03/03/17

New Zealand: Govt reveals changes to target multinationals over tax

UPDATED 2.18pm Changes to ensure multinational companies pay a fair share of tax have been outlined by the Government, reports NewsTalk ZB.

Finance Minister Steven Joyce and Revenue Minister Judith Collins have released three consultation papers, that propose new measures for taxing multinational companies.

"We welcome multinationals' participation in our economy, but we also expect them to pay tax based on their actual levels of economic activity in New Zealand," Collins said.

The proposed changes include:

Addressing concerns about multinationals booking profits from New Zealand sales offshore, despite the same sales being driven by New Zealand-based staff,

Stopping companies using interest payments to shift profits offshore.

New Zealand is among 96 countries that are working on a multilateral tax treaty developed by the OECD to tackle tax avoidance strategies used by multinational companies, that are known by the acronym for base erosion and profit shifting (BEPS).

Joyce said New Zealand's tax system performs "very well" overall.

"However, it's important that it keeps evolving to ensure that all companies operating in New Zealand pay their fair share of tax.

"The proposals in these documents are in line with the recommendations from the OECD's base erosion and profit-sharing project."

A Herald investigation in March last year found the 20 multinational companies most aggressive in shifting profits out of New Zealand collectively paid virtually no income tax.

The companies in question, including Facebook, Google and Pfizer, said they followed New Zealand laws and differences in profitability between their New Zealand operations and elsewhere were the results of different business models.

Facebook paid just $43,000 tax in New Zealand on $1m in revenue, according to recent financial statements.

In December, then Revenue Minister Michael Woodhouse said proposals outlined in a cabinet discussion document tabled last month would see Inland Revenue properly armed to tackle the problem and could be accompanied by increased enforcement funding for the taxation authority.

The proposals included granting broader information-gathering powers to Inland Revenue investigators, shifting the burden of proof to multinational companies in disputes over transfer pricing, and tightening loopholes that allow companies to claim they have no taxable presence in New Zealand.

The moves stop short of a full-scale diverted profits tax, as introduced by Australia and the United Kingdom.

Labour Party Revenue spokesman Michael Wood has reservations about the approach being largely amendments of existing rules as opposed to more widespread reform.

He's concerned a diverted profit tax isn't on the table, saying it should be so that it can be properly considered.

Mr Wood said another potential problem is the proposed changes are so technical and tweaky, that they could be worked around by smart lawyers and accountants - potentially causing litigation down the track.

Retail NZ is disappointed measures do not include a requirement for them to register for GST if they are selling goods to New Zealand customers.

Spokesman Greg Harford said the Government is expecting to collect between 200 and 300 million dollars, which big multinational firms are currently sending off to tax havens.

But he said it's missing out on at least another 200 million because the companies are not GST registered.

He said some foreign retailers are doing a significant amount of business here online, without paying New Zealand tax.

Mr Harford said Australia has recognised GST is a cost-effective and simple way to plug a hole in the tax system and make sure foreign firms are paying their fair share of tax.