The issue of tax paid (or lack or tax paid) by multinational companies came up in Parliament’s Question Time yesterday.
7. FLETCHER TABUTEAU (NZ First) to the Minister of Finance: Does he think it is acceptable that 20 multinational companies paid just $1.8 million in income tax in 2014, despite recording nearly $10 billion in annual sales in New Zealand?
That sounds like dramatic underpayment of tax but it lacks a lot of detail. In many cases much of the cost of sales from multinational companies is incurred overseas and the sales are recorded overseas.
Hon BILL ENGLISH (Minister of Finance): As I think the member is aware, we do not tax turnover in New Zealand, so it is a bit hard to know. It is possible that the levels of tax are lower than they should be. We expect multinationals to pay their fair share of tax and be good corporate citizens. Most companies play by the rules, but the Government is continuing to tighten up the rules around transfer pricing and interest deductibility. New Zealand continues—most importantly, in my view—to work with other OECD countries to strengthen international tax settings, because, in some respects, what is most concerning about some multinationals is that they do not appear to pay much tax anywhere. We need to work with other countries to make sure that they pay their fair share as appropriate to each country’s rules.
That’s standard waffle from English, and his following responses didn’t add much. But Tabuteau came up with two examples.
Fletcher Tabuteau: Given that he just stated that he believes in a fair and equitable tax system, does he think it right that MasterCard New Zealand declared revenue in New Zealand of just $4.5 million, and paid tax of only $71,000 in its latest figures, despite sharing evenly in $40 billion of annual credit card billings?
That seems interesting but it is misleading, as his next question shows.
Fletcher Tabuteau: Given his answer, does he think it right that Visa New Zealand shared in the same pool of credit card billings of $40 billion, and it declared only $3.2 million of revenue and paid only $185,000 in tax in its latest figures?
So Mastercard and Visa together shared in “the same pool of credit card billings of $40 billion”. And that is not their sales, it is the sales of many companies who use credit card services so people can pay for goods and services.
It doesn’t separate domestic versus international sales.
Credit card charges are only a small part of overall sales, a few percent at most. If you pay Inland Revenue by credit card the fee paid to Westpac is 1.42%, if you pay the Police the fee is 1.9%.
It is obvious from this that some of the $40b are not sales but are payments with no revenue or tax involved.
One percent of $40b is $400 million, still a substantial amount. But there will be significant costs involved in providing the service and providing the finance – banks provide finance free of interest for up a month and a half.
So the detail Tabuteau is insufficient to have any ideas how outraged to be about how little revenue Mastercard and Visa report and how little tax they pay.
I don’t know how things are structured between the banks and the credit card companies. It looks like the banks incur most of the costs and will get most of the sales value from transactions.
Fletcher Tabuteau: How will the Minister help many New Zealand companies, which have said that they have missed out on investments here at home because overseas competitors are abusing the tax system here in New Zealand, giving them an unfair advantage over Kiwi firms?
That’s little more than a vague assertion of abuse. Without details Tabuteau has embellished his claims and made a very weak argument.