Will take more than want

January 22nd, 2014 at 3:00 pm by David Farrar

The Herald reports:

Finance Minister says he wants Google, Apple and Starbucks and other multinationals to pay more tax and hopes the issue will be raised at economic talks this week.

One can want them to do many things, but they’re not going to. Of course they will locate their tax base in a country with a lower company tax rate.

The minister said this morning that getting corporates to pay their fair share of tax required international collaboration.

“We’re very keen to see them pay more tax. The tricky bit is that it requires combined international action,” he told Radio New Zealand’s Morning Report.

“A whole range of countries are going to need to agree on tax rules for companies like Google and Apple and Starbucks and any number of corporates that you can think of.

Yep there is no unilateral solution. But even multinational co-operation has its limits. It takes just one country not to agree, and that is the country where those companies will be established for tax purposes. It will be good if they can get agreement.

Although Google and other companies had local offices in New Zealand, their tax bills were believed to be out of proportion with their reported sales in this country.

That’s because tax is paid on profits, not sales. ‘ll use a good example.

The latest financial statement has revenue of $461 million. Their tax was $652,000. Their tax as a percentage of sales was 0.14%. This is clearly out of proportion to their sales, and should immediately pay a fairer proportion.

How about a fair “” of 5% on sales? This would mean APN pays tax of $23 million instead of $652,0000 and would pay A$100 million instead of zero. Isn’t this the logical outcome of repeated reporting by APN and of other companies’ tax bills in relation to their sales instead of their profits?

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39 Responses to “Will take more than want”

  1. redqueen (564 comments) says:

    A turnover tax would certainly be an interesting development. Probably cause a reasonable amount of damage to our entrepeneurs and accelerate business closures during downturns, but who cares in a socialist paradise?

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  2. campit (467 comments) says:

    Do Google charge GST to their NZ based customers?

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  3. queenstfarmer (782 comments) says:

    The Japanese Govt recently announced that it would attempt to force foreign web companies to register in Japan and pay tax. Will be interesting to see how that works.

    A multilateral proposal could have some legs. But the point is that childish sloganeering such as seen from Labour and the Greens (and Bill English perhaps skirts close to that line here) will not advance matters at all.

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  4. Ed Snack (1,883 comments) says:

    So what’s the basis for taxing companies per se anyway ? Companies get no benefits from taxation, their owners do, and that’s where the tax should lie. Companies may benefit in one view from the administration of justice etc, but again, I assert that it is the owners who gain that benefit (and BTW other stakeholders who trade with or work for companies); companies are unable to benefit at all unless you grant them personhood, and they certainly don’t get to vote.

    And the REAL benefit society gets from companies is not the taxation it gets, but the usefulness of the products made by/marketed by said companies. Google isn’t valuable for the taxation it may or not pay but because people find it useful and actually use it extensively. And everyone who voluntarily uses Google gets that benefit regardless of where the taxable income is accrued.

    In NZ (as I’ve pointed out before) we already effectively have that to an extent in that company paid tax is deductible as tax already paid on dividends for NZ residents, so the tax paid is recognized as a contribution to personal tax. And in the end, company tax is actually paid by some combination of real people: owners, employees, and customers. Tax companies more and you are actually taxing real people, but far too many folks are blind to that as they seem to believe that companies are some sort of magic “other peoples money” well that they can dip from to them dole out and appear generous.

    There is some argument for company tax to capture overseas owners income into the NZ tax net, but surely the main effect of lowering the NZ company tax rate would be for more personal income tax to be paid by NZ owners directly.

    I’ve come to the conclusion that this whole “tax justice” campaign is just a front for naked greed by people to malicious or stupid to acknowledge that real people pay tax. The malicious ones know that and play on the stupidity and cupidity of others for partisan political advantage with the lure of “free money”.

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  5. mister nui (1,029 comments) says:

    It takes just one country not to agree, and that is the country where those companies will be established for tax purposes.

    So, why doesn’t NZ become that country, Mr. English?

    Other than that, what Ed Snack said.

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  6. Joanne (177 comments) says:

    Google or Apple don’t care a squat at what Bill English thinks.

    Despite being disliked by some, I would trust what Roger Douglas thinks. We have to go back that far to find a Min of Finance worth listening too.

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  7. Viking2 (11,484 comments) says:

    All companies that trade with nz benefit to a greater or lessor degree from the Taxpayer. e.g.
    Google business would be stuffed without chorus or telecom etc. All those companies benefit from Govt. access to infrastructure.
    In effect their needs to be some compensation for the taxpayer. Transaction tax or at the very minimum GST on any transaction that supplies any good or service to anyone in NZ. Not that hard to collect.

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  8. F E Smith (3,305 comments) says:

    +1 to what Ed Snack said. Why is Bill English talking like a lefty?

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  9. dime (9,977 comments) says:

    It just kills the left that CORPORATIONS are making MONEY and they cant get their disgusting little mitts on it

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  10. redqueen (564 comments) says:

    @mister nui

    Would be interesting to see what costing Treasury would come up with if we removed tax on foreign profits, particularly if it increased general business services and specifically ICT services in NZ (and corresponding infrastructure investment, as we’d need more datacentres, local cabling, and undersea fibre). Oh wait, maybe that would be hypocritical for our political elite…nah, we’ll never do it… :-P

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  11. Nuwanda (83 comments) says:

    “So, why doesn’t NZ become that country, Mr. English?”

    Very good question. The answer is that you don’t get to be a member of the international regulatory mafia/UN Bully Boys Club if your country goes it alone. Look at the heat that tax havens have come in for from the high tax countries because citizens of same use them to reduce their tax. Look at calls for the UN to impose an international tax to rectify this supposed unfairness. Look at the pressure that non-conforming or slow-footed countries come in for when other international agreements are being pushed.

    No, when individuals and companies use tax havens it makes the high tax countries look feckless and ridiculous. So they form their international tax cabals and go after the havens themselves.

    Is it seriously being suggested here that tax be paid on turnover and not profits? If so, what a nasty little fascist suggestion that is. It never ceases to amaze me how low the money-hungry tax junkies will go to get their extra pound of flesh. They make the tax rules to suit themselves, and when the tax rules end up causing tax avoidance, they change the rules. The international cooperation angle is predicated on the belief that if you’ve got nowhere to run you’ll just have to pay the tax and do what you’re told. And if any country tries to provide a tax haven, well, maybe they won’t get that special WTO exemption, etc.

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  12. nickb (3,687 comments) says:

    What’s disturbing is how many people want their fellow taxpayers to pay more then the law requires them to.

    I don’t turn up on Bill English or David Cunliffe’s doorstep and ask for an arbitrary $10,000 cheque because I don’t think they’ve paid enough.

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  13. Manolo (13,828 comments) says:

    Eff the rapacious and greedy states.

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  14. redqueen (564 comments) says:

    To be perfectly blunt, this is why you tax land and try to avoid taxing things that are more mobile, subjective, or administratively burdensome. GST is reasonably straight forward (subjectivity and admin are limited), but there are now complaints around internet-based imports (mobility of tax base without burdensome admin). Income Tax has limits before people leave, but has a reasonably high mobility and subjectivity. CGT is problematic on all three counts. By comparison, land doesn’t go anywhere, it’s hardly subjective (‘pay no attention to what’s behind my hedge…’), and it’s not administratively burdensome.

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  15. Rob at Polity (8 comments) says:

    @Ed Snack: You’re right that company tax burdens are ultimately shouldered by people. The English / Labour / NZH / DomPost idea is that if some people live overseas and benefit from all kinds of NZ infrastructure to sell their companies’ products, they should contribute a fair portion of their profits to support that infrastructure. Under current law they don’t, which is a good reason to change the law.

    @DPF: I heartily endorse your ongoing offensive to shame the country’s two largest purchasers of ink-filled barrels. That strategy usually works out very well.

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  16. nickb (3,687 comments) says:

    redqueen, any NZ govt bringing in a land tax will make it so full of exemptions for farmers, Maori, elderly, poor etc that it will just be another hit on rich pricks.

    National is really missing the greatest loophole of all – taxation of rental property. But because they won’t move on CGT (because they are politically gutless, and/or have large rental portfolios themselves) we will never get it. IMO even Labour will back away from it in power when they realise it will see them out in a term (or they will just bring in a ridiculously watered down version that raises no revenue like Phil Goof’s CGT).

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  17. gump (1,650 comments) says:

    @dime

    “It just kills the left that CORPORATIONS are making MONEY and they cant get their disgusting little mitts on it”

    ———————

    It has nothing to do with the left and the right.

    I’m not left leaning, but it thoroughly annoys me that my (NZ based) company has to pay more taxes because offshore corporations aren’t paying their share.

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  18. nickb (3,687 comments) says:

    They are sure paying their share somewhere gump, its just not in NZ.

    And that is the issue. If they were paying more tax in NZ it is possible (depending on how they are structured) this would lead to double taxation of the same income. NZ’s network of double tax treaties mean that an offshore company trading into NZ does not generally get taxed in NZ unless it has a permanent establishment here (construction site, office, centre of management etc). The reason for this is the company will be being taxed in its home jurisdiction. NZ companies investing offshore will get the same benefit.

    For tax purposes there is a big difference between trading with a country and trading in a country – I posted something more comprehensive on the last thread last week re: fairfax.

    Sure there are changes that could help especially in the very tricky world of e-commerce taxation but there is so much misinformation and hysteria out there.

    If you want a target, look at rental property owners (me included for disclosure) or your friendly neighbourhood plumber who offers you a cashy (which on a country scale will dwarf anything Facebook or Starbucks is doing here).

    EDIT: This was my comment from the other day

    However, with that being said, it is incorrect to simply assume there is tax avoidance going on simply because a multinational company might be paying low tax here relative to its turnover. This is because there is a fundamental difference to trading in New Zealand as compared to trading with New Zealand.

    If you are a foreign entity looking to make money in NZ, and you are from a company which has a double tax agreement with us (as they invariably will as we have them with all of our main trading partners) then you are only taxed to the extent that you have a permanent establishment in NZ, such as a business premises.

    The rationale for this is that if you do not have a business premises, i.e. you are an Australian company making online sales from Australia to NZ, it is perfectly logical that you could have $1m of sales in NZ, to NZers, but pay no tax in NZ. This is not tax avoidance, merely just an established part of international tax law – the rationale being that you are located offshore, do not have a place of business in NZ, and you will be paying tax in your home country (Australia). Therefore, for NZ to tax these profits would likely result in double taxation and a loss in incentive to invest offshore.

    See: http://www.kpmg.com/nz/en/services/business-advisory/overseas-companies/manage-people/permanent-establishment/pages/default.aspx

    This is all a bit long winded but is just trying to demonstrate that far from all cases where there appears to be lots of turnover but no tax paid will there be any sinister tax tricks at play. In fact, given the current environment it is safe to assume the reverse is the case, given IRD’s successes in winning tax avoidance cases and the huge risks in carrying out aggressive tax planning in NZ. Because of this it is probably also safe to assume that Starbucks, Google, Facebook, Amazon etc’s New Zealand operations are pretty watertight and probably the subject of prior binding rulings etc with regards to their transfer pricing.

    So whilst some people may not like what they are currently doing, it is likely to be well within the current tax laws. To change this type of behaviour really needs a multilateral approach by all countries, as it will necessitate wide-ranging changes to the international network of double tax agreements and international tax law. The OECD is currently working on a BEPS (Base erosion and profit shifting) project to try and target this, and our IRD is playing a key part in this and monitoring things closely.

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  19. OneTrack (3,111 comments) says:

    dime – “It just kills the left that CORPORATIONS are making MONEY and they cant get their disgusting little mitts on it”

    It just kills the left that AMERICAN CORPORATIONS are making MONEY. FIFY

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  20. OneTrack (3,111 comments) says:

    nickb – “or they will just bring in a ridiculously watered down version that raises no revenue like Phil Goof’s CGT”

    Or they will bring in an ill thought through version that probably wont work, will have many unintended, negative consequences because they didn’t put enough thought into it, they don’t understand how the real world works and their primary goal is simply to punish rich pricks rather than have an effective tax system.

    I could actually be talked into a CGT, but not if it would be implemented by these numpties.

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  21. BlairM (2,341 comments) says:

    Company tax is ridiculous. If you already have tax on dividends and on goods and services, then you’re taxing them twice. You’re effectively punishing a company for banking their money.

    I bet if you simply abolished company tax, you would actually increase tax revenue. Especially if your “tax haven” status encouraged companies to move.

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  22. Fentex (986 comments) says:

    But even multinational co-operation has its limits. It takes just one country not to agree, and that is the country where those companies will be established for tax purposes

    THat’s not necessarily true, nations that try to stand aside from what is acceptable to others find themselves excluded and prevented from trading in all sorts of ways, there’s no reason a Tax Alliance of nations couldn’t apply such sanctions if they pleased to discourage avoidance.

    The important point would then become how much financial and political might is within the alliance.

    So what’s the basis for taxing companies per se anyway ? Companies get no benefits from taxation, their owners do, and that’s where the tax should lie.

    I personally like this idea, but the consequences it implies such as removal of limited liabilities doesn’t appeal to very many people.

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  23. lolitasbrother (701 comments) says:

    totally cool
    if it comes to the crunch will pay gooble.
    google is the boss

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  24. Alan (1,087 comments) says:

    The clear difference is that people believe the APN results to be a legitimate reflection of the success of the business, people don’t think that is the case with Google and Apple.

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  25. itstricky (1,849 comments) says:

    DPF

    Want to see you ridicule the Hon. Minister of Finance as you did here:

    http://m.kiwiblog.co.nz/2012/12/facebook_and_google_tax.html#comments

    Would be a good show to watch.

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  26. itstricky (1,849 comments) says:

    Alan, agree

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  27. Jack5 (5,137 comments) says:

    English wants multinationals to pay more tax – bullshit!

    He wants New Zealanders who use them to pay more tax.

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  28. MikeG (425 comments) says:

    Alan +1

    istricky – don’t hold your breath – it’s different when Labour do it (in Farrar’s world)

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  29. flipper (4,077 comments) says:

    Ed Snack nailed it very early on. 100% correct.

    Company tax is just another way of increasing personal tax. Since the majority of shareholders are likely paying 33c …to that add the 28% on company tax…and the circle goes around and around. If an institution owns shares in a company it must/should pay tax …. but at what rate since all institutions are owned by individual taxpayers are they not?

    FES …. raises a valid point. But the answer is simple. English does not want to allow the Labour F/wits and the red melons to keep ownership of the issue — an issue that we will never win, sans buy in by all of Europe, Japan and the USA.

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  30. Jack5 (5,137 comments) says:

    We need some party in Parliament that sincerely aims to reduce tax.

    Doubtless, English would argue he just wants to widen the tax base. If he spelled out how in detail and carried this through, this would be fine, and so would capital gains tax.

    However, we would need know precisely how taxes would be lowered in other areas to compensate – for example GST back down to 10 per cent, company tax trimmed, personal tax trimmed.

    When it comes to tax, to politicians we’re a flock of sheep to be shorn.

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  31. Nostalgia-NZ (5,218 comments) says:

    ‘+1 to what Ed Snack said. Why is Bill English talking like a lefty?’

    As flipper says he’s stealing someone’s thunder. May not be just Labour’s or the Greens, could also be an eye on The Internet Party.

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  32. gump (1,650 comments) says:

    @nickb

    “They are sure paying their share somewhere gump, its just not in NZ.”

    ————————

    The problem is that they’re not paying their share.

    By way of an example, last year the American GAO calculated that the average tax rate on global income for American corporations (with more than $10 million on assets) was only 16.9%

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  33. Fletch (6,407 comments) says:

    Oh dear. Always sets off alarm bells for me when I hear about governments wanting people to pay “their fair share”.

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  34. itstricky (1,849 comments) says:

    Precisely my point MikeG

    Here’s another for everyone’s amusement:

    http://www.kiwiblog.co.nz/2012/11/will_labour_boycott_facebook.html

    Sigh – I thought Labour got the Internet…But hey if Labour really thinks that Facebook is a tax evader, then they could just boycott it in protest!

    Sigh – I thought the Hon. Minister of Finance *GOT* The Internet. He should boycott it in protest!

    Nothing like a bit of staged exacerbation to show that you’re really fed up with Labour the Hon. Minister of Finance.

    BTW DPF, why did you not tag this post with “Facebook”, “Google” and “Apple” terms like the others so they were easier for me to find?

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  35. itstricky (1,849 comments) says:

    May not be just Labour’s or the Greens, could also be an eye on The Internet Party.

    Yep, very good point. They’re on the charge. DPF publishes tech. articles regarding the future of Technology jobs the day that Dotcom gets the hammer – none of these things are coincidence.

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  36. Jim (398 comments) says:

    “So, why doesn’t NZ become that country, Mr. English?”
    Very good question. The answer is that you don’t get to be a member of the international regulatory mafia/UN Bully Boys Club if your country goes it alone.

    Plenty of companies that set up in a nice office tower Hong Kong and Singapore would disagree about the significance of their host country being a UN Bully Boy.

    All this talk of tax percentages reminds me of some Singapore politician a decade or two back (I forget who) who remarked “better to have 20% of a billion than 50% of nothing” (paraphrased). It may be a well-worn cliché but that doesn’t mean it has no basis in fact. *That* is the point when it comes to choosing where to domicile, not that your host has a seat at the UN security council.

    If NZ ever joins the UN Bully Boys club then will that mean Google HQ will move here? What if they could pay less tax than they are now? Which is more important?

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  37. Jeff83 (745 comments) says:

    I disagree it requires every member to agree, all it really requires is USA, UK, Europe, because that is where the vast amount of companies are based that use creative transfer pricing to avoid paying tax anywhere, not just NZ.

    However NZ could do something, it could not follow OECD standard transfer pricing rules. The problem is this would normally break all our international trade agreements, so isn’t likely to happen.

    The OECD, and the big four, are to blaim for the current situation, and the solution needs to be taken out of their hands. The abusive of over / under pricing and of ‘royalty payments’ is outrageous.

    The reason this hasn’t happened is the big boys (USA/ UK / Europe) all have their own favourite tax havens, and see it as a competitive advantage to do so. You can’t do anything without the collaberation of these countries.

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  38. Dirty Rat (383 comments) says:

    APN example is stupid. If you had bothered to read their accounts you would have seen tax losses carried forward. BlairM, dividends aren’t double taxed. The imputation credit regime took care of that.

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  39. Ed Snack (1,883 comments) says:

    Dirty Rat, no, it’s appropriate because the original comment only referred to turnover, not profit. If you want to claim that a company is not paying tax on 600 million worth of turnover is the point, then their profitability is not an issue. Which is why it is a foolish claim.

    there are many who, for example, claim that Amazon is “not paying its fair share” without realizing that Amazon actually makes fuck-all profit world wide, and will on its current business model pay stuff-all tax everywhere.

    But I return to my point which is tax incidence. By wanting to tax in some way the business carried out by multi-nationals such as Apple, Google, Facebook, etc in NZ, what they are really doing is wanting to tax New Zealanders using those services but attempting to conceal that. Any such tax will effectively be paid by the users I claim, only it won’t LOOK like a tax because you’ll pay it to the company that then pays it to the government; taxation by stealth.

    Do you really want to pay more tax ? If so, are you already voluntarily paying extra, if not, then simple greed is ruling your actions. The claim is then that you want a benefit and believe that others should pay for it. My response to that is “Go fuck yourself”.

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