Google’s tax in NZ

June 24th, 2014 at 12:00 pm by David Farrar

Stuff reports:

’s New Zealand subsidiary reported an annual loss of just over $60,000 and paid just $227,000 in in 2013, its latest accounts have revealed.

New Zealand businesses are believed to spend hundreds of millions of dollars annually on Google’s advertising services and software.

Yep, but they buy those from Google, not Google NZ. Google NZ did not invent the search engine we all use.

But Google is one of a number of technology multinationals that book most of their revenues in Ireland, enabling it to take advantage of legal tax rorts that are currently the focus of an attempted-clampdown by the Organisation for Economic Cooperation and Development (OECD).

The subsidiary turned over $10.1 million in 2013, according to accounts published by the Companies Office on Friday.

Google globally actually paid $2.3 billion in tax last year, which was an effective tax rate of 16%. Companies will incorporate in countries with lower corporate tax rates – but they still pay tax there.

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16 Responses to “Google’s tax in NZ”

  1. wreck1080 (3,820 comments) says:

    Maybe so, but I am paying higher taxes because of this.

    Pre-internet, the advertising spend would have generated tax revenue for the government.

    Now, that tax income has gone up in a poof of smoke, and I am required to cover the shortfall.

    The issue is only going to get bigger.

    No easy answer though.

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  2. Steve Wrathall (261 comments) says:

    Investment flows away from high tax rates? Who knew? Are NZ’s leftist parties (incl. National) willing to act on this insight?

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  3. Ed Snack (1,803 comments) says:

    No wreck, you don’t. Companies don’t actually “pay” tax. Tax is paid by some combination of customers, employees, owners, and to a lesser extent broader stakeholders. So if Google was forced to pay tax on NZ revenues in NZ, they would charge more, and you would be paying as a customer for that.

    Love that loaded language “legal tax rort”. Funny, I bet the writer orders items from Amazon and other overseas suppliers and doesn’t pay any GST (and the company pays no local taxes at all) and thinks that’s OK…

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  4. Kimble (4,417 comments) says:

    No wreck, you don’t. Companies don’t actually “pay” tax. Tax is paid by some combination of customers, employees, owners, and to a lesser extent broader stakeholders.

    Indeed.

    What would happen to the domestic price of Googles services if there was a 90% tax on their profit here (let alone revenue)?

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  5. mister nui (1,012 comments) says:

    I buy services from Google, being cloud storage and email hosting. These servers are not in NZ, buggered if I know where they are. The transaction is for Google Singapore, but why should Google pay any tax in NZ on this, as all the services are rendered outside NZ.

    Easiest way to solve this problem is slash company tax rates. Can’t imagine Bill English going for this one though, way too simple…

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  6. unaha-closp (1,142 comments) says:

    Does anyone advertise on Fairfax? How much tax does Fairfax pay?

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  7. Lance (2,570 comments) says:

    Wow
    That’s a difficult concept (for the lefties anyway). Ireland has a lower tax rate so attracts international companies to reside there and makes a shit load of money from tax they otherwise wouldn’t receive.
    But I know this is totally beyond the numbskulls here, they are still moaning about movies being subsidized as though having no percentage income is better than a lower percentage income remembering the amounts are very large.

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  8. RJL (145 comments) says:

    @Ed Snack: “So if Google was forced to pay tax on NZ revenues in NZ, they would charge more, and you would be paying as a customer for that…

    So the corollary is that if Google was taxed less, then they would charge their clients less? Clearly, that is nonsense.

    Google is essentially a monopoly. They simply charge the maximum that the market will bear. Google’s tax rate just affects how much profit it makes.

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  9. unaha-closp (1,142 comments) says:

    Google is essentially a monopoly. They simply charge the maximum that the market will bear. Google’s tax rate just affects how much profit it makes.

    There aren’t any other ways to advertise apart from Google?

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  10. ROJ (105 comments) says:

    You say they “paid” tax at a rate of 16% – but is this hard cash, or should a trawl through their balance sheet notes discover that it was just a provision, able to be deferred into the far distant future or transferred at some time to a loss making unit?

    I did do tax for a listed company once, there wasn’t a huge difference then but it was enough to make it worth the company’s while to have me contort the brain to calculate the current and future positions as well as the pro forma amount in the stat accounts.

    I have heard Ireland doesn’t get a huge whack of cash anyway, due to the other tax tricks which keep income from being recognised there

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  11. UrbanNeocolonialist (236 comments) says:

    So no NZ company will be able to compete with google and the services they provide because they have to pay higher local taxes (so their overall borrowing costs/return on equity will inevitably be higher due to lower profitability). That is pretty fucked up for the local economy, and inevitably pushes any locally based IT companies or internet based service providers to relocate off-shore. Not a situation that we should allow to persist when it hurt NZ’s economy. Really only two options to fix that.

    1/ Lower NZ tax rates to match.
    2/ Figure out a way to assess and collect off of companies that engage in such transfer pricing.

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  12. Kimble (4,417 comments) says:

    Google is essentially a monopoly. They simply charge the maximum that the market will bear. Google’s tax rate just affects how much profit it makes.

    And they have shareholders who have required rates of return.

    But in any case, monopolies pass all their extra costs on to clients.

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  13. mister nui (1,012 comments) says:

    2/ Figure out a way to assess and collect off of companies that engage in such transfer pricing.

    The problem with that, Urban, is that it will require an army of bureaucrats in IRD to first devise the system, then analyse accounts and put it into practice. It will cost much more than it could ever gather, hence, your suggestion 1 is the only feasible option.

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  14. wreck1080 (3,820 comments) says:

    ed snack you are completely wrong.

    These companies are eroding the NZ tax base despite your argument.

    Take it to the extreme and people buy all of their goods from amazon — taxation from retail would drop to 0. But, obviously whatever govt amazon pays tax to would see an increase in tax receipts.

    How on earth can you argue that this does not reduce the NZ tax receipts?

    I’m not saying it is right or wrong or whether anything can or should be done.

    Just pointing out a fact.

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  15. Ed Snack (1,803 comments) says:

    Wreck, I’m saying that YOU would pay for the tax, companies don’t pay as such, it is factored into their return.

    Actually, with Amazon, they make f-all profit and always have (in fact made a loss for years) as they consciously hit for a negligible margin after expenses. That is, the owners make almost no money for their investment as income, but Amazon builds an enormous “empire” in the retail space. So with Amazon, nobody makes a lot of tax revenue from the profit side, they do of course pay GST/VAT in the applicable jurisdiction. Interestingly enough in Europe this is Luxembourg which has the lowest VAT rate in the EU.

    What we are talking about though is tax incidence, in the end tax is paid by consumers, employees, and owners. Raise the cost of doing business and everyone involved pays some of the tax. The simple way would be no tax on companies at all, then we lose nothing. Note that in NZ this would not change tax receipts very much as dividends to owners are imputed, so any taxes paid by the company are credited to the person/entity receiving the dividend. So if Company A say pays me a dividend of, say $900 and A has paid 33 % tax on its profits, there are several ways of looking at it, but basically you can say they pay me $1,350 but retain $450 (33%) to pay onwards as tax on my behalf, so in my tax return I declare a gross receipt of $1,350 and tax paid of $450. So tax is paid just once, if A paid no tax and paid me $1,350 I’d have to pay that tax myself.

    This does not apply in all other jurisdictions, in the US for example dividends are taxed at 15% to recognize the fact that companies have already paid taxes although since the US rate is 33% (I think, could be higher) that makes the effective rate 48% which is quite high.

    On the NZ case for local companies company tax is merely a fig-leaf intended to fool low info voters into thinking that someone else is paying for their benefits.

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  16. UrbanNeocolonialist (236 comments) says:

    Actually dropping company tax down to irish/singapore levels (about 10%) wouldn’t be a bad idea. A the moment it is about $9 billion, out of total $59billion. So losing $6 billion could be compensated with an increase of GST to 25%.

    But big problem then is all of the costs in policing income tax vs corporate tax as people find ways to divert income into businesses they own – though individuals resident in NZ are smaller targets that are less able to afford the manoeuvring required to avoid tax and much easier for the IRD to intimidate as we have seen in the past.

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