Don Christie: Global IT companies are taking profit here and putting nothing back

Global corporates like Apple can extract huge value for themselves without leaving any money in the local economy. Photo / AP

Opinion

By Don Christie

In every country, money needs to circulate to keep the economy going. When money stops circulating, as last happened during the global financial crisis, the economy stagnates and suffers. As money goes round our economy it actually works for us, with a multiplier effect creating more opportunity and more wealth.

Equally important to this circulation is the ability of national and local governments to tax some of this wealth and pay for social "goods", such as schools, hospitals and roads.

Money spent within local economies generates far higher tax revenues. A study by Economics New Zealand showed that $115,000 spent with our local IT services company generated a whopping $47,693 of tax returns to the Government. That's a 41 percent tax return to our community.

New Zealand is an open economy, so money can flow in and out of the country with ease. This has advantages and downsides. The most obvious downside is that money has a bigger impact on small economies if it circulates locally and if circumstances allow large revenues to flow overseas this creates problems.

Matt Nippert's excellent reporting on non payment of taxes by multinationals demonstrates a worrying trend in the global economy. Whilst this trend may not be new, its impact has been hugely magnified by internet based private cloud platforms. These include iTunes, Facebook, Uber and Amazon.

Global corporates now have the ability to "mine" economies. They can extract huge value to themselves without leaving any money in the economies. They can avoid paying local and national taxes by creating "headquarters" in countries that have very low tax rates. These headquarters often only exist on paper.

According to Nippert, Apple should have paid New Zealand $356 million in taxes over the last ten years, based on the turnover and profitability of revenues earned from New Zealand. Instead we got nothing. No contribution to the national economic well being that allows us to be such avid consumers of Apple's products and internet based services.

Mass aggregation of wealth comes at a cost to countries such as New Zealand and to the global economy in general. It has a stagnating impact. Companies like Facebook and Amazon cannot spend money as fast as they make it. A few people and corporates get incredibly wealthy, the rest of us wonder whether we will have jobs in ten years time.

An organisation I co-chair, NZRise, has been looking at the problem. We represent New Zealand owned digital companies who generate jobs and good incomes for tens of thousands of Kiwis. Our research shows Facebook, Google, Amazon and many other global digital companies are engaged in similar tax avoidance schemes to Apple.

Most revenues that accrue to those companies from New Zealand simply don't get reported. They are the result of an online transaction and the money flies out of the country in the blink of an eye. No tax. No multiplier effect. No 41 per cent investment into our society.

From a business owner's perspective it also represents a huge disincentive to invest in R&D, which is already at shockingly low levels by international standards. We find ourselves at a disadvantage to our multinational competitors.

Why create software and technical services in New Zealand when we will always be facing uneven tax playing field?

The challenges of running a business are not helped by successive governments and the public service who seem disinterested in overcoming this skewed game and who take an avowedly "hands off" approach when it comes to looking at the impact their uneven tax regimes and purchasing decisions have on the economy.

I don't expect consumers to change behaviour radically but politicians, government and New Zealand corporates such as Fonterra, can make a large and immediate impact on the mining of our economy and at the same time help grow an important part of our future: the digital economy.

The Government has to do a number of things:

• Have multinationals report genuine New Zealand revenues and broaden the application of GST on all digital goods and services including the removal of the B2B GST exemption granted to foreign digital companies.

• Become world leaders in developing fair and equitable rules around transfer pricing and the avoidance of profit shifting.

• Increase transparency. The "Panama Papers" have shown our famed "ease of doing business" has a darker side. For example, in another inexplicable change, the replacement Financial Reporting Act introduced in 2013 deemed that multinational companies need no longer file annual accounts with our Companies Office unless they're "large", defined as two years after their revenue exceeds $10M or total assets exceed $20M.

Given this change, it's possible the likes of Facebook, a $27 billion global company, will never file New Zealand accounts again because they're not "large" given their current definition of "revenue".

• Procure more and more New Zealand goods and services.

It's a mistake to believe we live in a world where we are helpless and cannot be change leaders. If that were the case, no rugby player would ever get out of bed, no rower brave the cold waters of Lake Ruataniwha and Xero would not have taken on the accounting world.

We don't have to wait for the rest of the world to act. Let's lead.

• Don Christie is co-chair of NZRise (nzrise.org.nz) and director of a local IT company, Catalyst IT.