When tax is positive and sexy

The United States National Bureau of Economic Research has estimated that profits of up to $1.4 billion are taken out of New Zealand and moved to tax havens per year.

New taxes are rarely applauded by the public but most New Zealanders will welcome the Taxation (Neutralising Base Erosion and Profit Shifting) Bill, which passed its third reading in Parliament this week and comes into effect on July 1.

This is the much-anticipated law designed to help ensure multinational companies pay their share of tax. That it was passed unanimously in Parliament shows that, unsurprisingly, there is no political gain in taking a stand against perceptions of fairness, and the sense that some multinational giants are shifting significant profits out of New Zealand into tax havens.

The United States National Bureau of Economic Research has estimated that profits of up to US$1 billion (NZ$1.4b) are taken out of

New Zealand and moved to tax havens per year, which is a tiny fraction of an estimated US$600b of profits shifted to tax havens globally in 2015. That sum accounts for a remarkable 40 per cent of multinational profits.

To cite one striking example, Google booked US$19b in revenue in Bermuda in 2016, although it ‘‘barely employs any workers nor owns any tangible assets’’ in Bermuda, ‘‘where the corporate tax rate is zero per cent’’, the authors said.

It may seem that in the global picture, New Zealand’s concerns do not amount to a hill of beans. Inland Revenue (IRD) has said the law will collect an extra $200 million annually, although other experts, such as the University of Auckland Business School’s Professor Craig Elliffe, say it is hard to be that precise. Both Google and Facebook, two of the large ‘‘Faang’’ companies – the others are Amazon, Apple and Netflix – recently agreed to record advertising revenue at New Zealand rates rather than invoicing from low-tax countries.

Political will and strong public interest have driven such decisions.

Revenue Minister Stuart Nash and his counterpart in Opposition, Paul Goldsmith, agree that the new law is just one step, and that the OECD and G20 have led the way on this issue.

‘‘Most multinationals operating in New Zealand pay the tax they should and are compliant, but there are some that adopt base erosion and profitshifting strategies to undermine their New Zealand tax obligations,’’ Nash said in Parliament. One of the law’s new measures is to empower IRD to investigate multinationals.

Goldsmith praised the process, in which detailed advice from officials was followed by a large and considered select committee, with feedback from ‘‘many hundreds of practitioners in this space in New Zealand and internationally’’. He contrasted it with the Government’s swift decision to end oil and gas exploration, which bypassed Cabinet and was made without official advice.

Speaking in the House, Goldsmith saw the tax law process, which began under National, as a shining illustration of the way things should be. ‘‘I just wish that we applied a similar level of rigour and analysis in research and a genuine listening and engaging with stakeholders most directly affected, and an attempt at some bipartisanship over the political debate,’’ he said.

Who knew that tax law could not just be positive and uplifting, but an occasion for political peace to break out? Or as National’s Judith Collins put it, ‘‘Who knew tax could be so sexy?’’