Plunge in tax audits prompts questions

IRD says ‘ no surprises’ policy has reduced need to probe companies

The Government is letting big corporates off their tax obligations lightly after figures revealed a precipitous decline in the number of large companies being audited, the Green Party claims.

The answers to written questions asked of Revenue Minister Michael Woodhouse by the Green Party show that between 2010 and 2015, the number of audits of large companies declined from 133 to only 25, a drop of 80 per cent. The figures show a rebound in the number of audits in 2016 to 74, but that is still barely half the 2010 level.

Audits are a formal, and compulsory, examination of an organisation’s tax affairs by Inland Revenue. The figures relate to probes of all companies recording annual revenue of $ 300 million or more.

James Shaw, the Green Party’s coleader, said the slump was marked and unexpectedly large.

“I was pretty surprised. It’s an amazing decline, and the numbers do tell a story by themselves,” Shaw said.

“The Government was warned in 2013 about systemic tax avoidance by multinational corporations. It seems they not only chose to do nothing, but rather than stepping up the policing of tax avoidance they’ve let the auditing of large companies quietly collapse.”

Shaw called for more resourcing of Inland Revenue, which he said had its funding for audits and investigations cut by around 10 per cent, from $ 190m to $ 170m, during the period in question.

Interview requests sent to Inland Revenue were answered in writing by a representative.

“Tax compliance in 2016 is about much more than audits,” the representative said, adding that Inland Revenue had built a “close relationship” with corporates, helping create a “no- surprises environment when it comes to tax”. Questions about why the number of audits increased markedly in the year to March, from 25 to 74, were not addressed.

The representative said the introduction of a basic compliance package policy in 2012 meant large companies were required to annually submit a wide range of financial information, which led to fewer audits.

“Depending on the risk rating from the [ basic compliance package], past history and other intelligence further review or in- depth audits are carried out . . . Which means we are continually reviewing these corporates’ tax affairs and have reduced the need to undertake large audits.”

The Inland Revenue representative defended its approach, saying: “It is believed that this comprehensive monitoring approach and success in the courts combating aggressive tax planning is leading to improved compliance and a reduced appetite for pushing boundaries among the corporate community.”

Aaron Quintal, a tax partner with

EY, which gives tax advice to a number of large companies, agreed the reduction in audits was due to increased scrutiny.

“They’re able to target things a lot better, and do more effective, and fewer, audits,” he said.

“There i s an interesting story there. People don’t understand the amount of scrutiny the top end of town i s under. There i s this impression they’re left to their own devices. And that’s absolutely not the case.”

In March, a Herald investigation found 20 highly profitable international companies made $ 20 billion in revenue from NZ customers but paid only $ 1.8m locally in income taxes.

In May, the Australian Government announced a crackdown on multinational tax rorting by imposing a “Google tax,” the popular name for a diverted profits tax.