Taxing the multinationals
Physical borders may be on the up worldwide, but the digitalisation of industries from entertainment to retail to finance has meant commercial borders are less defined than ever before. In that context, Kiwi business leaders are raising questions as to the tax status of their global competitors.
Chinese ecommerce giant Alibaba opened a NZ office this year, while commentators are tipping Amazon to make a play in the NZ market over the next year or so. Such a move would not only affect retail, but also media, with Amazon Prime a potential buyer for New Zealand rugby broadcast rights.
While most responding to the Herald CEOs survey were hesitant about the EMA. “However, we must be mindful that whatever we impose may well be imposed on our MNCs should they operate offshore.”
Such concerns have been present for some time. The Government responded with a series of policies to address Base Erosion and Profit Shifting (BEPS) intended to enacted by midway through next year.
“These decisions have been arrived at after weighing up public feedback on three government discussion documents relating to: hybrid mismatch arrangements; interest limitation rules; and transfer pricing and permanent establishment avoidance,” Revenue Minister Judith Collins said in a press release last month.
“These changes will result in an estimated $200 million a year in additional tax being paid by multi-national companies,” said Finance Minister Steven Joyce.
When asked whether the Government had made progress on BEPS issues, 40.5 per cent in the survey said no. Many others (31 per cent) were unsure, while a minority (28.5 per cent) said yes. Of that group, a significant proportion were hesitant about the extent of the progress.
CEOs responded with comments such as: “Yes, but very slow progress.” “Progress but not enough progress.”
“Keep going on this!” “It’s hard to tell through the rhetoric,” said Campbell. “One gets the sense the US will stonewall anything that looks likely to get traction.”
An alternative solution floated by the Labour Party is a diverted profits tax (DPT), which has been introduced in Australia. The survey tends to reflect a need to educate the public on such solutions. Just under 50 per cent supported a DPT, but a further 42 per cent were unsure. When asked whether it would raise more than the anticipated $100m planned for in Australia by 2018-19, a full 63 per cent were unsure.
The debate is characterised by a mix of frustration and appreciation. “Do we want these companies trading with us?” asked another chief executive in the agribusiness sector. “And if we impose an impost that other countries don’t, do we end up being worse off?”