Murray Goldsworthy: NZ needs to take a bigger bite of Apple and co

Apple could pay off every mortgage in New Zealand and still have money left over. Photo / AP

Opinion

Like many, I have been watching the debate over the amount of tax paid by multinationals like Apple, Google and Facebook among others, operating in New Zealand. This has been running on and off over the past few years and again raised its head over the holiday period.

One of the most striking features of this debate seems to be the amount of hand wringing over how we need an international solution to this, how we are waiting to reach agreement on how it should be tackled on a global scale. This seems about as likely to occur as an agreement on global carbon dioxide production limits.

We all know businesses seek to minimise their tax obligations and because they operate on a global scale are able to structure the business to best take advantage of that. At some point, though, they do end up with the profit somewhere and as most are publicly listed companies we can all marvel at their profits. Let us take a look at one of those companies for the 2013 financial year.

Apple has so much cash in the bank that it could pay off every residential mortgage in New Zealand and still have cash left over. In 2013 it had global sales of a touch over US$170 billion ($209 billion), and on those sales it had a gross profit margin of just over US$64 billion, running at around 37.62 per cent gross profit on sales, operating expenses of 8.8 per cent of sales being US$15 billion, leaving an operating income or pre-tax profit of US$49 billion, which is 28.9 per cent of sales. Apple made US$49 billion before tax.

So let's have a look at Apple in New Zealand and apply the same percentages to its stated New Zealand sales in that same year of $571 million. This would have resulted in gross profit of $214 million, and after subtracting operating expenses (using the global cost percentage) of $50 million, it would give Apple an operating income or pre-tax profit in New Zealand of $164 million. Meaning it should have paid New Zealand Inc about $45.9 million in tax.

That didn't happen. What actually happened is Apple said it made a pre-tax profit of only $8 million, so it cost it $156 million more to operate in New Zealand than globally. In fact, apparently while it made 28.9 per cent pre-tax profit on sales globally in little old New Zealand, it is only able to make 1.4 per cent pre tax profit on sales. Apple paid New Zealand Inc $2.5 million tax, less than 0.45 per cent of its sales value in tax. If that $5.5 million was truly the only profit it made from New Zealand you would wonder why it bothered. It of course made far more than that but the profit was booked in other countries where little or no tax was paid and New Zealand missed out.

But what to do about it? My answer is actually what has been calculated above. Tax multinationals based on their stated sales in New Zealand, make them show where the difference in values occurs, instead of allowing them to charge a higher cost price for their items to New Zealand subsidiaries. Make them prove why it is different, why they make substantially more elsewhere for the same items.

Make them pay their fair share of tax on activity in New Zealand. Give us our bite of the Apple. It's fair, isn't it?

Murray Goldsworthy, of Auckland, is a former retail executive.