New Zealand is going to find it increasingly difficult to tax multinational, digital-based companies like Google and Facebook, says a specialist tax consultant.
Yesterday, Labour Party revenue spokesperson David Clark hit out at what he called a "tiny" tax bill paid by Facebook New Zealand in the previous financial year.
Similarly, Clark said Google New Zealand's $109,038 tax payment on $4,447,898 in revenue was "way below our 28 per cent corporate rate" and showed that multinationals were making a mockery of tax loopholes.
But Auckland tax consultant Maurits Vandenberg, of International Business Partners Limited, said taxing multinationals was becoming increasingly difficult.
Current international tax treaties based on "bricks and mortar" businesses were no longer able to cope, he said.
"More and more of these multinationals are going to be IP (intellectual property), digital-based companies and their actual presence in outlying countries like New Zealand will become less and less.
"If these companies don't have a warehouse or employees in New Zealand, how do you tax them?"
Current tax treaties that divvy up tax profits between countries simply do not work well with these types of companies, he said.
"It's a really scary problem because multinational businesses are headed down this digital track and basing themselves in low tax jurisdiction countries.
"New Zealand is always going to struggle to get its slice of the pie."
Clark's comments that Google NZ appeared to have paid only 2 per cent tax last year was "a bit inept" and misleading, Vandenberg added.
"We get mesmerised by sales figures and people get outraged about how much tax companies should be paying but then you come along and apply a little bit of tax law."
A company was required to pay tax on profit before tax, not on revenue, Vandenberg said.
Financial statements show Google New Zealand's revenue last year was $4,447,898 but its profit before tax was only $56,803. It paid $109,038 in tax, making a loss of $52,235.
Facebook New Zealand's financial statements show revenue of $427,967, a taxable profit loss of $66,696, and $14,497 paid in tax. The company ended up with a loss of $81,193.
"These companies are run by very smart people so it's certainly quite likely that they're within the letter of the law," Vandenberg said.
"At the end of the day, Google is making a whack of profit somewhere and they choose to generate that tax in a low tax jurisdiction."
Clark said his point yesterday was that companies were sending their revenues out of the country "one way or another".
He criticised the way Facebook used its Irish operation, which pays just 12.5 per cent tax, to determine revenue and expenses.
"This ensures the company can put most of its revenue through countries with low-tax systems," he said.
He called for the New Zealand government to work with other major countries, like Australian, to review international tax treaties and create a fairer system.