Spark CEO Simon Moutter challenges the local subsidiaries of Google, Apple and Facebook to stop using tax avoidance strategies and help fund the cost of the civil society from which they profit so handsomely.
We certainly live in interesting times.
The turbulent political events of recent times in the UK and the US has increased debate on the merits of globalisation. In New Zealand we’ve seen local news companies under increasing financial pressure, while at the same time global media behemoths like Facebook and Google gobble up much of the local ad revenue and shape more of our opinion than ever. And the devastating earthquakes at the top of our South Island have emphasised the essential public services that support our communities and businesses.
I believe there is a thread to all this.
In my view, globalisation is unstoppable in a digital world. If that is true, the question is how to adapt to it to ensure New Zealand’s future success. We have to be in charge of our own destiny and avoid becoming an ‘off-ramp’ of an international digital super-highway.This is why it was so good to see our Prime Minister taking the opportunity to tap Facebook’s Mark Zuckerberg on the shoulder recently and talk about the perception of multi-national tax avoidance in New Zealand. He could have talked to Zuckerberg about many other important issues – yet chose to take a more public stance on tax. That’s a massive and very welcome step.
In today’s weightless, global economy, it’s critical all companies who benefit financially from operating in New Zealand also contribute their fair share towards the tax base that pays for hospitals, schools, disaster recovery and other vital public services. The health of our tax base might not be everybody’s favourite topic, but this stuff really matters – it impacts all of us in the long term.
A few months back Google reported New Zealand revenue of just $10 million, when it invoices many times that amount in local advertising revenue – most of which is routed through an offshore entity to avoid the New Zealand tax net. Meanwhile their local competitors pay their full whack of tax to help keep New Zealand running.
Let’s be clear. I love a lot about Google. And Facebook. And Apple. They have awesome products and services which I use every day. They deserve their phenomenal success, which has seen their combined market capitalisation exceed US$1.3 trillion – almost eight times the size of the entire New Zealand economy. But I don’t approve of the way they and other multinational companies who operate here avoid paying their fair share of tax.
Let’s make something else clear. These companies – and the multitude of others that engage in similar international tax strategies – aren’t, to my knowledge, doing anything illegal under current laws.
But multinational companies already have the opportunity today to pay their fair share of tax in New Zealand. There is no law that compels them to operate with thinly-capitalised local companies, to route revenue through offshore entities, or to have massive levels of intercompany expenses to reduce their taxable profits in New Zealand. Businesses have choices. They make a considered choice when they use such tactics to avoid paying tax here.
Some argue companies should do whatever they can to minimise their costs, be they related to tax or anything else. Others will say if they don’t do it, then competitors will have a financial advantage over them.
While it is important businesses are profitable so they can reinvest, they are also part of the social contract. We have a role to play in helping New Zealand succeed. Look at how many businesses in New Zealand have stepped up over the last week to help communities recover from natural disasters.
Multinational companies have overhauled global supply chain strategies to address growing social concerns about human rights, child labour or environmental issues. These decisions have often cost money – but businesses have embraced them, because it’s simply the right thing to do, and their customers have expected them to do so.
Is it right some 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 make up the difference required to fund our schools, hospitals and welfare and support essential public services?
I reckon it’s time for Google, Facebook, Apple and their ilk to start doing the right thing on tax in all the markets they operate. As the PM has rightly pointed out, it’s just not a good look. After all, New Zealanders have embraced these companies and their brilliant products. We’ve welcomed them to New Zealand and we support them by buying their services.
There will be many known and unknown consequences of the incredible upheaval of Brexit and Trump and its dramatic rejection of established norms. In my view at least one welcome consequence will be less tolerance for global companies not paying their fair share in the countries and communities they serve.
Declaration: The Spinoff has sponsorship relationships with both Spark and two of its subsidiaries – Bigpipe and Lightbox. Another declaration: both the enormous Spark and its tiny mate The Spinoff are headquartered here and pay GST, PAYE, Companies Tax and anything else which is due…