Tech giant Apple pays $9m tax in NZ - how does that add up?
After Apple was slapped with an enormous tax bill in Ireland, Tom Pullar-Strecker looks at the case in New Zealand.
Apple is the largest company on the United States stockmarket, worth about US$570 billion (NZ$788 billion), but it pays NZ$9 million tax in New Zealand.
That does not mean something fishy is going on here. Like many multinationals, it has chosen to base few operations in New Zealand, where it has a local wage bill of less than $1m. Instead, it has taken advantage of global tax loopholes that have lured jobs and taxes to countries like Ireland, where it employs 6000 people.
The tech giant has been slapped with a €13b (NZ$20b) tax bill in Ireland after a three-year investigation by the European Competition Commission. Ireland had granted lavish tax breaks to Apple over several years, with the tax rate on its European profits dropping from 1 per cent in 2003 to just 0.0005 per cent in 2014.
Apple pays more tax in New Zealand than many comparable companies, having paid $8.9m tax in the year to September 2015 on its pre-tax profit of $26.6m, which was achieved on sales of $732m.
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Some other large technology firms book all their sales through overseas offices and only pay their local subsidiaries a fee to just cover their local expenses in providing them with marketing support.
Facebook paid just $43,000 tax in New Zealand, according to its most recent financial statements filed with the Companies Office.
Its tax was about the same amount as a mid-range doctor or lawyer would have paid.
Google New Zealand recorded tax of just over $233,000 in its latest filing. It also has almost no operations here and bills local customers for advertising services from Singapore.
Companies including Google, Apple, Facebook, Starbucks and Pfizer are reported to have routed billions of dollars of profits to Caribbean tax havens using the Irish tax loophole, which exploits the fact that companies can be registered in Ireland but not deemed resident in the country for tax purposes.
It has been suggested that if the global tax loopholes were closed, multinationals would be likely to distribute their activities more evenly around the world, which could mean they based more activities and paid more tax in New Zealand.
WHAT COULD NZ LEARN?
Apple is probably paying its fair share of tax in New Zealand, Prime Minister John Key said.
"We expect a New Zealand company to pay its fair share of tax, we expect a New Zealand citizen to pay their fair share of tax, should we expect a multinational to play by different rules?"
Key said it was unclear what New Zealand could learn from the EU ruling, although officials would look closely at the decision
"Every country's tax rules are different: Apple would be probably a much more significant multinational in Ireland than they are in New Zealand."
The issue was profit-shifting between different countries, he said.
"The question is whether the mismatch of all these rules is something these multinationals can arbitrage, and if they are, we would say on balance that's not fair even if it's legal."
Angst over multinational tax rorts has been bubbling in New Zealand for several years, aided by a Dominion Post report in 2010 that Google New Zealand expected to pay just $7726 tax in respect of its previous financial year, less than the average teacher or construction worker.
The Organisation for Economic Cooperation and Development (OECD) is in the middle of an unprecedented drive, called the Beps initiative, to put a stop to "double-non taxation" of the sort most commonly exploited by technology firms.
New Zealand would continue to work with the OECD's international working group to "hold hands" on the joint approach to tax reform, but would also consider unilateral action if it would make a difference, Key said.
Apple could just be the first of 700 or 800 companies slapped with big tax bills by the European Union under "state aid" rules, an Australian tax expert says.
But the EU's decision to charge Apple €13b in back taxes and interest did not mean extra tax might also be due from multinationals in New Zealand, Sydney-based KPMG tax partner Grant Wardell-Johnson said. That was because those companies generally had few operations here to tax.
Ireland began using its tax laws to persuade multinationals to base manufacturing and other operations in the country in the 1970s, in a policy that was designed to combat its low levels of economic growth and the depopulation that had blighted the country since the potato famine in the 1840s.
The combined population of the Republic of Ireland and Northern Ireland, at 6.4 million, remains below that recorded in the island's 1841 census of just under 8.2 million.
Wardell-Johnson said a few hundred companies in Ireland might be impacted by the EU action, along with hundreds more that based operations in Belgium, Luxembourg and Holland.
The EU had used three lines of text in the 2009 Lisbon agreement, which provides the constitutional basis for the union, to overrule "a substantial body of national and international tax law", Wardell-Johnson said.
"The state-aid cases are the one of the most remarkable things to happen in tax ever."
However, he believed "very few Australian and New Zealand companies" would be affected.