Will BEPS Allow New Zealand to Finally Tax Google?

Abstract

Tax avoidance by major US multinationals has been extremely topical over the last decade since the GFC. One of the MNEs at the forefront of this controversy is Google. It has been able to snare a dominant share of the international online advertising market without paying any significant amounts of tax in countries where it obtains orders other than the US. It has been able to do so by structuring its affairs so that it does not have a “permanent establishment” (PE) in New Zealand. Instead its New Zealand customers conclude contracts directly with Google subsidiaries in countries which New Zealand has concluded a DTA with but otherwise impose low taxes such as Singapore and Ireland. The BEPS project has been undertaken by the OECD to deal with MNE tax avoidance. New Zealand has been an active participant in this project seeing a multilateral forum such as the OECD as the best way to deal with this problem rather than taking independent steps of its own. The multilateral instrument (MLI) arising out of the BEPS project is designed to modify a large number of the world’s DTAs at one time to deal with this tax avoidance problem such PE avoidance by MNEs such as Google. The MLI is a modular convention in that signatory states do not have to agree to adopt all parts of it. This paper analyses the responses of several of New Zealand’s key DTA partners in respect of Part IV of the MLI dealing with PE avoidance. It will be concluded that the MLI is unlikely to prove effective for New Zealand in deal with tax avoidance by Google. It appears that New Zealand may need to adopt a unilateral strategy to effectively tax Google on its profits earned from New Zealand advertisers outside the BEPS project which is proposed in a bill introduced to the New Zealand Parliament in December 2017. Consideration is finally made whether this bill will be effective in securing tax revenue from MNEs such as Google.