As published on stuff.co.nz, Thursday 23 June, 2022.
A landmark agreement designed to ensure multinational companies pay their fair share of tax around the work could fall through, Revenue Minister David Parker has told MPs.
The Organisation for Economic Cooperation and Development appeared to achieve a mammoth breakthrough last year when 136 countries accounting for 90% of the world’s economy agreed to its plan that would require multinationals pay a minimum rate of tax and for the very largest to spread their tax more widely around the world.
But OECD secretary-general Mathias Cormann announced last month that there had been delays negotiating the details of the second element of the plan, know as ‘pillar one’, and it did not expect that to be implemented until 2024, a year later than first envisaged.
Parker told Parliament’s finance and expenditure committee on Wednesday that the entire international tax reform package could be at risk.
Negotiations on pillar one had not proceeded as quickly as the Government had hoped, he said.
“It hasn’t been landed yet and that poses some risks as to whether it is ever achieved internationally.
“If you can’t land that you might not be able to land ‘pillar two’,” he said.
Parker said last year that New Zealand stood to benefit from the agreement.
The Government had been consulting on unilaterally imposing its own “digital services tax” on the revenues of internet, social media and “gig economy” giants as a second-best solution before the multilateral approach was agreed.
Pillar one is the more significant and less controversial element of the tax deal and had been strongly supported by the United States.
It would allow countries where large multinationals are based – often the US – to top up the tax they claim for themselves if multinationals were paying less than 15% in any country in which they operated.
That rule would effectively prevent multinationals from benefitting from the use of tax havens and was expected to result in multinationals paying an additional US$150b (NZ$240b) of tax each year, globally.
The pillar two rule, which some EU and developing countries insisted on as a condition of a deal, would let countries claim a share of any ‘excess’ global profits earned by the world’s very largest multinationals, even in situations where they only exported products or services to that country and would not normally be subject to local taxation.
That rule has been expected to redistribute about US$100b in tax revenue, including to smaller countries such as New Zealand.
KPMG Australia tax partner Alia Lum said last month that the delay agreeing the details of pillar two might not prevent the pillar one minimum tax rule coming into effect as planned next year.
But some countries might not want to take any action on pillar two until there was more progress on the pillar-one negotiations, she said.
Parker’s comments to the select committee appeared downbeat.
The announcement of the OECD deal last year had appeared to put a full-stop to a decade-long debate in New Zealand over the tax paid locally by business giants such as Google, Apple, Facebook and Microsoft.