Google's latest tax bill in New Zealand has increased 29 times to more than $230,000, compared with only $7726 for 2009, which was less than that of the average teacher or building worker.

The search giant's local subsidiary is still believed to be paying tax on just a fraction of its total profits from advertising sold to New Zealand customers, but a tax expert says that may be justified.

The company uses a controversial commission model, in which earnings on advertising sales in New Zealand are booked in Ireland, where the company tax rate is lower.

In return, Google Ireland pays a commission to Google New Zealand to cover its expenses.

Google New Zealand is understood to have sold about $150 million worth of advertising in 2009, but its reported revenues hover between $3m and $4m.

The most recent accounts show Google's income tax expense for 2010 is $203,349, including $86,000 extra in tax for 2009 after receiving an additional payment for that year from Google Ireland.

Google's income tax expense for 2009 before the extra payment was $40,000, but that falls to $7726 once a deferred tax deduction for the year is factored in. The subsidiary has total deferred tax assets, which can be used to offset future tax bills, of $103,801.

Google's commission model was criticised last year, after Bloomberg reported it was paying a tax rate of just 2.4 per cent on billions of dollars of profits earned outside the United States.

Inland Revenue hinted it might take action, saying its "general anti-avoidance provision" could apply to "treaty shopping situations, where transactions were merely routed through a particular jurisdiction by way of a conduit entity and lack commercial substance".

The extra payment of $285,000 is attributed in Google's accounts to a "standardisation of the application of revenue recognition across the Google group".

Google spokeswoman Courtney Hohne said Google complied fully with all relevant tax legislation in the countries it operates in, including New Zealand, and provided employment for 500 people in Australia and New Zealand.

KPMG tax partner Kim Jarrett said there was no evidence in the accounts that Inland Revenue had conducted an audit.

The commission paid to Google New Zealand would appear to be small, about 2 to 3 per cent, if its revenues were about $150m, but it was impossible to judge without knowing the details of the arrangement, Ms Jarrett said.

Google New Zealand might be heavily reliant on Google Ireland for support, "and you would expect the lion's share of the revenues to go back to the parent company, because that's what they're selling – the Google name".

Inland Revenue monitored the transfer-pricing practices of multinationals to ensure any commissions paid were appropriate.

- © Fairfax NZ News