20/05/21

NEW ZEALAND: Google is not paying fair share of tax, says Government.

As published on newsroom.co.nz, Thursday 20 May, 2021.

Revenue Minister David Parker has slammed the internet giant's reticence about a local tax being imposed on its New Zealand-derived revenues.

As the Government rolls out more technology investment in the Budget, the company that profits the most from the spending is speaking out against any locally-designed tax on its revenues.

Google NZ country manager Caroline Rainsford gave an interview to Newsroom, coinciding with the Budget.

Google has been pushing back against New Zealand Government plans to set in place its own digital services tax on the locally-derived revenues of big global companies like Google and Facebook, if the Paris-based OECD is unable to reach agreement on a unified approach at its finance ministers' summit in July.

Rainsford said the company talked regularly with Ministers Kris Faafoi and Stuart Nash, and expected more ICT infrastructure investment in the Budget. She was also looking for more and sustained spending on technology training, like the MBIE Digital Boost programme,

"We're seeing a lot of growing pressure on digital infrastructure, and from what we're seeing out of other countries like Canada, Singapore and Australia, I'm expecting to see more investment – significantly more than current."

Last week's Australian Federal Budget included A$50m for a National Artificial Intelligence Centre and $34 million for other AI projects. And Rainsford said New Zealand had to keep up with that sort of investment.

"If you look at the Australian Budget, the investment in digital, the investment in the AI Fund in Australia, is pretty significant," she said. "We're hoping for good news in the Budget, around digital investment, particularly skills in schools."

But she discouraged Ministers from proceeeding unilaterally with a digital services tax.

Google's parent company Alphabet made US$34 billion (NZ$48 billion) in net revenues last reporting year, earning more than Facebook or Amazon to make it the 8th most profitable country in the world. Technology manufacturers Apple ($55bn) and Microsoft ($39bn) were both ranked in the top five companies.

Locally, Google NZ paid NZ$3.6m in income tax in its last earnings year, off a profit of $10.6m and revenues of $36.2m, according to financial statements filed with the Companies Office. Rainsford said that in a few weeks' time, the company would report similar tax numbers for the current financial year.

Revenue Minister David Parker was somewhat scathing of Google's reticence to pay more tax – and of its claims to already be paying its fair share.

Google was estimated to take $800m per annum out of the New Zealand economy, he said.

"They could voluntarily pay some tax on the profits they've taken out of New Zealand already, but they've obviously not done that," he told Newsroom.

"That revenue used to be earned by our media companies. Our media companies would have paid tax on it. Our media companies suffer a competitive disadvantage competing against Google when Google doesn't pay a fair amount of tax.

"It's not fair, and something has to change. And Google is the biggest."

Parker said tax rules around the world were set up a hundred years ago, when there weren't multinational companies earning hundreds of millions of dollars of revenue out of countries without having a physical presence in them.

"These electronic transactions, which are being entered into by New Zealanders, in New Zealand, and they're paying for it out of their New Zealand bank account, for a service that's being delivered in New Zealand, are still not within the New Zealand tax net."

He said the Government would prefer to agree a consistent approach in the OECD, and he was pleased that Google was now supporting that, but said those international negotiations were moving at a snail's pace.

"Countries like New Zealand are getting a bit impatient and we're reserving the right to proceed with our own digital services tax if we get sick of waiting," he said.

"Since the change of Administration in the United States there have been some positive noises there .... but whether they'll reach a conclusion soon enough for us remains to be seen."

Google’s discomfort is not with a revenue tax as agreed by the OECD collectively, but with a revenue tax imposed unilaterally by NZ or other countries.

"Fundamentally we are absolutely for OECD development of a simpler and unified tax system," Rainsford said. "We are not encouraging a unilateral approach here. As long as the OECD comes up with a simple model that can work globally, then we're supportive."

France and Germany have been leading a project to agree a digital services tax model among the 37 developed nations making up the OECD.

The first pillar of the reforms would reallocate more taxing rights to countries like New Zealand; the second pillar is aimed at stopping a race to the bottom by imposing a global minimum tax.

A model for a digital services tax is the French law, enacted in 2019, that taxes 3 percent of the gross revenues derived from digital activities of which French users are deemed to play a major role.

The race towards the July summit got a boost when new US Treasury Secretary Janet Yellen swung America's support behind a multilateral tax agreement, in February. But reaching agreement still looks challenging.

So what if the OECD is unable to reach agreement and so the New Zealand Government legislates its own digital services tax, unilaterally like the UK and France?

"We'll continue to engage constructively, like we always do," Rainsford said. "We would be part of the discussion around what the consequences would be – we want the best outcome for New Zealand."

"The line you're always going to get from me is that we obviously pay tax in the jurisdictions in which we operate, so New Zealand is no different. We did make a really good step forward in New Zealand in 2018, We restructured the Google New Zealand business to be a reseller model, so it means we now account for all our revenue locally in New Zealand – our full revenue is recognised in New Zealand."

She clarified that meant Google paid New Zealand tax on earnings from sales of hardware (like Google Home speakers) and services (like cloud storage or corporate G Suite packages).

It paid tax in New Zealand on earnings from New Zealand-based advertisers, that was purchased through their New Zealand operation – but not on other advertising to New Zealand users, nor on advertising purchased by New Zealand advertisers from Google overseas.

"The company's got to be billed out of New Zealand," she said. "For example, if Xero NZ chooses to advertise in Australia, we are recognising that revenue in the New Zealand numbers."

All Google's products were developed overseas, she said, and that's where it paid most of its tax. Google NZ paid its parent company (in Singapore) a reseller fee for the cost of the Google products it sold in New Zealand.