“Dodgy” but not necessarily illegal – and this could be tested.
This is how tax expert Nick Miller describes the financial practices of Big Tech multinational giants – including Google, Facebook, Amazon, Microsoft, Oracle – which make a lot of money in New Zealand and pay minimal tax.
His report, Big Tech, Little Tax, is published today by the Better Taxes for a Better Future Campaign and Tax Justice Aotearoa.
It asks whether the New Zealand subsidiaries of these global giants are paying their fair share, and if not, how they can be required to without introducing a new tax.
The complete absence of any legal action in New Zealand suggests that the way these companies organise their finances is entirely above board.
But this is “challengeable”, Miller said.
The report centres around inter-company payments from a New Zealand subsidiary to an offshore related party, Google New Zealand to Google International or Google Asia Pacific, for example, or Facebook New Zealand to its sister company in Ireland.
These payments are often described in financial statements as service or licence fees and are so massive as to dwarf the company’s taxable income.
Miller asks whether these payments, or a share of them, are actually for using the global company’s intellectual property (IP) in New Zealand.
“The stated activities of New Zealand subsidiaries could not be carried out effectively without the right to use the group’s IP,” the report said.
This would arguably make them payments for royalties, which would be subject to withholding tax under existing tax laws. A 5% withholding tax rate could bring in hundreds of millions of dollars a year across all of Big Tech’s New Zealand subsidiaries.
“If you misrepresent what a payment is for, then that’s obviously challengeable under our existing taxation laws,” Miller said.
“And should be challenged.”
No such legal test case exists in New Zealand, and the report includes a disclaimer: “No allegation of illegality or illegal behaviour is intended by any of the individuals or entities mentioned in this report, and any suggestion to the contrary is strongly refuted by the authors.”
But it notes developments in Australia, where there’s an ongoing legal case against Oracle Australia.
The contentious issue is whether the annual “sub-licence” fees, paid by Oracle Australia to Oracle Ireland, should be interpreted as royalties, as defined in the tax agreement between Australia and Ireland.
“What is the nature of the payment they’re making?” Miller asked.
An Australian court judgment saying it’s a royalty payment could be applicable in New Zealand.
“If a customer in New Zealand contracts with a New Zealand subsidiary to obtain the right to use software, that right can only be granted by the overseas parent who owns the relevant IP, including the copyright,” the report said.
“Therefore, the payment to the local subsidiary is ... a royalty which is then paid on to the parent company.”
A withholding tax on royalties would amount to a significant tax take. In 2024, the inter-company fees from Google NZ, Facebook NZ, Microsoft NZ and Amazon Web Services NZ together totalled almost $2.6 billion.
“If, say, a 5% withholding tax were to be imposed on the amounts paid out by Google NZ, Facebook NZ, AWSNZ and Microsoft NZ, this alone would yield a further $130 million,” the report said.
This is not the first time Big Tech financials have come under scrutiny.
In 2018, Google NZ pledged to book New Zealand revenue in New Zealand, where previously it had invoiced local business to subsidiaries in lower-tax Ireland or Singapore.
At the same time, in-house service fee payments from Google to its US parent ballooned from $85 million in 2018 to $511m in 2019. Reported revenue was a mere $36.2m.
The proportions were similar the following year: revenue of $43.8m and a service fee of $517m. At the time, a Google NZ spokeswoman said the service fee growth was due to a “new operating model”, which was compliant with tax law.
In 2024, the service fee was just over $1b.
In his report, Miller determined his own figure for Google NZ’s revenue in 2024 by including the service fee, which boosted total revenue to $1.139b.
This would make the service fee 92.3% of total revenue. For Facebook NZ, in 2024, it was 94.5% ($159m for a service fee, out of Miller’s revenue total of $167m).
For Microsoft NZ, which paid about $1b in “purchases” in 2024 to a related company, it was 81.4%.
“This classification [”purchases”] suggests that none of the payments are made in exchange for the right to use Microsoft’s IP, despite local customers presumably paying Microsoft NZ directly for the right and entitlement to use Microsoft software," the report said.
Miller, who worked on cross-border tax issues when he was at the Inland Revenue Department (IRD), asked the same questions of Facebook NZ and Google NZ.
“Look at Google NZ paying out $1 billion in what they call service fees. Well, what is that?
“It’s unlikely to be a service fee because the New Zealand subsidiary does not require $1 billion worth of services. Just calling it something does not make it so.”
The counter-argument is that it’s valid for companies to book most of their revenue to their home country, where they incur most of their corporate expenses, including product development.
Miller added that the taxable incomes for these companies, “given the scale of their activities”, stretched the bounds of credibility.
Facebook NZ’s net earnings before interest and tax in 2024 was $3.448m, while Microsoft NZ’s was $54.85m and Google NZ’s was $29m.
Including service fees and “purchases” in their total revenues, as the report does, shows extremely low returns on sales: 2.34% for Facebook NZ, 2.54% for Google NZ, and 4.15% for Microsoft NZ.
These were a fraction of the returns on sales for the respective global parent companies: 42% for Facebook (Meta), 32% for Google (Alphabet) and 45% for Microsoft.
As well as inter-company service or licence fees, the report includes a third way to minimise taxable income: categorising the function of the New Zealand-based subsidiary as marketing and support, which allows sales and service revenue to be booked offshore.
The report says that credit card companies, taking commissions from some $49.5b in card transactions, appear to deploy this model, as does Netflix.
Questions have previously been raised over how much tax Big Tech should be paying. In 2018, when the world’s digital economy was worth US$7.7 trillion ($13t), the European Union estimated the average digital company was paying only 9.5% tax.
There are two ways the coalition Government was looking at how to ensure Big Tech companies paid their fair share in New Zealand.
The first, a Digital Services Tax (DST), was scrapped earlier this year after US President Donald Trump warned that such a tax amounted to “overseas extortion” that could trigger retaliatory tariff hikes.
The second is the OECD-G20 Inclusive Framework, which Revenue Minister Simon Watts referenced in announcing the dumping of the DST.
“A global solution has always been our preferred option, and we have been encouraged by the recent commitment of countries to the OECD work in this area,” Watts said.
“Ultimately, we needed to ask ourselves if adopting the bill [the DST] was in New Zealand’s best interests, given all the relevant factors. And we have decided that it would not be at this time.”
Whether the framework will benefit New Zealand is an open question.
Its “pillar two” rules came into effect this year, meaning large New Zealand head-quartered multinational companies will pay a minimum 15% in corporate income tax in the jurisdictions they operate in.
Given New Zealand’s corporate tax rate is 28%, pillar two is unlikely to squeeze any additional tax from New Zealand subsidiaries of offshore-headquartered multinationals.
Pillar one, which aimed to allocate a portion of Big Tech profits to countries where their actual customers or users live, has stalled since the Trump administration took office.
Miller’s questions around withholding tax open the door to a greater tax take from Big Tech without the need for a global solution, or a new tax – which might avoid any US retaliation.
He interpreted the US stance as “we’re gonna come after you if you’re targeting tech companies with a specific tax like the DST”.
“There’s already a mechanism in place to tax these companies. Therefore, it’s not actually aimed at them.”
Were a withholding tax found to be applicable, he added, “you never can tell” how the US might respond.
The Herald asked the New Zealand-based subsidiaries of Facebook, Google, Microsoft, Oracle and Amazon Web Services for a response to the issues raised in the report, but none responded.
Some have previously responded to questions about finances and taxes.
“Meta [which owns Facebook] pays taxes as required in every country that we operate, including New Zealand,” Meta said in response to questions from the Herald last year.
“We have always paid income tax in accordance with New Zealand’s taxation laws. We take our tax obligations seriously and proactively engage with the Inland Revenue Department to ensure transparency in the taxes we pay in New Zealand, and we remain committed to supporting local communities and businesses in New Zealand.”
Last year, Google NZ told the Herald: “We continue to invest locally through infrastructure, community engagement and product launches, and work in co-operation with Inland Revenue to comply with New Zealand’s legislative requirements.”
Derek Cheng is a senior journalist who started at the Herald in 2004. He has worked several stints in the press gallery team and is a former deputy political editor.