MSM Again: I Expect This of Granny Herald, Not NBR.

Look at these two headlines from Friday and Saturday:

NBR:

Apple’s NZ unit pays 0.4% tax on 2012 sales of $500m

From New Zealand Herald, and to give NBR their dues, this a lot more duplicitous by dropping the reference to sales as a denominator:

Apple's NZ unit coughs up 0.4% tax

Both pieces by Kristen Paterson; this is how Kristen starts the Herald piece:

Apple's New Zealand division made sales of $571 million last year but paid only 0.4 per cent of that in tax.

Labour's Revenue spokesman David Cunliffe said that's akin to paying nothing at all, and letting a corporation get off "scott free" is something New Zealand taxpayers shouldn't have to stomach.

Shock horror, call in the IRD Storm Troopers, this global company is not paying its fair share of tax in New Zealand. And don’t worry about how the innovation of firms such as this have increased our quality of living far more than the voracious, bottomless stomachs of out-of-control government, David.

It’s a hackneyed story by now; I’ve covered it before:

Amazon is Our Hero, Not the Villain in the Piece.

 Labour’s David Clark Declares War on the Consumer.

However, this time I’m not pointing out differences of philosophy in the reporting: as I implied in reference to the Herald’s headline, there’s something much more slippery happening here.

The 0.4% tax rate Kirsten refers to is tax liability accrued in the financial statements as a percentage of total sales.

Huh? Of sales?

Businesses, be they sole traders, partnerships, special partnerships, LTC’s, QC’s, companies, trusts don’t pay tax on sales; they pay tax on net profit; that's sales, less expenses incurred to make those sales.

To prove the point I’m shining the light of freedom on in this post, I will employ a simple example. Kirsten wants the IRD, presumably – I can't think what the agenda is otherwise - to crush Apple, the big bad foreign corp only paying 0.4% tax on sales; but let’s look at a home grown firm, the current market darling, Xero.

Over 2012 Xero reported sales of $19.3 million, however, hold onto your seats, while paying zero (note the z) tax. That’s 0.00% tax on $19.3 million turnover. What a shocker.

Also, off Fletcher Building’s last financial statements, the similar head line is, shock, horror: ‘NZ’s Fletcher Building Coughs Up Only 0.37% tax – Less than Apple’. In fact let’s rewrite Kirsten’s opening paragraph:

New Zealand firm Fletcher Building made sales of $8.9 billion last year but paid only 0.37 per cent of that in tax.

Does this mean the directors of Fletcher Building and Rod Drury from Xero should now be frog marched for their compulsory interrogation in IRD’s room 101? When you get that letter, there’s no saying no, you know - it’s not the free society. Should IRD be demanding all these directors’ personal bank statements from their banks, unknown to them, then sending in the storm troopers to dismantle their companies?

No, it doesn’t mean this. Because returning just to the former, all this means is Xero, after expenses which were greater than its sales, because its aggressively trying to grow its customer base, generated a loss, and it's only bottom line taxable profit (or tax loss) that is of relevance for calculating tax liability.

So returning to Apple NZ’s 0.4% tax rate as a percentage of sales, what does that tell the reader?

Nothing. It’s an entirely pointless, out of context figure, generated into the headline only for its sensationalist value in appealing to the typical Kiwi’s Luddite xenophobic anti-capitalist prejudice. Chris Keall on the NBR thread points out, rightly, that when you burrow down into the piece there are figures which would seem to highlight inconsistencies with Apple’s tax liability, although in response to that there is, apart from my philosophical defence of Apple in the links above, another commenter who makes the equally valid point that it may well be appropriate Apple uses transfer pricing to take profits back to where it earns its intellectual property, leaving a small profit in NZ representing its sales here of merely low margin product. But all that is beside the point, which is the spurious use of a headline figure designed to play on the prejudice of New Zealand's beef-witted. And while I would have expected Herald to pick up the piece and run with that by-line, I’m disappointed in NBR: I don’t pay my online sub for shoddiness and beat ups against innovative businesses like this, leave that to the rest of the media in New Zealand; in a drought of intelligent press, you were the single oasis of sense, and dare I say it, morality. Some of us are over the emoting, advocacy journalism of the sort that utilises such a sham for a headline.

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