Squeezing a bigger slice of the tax pie from big tech companies

Global tech firms generate enormous amounts of money and have brilliant ways of hiding their profits from the taxman - but a new report suggests a simple gotcha.

Everyone agrees, we all need to pay our fair share of taxes.

And everyone knows, big tech companies don't.

A new report from Tax Justice Aotearoa has quantified some of the missing millions from the sector, and looked at how New Zealand could use existing provisions in tax law to net a greater slice of the pie.

The move would hopefully avoid the ire of an increasingly retaliatory US government, because these provisions were agreed to long ago - they're not new.

The report, Big Tech Little Tax, argues that one change to the way service and licence fees from Google, Facebook, Amazon Web Services and Microsoft are categorised would have yielded tax revenue of $130 million.

Report author Nick Miller tells The Detail how that would work.

Some of the numbers are astounding.

For example, Google took in $1.139 billion dollars in revenue in this country in 2024, but paid upwards of a billion of it to its parent company in Singapore as a "service fee".

That's 92 percent of earnings.

It paid $4.362 million in tax on what remained.

If that service fee was re-labelled as a royalty for using Google's intellectual property, which is probably what most of it really is, New Zealand would get five percent of it.

Facebook is similar - 94.5 percent of its revenue is sent to Meta Platforms Ireland Ltd for the "purchase of services"... of its $167m in earnings in New Zealand, government coffers saw just $1.3m of it.

Amazon Web Services NZ, in spite of bringing in $385m here, had a loss on paper after it paid 79.8 percent of its earnings as a "cloud service fee" to its parent company. It paid $1.7m in tax.

The UK-based Fair Tax Foundation said the big American tech firms known as the "Silicon Six" have paid almost $470b less in corporate income tax in the past decade compared with US companies making the same profits.

Amazon, Meta, Alphabet, Netflix, Apple and Microsoft between them have generated $18 trillion of revenue and $4.2 trillion of profits over the past 10 years.

The Foundation said the companies had "hardwired" tax avoidance into their business models.

Global efforts to squeeze more money out of the very largest internationals looked like it would get over the line last year; they have now fallen over.

The first pillar of the plan was to allocate a quarter of the profits of such companies, according to each country's market share, so tax would be paid in the countries where income is earned instead of being sent to friendly tax jurisdictions such as Ireland (Facebook) and Singapore (Google).

Pillar 2 would have ensured companies would pay at least 15 percent tax, wherever they were headquartered, rendering tax havens obsolete.

"Pillar 1 has definitely fallen over," Auckland Law School Professor of Tax Law Craig Elliffe said.

"We're just waiting for the coronial report."

"Pillar 2 though is still on life support. The US have said they will not participate in it but they have got an agreement whereby their own domestic version of a minimum tax could sit alongside the Pillar 2 that the rest of the world has to comply with.

"But it's yet to be seen if there are countries, other major countries like China for instance, might say, 'well if it's good enough for the Americans not to do it, we'll just not be part of it either'.

"So we'll see what happens."

New Zealand did have a digital services tax on the books that would have captured three percent of the incredible profits these companies make, but Revenue Minister Simon Watts discharged it in May, saying it had some real drawbacks.

It's estimated that tax would have brought in $100m a year, but the bill was shelved with little fuss, most players acknowledging that the current mood in America of retaliatory tariffs was an issue.

Miller said while it's fallen by the wayside because of pressure from the US administration, "our view is that using existing laws... the long-established principles of source taxation, we would at least in theory be less vulnerable to that kind of retaliation, because we're not saying we're aiming this specifically at the digital sector".

"What we're saying is, we have existing laws which may apply to some of these arrangements used by companies in the technology sector, but of course they could be used by other sectors as well."

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