‘Powerful’ multinational tax clampdown
A crackdown on multinational tax rorts announced by Revenue Minister Judith Collins is ‘‘powerful’’ but will make it tougher to do business in New Zealand, a tax expert says.
Big foreign multinationals will be prevented from shifting profits from their New Zealand sales overseas, if those sales are actually driven by New Zealand-based staff, Collins announced.
The rule will apply to companies that have a global turnover of more than €750 million (NZ$1.1B).
The move is one of a series of reforms proposed by Collins to clamp down on multinational tax avoidance, but which tax experts have warned may not necessarily see the likes of Google, Apple and Facebook pay much more tax in New Zealand.
Collins also proposed measures to prevent excessive interest charges by foreign firms, transfer pricing abuses and so-called ‘‘hybrid mismatches’’.
‘‘Closing loopholes and reducing opportunities for gaming the system’’ was necessary not only to ensure that multinationals and others paid their fair share of tax, but also to ‘‘maintain confidence in the fairness of the tax system’’, she said.
Ernst & Young tax partner David Snell said the proposed tax reform package would put New Zealand ‘‘at the forefront’’ of moves by the Organisation for Economic Cooperation and Development (OECD) to close tax loopholes, alongside Britain and Australia.
But he questioned whether the reforms were worth it in New Zealand.
‘‘The evidence is not there concerning multinational tax avoidance that would justify the reforms,’’ he said.
Officials have suggested the wider crackdown on tax rorts by foreign firms could net Inland Revenue $300 million annually.
PWC tax partner Geof Nightingale said it would definitely result in some additional tax revenues but doubted the figure would be that high.
Collins made no mention in her longawaited speech in Queenstown of a ‘‘diverted profit tax’’, which has been introduced in Australia and Britain to penalise companies caught manipulating the tax system.
A diverted profit tax would be a potential crowd-pleaser, but Nightingale said it would be more ‘‘politics than policy’’.
A discussion paper released by Collins said a diverted profit tax had not been ruled out, but the Government wanted to explore ‘‘an alternative approach’’.
Labour revenue spokesman Michael Wood said the Google tax reforms were ‘‘steps in the right direction’’ but had taken far too long.
‘‘Labour is going to support any measures that help ensure multinationals pay their fair share of tax.’’
Efforts to prevent multinationals exporting profits to low-tax countries and tax havens have become known as a ‘‘Google tax’’ because of Google’s use of accounting rorts such as the ‘‘double Irish’’ to move billions in profits through Ireland to tax havens.
Company tax makes up 15 per cent of New Zealand’s total tax take of $63 billion, but a Cabinet paper released in December said there were concerns multinationals were not paying their fair share.
United States lobby group Citizens for Tax Justice estimated in October that the top 500 US corporations – including Apple, Nike and pharmaceutical giant Pfizer – had stockpiled US$2.5 trillion of profits in tax havens.
Nightingale could not say which companies would be most affected by Collins’ reforms.
‘‘It is multinationals doing business in New Zealand, but I don’t think these measures will impact digital companies, such as Google and Facebook, to a large degree.’’
A key principle of the global company tax system is that businesses are taxed according to where they locate their operations and intellectual property, rather than where they sell products.
Many technology companies in particular have opted to keep their operations in New Zealand to a minimum and sell here online. Google is understood to employ only about 20 staff in New Zealand.