The argument for clear rules and swift justice

My family and I just got back from our annual holiday at the North Island's East Cape. It's a place that seems to have a slippery relationship with time. Once you get North of Gisborne, the human and physical geography seem remarkably close to what Bruce Mason chronicled so elegantly in "The Pohutakawa Tree".

The people are warm, and are happy to have social interactions last longer than they absolutely have to. A far cry from city life where people seem to be looking for a way to end conversations rather than prolong them.

About six years ago we discovered a little motor camp secreted right on a deserted beach; the camp was rudimentary but the beach was pure picture-book. The camp was run by a Ngati Porou couple; she beautiful but fiercely efficient, he a gentle giant easily 18 stone but sweet natured. When you checked in the moku'ed matriarch gave clear instructions that it was a family camp and not a place for parties.

Our first night there we noticed a campsite a few down from us didn't seem to have got the message. While they weren't rowdy or rude, there was a bit of music and some sounds of spirited consumption. But not more than you'd expect from some folks enjoying their holiday. Next morning at 7am a huge John Deere tractor pulled up in front of the revellers' caravan. The gentle giant knocked on their door and said "the wife says you've got 10 minutes to pack up, then I'm pulling youse out to the road, this is a family camp".

The ensuing 10 minutes of hung over chaos was funny to everyone except the hastily packing partiers. Ten minutes later the big diesel tractor starts up and the van is pulled out to the road, awning akimbo. The event became instant folklore, but the message was clear - you obey the rules or you get tossed out. Rules were clear and justice was swift.

Coming back to civilisation today I read about two related events that reminded me of my taste of jurisprudence East Coast style. The first was the news that directory business Yellow had delivered an annual loss of $12.5 million. This is the company that Telecom sold six year ago for $2.2 billion, their single best deal ever. It's the same company whose bank creditors took over from the private capitalists and tried to sell for close to a million three years ago, and was more recently being marketed around the $200k level.

While this decimation of shareholder value is sad, it's warranted. Phonebooks are like the iceman of old - charmingly reassuring but doomed. Meanwhile Yellow's online offering is so diabolically bad that it deserves all it gets. Every person I know has a story of trying to use its service when they know a person's name and their address but no matter what collection of variables they feed into the search boxes, it won't give a valid return.

Most people I talk to have given up on it completely and just use Google to find a business and increasingly a person. Google's rate of innovation and its execution are breathtakingly good. They rock at this stuff. And once you've had one great experience you'll keep going back. Businesses of all types now need to ask themselves whether their essential proposition is Google proof - because if it isn't they've got problems.

In the case of Yellow that problem is magnified two fold because not only are the likes of Google overtaking their business, but they do so while paying tiny rates of tax. So it's not a fair fight. Together Google, Facebook and Apple made an estimated $750 million out of New Zealanders in the last tax year but paid less than $3 million in tax - that works out to a tax rate of 0.4%. On the other hand the New Zealand company tax rate is 28%.

The technical phrase to describe this is BEPS - taxation base erosion and profit shifting - as web giants increasingly reap profits globally the underlying tax base is reducing. The accusation is that they are aggressively using a set of measures designed to prevent double taxation (being taxed both at home and abroad on the same profit) to instead achieve double non-taxation (not being taxed at either end) thanks to some borderline strategies like the Dutch Sandwich and the Irish Double.

It's at this stage that the technical tax discussion starts sounding a little too like the Karma Sutra for my taste, but the bottom line is clear. Kiwi companies, already under pressure as they adjust to a cyber future, are fighting a rigged fight.

In a few weeks' time the government will issue their discussion paper on how the weightless web giants might be taxed, a paper that is likely to be highly contingent on a similar initiative currently under way by the G20 leaders. Unlike my East Coast experience, the final rules are unlikely to be clear and enforcement swift. But it doesn't mean we shouldn't try.

Mike "MOD" O'Donnell is a professional director and eCommerce manager. His Twitter handle is @modsta and he's always wanted a John Deere tractor.

Fairfax Media