IRD confirms the obvious

December 20th, 2012 at 11:00 am by David Farrar

Hamish Rutherford at Stuff reports:

New Zealand has no power to ensure internet giants like and Google pay more , according to an report.

The new report appears to back Revenue Minister Peter Dunne’s claim that New Zealand cannot solve corporate tax loopholes alone, arguing that even law changes would be overridden by international treaties.

Of course it does. NZ simply has no power to tax overseas corporates. If I buy a book from Amazon, can the Govt force Amazon to pay tax in NZ? Of course not.

The issue of tax rates on international companies, especially in the technology sector, has hit headlines since it emerged Facebook paid less than $14,500 in New Zealand last year, or less than 1 cent for every one of its 2.2 million Kiwi users.

That’s a silly comparison. You don’t tax firms on their number of users. You tax them on their profits. It is even sillier when you consider Facebook does not charge a user fee.

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20 Responses to “IRD confirms the obvious”

  1. Pete George (22,839 comments) says:

    Yes, it does seem to confirm the obvious…

    Following attacks from Labour revenue spokesman David Clark on the issue, Dunne ordered IRD officials to prepare a report on the issues facing tax collectors.

    …but perhaps this needs to be explained to Clark. He blogged:

    I’ve drawn attention to the way in which multinationals are avoiding paying tax in New Zealand. After some prevarication, Peter Dunne ordered up a report from officials on the way similar issues are being tackled abroad. Good.

    Quantifying the size of avoidance in New Zealand needs to be a priority for the Revenue Minister. Australia have pulled an expert group together to advise their Treasury on the scope and extent of the problem in their country. New Zealand needs to do the same. Quickly.

    Of course if Clark was Revenue Minister he would have had this sorted this all out by yesterday.

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  2. wreck1080 (3,730 comments) says:

    What is the solution to making companies who earn hundreds of millions to pay the same tax as normal working people who earn a heck of a lot less?

    Alternatively, why is there no pressure on those countries who are aiding in the reduction of tax?

    Alternatively again, why does NZ not get in on the action. We can give a tax break or whatever to movie companies. Why not allow foreign companies to domocile here and tax them at 5%. 5% of hundreds of billions is better than 5% of nothing after all.

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  3. Adolf Fiinkensein (2,795 comments) says:

    I told you in an earlier thread, David.

    Fairfax is Stuffed.

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  4. Pete George (22,839 comments) says:

    And Clark is claiming he has initiated a u-turn:

    I’m glad Peter Dunne is doing a U-turn. His department is telling him NZ can & should do more to make sure multinationals pay their fair share of tax.

    http://www.facebook.com/DavidClarkforDunedinNorth/posts/566305323398905

    Clark keeps mentioning fairness. Perhaps he should start doing his fair share of actually learning about issues he campaigns on in some depth – or perhaps he prefers to stick to superficial politicking.

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  5. Pete George (22,839 comments) says:

    And Clark does what he can to block any challenges.

    I put a link to DPF’s post on Clark’s Facebook post with a small comment and Clark has deleted it. He is as much into attempted message control as Clare Curran.

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  6. dime (9,430 comments) says:

    this issue is just killing lefties. they know these companies are making money.. somewhere, somehow!! they just cant get their grubby little mitts on it.

    its not fair wah wah wah

    fast forward to the 2017 election bribes. Labour promises to launch “kiwibook” a new zealand owned social network! it will create jobs and revenue etc only 29.99 to join. those on incomes under 50,000 get free membership!

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  7. krazykiwi (9,189 comments) says:

    The best way to get more tax out of multi-nationals is by giving them a reason to move more of their business to be based from NZ – employing NZers, and giving them a reason to recognise more income here because our taxation model makes it worthwhile. This is the global 21st century. Governments need to think about international competitiveness, rather than helping themselves to corporate wealth the way they’ve lazily commandeered personal wealth throughout the 20th century.

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  8. Archer (170 comments) says:

    Hamish Rutherford gets added to the list of journalists to be avoided. Some real stupid stuff in that article.

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  9. Pete George (22,839 comments) says:

    Apology – my comment hasn’t been deleted from FB, it disappeared in my FB view but it is still there.

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  10. PaulL (5,873 comments) says:

    Taxing facebook because they have users in NZ makes about as much sense as taxing companies because people go offshore, buy clothes on sale, then wear those clothes when they get home to NZ. In fact, as much sense as taxing companies who give people free t-shirts whilst they are overseas (but that t-shirt has a company logo on it), and then that person wears said t-shirt once returning to NZ.

    Stupid doesn’t even begin to cover it.

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  11. lastmanstanding (1,204 comments) says:

    International corporate have always shifted their tax base to where they pay the lowest rates. The UK Gumint and its citizens have their tits in a tangle at present because surprise surprise big corporates that operate in the UK pay little or no tax. Well folks thats how it is.
    Same goes for welathy individuals. I worked in the UK as an accountant in the mid 1970s when the top rate on earned income was 85% and on other income interest/dividends etc 98%.

    Guess what. My wealthy clients paid zero tax to Her Majestys Excise and Customs. Their income was derived for tax purposes in tax havens.

    If Gumint want a share of corporate and wealthy individuals taxes then they have to have a tax rate that is below the tax payers threasehold for tax pain.
    Otherwise they will get zip zero zlich.
    And its no good them or the Lefties whinging cause thats life folks.

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  12. Dave Stringer (183 comments) says:

    what lastmanstanding said :-)

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  13. Viking2 (11,129 comments) says:

    The issue is not about taxing the companies but collecting tax on companies but on Goods and Services supplied to NZ residents. i.e. GST

    Now that actually is simple enough via the use of a transaction tax.

    Key tried defending this last weekend and actually displayed a total misunderstanding of the application of gst, arguing that because servers were based in another country we couldn’t collect the GST.
    That means that I may shift my invoicing to PAYPAL who have their servers based off shore and from where I can invoice my customers, having them pay via pay pal and then I can draw the money into NZ. apparently according to Key this is the way it works and He reckons nothing can be done to stop that.
    Using adwords as an example, if the adverts are published in NZ (and some court recently has decided that Google eta l are publishers), then that is a supply in NZ and GST is collectable and payable just as any revenue created by those adverts is taxable in NZ.

    Not complicated just no willingness to tackle the tax drain.

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  14. Viking2 (11,129 comments) says:

    bugger the edit is still absent. Go back a version.

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  15. wreck1080 (3,730 comments) says:

    A few people seem to think noone should pay tax.

    Perhaps they should move to somalia.

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  16. Scott1 (448 comments) says:

    we could just offer a special deal
    “NZ guarantees to beat any other country by 10% of the total tax take !”

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  17. Scott1 (448 comments) says:

    Interestingly, I remember reading an article where they indicated that the natural end of this tax competition isnt 0, it is actually negitive…

    Ie states will end up paying money to the company in order to win the bidding war (and I mean including all benefits).

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  18. nickb (3,659 comments) says:

    Pete George I have to say the inanity of your defence of Dunce as revenue minister is staggering. In the tax industry he is universally reviled for his vacuous posturing and lack of technical nous. The fact that a NZ revenue minister could use the phrase “legitimate tax avoidance” in the current climate still blows me away

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  19. PaulL (5,873 comments) says:

    I think there is an argument on GST – that is that if someone in NZ views an ad that was paid for by a NZ company, then service delivery has happened in NZ. Presumably the NZ company would be seeking a GST input credit for that ad purchase, so the system should be self policing in that respect. But that is difficult if the company providing the advertising isn’t NZ registered, and therefore cannot pay GST. I wonder how they’re getting around this?

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  20. Pete George (22,839 comments) says:

    nickb – I’m sure he’s not universally liked but it’s interesting you think you can speak for everyone in the tax industry. I have no idea, I have nothing to do with it, but I can understand if tax accountants don’t like loopholes and gaps being tightened up.

    And you seem to have universally jumped to a conclusion based on nothing, I haven’t attempted to defend him at all here, my comments were about Clark.

    I agree that “legitimate tax avoidance” in isolation doesn’t sound like the best way to describe, presumably, tax minimisation. I don’t know if he mistakenly used that term or meant to use it. The fact is though that “legitimate tax avoidance” is legal and probably quite common. There have been some significantly sized examples.

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