IRD lawyer defends secrecy

The tax department’s top lawyer has defended its ingrained culture of secrecy amid calls for it to open up about multinational tax avoidance.

The Inland Revenue Department’s group counsel, Graham Tubb said he ‘‘didn’t feel qualified’’ to make a call on whether public trust and confidence in the tax system was being undermined by concerns about multinational tax avoidance.

Technology multinationals have been under global scrutiny over accounting practices which have seen them funnel billions of dollars of profits through countries such as Ireland and Singapore and into tax havens.

The question of whether multinational tax avoidance is undermining trust in the tax system is important, because Inland Revenue is duty-bound to maintain trust in the tax system to encourage voluntary compliance by New Zealand taxpayers.

If that trust was being undermined, it could trigger section 81 (1b) of the Tax Administration Act, which would allow the department to comment on the tax practices of multinationals about which concerns had been raised.

Tubb said the tax system would be ‘‘immeasurably damaged’’ if it answered questions from the media about the tax treatment of individual companies such as Microsoft, Google and Vodafone.

But Massey University tax expert Deborah Russell said his fear was overblown.

‘‘If Inland Revenue was talking about ordinary taxpayers’ affairs that would be deeply worrying, but big companies are part of the institutional structure of our society and are much more able to withstand pressure of government,’’ she said.

‘‘Ordinary taxpayers see big companies getting away with [not paying] tax and they think ‘Why should I pay my taxes?’ I would like to the see the commissioner being more proactive.’’

This year Inland Revenue has declined to comment on speculation – denied by Vodafone – that Inland Revenue had required the company to inject an additional $300 million of equity into Vodafone New Zealand to reduce interest payments to its European parent.

‘‘Ordinary taxpayers see big companies getting away with [not paying] tax and they think ‘Why should I pay my taxes?’ ’’ Tax expert Deborah Russell, above right

It also refused to comment on whether it could provide assurances that Microsoft’s 2014 decision to transfer ownership of its New Zealand business from the United States to Luxembourg should not undermine public trust and confidence in the tax system.

More recently, Inland Revenue has indicated it will not confirm the identity of foreign firms that fail to comply with a new law requiring them to register to collect GST on digital services that they sell to New Zealanders.

‘‘There won’t be any change to our approach with regards to commenting on individual companies,’’ spokesman Pete van Schaardenberg said.

‘‘As with any taxpayer Inland Revenue believes is not complying with their obligations, we would work directly with them and their advisers to get them back on track.’’

Labour Party revenue spokesman Stuart Nash called in June and again last week for the department to open up more, saying section 81 (1b) gave it the necessary legal authority.

The section sets out circumstances in which Inland Revenue can comment on companies and individuals’ tax affairs, and the factors it needs to balance.

These include its duty to promote voluntary compliance with the tax system.

Nash said it was ‘‘almost impossible’’ for Inland Revenue to assure the public that issues were being addressed appropriately without providing specifics of individual companies’ practices.

But Tubb said the department’s approach was ‘‘totally ingrained’’.

‘‘If you want to say it was cultural, to some extent it is.’’

Russell said she didn’t see why Inland Revenue couldn’t use 81 (1b), noting Prime Minister John Key had raised the amount of tax that Facebook paid with company founder Mark Zuckerberg.

‘‘Key is an astute politician, so I expect that he is picking up that a lot of ordinary taxpayers are grumpy,’’ she said.