Changes to our tax laws made in 2014 to help small businesses are being exploited by multinationals to hide their NZ returns - and should be reversed, an academic says.
A brief Companies Office update by Facebook New Zealand earlier this month noted that the business - fully-owned by itsUS parent Facebook Inc - had filed an annual return, but no financial statements were posted.
That follows the social network's pattern for the past five years.
"It seems that changes in financial reporting made in 2014 with a good intent - that is, to ease a tax compliance burden for small businesses with low profits - have helped some local subsidiaries of multinational groups to disappear from public view," Massey University taxation lecturer Victoria Plekhanova.
"Since 2015, because of the very low level of corporate income declared in New Zealand, not only Facebook New Zealand but also Google Payment New Zealand Ltd - the second subsidiary of Google - have legitimately avoided having to file financial statements in New Zealand.
"In my view, the changes made in 2014 should be reversed in relation to companies that are entities of multinational groups.
"Every New Zealander deserves to know how much income and expenses every subsidiary of a non-resident digital platform firm and other multinational group declares in New Zealand."
Facebook spokesman Ben McConaghy said it was up to the NZ Companies Office whether Facebook NZ's financial statements were published.
Companies Office spokesman Josh Ramsay said, "Facebook New Zealand has advised the Registrar that it does not meet the 'large' thresholds in the Companies Act and therefore is not required to file financial statements with the Registrar."
"Large" overseas companies and subsidiaries of overseas companies are defined in section 45 of the Financial Reporting Act 2013 as those with two accounting periods where:
• Total assets of the entity and its subsidiaries (if any) exceed $20 million; or
• Total revenue of the entity and its subsidiaries (if any) exceeds $10m
A longstanding industry survey indicates Facebook NZ booked far more than $10m last year.
IAB NZs online advertising numbers for 2019 say the social media category - dominated by Facebook and Facebook-owned Instagram - grew 23 per cent to $119.3m, a figure the IAB has previously said is lowball, given it only includes agency books, not direct bookings.
Source / IAB
Plekhanova earlier essayed how the discrepancy can be explained by Big Tech's longstanding practice of invoicing some of their NZ business to subsidiaries in lower-tax territories.
The 2014 change meant Facebook did not have to file a return for whatever amount of NZ business it did invoice locally last year, keeping its practices of revenue-shifting out of sight and out of mind.
However, Google NZ's latest financial statements, filed in June this year, illustrated that pressure to bill local business locally can be problematic. The company fulfilled a promise to book NZ business in NZ, which saw its revenue double, but a service fee to its US parent was hiked at the same time.
Revenue Minister Stuart Nash declined to comment on Facebook's return, saying secrecy provisions of tax law did not allow him to comment on individual company's returns. He did not immediately respond to a question on Plekhanova's proposal to amend the 2014 change.
Nash's party has promised to tighten tax rules for multinationals if it returns to power after the October 17 election.
