Governments act to face down the Facebooks

Everywhere you go, when there's a discussion about multinationals not paying their tax, people say ‘ Facebook'

The debate over tax and interest deductions is just one front in a wider battle being waged by governments against the growing threat to their tax bases from companies which shuffle money around the world in search of low — or no — taxes.

Action is being taken multilaterally through the OECD, but some governments are also taking unilateral action. Australia and Britain are imposing a diverted profits tax — popularly known as a “Google Tax” — to penalise companies which unfairly shift profits out of their country.

New Zealand is a participant in the OECD process, with the Government expressing strong support for this approach, but officials and Ministers are also mulling unilateral action — including a Google Tax of our own — and are expected to announce their intentions in a policy paper early next year.

The subject is clearly at the forefront of Government minds, with both Prime Minister John Key and Commissioner of Inland Revenue Naomi Ferguson raising the issue publicly over the past fortnight.

Key cornered Facebook founder Mark Zuckerberg at the recent Apec summit in Lima, Peru, where he told reporters he raised the issue of tax.

“Everywhere you go, when there's a discussion about multinationals not paying their tax, people say ‘ Facebook',” Key told reporters as he described his discussions with the social- media billionaire.

“There could ultimately be consequences and they should deal with it,” Key said of his advice to Zuckerberg.

And at an accounting conference in late November, commissioner Ferguson demanded the business community be more open about their tax arrangements.

“By being more transparent, we can help change the conversation on international tax affairs and rebuild the trust of the New Zealand public in our biggest corporates, especially the multinationals,” she said.