Published on the 11/09/2025 | Written by Heather Wright

No new laws required?…

It’s time for New Zealand to put on its big boy pants and tackle the issue of big tech’s tax minimisation efforts, including testing the principles in our courts and more ‘muscular’ enforcement of existing rules.

A new report, commissioned by Tax Justice Aotearoa and Better Taxes for a Better Future, suggests that in fact, law changes aren’t needed to hold multinationals to account and existing laws could be applied to stem the estimated hundreds of millions in taxes lost to New Zealand each year.

The report follows the New Zealand government’s decision in May not to pursue a digital services tax, aimed at ensuring large multinationals pay a minimum tax rate of 15 percent (well below the 28 percent corporate tax rate).

“It appears all or part of these service fees may in fact be royalties, which would be subject to withholding taxes in New Zealand.”

OECD plans for a multilateral global minimum tax rate also appear to have fallen by the wayside amid counter threats from US president Donald Trump earlier this year.

Countries around the world are however, continuing to attempt to hold the big tech companies to account, with the Australian Tax Office among those pressing ahead with legal actions.

In Australia it is estimated that between them Meta, Amazon, Netflix, Disney and Google logged AU$15 billion in revenue last year, but paid just $254 million in tax between them.

The ATO is pursuing Oracle over tech royalties in a case seen as a test case to determine Australia’s approach to taxing digital royalty payments.

Big Tech, Little Tax suggests that with the digital services tax and other potential multilateral solutions looking less likely, now is the time for New Zealand to turn its focus towards harnessing existing laws to challenge the minimisation tactics.

Nick Miller, author of the report says the tech giants rely on local infrastructure and public services to be able to generate income estimated to be at least $3 billion a year, but are using tax minimisation practice to avoid paying to help maintain the services they rely on.

The report outlines three tax minimisation models used by the tech giants, the taxes lost to New Zealand as a result and how existing legislation could be used to extract more tax from the companies without any law changes required.

It shows that between them, Facebook, Google and AWS ‘appeared’ to earned revenue of more than $1.6 billion last year, with Google NZ clocking the lion’s share at $1.139 billion. All three however, logged swathes of services ‘purchased’ from their parent companies, subsidiaries or unspecified parties which resulted in them logging taxable income of just $38.9 million between them.

“The use of proprietary intellectual property is likely woven through all activities undertaken by New Zealand subsidiaries of the tech giants,” the report says. “This suggests that proportions of ‘service fees’ paid, may in fact constitute royalties that would attract withholding tax, payable under New Zealand’s double-tax treaties.”

“It appears all or part of these service fees may in fact be royalties, which would be subject to withholding taxes in New Zealand,” Miller says.

Others companies, including Oracle and Microsoft (both of whom have been the subject of audit activity in New Zealand, the report notes) use licence fee models – or in the reports terms ‘the inflated licence fee or other unspecified payment for software’ model – which see the local subsidiary paying a large percentage of their revenue to offshore subsidiaries. That means while Oracle NZ earned revenue of $172.7 million, its payment of $105.3 million in licensing fees to a related Irish party left taxable income of just $5.3 million. Microsoft’s $1.32 billion in revenue was slashed to a taxable income of $62.8 million thanks to $1.075 billion of ‘purchases’.

It’s a model currently being tested in court in Australia, where the Australian Taxation Office is pursuing Oracle for more than $250 million in penalties from ‘sublicense’ payments for software and hardware which Oracle Australia purchased from Oracle Ireland between 2013-18.

The software giant applied to stop proceedings late last year, pending the conclusion of international arbitration, however the court ruled the case should continue domestically because of the need to establish legal precedent for at least 15 other multinational tech companies facing similar issues.

Oracle is arguing that the payments are not royalties. (until 2017, the company did call the NZ payments royalties, then changed the description to ‘sub-license fee’.)

In New Zealand, the report notes Oracle hasn’t always had a low return on sales – back in 2009 and 2010 the return on sales percentage was around 20 percent, plummeting to around four percent in 2011.

“It is not difficult to detect the main reason behind Oracle NZ’s profitability falling off a cliff,” the report says.

“Royalties (the payments were at that time disclosed as ‘royalties’) increased as a percentage of revenues by around two-thirds over a period when the business was, in terms of operating revenue, treading water.”

The Kiwi report also looks at the service company model, deployed by the likes of Netflix, where the local subsidiary operates only as a marketing and support service, with sales or service revenue booked offshore.

It suggests rules are already in place which could force companies to book revenue here.

But the report also warns that the strategies engaged by big tech give rise to ‘nuanced and difficult technical and legal issues’ and require significant legal and technical resources to investigate and establish the relevant facts – and where appropriate, to litigate to clarify how existing law applies.

While it says consideration should be given to tightening legislation, it warns that remedial legislation might be delayed until the effectiveness of the current law is clarified by the courts.

“It is worth noting that the time taken by such a process would be costly in terms of the loss to the tax base in the meantime,” the report says.

It notes that even without a withholding tax rate of five percent, the amounts of tax revenue at stake are significant.

“If say, a five percent withholding tax were to be imposed on the amounts paid out by Google NZ, Facebook NZ, AWS NZ and Microsoft NZ, in aggregate close to $26 billion, this alone would yield a further $130 million.”

Says Miller: “More rigorous enforcement of existing tax obligations against tech giants, reviewing existing legislation to prevent the type of tax avoidance identified in the research and introducing measure to require more transparency from multinationals are all practical and important steps which could potentially raise even more revenue that the digital services tax.”