room?

    Clark’s a nice guy but you have to wonder about the support and advice he gets. He was badly unprepared with numbers (sound familiar?) on his stint on Q&A promoting his minimum wage bill.

    He was still pushing this one recently:
    http://www.facebook.com/DavidClarkforDunedinNorth/posts/437199419680829

    And he tried a double whammy yesterday, diving in out of his depth in Question Time on IRD systems procurement. Video: http://inthehouse.co.nz/node/16325

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  14. m@tt (587 comments) says:

    Why are you so keen to subsidise corporates out of your tax contribution?
    Depending on the service being offered, corporates leveraging IP only solutions in NZ have a potential user base of ~4 million people. That’s 4 million users that exist in a country of first world status, with money that the corporate wants, thanks to a tax payer base that provides a modern society to foster that status.
    When facebook make money off NZers and then do not pay a fair representative share of tax on that income, then it is you and I, mugs taxpayer again, that is making up the shortfall

    I honestly don’t understand why right wing politics doesn’t embrace higher corporate/company tax combined with a sales tax only as the ultimate user pays. Tax the corporates, who will pass the cost on to their consumers (and only their consumers), more and the individual less, if at all.

    [DPF: I'd like Google and Facebook to pay 28% of the profit they make from NZers in NZ. I'd also like the Easter Bunny to visit me. In the real world they can not be forced to pay tax in NZ, if they have no presence here. Now unless you advocate we cut off the Internet from NZ, then this is the reality of the modern world - highly mobile capital, companies and individuals.

    The higher we make our company tax rate, the fewer companies that will be based here. And in the Internet age they do not need to be based here to see to Kiwis]

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  15. Pete George (22,750 comments) says:

    Clark has responded to me on Facebook:

    Like Mr Dunne says it’s legal. No news there. Doesn’t make it right though. When a company like Facebook with 2.2 million users in NZ paid less tax in NZ in 2010 than most labourers, it’s time to look for solutions, not just to wave your hands in the air…

    Stop just waving your hands in the air and look.

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  16. Archer (170 comments) says:

    I think you guys have misunderstood Labour – they obviously want us to lower our company tax rates to around 10% (lower than Ireland) so we attract Facebook HQ and other corporate HQs here. They’ll then pay 10% tax to the NZ govt on their worldwide income and the NZ govt will be rich! We’ll have low tax rates along with massive revenues. Genuinely great idea from Labour – I hope all parties adopt it.

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  17. Alan Johnstone (1,054 comments) says:

    “Not so, Alan. I’m afraid that’s Labour party thinking (sorry, harsh but true). Only tax residents get taxed.
    Put it the other way. If I set up a website selling digital photos, and someone from Australia buys a whole lot of them, do I need to pay tax to Australia?”

    Not the same thing at all, because facebook clearly has a locally registered subsidiary which why they are paying tax here at all.

    The only issue we have is that the law allows them to divert their local sales overseas for tax purposes.

    In fact, I’d assume the invoices they issue to NZ companies have a GST component

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  18. dime (9,366 comments) says:

    THIS IS AWESOME!!!

    The left have found something that they cant tax BAHAHAHA its just killing them!

    its not FAIR!!!

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  19. Rich Prick (1,538 comments) says:

    Oh dear Alan, where to begin? The local subsidiary is responsible for tax on it’s profit. May I suggest you get familiar with this:

    http://www.business.govt.nz/companies/app/ui/pages/companies/3043328/17264069/entityFilingRequirement?backurl=%2Fcompanies%2Fapp%2Fui%2Fpages%2Fcompanies%2F3043328%2Fdocuments%3Fbackurl%3D%252Fcompanies%252Fapp%252Fui%252Fpages%252Fcompanies%252Fsearch%253Fmode%253Dstandard%2526type%253Dentities%2526q%253Dfacebook

    It is of course also responsible for NRWT on any transaction with any non-resident (which given those accounts is probably the tax paid that Labour complains about).

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  20. queenstfarmer (742 comments) says:

    @Alan… First of all, GST on sales is not a tax paid by Facebook, or any seller. It is a tax paid by the customer, and accounted for by the seller (huge difference). This is elementary to anyone who has ever run their own business and filed GST returns, and therefore completely incomprehensible to most Labour MPs.

    Second, yes FB has a local subsidiary. And that subsidiary would be a tax resident. I don’t know what the arrangement is for sales, but no-one (not even David Clark, who clearly has very poor knowledge of even basic tax issues) is suggesting they are avoiding or even evading tax, which means there is no issue with the local subsidiary.

    What you are talking about is NZ unilaterally re-writing international tax treaties so NZ (somehow) taxes non-residents just because there is a local registered subsidiary, or some other criteria you might dream up. Besides the impossibility of doing so, guess what would happen to the local subsidiary? It would be shut down. And then what? Would the Govt ban NZ businesses from advertising on FB?

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  21. wreck1080 (3,723 comments) says:

    Alternatively , why does NZ not then chop corporate and personal tax rates to 5%.

    Then, all the worlds internet companies will setup ghost headquarters here and route their profits through us.

    Pretty much we can wipe out our deficit at the expense of other countries tax bases.

    I thought there were already laws against transfer pricing and stuff like that.

    Certainly Ireland appears to be benefiting by raking in tax money on world wide sales for doing pretty much nothing.

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  22. chris (557 comments) says:

    In fact, I’d assume the invoices they issue to NZ companies have a GST component

    And you would assume wrong. When you buy advertising from Facebook, you are invoiced by Facebook Ireland. So it’s an export order and there’s no GST (or similar tax) added on top.

    Just the same as for a website I own that has thousands of Australian visitors per month and I make $$ charging Australian companies for advertising on it. It’s an export order to Australia so I don’t charge them GST. Nor do I pay tax to the Australian government for that income.

    Ditto for another of my websites which gets about 20k visitors per day, and I make money from predominantly north American companies: no GST and no tax paid to the US govt.

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  23. OECD rank 22 kiwi (2,810 comments) says:

    How about NZ Labour stop looking to the UK and ripping off every idea that comes out of there and instead come up with some actual original ideas.

    What ever next, will Labour be moaning about Amazon, and Starbucks not paying their “fair share” in taxes?

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  24. peterwn (3,144 comments) says:

    Not a problem – all NZ has to do is support the new ITU internet convention. NZ Government can then sting Facebook, Google etc for data ‘landing’ charges. Like hell!

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  25. bhudson (4,734 comments) says:

    So, according to Labour’s logic, the next time a New Zealander goes to Europe and stays in a hotel, that hotel should be paying tax on that profit to the NZ govt.

    Bizarre.

    [A service offered by a foreign company and delivered in a foreign country, but ordered and paid for by a New Zealander.]

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  26. queenstfarmer (742 comments) says:

    Indeed bhudson, but does Labour’s logic only apply to services? Perhaps Fonterra should start paying taxes on all profits it derives from those countries. Of course that would leave much less for the NZ Govt, but then I suppose Russell can just fire up the money printing machine so problem solved.

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  27. jakejakejake (134 comments) says:

    I’m sure if the government forced ISPs to block google ad servers they would quickly cough up some more cash.

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  28. Kimble (4,375 comments) says:

    I’m sure if the government forced ISPs to block google ad servers they would quickly cough up some more cash.

    HAHAHHAHAHAAHAAAaaaaaaaaaaaaaaaaaaaaaaaaaa fuck off.

    Google would block NZ IPs and never look back.

    The government that took Google away from the public wouldnt survive to the next election.

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  29. sparky (235 comments) says:

    Sounds like a dopey action the Labour Party would engage in.

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  30. Viking2 (11,125 comments) says:

    there is a simple way to fix this and other tax minimization that goes with purchasing from oversea’s.

    It is called a financial transaction tax. A tax which has been discussed forever, is bloody effeicient, can replace almost all other taxes. a tax that is tiny and is easy to implement in a way that covers everyeffort to eveade.

    GST came close but has too many exceptions and loopholes.

    We will have to do it sooner or later. In my view sooner makes much more sense.

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  31. UrbanNeocolonialist (179 comments) says:

    This is a growing problem worldwide, and it is wrong to think that there is no way it can be fixed. Almost all countries in the world are itching to establish methods to tax these internet based businesses and I think it is almost certain to happen in next few years.

    All of these companies want access to customers in NZ, so make that access conditional on paying tax locally at our legislated rates. There are innumerable ways to track their behaviour and hit them where it hurts if they won’t comply. IRD is not shy of using the threat of colossal and unjustifiable demands to force compliance.

    Eg require that they provide earnings and profit data for the business they do with people in NZ to some standard that we mandate, and if they won’t cooperate or appear to be indulging in avoidance-motivated accounting sleight of hand then hit them with penalties or cut off their access to our markets.

    like this (many in Europe are already experimenting)

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  32. itstricky (1,536 comments) says:

    > Sounds like a dopey action the Labour Party would engage in.

    Does the ardent kiwiblogger ever wonder why The Labour Party feature as one of the top rating tags in the main tag bar on the front page?

    Alongside Phil Goff and DPF as other top 10 rackers?

    Twice as many tags for Labour as there are for National. Nearly three times as many as for John Key.

    As someone else said in one of the other posts, DPF’s posts get more and more partisan every day, and I’m finding them increasing boring.

    I’ll give it another couple of days, I think and then I’ll try to find something less opinionated and perhaps having a little more substance.

    Boring.

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  33. itstricky (1,536 comments) says:

    Oh, Oh, hold on, UrbanNeocolonialist said something that was positive and globally thoughtful.

    Maybe I’ll hold on for a couple more days.

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  34. Kimble (4,375 comments) says:

    Eg require that they provide earnings and profit data for the business they do with people in NZ to some standard that we mandate, and if they won’t cooperate or appear to be indulging in avoidance-motivated accounting sleight of hand then hit them with penalties or cut off their access to our markets.

    So just like that genius above, you propose the IRD stop New Zealanders from purchasing overseas services, because the profit earned in a different country by non-NZ firms on those services isnt taxed by New Zealand?

    That’s about as stupid as it gets.

    Lets say Google pays all their tax in the US. I am sure the IRS would be more than happy to forego the tax rightly owed to them on the profits earned by one of their tax residents. Yeah, that sounds like something they would do.

    Or maybe you are suggesting anyone that does business with New Zealanders should pay tax on the same profit twice?

    Or maybe only those companies that arent paying as much tax as you tools think they should be paying. That seems to be the real issue.

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  35. jakejakejake (134 comments) says:

    I wouldn’t feel bad if Google and co had to pay tax twice.

    Once in whatever tax haven at ~2%.

    Then again on NZ targeted ads and services. They can get a 2% discount on our company rate.

    I wonder if Microsoft will get away with not paying tax on Office 365 subscriptions when they have the data center here next year.

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  36. Kimble (4,375 comments) says:

    No shit you wouldnt feel bad. You dont understand how stupid it is.

    Why should a FOREIGN company conducting business in a FOREIGN country and providing a service GLOBALLY have to pay NZ tax, just because their customer is a NEW ZEALAND tax resident?

    Not only that, a company gets taxed on their profits AFTER costs. That means if Google loses money in one division, that offsets the profits in another and they dont pay as much in tax. Do they assign NZ a share of the losses? From every division and every business unit?

    Unfair, unworkable, unbelievably stupid.

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  37. jakejakejake (134 comments) says:

    We just need to be creative like the Google accountants. However unfair, unworkable and stupid the solution is it doesn’t matter as long as their money is making its way to IRD.

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  38. Kimble (4,375 comments) says:

    We just need to be creative like the Google accountants.

    Yes, what a stroke of genius it was for them to not base themselves in New Zealand.

    However unfair, unworkable and stupid the solution is it doesn’t matter as long as their money is making its way to IRD.

    You disgust me.

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