Simon Moutter says offshore online rivals enjoy an unfair tax advantage and should have to make an equal contribution to NZ society

Simon Moutter says offshore online rivals enjoy an unfair tax advantage and should have to make an equal contribution to NZ society

By Simon Moutter*

It has been said taxes are the price we pay for a civilized society.

So what happens when some of the wealthiest companies in the world don’t pay toward the upkeep of the societies they operate in?

No one likes paying taxes.

In my opinion taxes should be as low as possible to stimulate economic growth, but high enough to cover essentials like health, education, defence, welfare for those in need and the maintenance of law and order.

These services are funded from income, corporate and consumption taxes and while we may grumble about them, generally most fair-minded people and businesses accept the need to contribute, as long as it’s fair and everyone does their bit.

However, in the modern environment, some companies have found ways of structuring themselves so they skip paying taxes in the countries they operate in. That’s a worry for all of us - and as a committed New Zealander, parent and business leader, I am very concerned.

If a large slice of the tax base is reduced because multinational companies take value out of New Zealand and leave virtually nothing behind (no local profits/no corporate tax, no employees/no income tax, non-resident status/no GST) then the Government will by definition need to increase taxes on the rest of us if we want to keep the same level of services.

While New Zealand consumers are behaving entirely rationally in terms of shopping online for best value in a global market, the question we need to ask ourselves is: are we all willing to pay more taxes so that the Amazons, Googles, Apples and Netflixes of the world can pay virtually none?

Is it fair these companies collectively extract hundreds of millions of dollars of profit each year from the New Zealand economy, yet contribute little or nothing to the funding of a civil society?

And not only that, cause New Zealanders to pay more tax to pick up the financial slack?

To take a recent example: Netflix is a US$25 billion company - that’s bigger than the combined value of the seven biggest companies on the NZX stock exchange. This week the US-based company is launching a “New Zealand” service, directly competing with local online video providers, yet it has been reported as saying it won’t collect GST in this country.

Nor, presumably, will it pay any taxes on the profits it makes here.

In effect, Netflix is telling New Zealand consumers it’s here for business, but it seems to be telling the IRD it’s not really here ... A disclosure: last year Spark New Zealand set up Lightbox, on a virtually identical business model to Netflix NZ. We compete against Netflix NZ to buy New Zealand content rights on the international market, we process that content offshore, we have elements of our products and services both built and managed offshore (and onshore), and we deliver services via the internet to New Zealanders.

The only differences are we are a New Zealand owned company and we have chosen to employ locals who pay tax here in New Zealand.

This means we are required to charge GST on Lightbox subscriptions, which means we pass on about $2 a month GST per customer from our standard  retail price. Our other New Zealand internet TV competitors pay GST also.

By not doing the same, Netflix NZ has an immediate cost advantage over all New Zealand companies in this space.

But there is a far bigger issue at stake.

Household names like Google, Apple, Amazon and Facebook are structuring their businesses in a way that means that while they make loads of money from New Zealand, they declare little “profit” here and therefore pay little company tax.

It’s no small beans either - Apple sold $568 million of products in New Zealand last year but its accounts showed it apparently only made these sales at a 3% gross margin, meaning it paid less than $7 million in New Zealand corporate tax.

A basic principle should be that all companies making money from doing business in New Zealand, regardless of where they are located, should make an equal contribution to our society by collecting and paying their fair share of taxes.

Allowing these sorts of tax avoidance arrangements to become more commonplace can only have a substantive negative impact on New Zealand businesses, erode public service funding, increase the tax burden on New Zealand tax-payers and reduce the incentive for New Zealand companies to invest in digital services or local content.

This is an issue that has been gathering steam around the world.

Speaking at the Finance Ministers meeting prior to last year’s G20 meeting, Bill English stated, "Both governments and voters want to see particularly the new generation of tech-oriented companies paying their fair share of tax". I hope he follows through.

We are seeing other countries beginning to act. Just last week, the United Kingdom announced it will introduce from April 1 a “diverted profits tax” aimed at big tech multinationals that move earnings around the globe to minimise tax liabilities. Australia is currently also mulling a tax on multinationals that shift profits around the world, but is yet to enact any measures similar to the UK.

Many people in the local business community here want our Government to lead the way on ending the rorts and creating a level-playing field for all New Zealanders.

Digital technology may have opened many of these tax loopholes, but digital technology will help close them.

Take GST for instance: the websites of many large US based companies already have the ability to accommodate different US state taxes at the click of a button with drop down menus and suchlike. 

It would be easy to extend this concept to consumption taxes from other countries.

It shouldn’t be put in the too-hard basket.

The number of companies who operate in this way will grow fast.

Otherwise we risk the hollowing out, not only of a tax base, but of a nation.

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* Simon Moutter is the managing director of Spark New Zealand (formerly Telecom). This opinion piece was first publsihed in the NZ Herald. It is here with permission.

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Its realtively simple . there are 2 steps
1) A Value Tax (VT ) on the diclsosed or knon value of an import
2) if  you trade here with a presence you need to have local incorporation
If you trade here shoud should be incorarated locally as a subsidiary  , this "Branch office" nonsense is archaic , something we inherited from Britain in the 1900's , that no longer works and its like an orange bag , full of holes
If your business is incorpated in NZ and is owned by or controlled by an overseas entity its already subject to a n NZ AUDIT .Thats my layman's understanding the law for foreign owned subsidiaries
So Aussie banks for example , do pay tax here
And your NZ turnover is then in the public domain and your deductions are open to scrutiny , and you cannot avoid local taxes .
So if we adverstise on Google as a professional practice the money we pay Google is earned in NZ and should be subject to a minimum tax threshold of say 10 %
Right now its not , NZ gets nothing as Google does not have  a legal presence here .
 
GST on imports is complicated , and you need to figure out the net GST sum as the vendor is entitled to deduct GST on his inputs .
Its very complicated and a flat rate of say 2.5%  VT (Value Tax)  on the disclosed or known value would be much simpler and fairer
 

APT Tax....there are no other solutions.....it stops runs on certain assets classes based on tax rules, everyone contributes equally, it completely reduces the Tax Slave Status that SME's find themselves working in.
 
All the RBNZ has to do is redesign a new currency from time to time.....which will drive any black market trading cash back into the system...
 
If you buy goods off-shore you pay your share......the same as if you purchase goods of services here.
 
No person, no business, no transaction type is exempt. The rate charged  per transaction will be extremely low........the media should be looking at why Politicians and bureaucrats have not implemented such a fair system!!!

...simple?  I don't think so ...but I could be wrong. 
From a consumer point of view....
 Netflic USA direct (or any other overeas software service) via an overseas isp or vsn...how do you tax that (especially when wont see any cash leaving ones bank account)?. 
Buying from Ali express/ebay/amazon...how do you capture that (especailly via relabellling/repricing providers)
Pay by crypyto currency...how do you get that?
Truth is the internet is turning things upside down.  The tax system is going to get left in the dust and focusing on how to get gst is old school thinking.
A whole new era is upon us and I'd pick massive tax leaks forcing a re re-look at taxation will be required..
How Simon Moutter thinks It would be easy to extend this concept to consumption taxes from other countries really surprises me.