Labour tries to crack multinational tax nut

Taxing multinational companies is a tough nut to crack, but saying you are going to sort it out is again being touted by Labour. It can be a simple looking populist issue, but it is very difficult to deal with without worldwide cooperation.

Stuff:  Labour leader Andrew Little’s sights on multinationals

I suspect his sights are more on votes.

Labour leader Andrew Little is threatening to apply a penalty tax on the profits of multinational companies that deliberately avoid paying their fair share of tax in New Zealand.

Little has not specified yet how Labour would determine a fair share or what the penalty tax would be, but has announced it would collect an extra $600 million from multinationals over three years.

“If multinationals aren’t prepared to pay their fair share, Labour will introduce a diverted profits tax, to enable New Zealand tax authorities to impose tax at a penalty rate if they believe that tax has been deliberately avoided.”

A diverted profits tax would be an important tool to encourage multinationals to behave appropriately and pay their fair share of tax, like hard-working New Zealanders, Little said.

A discussion document issued by the IRD in March estimated that up to $300m of tax a year was being lost because of multinational avoidance. It included proposals that were in line with recommendations from the OECD base erosions and profit-sharing project.

Labour said its policy was aimed at collecting all of the $300m.

It seems optimistic to think they can get all of that.

Little is writing to up to 50 multinational companies operating in New Zealand, including the 20 companies identified in a Herald investigation into which companies paid virtually no tax in New Zealand because they or their New Zealand subsidiaries shifted profits out of the country.

Among them are Apple, Harvey Norman, ExxonMobil, Methanex, Chevron, Unilever, Pernod Ricard, Johnson and Johnson and Independent Liquor.

The letter says: “The next Labour-led Government will welcome all international investment that genuinely creates jobs and wealth but we will not support exploitative investment such as property speculation or companies that shirk their responsibilities to contribute to the cost of a decent society.

“We will not condone practices that see ordinary New Zealanders bear the burden while overseas shareholders reap the rewards.

“If I have the privilege of leading New Zealand after the general election on 23 September I will immediately take steps to hold a round-table meeting with leaders from multinational companies operating in New Zealand.

“I intend to address the rising discontent among New Zealanders regarding multinational companies not contributing fairly.”

Little has just said on RNZ that it would be ‘very easy”.

He says there won’t be a set rate of tax. He said IRD would look at each multinational company and work out what they should pay. Or something.

He doesn’t sound very conversant with the details.

However Labour’s crack down on multinationals will be costly – expert

Ernst and Young executive tax director David Snell told Nadine Higgins it will be difficult to pin down.

He said it applies to multinationals trying to avoid tax by shifting profits out of New Zealand, by way of transactions with little economic substance.

“No it’s very hard to actually pin down what a transaction with very little economic substance is. I would say there’s not a lot of them in New Zealand, in that our tax culture is pretty compliant. IRD has a long series of winning things.”

Little needs to spend more time becoming conversant with policy detail and less time learning and repeating platitudes.

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9 Comments

  1. Corky

     /  July 18, 2017

    Honestly, how dumb do you have to be? You send a message to multi national corporations pre election telling them you will be upsetting their apple cart should you become the government.

    So, the CEO looks at Andy’s letter, hits his keyboard ( unless he’s using Dragon), up comes the National Party web page, and then his mouse pointer stops on ….DONATIONS .

    Reply
  2. Brown

     /  July 18, 2017

    Its laughable really – IRD will just make up a number and send a bill.

    Reply
  3. Steveremmington

     /  July 18, 2017

    There is already a cabinet paper considering this and other options. A DPT is not as straight forward as Andrew makes out.

    https://www2.deloitte.com/nz/en/pages/tax-alerts/articles/why-nz-is-unlikely-to-introduce-a-diverted-profits-tax.html

    Reply
  4. Ray

     /  July 18, 2017

    I believe both the UK and Australia have passed a law to do this.
    How is it working for them?

    Reply
  5. Ray

     /  July 18, 2017

    Now that you ask Dr Google tells me that the UK do have a “Google Tax” and it isn’t working very well at all
    http://www.independent.co.uk/news/business/news/google-tax-36-million-annual-report-corporation-tax-george-osborne-johnmcdonnell-susan-kramer-a7661221.html

    Reply
  6. David

     /  July 18, 2017

    “I intend to address the rising discontent among New Zealanders regarding multinational companies not contributing fairly.”

    This is a very basic misunderstanding of contribution. Multinationals such as Apple contribute things like iphones, which people like and are keen to buy and use. The tax is just a side issue.

    Reply
    • alloytoo

       /  July 18, 2017

      Funny how Labour’s idea of “fair” always involves someone else’s money.

      Reply

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