Key gives Facebook's Zuckerberg a serve on tax fairness

Monday 21st November 2016

Prime Minister John Key used a face-to-face meeting with Facebook founder Mark Zuckerberg to tell him the multi-national social media platform needs to deal with its “PR issue” as a company perceived not to be paying its fair share of tax.

Key met Zuckerberg at the APEC Leaders’ Summit in Lima, Peru, over the weekend, where Zuckerberg delivered a keynote speech advocating global policies that “aggressively share prosperity” in response to complaints that globalisation has created inequality.

“I was reasonably blunt,” said Key of his conversation with the 33-year-old Facebook boss. “I said I did have an issue in terms of his global tax outlook and perception and how I thought that he needed to change that.”

Key was careful not to accuse Facebook of paying too little tax, saying he couldn’t judge that himself, but the fact that Facebook was a global byword for tax avoidance indicated the company had at least a public relations "issue".

“It wasn’t about whether they do or don’t pay their fair share of tax in New Zealand. Maybe they do, maybe they don’t,” he said. The company either needed to deal with its record as a taxpayer or to “demonstrate to the world that they pay their fair share of tax in every country that they operate”.

Key said Zuckerberg appeared surprised to be tackled on the issue, “but I don’t think I’m doing him any favours not telling him that. Everywhere you go, when you discuss people not paying their tax, people say Facebook.”

Key said he drew a parallel to Donald Trump’s win in the US presidential election as indicating the extent to which electorates are reacting against perceptions of unfairness.

One speaker at the APEC Business Advisory Council meeting, held as part of the Lima summit, pinpointed the potential for political friction between the incoming Trump administration and Silicon Valley social media giants like Facebook and Google.

Not only had Silicon Valley been largely anti-Trump, but the social media platforms themselves had been a big part of Trump’s electoral success, partially because he was able to use them to spread both his messages and false news, said Ian Bremmer, founder of an American geopolitical strategy consultancy, the Eurasia Group.

“I expect a serious fight between companies driving the US’s fourth industrial revolution and Trump,” said Bremmer in a wide-ranging address suggesting the Trump presidency represented the end of the so-called ‘Pax Americana’ that had seen the US assume a pre-eminent leadership role in world affairs since the end of the Second World War.

That fight would be “less about economics and more about the narrative: who are the winners and who are the losers?” said Bremmer, who described Trump’s willingness to return to Twitter after his election win to attack political opponents as “the single most disturbing thing” to occur since the Nov. 7 election vote.

Key acknowledged that Zuckerberg was “amazingly philanthropic” and intends to give away his entire net worth, currently worth tens of billions of dollars, but it was important that multi-national corporations paid tax in the companies where they operated or risk their users turning on them.

Financial statements from the New Zealand arms of Facebook and Google typically show relatively small local revenues, despite the pair dominating the market for digital advertising at the expense of locally owned news producers, because revenues are typically booked offshore.

Some such businesses, which operate digitally and can often avoid tax by lacking a clear physical location, are able to arrange to take income only in jurisdictions that operate low tax or tax haven environments.

Only recently have New Zealand tax laws been changed to require payment of GST on transactions for services supplied digitally from an offshore location.

BusinessDesk.co.nz

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