Look
at these two headlines from Friday and Saturday:
NBR:
From
New Zealand Herald, and to give NBR their dues, this a lot more duplicitous by
dropping the reference to sales as a denominator:
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:
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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