The taxation of foreign entities was an "incredibly
complex" area and an uninformed debate was not the right answer
to furthering New Zealand's tax system, Polson Higgs tax
partner Michael Turner says.
Labour Revenue spokesman David Clark late last week revealed
that Facebook New Zealand paid just $14,500 in tax last year,
which he said made a mockery of Revenue Minister Peter
Dunne's refusal to consider closing tax loopholes for
In 2010, Facebook's tax bill was only $5238.
"For a company that has 2.2 million users in New Zealand and
makes billions worldwide, that's barely believable," Dr
Clark, the Dunedin North MP, said.
Dr Clark also took aim at Google, saying the search engine
giant had paid only $109,038 tax on $4.45 million of revenue,
meaning it paid less than 2.5% tax, when New Zealand's
corporate tax rate stands at 28%.
However, Mr Turner said, the difficulty with internet-based
businesses like Facebook and Google, was there was often no
physical presence in a country to establish the right to tax.
"It is a cheap shot to simply pick a couple of high-profile
names and suggest that because their tax bill in New Zealand
is not significant that somehow the rules are being avoided."
New Zealand's tax system, as many systems in the world were,
was founded on taxing New Zealand residents on their
worldwide income and taxing non-residents based on their New
Zealand-sourced income, Mr Turner said.
The source of income for internet-based businesses had
concerned several countries and the OECD had done a body of
work looking to establish the appropriate rules for taxing
"The simple reality is that taxing labour is easy as you tax
it in the country where it is carried out."
Taxing business profits was generally done based on where the
entity was resident or where a permanent establishment
existed, he said.
The term "permanent establishment" had historically referred
to physical presences such as an office, a factory, a
workshop or a construction site.
The difficulty with internet-based businesses was that often
no physical presence existed in a country to establish the
right to tax, Mr Turner said.
Where a physical presence existed, it was then necessary to
establish how much of the profit derived was related to that
While Dr Clark's claim might raise some eyebrows that
internet-based companies were not paying significant tax in
New Zealand, that was attributable to the way most countries
had decided to tax businesses based on a permanent
establishment, Mr Turner said.