Little questions multinational tax paying

Following James Shaw questioning the Government on the amount of tax paid by multinationals on Tuesday – see Shaw on ‘multinational’ tax avoidance – Andrew Little followed up with more questions on this yesterday.

Both Shaw and Little have tried ‘slack Government, bad multinational’ lines of attack but neither offer any better solutions than we currently have.

Bill English spoke as acting Prime Minister (John key is overseas).

1. ANDREW LITTLE (Leader of the Opposition) to the Prime Minister: Does he stand by his statement with regard to multinational corporations that “I suspect they are legally paying their correct amount of tax; the question is are they ethically paying the right amount of tax. It feels hard to believe that they are”?

Hon BILL ENGLISH (Deputy Prime Minister) on behalf of the Prime Minister: Yes, it is unfair that some multinational companies appear to be able to structure themselves so that they avoid paying tax anywhere in the world or so that they pay minimal amounts of tax. The only lasting solution to this problem is collective global action. The good news is that the OECD is leading work on base erosion and profit shifting, and New Zealand is an active participant in that work.

Andrew Little: Do all multinational companies in New Zealand comply with the OECD guidelines on multinational enterprises, which state that “enterprises should comply with both the letter and the spirit of the tax laws and regulations of the countries in which they operate.”?

Hon BILL ENGLISH: They are certainly required to comply with New Zealand law. We need to bear in mind that New Zealand has the ability to tax the profits of these companies in New Zealand—that is, revenue minus expenses. If profit is generated elsewhere, we do not have the ability to tax it in other jurisdictions.

Andrew Little: How many multinationals has his Government taken to the OECD dispute resolution process?

Hon BILL ENGLISH: I do not have that information, and I am not sure exactly what process the member is referring to. The New Zealand model for taxing these companies is about as robust as that of any developed country—that is, we have tighter rules on transfer pricing and thin capitalisation regimes. If they make profits here, they are taxed.

Andrew Little: Does he believe that the Australian-owned banks in New Zealand, which are the most profitable banks in the developed world, are paying the tax they owe, or are Kiwis having to carry the burden for them as well?

Hon BILL ENGLISH: I believe that they are paying the tax they owe. In fact, 4 or 5 years ago Crown Law won major tax cases, where we collected hundreds of millions more out of the banks—

Hon Trevor Mallard: That Michael Cullen funded.

Hon BILL ENGLISH: —that is right; he did, too—and since then the rules have been further tightened in ways that the banks do not like, but it means that they do pay pretty close to the statutory rate of tax.

David Seymour: Is the Prime Minister aware that our company tax rate of 28 percent gives New Zealand one of the highest effective tax rates on capital in the OECD and that a more effective way of gaining more revenue might be to have a more competitive company tax rate?

Hon BILL ENGLISH: Yes, by international standards, we have a robust company taxation system. New Zealand has always believed in a broad-based, low-rate system, but that means having a company tax rate close to the higher levels of our personal tax rates. That is a bit unusual.

Andrew Little: Is it acceptable that his Government is penny-pinching to the extent that the health Minister now says of Pharmac that it has not got the money at the moment to buy life-saving medicines like Keytruda while, at the same time, multinationals are ripping us off for anything from $500 million to $7.3 billion a year, which is what the Tax Justice Network says New Zealanders are being ripped off by?

Hon BILL ENGLISH: I simply disagree with and rebut the assertion the member is implying, that the Government is soft on the taxation of companies. It is simply not the case. We have one of the most robust taxation systems for company profits in the developed world. The type of issues the Tax Justice Network is pointing to can be dealt with only by global cooperation to ensure that multinationals pay their tax somewhere. But, for instance, if Fonterra sells a billion dollars’ worth of product in China, we do not want the Chinese Government levying 30 percent tax on them, and nor should it be able to.

Andrew Little: Will the Government join with the Labour Party and support a parliamentary inquiry into multinational tax avoidance and stronger laws and more money for enforcement; if not, why not?

Hon BILL ENGLISH: The Parliament has a regular opportunity every time it looks at a taxation amendment bill—there are two or three a year, generally—and if you look back through the record of what the New Zealand Parliament had done, you will see that the Finance and Expenditure Committee has supported, as far as I know, every single measure that the Government has taken to ensure that multinational companies pay tax on their profits in New Zealand.

Unlike Greens Labour doesn’t appear to have done anything parallel to this in social media nor is there any follow up media release. Neither Greens or Labour seem to have got any wider exposure.

Instead NZ Herald reported yesterday: KPMG: Moves to curb international tax dodges

Global international tax takes from multinational companies will almost certainly increase in the next 5-10 years as governments around the world look to level the taxation playing field.

Commenting on the New Zealand Herald’s series examining ‘the tax gap’ – multinationals channelling earnings to lower tax regimes, disadvantaging some of the countries they trade in – Bruce Bernacchi, a partner in KPMG’s tax division, says change is on the way.

The Organisation for Economic Cooperation and Development (OECD) recommendations on international taxation, developed along with the G20 nations – one of the biggest OECD projects in decades – should be that levelling influence when it comes to international taxation, he says.

The OECD’s Base Erosion and Profit Shifting (BEPS) action plan is an attempt by the world’s various economies to address the widespread concern corporations may not be paying their fair share of taxes in the nations in which they operate.

Multinational companies are able, because of differing tax regimes globally, to work legal tax manoeuvres by shifting income from locations where they operate to other jurisdictions with lower tax rates. That costs the countries in which they operate, who are denied a tax take.

Support from around the world suggests large-scale acceptance of the OECD rules – effectively making international tax rules consistent around the globe – but here is still a way to go before they come into effect.

“Yes, these proposals have been in process for two years but it is an extremely complicated field and they are gathering pace; countries like the UK and Australia have already made moves ahead of the OECD recommendations and most member countries will be starting to change their domestic laws to bring them into line with the recommendations,” Bernacchi says.

In New Zealand, Inland Revenue will release discussion documents on two OECD recommendations this year – but Bernacchi suggests those hoping major international corporates pay more tax should be careful what they wish for.

However, if multinationals were caught in a more exacting international tax net, their response might also not be popular.

“If Apple, for example, starts paying a lot more tax and starts charging $50 more for every i-Phone, I don’t expect that will be greeted with universal acceptance either.”

Of course higher taxes means higher prices.

It looks like change is coming, but effective international agreements take time to reach and implement.

Presumably Shaw and Little know this, but they choose to try to score political points over the Government and multinational companies anyway, without much effect.

If this was a coordinated attempt at an attack by Greens and Labour it has been a bit lame, especially considering their lack of suggestions except:

Andrew Little: Will the Government join with the Labour Party and support a parliamentary inquiry into multinational tax avoidance and stronger laws and more money for enforcement.

Asking for an inquiry implies that Labour doesn’t have any alternatives.

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5 Comments

  1. Ray

     /  31st March 2016

    Poor old Labour, piggybacking on the Herald’s work on big companies avoiding tax
    Not only that but they are to lazy or skint to come up with a way of stopping the so called rort
    An inquiry is their best shot
    Pathetic

    Reply
    • Iceberg

       /  31st March 2016

      They know an inquiry won’t happen either, and they sure as hell don’t want one. The only real solution is lowering the company tax rate, they know that, but would never say so. Companies act rationally, shifting profits via transfer pricing to the jurisdiction with the lowest tax. It’s not immoral, unfair or any other emotive nonsense, it’s exactly how they should operate. It’s the same decision an individual makes when they by stuff online from overseas. If we are serious about getting investment here, which we badly need, via tax or direct investment then the answer is very simple. Unpalatable to the tax hungry left, but very simple.

      Reply
      • Ratty

         /  31st March 2016

        Again..

        Transfer Pricing depends on the conduits of a Double Tax Agreement, with the higher taxed jurisdiction reaping the Tax benefit. As the US has a higher Company tax rate, that will be where the Tax benefit is to be paid, not New Zealand..

        KPMG:
        “The corporate income tax rate is approximately 40%. The marginal federal corporate income tax rate on the highest income bracket of corporations (currently above USD 18,333,333) is 35%. State and local governments may also impose income taxes ranging from 0% to 12%, the top marginal rates averaging approximately 7.5%. A corporation may deduct its state and local income tax expense when computing its federal taxable income, generally resulting in a net effective rate of approximately 40%. The effective rate may vary significantly depending on the locality in which a corporation conducts business. The United States also has a parallel alternative minimum tax (AMT) system, which is generally characterized by a lower tax rate (20%) but a broader tax base.”

        Reply
  2. Pete Kane

     /  31st March 2016

    “Deborah Russell: Govt has the means to make multinationals pay”

    http://www.nzherald.co.nz/politics/news/article.cfm?c_id=280&objectid=11614162

    Reply
    • Kitty Catkin

       /  31st March 2016

      I bet that it was the same under Labour. National probably didn’t change the laws. Nobody pays more tax than they have to, although I can say that I don’t claim tax refunds that I could claim because I have been generously looked after by the taxpayer as far as medical costs go.

      Reply

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