Government moves to crack down on tax avoidance by multinational firms are already bearing fruit, with Google telling Parliament it will no longer funnel New Zealand revenues via low-tax jurisdictions such as Singapore.
Google’s comments, in a letter from the company’s New Zealand manager of government affairs Ross Young to the finance and expenditure select committee considering measures to combat loopholes in corporate tax law, signal a marked shift in approach and will see more tax paid by the internet search giant.
Alphabet Google’s parent like other internet companies, structured its affairs so contacts with customers in territories like New Zealand were settled in a low-tax jurisdiction such as Singapore or Ireland meaning the customer’s government had no claim on any income tax revenue. The practice saw Google’s New Zealand subsidiary provide only services as part of the sales process paying just $356,000 in tax on only $12.2 million in revenue.
Estimates of Google’s sales revenue from New Zealand range in the hundreds of millions of dollars annually.
Mr Young’s letter said this practice would cease. “We intend to shift out business model from this past approach, such that customers will enter into contracts with our New Zealand entity, which will generate revenue from New Zealand advertising customers, and pay taxes in line with its role in the transaction.”
The issue of multinational tax avoidance became an issue during the election campaign last year, largely on the back of a major media investigation which showed a cluster of highly-profitable international firms structured their affairs to pay virtually no tax in New Zealand despite making billions in sales.
The revelations led the Government to announce an crackdown on big corporates in late 2016, with the incoming Labour-New Zealand First coalition continuing the reforms.
Mr Young’s letter said the proposed legislation “will change how overseas companies operate in New Zealand . . . and it sends a clear signal to the corporate community that it expects a change in behaviour.”
The moves will also allow a more accurate picture of the local on-line advertising market worth nearly $1 billion annually believed to be dominated by Google and Facebook, but whose shares have been only estimated in the past.
The letter also disclosed Google had a 30-strong local workforce, and its search engine was used by New Zealanders more than 10 billion times a year.
Google’s move comes after on-line rival Facebook announced a similar move in December, over mounting pressure from governments which have seen their tax revenue bleed to havens. NZME