Facebook and Google tax

December 1st, 2012 at 4:00 pm by David Farrar

Oh dear. I have already blogged on ’s release about paid by and . But I overlooked they don’t even know the difference between revenue and profits.

, ironically a former Treasury staffer, said:

“It’s not just Facebook that funnels revenue through its low-tax Irish counterpart. Google New Zealand does it too. That company paid just $109,038 tax on $4,447,898 in revenue. That’s two per cent, way below our 28 per cent corporate rate.

This is as bad a mistake as Andrew Williams one. These are not statements made under pressure, but ones put out proactively by MPs for the media.

So David Clark thinks tax rates are paid on revenue. Sigh. An article in the Herald gives us some facts:

Clark’s comments that Google NZ appeared to have paid only 2 per cent tax last year was “a bit inept” and misleading, Vandenberg added.

“We get mesmerised by sales figures and people get outraged about how much tax companies should be paying but then you come along and apply a little bit of tax law.”

A company was required to pay tax on profit before tax, not on revenue, Vandenberg said.

Financial statements show Google New Zealand’s revenue last year was $4,447,898 but its profit before tax was only $56,803. It paid $109,038 in tax, making a loss of $52,235.

Facebook New Zealand’s financial statements show revenue of $427,967, a taxable profit loss of $66,696, and $14,497 paid in tax. The company ended up with a loss of $81,193.

So in fact Google paid more in tax than they made in profit, for their NZ subsidiary. Clark wasn’t just wrong with his 2% claim – he was massively wrong.

And Facebook NZ made a loss, yet paid tax (as some expenses are not claimable off tax).

Clark said his point yesterday was that companies were sending their revenues out of the country “one way or another”.

Trying to ignore the fact his statement was factually incorrect and bogus.

And Google are not sending any revenues out of the country. This is Labour xenophobia at play. NZ advertisers have decided to advertise with Facebook Ireland. This is no different from an American company hiring a NZ company to do research for it. Is Labour saying that any NZ company that has overseas clients should be forced to pay tax in the country their clients reside in?

He criticised the way Facebook used its Irish operation, which pays just 12.5 per cent tax, to determine revenue and expenses.

“This ensures the company can put most of its revenue through countries with low-tax systems,” he said.

Wah, wah, wah – it isn’t fair.  Of course they choose to operate from a low tax company. This is why low tax countries attract business.

He called for the New Zealand government to work with other major countries, like Australian, to review international tax treaties and create a fairer system.

Yeah, good luck with that. Unless every country in the world signs up – then companies that can be flexible with where they are based will be based where the taxes are lower.

This is like trying to ban countries from offering higher wages, as people may move to a higher wage country.

UPDATE: David Clark has updated his release to remove the references to tax being levied on revenue, not profit.

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65 Responses to “Facebook and Google tax”

  1. bhudson (4,740 comments) says:

    Mind you if David Clark taxes companies on revenue then David Parker could afford the 613,200 houses he said he could churn out!

    It’s time to play the music
    It’s time to light the lights…

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  2. RF (1,447 comments) says:

    I do not believe that anyone with David Clark’s Treasury background can be that stupid. That’s a major stuff up for Labour and again proves that they are not fit to govern.

    Shearer is the Captain of the ship of fools.

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  3. Alan Wilkinson (1,886 comments) says:

    Well, I noticed that piece of brain-dead idiocy on the news last night but I didn’t know Clark is ex-Treasury. Unbelievable.

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  4. wreck1080 (3,956 comments) says:

    Yeah, the media are dicks for confusing revenue and profits- but , lefties fail maths and don’t understand money.

    The UK media has failed on this too.

    HOWEVER!!! You miss an important point too. What is an expense?

    For example, lets say, google NZ sales is 4.4 million as reported. Then, maybe actual operating expenses are 0.4 million. And, google NZ maybe has to pay 3.95 million in license costs back to google ireland.

    This leaves around 50k in taxable profit as reported. But, the expenses have been engineered to minimise NZ taxes where the tax rate is 30% , and the nz expense is converted into irish income where tax is only 12%.

    Not saying this is how it is structured, but it is a possibility and you need to look into the finer details.

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  5. scrubone (3,104 comments) says:

    Reminds me of the guy who once told me that the government’s surplus (as it was at the time) was due to student loans. His proof was that the student loans totalled the same number as the government’s surplus at the time which was of course at total coincidence.

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  6. Keeping Stock (10,409 comments) says:

    David Clark looked so full of promise when he first entered Parliament. After his first year in the job, he has been exposed as just another Labour Party hack who keeps repeating untruths in the vain hope that repetition will make them become true.

    David Clark and Clare Curran; don’t the good folk of Dunedin deserve better representation?

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  7. Johnboy (16,994 comments) says:

    Quite right KS. PG is just waiting in the wings! :)

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  8. Keeping Stock (10,409 comments) says:

    To give him his dues Johnboy, Pete George would be a far more effective local MP than David Clark, if he could throw off his obsession with The Standard :P

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  9. Johnboy (16,994 comments) says:

    I’d vote for him if I “lived” in Dunedin! :)

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  10. Johnboy (16,994 comments) says:

    The contrast in hair styles between Pete and his leader…Pete has never affected my vote! :)

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  11. Pete George (23,681 comments) says:

    KS – I actually think Clare is learning and maturing as an MP. And she was actively involved and prepared to engage at the NetHui in Dunedin last week.

    David is a bit of a worry. He was exposed as underdone on his minimum wage bill and conceded that was a lesson learnt, but it doesn’t look like he’s learnt from it.

    He has been praised a number of times as an MP with a future and maybe that’s lulled him into thinking he doesn’t have to do the hard yards.

    He was good at taking vague election policies and repeating and repeating slogans. The problem is he is still using this approach with his attempted attacks on Government. Research has been shoddy (again), not just on this but also on his attack in Question Time on IRD systems and IT where he was left floundering by an experienced but hardly hard hitting Dunne.

    There’s still a chance he will learn (this time) and realise there’s a lot more to it than he seems to have thought. My minor criticisms have annoyed him (he blocks me from following on Twitter now) but they are nothing compared to the scrutiny he is facing with stuff ups like the ones he’s made this week.

    He’s got two years to sort it out. Or maybe five.

    But it’s not just his own career at stake. The trio of Parker, Cunliffe (dumped to the back bench) and Clark have to somehow at least make Labour look more competent in the financial portfolios.

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  12. Johnboy (16,994 comments) says:

    You’re starting to talk like a politician PG.

    That’s a worry! :)

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  13. Pete George (23,681 comments) says:

    KS and JB – don’t worry, I’m likely to remain on the outside. But I can see how much is involved in becoming an effective MP, it’s a huge change for anyone. I have major concerns about the apparent lack of support new Labour MPs get. They seem to be taught how to campaign for the party as loyal slogan repeaters, that even seems to be all Shearer has learnt.

    But watching Clark this year I have doubts about whether they get anywhere near sufficient support in actually doing their jobs as MPs effectively. It’s as if all their years in opposition are seen as simply an extended election campaign.

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  14. Johnboy (16,994 comments) says:

    “I’m likely to remain on the outside.”

    O ye of little faith!

    The moment I win Lotto, and after I have set up all my buddies, your election as member for Dunedin will be next on my to do list! :)

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  15. Manolo (14,038 comments) says:

    Nothing but a bevvy of of clowns, bimbos, thugs and incompetents (Parker, King, Ardern, Mallard, Shearer, et al).

    However, the mere thought of the possibility of socialist Labour and communist Luddites gaining power in 2014 is depressing, but a real possibility, unless Key and Labour lite wake up.

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  16. Johnboy (16,994 comments) says:

    If JK could arrange say a State Marriage for Sir Ian do you think that would alleviate your fears Manolo? :)

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  17. SPC (5,770 comments) says:

    The legislative action required is to require advertisers to pay their advertising locally – in the market where the advertising is focused and displayed.

    [DPF: So you think NZ companies should be banned from advertising on Google and Facebook?]

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  18. Pete George (23,681 comments) says:

    KS: if he could throw off his obsession with The Standard

    Yeah, I’m aware it may look like that, but I think there’s some very important things going on there that have much wider interest than one blog.

    The Labour leadership issue is big – and part of that is the potential for anonymous political activists being involved in attempts to destabilise a major party’s leadership. It contributed to a senior MP being demoted – possibly an own goal in a way.

    There’s also the wider issue of the relationship between MSM and social media, and the credibility of political blogs in particular. Like it or not if The Standard is seen as a bunch of anonymous numpties and reported as such by MSM then the political blogosphere as a whole is tainted.

    And my main motive has never been to become a politician, it’s been to improve politics. Part of that means holding MPs to account, but it also means holding MSM to account. And also holding new media (like blogs) to account. Coverage of politics and public engagement in politics will only improve if those of us involved in it make an effort to improve it – which means confronting bad behaviour and dishonest use of blogs.

    I know those pushing narrow political barrows (party activists) don’t understand my approach, they let selfish motives dictate.

    But I’m not a party activist (despite assumptions my UF connection is minmor and peripheral), I’m an independent activist looking at and working on doing democracy better. Those stuck in the old ways of party politics tend to resist that, they are only interested in their own party power.

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  19. chris (647 comments) says:

    The legislative action required is to require advertisers to pay their advertising locally – in the market where the advertising is focused and displayed.

    Of course it works the other way too. I earn 1000s of dollars per month selling advertising on my websites that is displayed in Australia, USA, Canada, India and a bunch of other countries. My company (and I am) an NZ tax resident. Under this theory, I should be paying tax in Australia, USA, Canada, India and a bunch of other countries. Aside from the ridiculous amount of accounting overhead that would incur, remember that tax paid in those countries would then not be paid in NZ, so NZ would lose out.

    And another point, Fonterra makes a crap load of profit from exporting milk products. Their profits are taxed here in NZ. Under this theory, their profits should be taxed in the countries their products are sold. And again, NZ would lose out on that tax revenue.

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  20. Tauhei Notts (1,746 comments) says:

    Chris,
    I have repeated this so often.
    Fonterra pays less New Zealand income tax than any one of their tanker drivers.
    That is an indisputable fact.

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  21. Viking2 (11,561 comments) says:

    wreck1080 (2,529) Says:
    December 1st, 2012 at 4:57 pm

    Yeah, the media are dicks for confusing revenue and profits- but , lefties fail maths and don’t understand money.

    The UK media has failed on this too.

    HOWEVER!!! You miss an important point too. What is an expense?

    For example, lets say, google NZ sales is 4.4 million as reported. Then, maybe actual operating expenses are 0.4 million. And, google NZ maybe has to pay 3.95 million in license costs back to google ireland.

    This leaves around 50k in taxable profit as reported. But, the expenses have been engineered to minimise NZ taxes where the tax rate is 30% , and the nz expense is converted into irish income where tax is only 12%.

    Not saying this is how it is structured, but it is a possibility and you need to look into the finer details.
    ———————————————–

    Close enough.
    DPF needs to decide who should pay tax to support the constant stream of socialist inititives that emminate from the Round house from all parties. The IRD have spent years nailing various tax avoiders and these guys are just another form.
    Just as not paying GST on imported and downloaded products is a loophole that no one seems to want to plug.
    Trademe, along with various clones is also complicit in this systematic abuse of the taxpayer.
    ( How many purchases are made via credit cards etc by the same person using different credit cards and addresses to import less than $00.00 worth of goods on an almost daily basis that go to retail at markets etc. Markets where cash changes hands and profit never gets to the bank. ) look around your market place.

    Now its not just NZ that has this problem, we are just hooked into a spendthrift style of socialism that constantly requires more.

    There are two solutions. 1. Cut completely all Govt spending and thus the need for any tax. (not a feasible solution)
    2. Devise a fairer method of funding Govt.
    a.Much more user pays.
    b. Cut Govt spending back to only funding absolute neceesities like law and order and defence. Most other stuff the Govt. doesn’t need to do.
    c. Change to a transaction tax on every transaction, imports, exports, internals.
    d. Do as is happening now in one of the States of the USA remove cash as a means of transacting the daily way of life. ( Saw an article on this this morning but not sure where)

    But will we do this. Nah Nah, to radical and the bleaters and whingers and socialists (the same I know) wouldn’t be able to manage.

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  22. Viking2 (11,561 comments) says:

    Tauhei Notts (1,163) Says:
    December 1st, 2012 at 7:04 pm

    Chris,
    I have repeated this so often.
    Fonterra pays less New Zealand income tax than any one of their tanker drivers.
    That is an indisputable fact.
    ———————————
    Probably cause it passes the income down to its farmers who then are taxed after they make a profit.

    It works that way.

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  23. chris (647 comments) says:

    @ Tauhei OK, bad example then regarding Fonterra. But you get the point. If income tax is to be paid in the market that the product is targeted (advertising in the case of Google and Facebook) then it’s not as simple as some of these people like to think it is, and it affects *everyone*. And that includes anyone exporting goods from NZ from an e-commerce website (and I’m involved with one of those too).

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  24. bhudson (4,740 comments) says:

    Tauhei Notts,

    The financial results on Fonterra’s website show they paid $53m tax for the 2012 year.

    http://www.fonterra.com/nz/en/Financial/Financial+Results

    Fonterra pays less New Zealand income tax than any one of their tanker drivers.
    That is an indisputable fact.

    At (roughly) $160m per annum, clearly I need a job as one of their Tanker drivers!

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  25. Johnboy (16,994 comments) says:

    “I’m an independent activist looking at and working on doing democracy better. ”

    I always knew that Peter! :)

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  26. Viking2 (11,561 comments) says:

    Cash less society.

    The broad scope of this definition can essentially encompass everyone; from your local flea market vendors and buyers to a housewife purchasing goods on ebay or craigslist, to a group of guys trading baseball cards, they could all be considered secondhand dealers. Lawmakers in Louisiana have effectively banned its citizens from freely using United States legal tender.

    http://ackelandassociates.com/cash-transactions-banned-by-louisiana/

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  27. Kimble (4,443 comments) says:

    The fans of taxing Google and Facebook for dealing with NZ businesses just want a special tax on Google and Facebook. They dont want any grand change that affect anyone else, they just want those two rich companies to have to pay them. So in their mind, it wont affect Fonterra, or any other NZ business (directly). Its a tariff, and the tools who support it dont care that its imposition would simply be paid by New Zealanders anyway.

    What they are calling for is a gross abuse of power because they reckon someone else isnt pulling their weight.

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  28. chris (647 comments) says:

    Well said Kimble. (Of course, I do realise that they only want a special tax for Facebook and Google only. That’s just as ludicrous as having this style of tax be applied across the board).

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  29. greenjacket (482 comments) says:

    Tauhei Notts wrote:
    “I have repeated this so often.
    Fonterra pays less New Zealand income tax than any one of their tanker drivers.
    That is an indisputable fact.”

    O really?
    I wasn’t aware that Fonterra paid its drivers $226 million in the year to July 2012. I also wasn’t aware that the payouts to coop members were tax-free.

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  30. Luc Hansen (4,573 comments) says:

    I think the assumption is that Google has low to zero operating costs and I have a hard time understanding why DPF is so happy abput a company with sales of 4.5m paying so little tax.

    I would really love to know what the expenses are that eat up those revenues!

    But of course, I forget that those of DPF’s ilk see non-payment of tax as a badge of honour.

    [DPF: Don’t lie about me. 20 demerits.]

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  31. edhunter (552 comments) says:

    On Thursday I attended the Queensland Resource Council end of year conference where the major players i.e. Rio Tinto, BHP, Xstrata etc all multi-national companies all stated unless oz bucked up it’s ideas they’d pick up & take all their toys and fuck off to South America, Africa, Asia basically anywhere but oz and somewhere that’d give them the perks & incentives they required.
    This is on the back of a new mining tax that in the first 1/4 of it’s implementation raised zero, nada, zilch, sweet fa. On the back of a high aussie dollar (based historically as the nzd is against the usd) high labour costs, and lower commodity prices these companies are crying poor….
    They are not poor, they are not doing it hard, but they can do better with cheaper labour, less regulations & effectively 3rd world governments who want better for their population & are prepared to bend over backwards to entice these companies to invest there.
    I would equate the accountants of these companies as of the same cloth as the doctors & chemists that the major cycling teams (Lance Armstrong etc) have used, they found loopholes, managed to circumvent the existing laws.
    My point is Google & Facebook aren’t new entities, sure in the first couple of years of operations you might expect to run a loss capital expenditure outlay etc. These multi-nationals are the drug cheats of the corporate world & NZ & Australia will be the poorer for it.

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  32. Luc Hansen (4,573 comments) says:

    [DPF: Don’t lie about me. 20 demerits.]

    Oh FFS

    Grow a pair and learn how to take a joke!

    Shheesh…

    After safely navigating your support for the slaughter in Gaza over the last couple of weeks… then I get pinged for that!!

    You’re a funny guy DPF.

    Cheers.

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  33. Psycho Milt (2,419 comments) says:

    A company was required to pay tax on profit before tax, not on revenue, Vandenberg said.

    And that being the case, what a bloody good job it is that there’s absolutely no mechanism whereby a company could artificially create expenses that minimise its profit in countries that actually expect it to pay taxes. We can rest assured that no foreign company can operate at a loss or very low profit here merely for tax purposes, because our country is run by National, the smartest men in the room! Hurrah! Those Labour schmucks!

    [DPF: Yes they are shmucks for not knowing the difference between revenue and profit. And the IRD is pretty good at dealing to companies that try to artifically reduce the tax they pay in NZ – I think they gouged a billion dollars from the Australian Banks.

    The issue isn’t the tax that Facebook NZ or Google NZ pay – their turnover is minimal. The issue is that advertising for both sites is not done their NZ subsidiaries. And there is no way for NZ to unilaterally change that. So nice attempt at red herrings]

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  34. Luc Hansen (4,573 comments) says:

    Take an easy 20, Psycho M, on me.

    Irony, sarcasm and humour are not welcome in the world of the intense rightwingnuts!

    I’m still trying to figure out how Google and Faceboook have such high operating expenses in NZ when their business is carried out entirely online.

    I guess the reason is that we are governed by those who don’t see paying tax as an honorable duty!

    [DPF: Have you considered reading their financial statements that are linked to the Herald article I linked to? Google NZ employs quite a few people to sell advertising]

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  35. SPC (5,770 comments) says:

    Luc, apparently they don’t have much revenue here (rather than high expenses) as local advertisers pay the money to Ireland.

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  36. SPC (5,770 comments) says:

    The legislative action required is to require advertisers to pay their advertising locally – in the market where the advertising is focused and displayed.

    [DPF: So you think NZ companies should be banned from advertising on Google and Facebook?]

    So you think that Google and Facebook would not take advertising from New Zealand companies if they had to pay tax on the profits resulting from this revenue? That they would rather make nothingfrom this market than share out 30% of their profits?

    What if Germany France and the UK did the same – would they stop taking ads from these nations?

    [DPF: Again you do not understand. Google Ireland is not subject to NZ laws. No law we pass can impact them. Or we could do it make it an offence for NZ companies to advertise with them. ]

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  37. Luc Hansen (4,573 comments) says:

    Thanks SPC.

    Bloody cunning buggers, those Irish!

    As I should know…

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  38. SPC (5,770 comments) says:

    Clark said his point yesterday was that companies were sending their revenues out of the country “one way or another”.

    He criticised the way Facebook used its Irish operation, which pays just 12.5 per cent tax, to determine revenue and expenses.
    “This ensures the company can put most of its revenue through countries with low-tax systems,” he said.

    He called for the New Zealand government to work with other major countries, like Australia, to review international tax treaties and create a fairer system.

    http://www.nzherald.co.nz/technology/news/article.cfm?c_id=5&objectid=10851068

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  39. Luc Hansen (4,573 comments) says:

    [DPF: Have you considered reading their financial statements that are linked to the Herald article I linked to? Google NZ employs quite a few people to sell advertising]

    Are you serious? How many is ‘quite a few’ to soak up over 4m?

    I understand that you have been tying to make a serious point amongst your partisan pisstake stuff, but, honestly, you are flogging a dead horse. It’s clearly an outrageous attack on the integrity of our taxation base and we should act!

    Ban Google! Or Facebook…whatever…

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  40. SPC (5,770 comments) says:

    The legislative action required is to require advertisers to pay their advertising locally – in the market where the advertising is focused and displayed.

    [DPF: So you think NZ companies should be banned from advertising on Google and Facebook?]

    So you think that Google and Facebook would not take advertising from New Zealand companies if they had to pay tax on the profits resulting from this revenue? That they would rather make nothingfrom this market than share out 30% of their profits?

    What if Germany France and the UK did the same – would they stop taking ads from these nations?

    [DPF: Again you do not understand. Google Ireland is not subject to NZ laws. No law we pass can impact them. Or we could do it make it an offence for NZ companies to advertise with them. ]

    No you do not. Passing a law requiring firms to pay for advertising locally is just that – no more and no less. If we Australia, and nations such as Germany France and the UK all did that then Google and Facebook would either forgo this advertising (earn nothing from these markets) or take the revenue locally and pay tax on the resulting higher local profits.

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  41. bhudson (4,740 comments) says:

    SPC,

    Passing a law forcing people to pay for something locally is passing a law forbidding them from buying something offshore.

    That is a serious impingement on freedom. And it is most definitely not something any NZ govt should undertake.

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  42. Kimble (4,443 comments) says:

    Are you serious? How many is ‘quite a few’ to soak up over 4m?

    $2.7 million worth. From their financial statements that DPF directed you to. So around 18-25 employees I would guess.

    $1mil in admin, $400k in rent and other expenses, and $3mil for marketing and there you have it.

    Do you want to dispute any of those numbers? Talk to their auditor. Ernst & Young.

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  43. noskire (842 comments) says:

    I’ll throw this into the mix.

    I’m an AdSense publisher (i.e. I display ads via Google on my websites, as does DPF), so any income I make via those ads is taxed in NZ.

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  44. bhudson (4,740 comments) says:

    SPC,

    I am afraid you are also deluding yourself with the notion that paying locally would result in those multi-nationals paying more tax here.

    Setting aside the totalitarian nature of forbidding people from purchasing products and services offshore, if NZ customers had to pay Google NZ for advertising, Google NZ would still have to buy that advertising from Google Ireland at the price Google Ireland set. That purchase would be fully claimable as a direct cost. The net result would be little to no taxable profit.

    It may capture some GST revenue for govt, but that would, in effect, be paid by the NZ customer, not the multi-national (which would just be acting as the collector of GST on behalf of the govt.)

    I am afraid, in your legislation-happy mood, you would have to pass a law demanding that the multi-national deliver the actual service from within NZ as well.

    Can’t see that working.

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  45. SPC (5,770 comments) says:

    bhudson (10.59), really – whose freedom? Local advertisers don’t care where they pay for their advertising – their choice is to advertise on the site concerned. If it is synchronised with other governments then I would imagine it would soon be possible to pay for the advertising on the site locally.

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  46. Kimble (4,443 comments) says:

    So you think that Google and Facebook would not take advertising from New Zealand companies if they had to pay tax on the profits resulting from this revenue? That they would rather make nothingfrom this market than share out 30% of their profits?

    And thats been the justification for every tax increase ever. You still get to keep (100 – T) of your profits!

    He criticised the way Facebook used its Irish operation, which pays just 12.5 per cent tax, to determine revenue and expenses.

    So you want a treaty with Ireland to negate the tax rates they intentionally put in place to attract businesses to set up there?

    Good luck with that.

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  47. Kimble (4,443 comments) says:

    bhudson (10.59), really – whose freedom? Local advertisers.

    With one full stop I have made you answer your own question.

    Its an import restriction. It is the same as banning people from importing goods from sites like NewEgg.com.

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  48. bhudson (4,740 comments) says:

    SPC,

    1. It is a something – do it for advertising and what is next? E-books, paper books, …
    2. It is a restriction on the freedom of the individual to purchase legal goods and services from whom they wish. (You can actually find that one in the Universal Declaration of Rights I believe)
    3. What on earth makes you think all other govts would agree? Some of them would be losing tax revenue and competitive advantage

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  49. SPC (5,770 comments) says:

    bhudson

    Passing a law requiring firms to pay for advertising locally is just that – no more and no less. If we Australia, and nations such as Germany France and the UK all did that then Google and Facebook would either forgo this advertising (earn nothing from these markets) or take the revenue locally and pay tax on the resulting higher local profits.

    How Google responded to that is not an Irish government decision.

    And it’s not really an import restriction – it’s ensuring Google pays the tax in the nation where they attracted their revenue.

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  50. SPC (5,770 comments) says:

    bhudson (11.07) as for the transfer pricing between countries and Ireland – there are proposals called unitary tax that would manage that

    http://www.taxjustice.net/cms/front_content.php?idcat=139

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  51. slijmbal (1,236 comments) says:

    Have not looked at the books of any Facebook et al so no idea whether this applies to them but historically large corporates as a group have been given quite a lot of leeway in NZ in the whole transfer pricing process whereby expenses/licenses etc are paid to the parent from regional companies. It has been used as a mechanism to determine where to recognise profits for decades.

    It is relatively recently that the IRD have grown a pair and started going after the likes of the banks who have abused the leeway.

    The problem in this area is that it very open to interpretation what are reasonable costs. Smaller companies tend to get told the IRD interpretation of your situation and it is pretty much a take it or leave it unless you want to battle the IRD in court with 6 figure legal costs, which it is obviously not worth doing. The larger companies can afford the legal costs of fighting the IRD but when it gets to many millions (like the banks) then the IRD is also now willing to spend a lot of money to fight the follow on legal costs. At the current revenue of a few million I doubt it’s worth a court fight for the IRD against FB or Google.

    In defence of the big bad corporates an enormous amount of their corporate infrastructure is now managed internationally and as such there are legitimate expenses that should go offshore ( as one finds out to ones dismay if one needs to get paid by IBM for instance- expect the process to be managed in up to four separate countries – a recipe for disaster)

    Fits the meme of big bad global corporates of course.

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  52. SPC (5,770 comments) says:

    bhudson (11.16), yes the issue of advertising revenue on the internet does connect to another taxation concern – where purchase on the internet avoids consumption taxation.

    National governments are sovereign in taxation matters. Germany, France the UK and Australia are other countries already looking at closing the flow of taxable income to Ireland of Google etc.

    Presumably all agree that a broad low rate system requires avenues for tax avoidance being closed. Even the US Republicans think the best way to increase tax revenues is to close loopholes.

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  53. Anthony (798 comments) says:

    Increasing tax avoidance is another reason why a land tax is a good idea – impossible to avoid if you own land in New Zealand. I would allow a credit against income tax for land tax paid though so those who do earn taxable income wouldn’t be worse off.

    I know for a fact that Asian investors buying NZ assets structure their affairs so that they don’t pay any income tax on the income they earn in New Zealand.

    On the other hand, I don’t see why we have a silly system of trying to tax the worldwide income anyone who wants to be a NZ tax resident. It doesn’t help when we want talented people to live here. I bet for example that James Cameron makes sure he never spends long enough each year in NZ to become a tax resident.

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  54. Kimble (4,443 comments) says:

    I would allow a credit against income tax for land tax paid though so those who do earn taxable income wouldn’t be worse off.

    So its only unproductive land you would be taxing then? Oh good.

    I know for a fact that Asian investors buying NZ assets structure their affairs so that they don’t pay any income tax on the income they earn in New Zealand.

    And thats an issue for the tax department in their country. It isnt a justification for NZ taxing them.

    This entire argument is fucking retarded. All it is is a bunch of people saying that Irelands taxes are too low, and NZ should right that wrong by taxing the remainder.

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  55. SPC (5,770 comments) says:

    No it’s the structure of company’s affairs to extrapolate revenue from higher tax countries that is the issue.

    No one cares what Ireland’s tax rates are on local income and consumption, but if international companies change their arrangments to avoid tax liability there is impact on other countries and they may choose to respond.

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  56. ross69 (3,652 comments) says:

    > I have a hard time understanding why DPF is so happy abput a company with sales of 4.5m paying so little tax.

    I agree. So what are all the costs that Google is incurring? Whenever someone complains about the public sector being inefficient I expect DPF to bring up the example of Google being absolutely hopeless at making profits.

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  57. ross69 (3,652 comments) says:

    [DPF: Google NZ employs quite a few people to sell advertising]

    Hmmm it seems they’re doing a lousy job.

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  58. ross69 (3,652 comments) says:

    The government’s indifference on this issue should come as no surprise. You only have to look at how white collar crime is prosecuted compared to the prosecution of welfare fraud.

    “In 2010 alone, tax evaders cheated the country of between $1 billion and $6b, while welfare fraud cost $39 million.

    The average offending for welfare fraudsters was $70,000, and those found guilty had a 60 per cent chance of being jailed.

    For tax evaders the average was $270,000, but those found guilty had only a 22 per cent chance of being jailed.

    The cases were barely comparable. For example, a welfare fraudster who stole $148,000 – at the upper end of the scale – received 18 months in prison. Meanwhile, a tax cheat who failed to pay $222,000 in tax – at the lower end of the prosecution scale – got eight months’ home detention and 250 hours’ community service.”

    http://www.stuff.co.nz/national/crime/7965045/Courts-softer-on-criminals-wearing-suits

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  59. Psycho Milt (2,419 comments) says:

    Yes they are shmucks for not knowing the difference between revenue and profit.

    That’s an assertion you’re making based on willful misreading of Clark’s comments. As you point out, Clark worked for Treasury – he knows very well the difference between revenue and profit. He compares tax paid with revenue because his point is these guys are using the system to make sure that revenue translates into low or no profits. I realise you’re happy with that situation because your PM and Revenue Minister are both enthusiastic about “legitimate tax avoidance,” but Clark’s got every right to point out the scam to the country’s actual taxpayers.

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  60. Pete George (23,681 comments) says:

    your PM and Revenue Minister are both enthusiastic about “legitimate tax avoidance,”

    Most people (with a grasp of reality) acknowledge that “legitimate tax avoidance” is an unavoidable part of tax law, but it’s ridiculous to claim politicians are enthusiastic about it – that seems to be a psycho accusation.

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  61. Scott1 (575 comments) says:

    legitimate tax avoidance of some sort may be unavoidable – but specific examples of it generally speaking are not.

    Governments do a pretty poor job of closing loopholes that they could reasonably easily close and would create both incentive and revenue benefits, and could reasonably easily find out about by just poping down to the local acountant. In this case they may not be able to fully fix the issue but I see raising the issue as more of an invitation for the tax accountants to look at if any current law is being broken and if not what sort of things could be done…

    In the long term, if we are to give up on taxing advertising from a company like google we have a big problem because soon advertising and many similar activities will be increasingly untaxable. the problem with that is that then, everyone else needs to pay extra tax to cover those “free-loading” activities. We need to at least have a good look at how we will deal with such a scenario when at some point we are all watching internet TV, internet advertising, internet radio, and dealing with companies with increasingly international presences and increasingly effective profit transfer mechanisms.

    As per ross above this issue is already a significant one even in terms of illegality under the current law with the current technology and accounting practices – and it is likely to get much worse. Some might like this as a way to force the countries to reduce spending by forcing a decrease in revenue.. but really… to be honest… we know that probably wont work…

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  62. ross69 (3,652 comments) says:

    At least IRD are being proactive in targeting specific individuals who are trying to rort the system. It’s sad that those with so much don’t want to pay their way.

    http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10813402

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  63. Anthony (798 comments) says:

    Hey Kimble I thought you would agree with taxing unproductive land – if people want to have the luxury of owning land and not using it for a productive purpose then they should still pay some tax. Anyway, what I was really aiming at was when the owner used leverage and/or transfer pricing to avoid paying any tax – like most landlords in fact do. And I’ll repeat again that landlords don’t increase the supply of houses because they don’t build new houses. Just like farmers don’t increase the supply of land! In fact, owners of land who do nothing with it effectively reduce the supply of land available for productive use.

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  64. Kimble (4,443 comments) says:

    but if international companies change their arrangments to avoid tax liability there is impact on other countries.

    Just like if they choose to manufacture their goods in one country, to take advantage of lower wages?

    What you guys are demanding is just the same as some idiot 1970’s politicians attempt to boost local manufacturing by requiring an overseas car maker to build in NZ the cars they want to sell to NZers.

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  65. Kimble (4,443 comments) says:

    So what are all the costs that Google is incurring?

    I just listed them you idiot.

    Whenever someone complains about the public sector being inefficient I expect DPF to bring up the example of Google being absolutely hopeless at making profits.

    Yep, you are a retard.

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