Clampdown on multinational tax avoidance?

A Government announcement is expected today on attempts to clamp down on multinational companies avoiding paying tax in New Zealand.

This is a difficult world-wide issue so it will be interesting top see what is proposed. The Government has been looking into what it might be able to do about this for some time.

Stuff: Multinationals face nervous wait on tax

Long-awaited measures to clamp down on multinational tax rorts are expected to be unveiled by Revenue Minister Judith Collins on Friday morning.

Company tax makes up 15 per cent of New Zealand’s total tax take of $63 billion, but a Cabinet paper said there were concerns multinationals were not paying their fair share.

Profit-shifting has prompted G20 nations to back a crackdown by the Organisation for Economic Cooperation and Development, called Beps.

An Inland Revenue briefing to Collins released last month confirmed officials were working on proposals to tighten transfer pricing and “permanent establishment” rules and hybrid instruments and on limiting the interest payments that foreign firms could deduct from the profits of their New Zealand subsidiaries.

Judith Collins only took over the Revenue portfolio late last year. Previous Revenue Minister Michael Woodhouse put this out last September:

BEPS proposals released for consultation

A strategy used by some large multinationals to shift profits overseas and minimise their New Zealand tax is the focus of international tax proposals released for consultation today, says Revenue Minister Michael Woodhouse.

“A discussion document which proposes that New Zealand adopt the OECD recommendations on hybrid mismatch arrangements was today released for consultation,” says Mr Woodhouse.

“Our international tax rules are sound, but the Government considers that New Zealand’s rules on hybrids can be stronger.

“Hybrid mismatch arrangements are one of the base erosion and profit shifting strategies used by multinationals to exploit the difference between how two countries might treat a cross-border transaction, resulting in less tax.”

The OECD recommendations remove the advantage of using hybrids.

“It is important that our rules complement those of other countries, particularly Australia and the UK who have both announced their intentions to adopt the OECD recommendations in this area.”

IRD in November:

Addressing hybrid mismatch arrangements

Hybrid mistmatch arrangements are one of the main base erosion and profit shifting (BEPS) strategies used by some large international companies to pay little or no tax anywhere in the world.

The OECD developed recommendations for anti-hybrid measures in its 15 point Base Erosion and Profit Shifting (BEPS) Action Plan.

A Government discussion document, Addressing hybrid mismatch arrangements, seeks comments on how the OECD recommendations could be implemented in New Zealand:

Part I of the document describes the problem of hybrid mismatch arrangements, the case for responding to the problem, and a summary of the OECD recommendations.

Part II of the document explains the OECD recommendations in greater depth and discusses how they could be incorporated into New Zealand law.

Submissions closed on 11 November 2016 (extended from 17 October 2016).

Perhaps today’s announcement is a result of this.

Hybrid financial instruments and transfers

The First Discussion Draft defines a hybrid financial instrument as any financing arrangement that is subject to either different tax characterizations under the law of two or more jurisdictions such that a payment will have different tax treatments (e.g., a loan in one jurisdiction and equity in another), or different manner in which tax will be assessed on the instrument (e.g., deduction in one jurisdiction while the other jurisdiction gives an exemption). The different tax characterizations will result in a D/NI outcome.

From Neutralizing hybrid mismatch arrangements under BEPS Action 2

Punitive imprisonment versus rehabilitation

New Zealand has one the highest imprisonment rates in the developed world, and despite a target of reducing re-offending by 2017 by 25% (that won’t be met) $1 billion more will need to be spent in the next five years to house all the prisoners.

The public psyche is punitive, with pressure on politicians to lock more offenders up for longer. That will cost more – and that cost is not just borne by the country (that is, all of us), there is a high cost to families and children affected by imprisoned parents.

New Prime Minister Bill English wants to apply his ‘social investment’ theories to prison numbers and re-offending rates. He has signalled a change in approach by removing Judith Collins as Minister of Corrections and replacing her with Louise Upston, who is also now Associate Minister for Tertiary Education, Skills and Employment.

Fixing the  lack of education and work skills that are prevalent in the prisoner population is an important part of rehabilitation and reducing re-offending.

The Government doesn’t just have to turn around rising imprisonment rates, it also has to turn around punitive public preferences. Neither will be easy.

Dr Jarrod Gilbert at NZH: Bill English faces tough job shifting the ‘lock ’em up’ penal policy

For a number of years Bill English has quietly championed a prison reform approach that should appeal to fiscal conservatives and social liberals alike. As prime minister, he now needs to sell it.

At stake is a billion dollar spend on a new prison caused by a prison population that recently hit 10,000.

In 2012, the government and the Department of Corrections set a bold target of reducing reoffending by 25per cent by 2017.

They are going to fall well short. Undoubtedly, many people will make a big deal of that failure, and perhaps that’s reasonable, but it ought be applauded for its bold intent.

It was the ambition of the target that challenged corrections staff – from policy analysts to prison guards – to fundamentally rethink what they were doing. Instead of simply containing prisoners until their release, they were instructed to think about creating an environment and initiatives that rehabilitate them.

It was never going to be a quick or easy thing to fix, but rehabilitation needs to be addressed.

Nearly three quarters of released prisoner were reconvicted of an offence within five years, and more than half were returning to prison.

In many cases if the underlying causes of crime aren’t resolved then offending is likely to continue.

More importantly, reducing reoffending wouldn’t just reduce costs, it would also mean fewer victims of crime. There is perhaps no clearer example of a classic win/win.

That’s something that the public need to understand.

On this basis, the government launched a reform agenda, but it hasn’t taken the country with it. And this is a mistake. Without building a broad public consensus on the approach’s goals and merits, it is at risk from moral panics and knee-jerk politics.

Our base instinct to punish criminals is natural and punishment is an important function of prison.

Lock-em-up proponents tend to be more vocal, more pushy for more imprisonment.

But often there will be no sentence long enough to placate distressed victims or their loved ones, so as a society we must weigh-up those desires with the interests of the public good.

Media play a major part in this. It’s common for them to push the victims of crime to speak after sentencing, and in most cases unsurprisingly they usually say sentences were not sufficient. This just feeds the longer sentence pressures on politicians.

And here’s where we need to start the conversation and build a consensus around the balance between punishment and rehabilitation.

Extending the debate beyond punishment may not be easy. New Zealand has been sold the idea that longer sentences are the solution by both major parties for years.

Populist tougher sentence policies pander to what voters seem to want.

Penal populists say harsh sentences act as deterrence by making people think twice before committing crime. Deterrence arguments aren’t without merit but studies show that likelihood of apprehension is a far greater deterrent than severe punishments.

So wouldn’t an extra billion dollars be better spent on policing rather than on prisons?

But media and public pressure works against this.

When Philip Smith escaped to Brazil in 2014, for example, there was an immediate clampdown on temporary releases that allow prisoners to work outside the wire in paid employment.

Despite the escape being a consequence of corruption rather than policy, the Department of Corrections feared a public backlash and restricted temporary releases even though they were widely seen as a successful rehabilitation tool.

One high profile escape adversely affected many others.

Having removed Judith Collins from the Corrections portfolio, English has very publicly signalled that the harder-edged and populist approach does not curry his favour.

But can he change public attitudes in the way Judith Collins and others so cleverly played up to them?

Can English convince the country that although the Department of Correction’ re-offending target won’t be met, its modest gains and the change of thinking it represents is nevertheless the best hope of bringing the prison population down?

That won’t be easy.

I don’t know the answer to that; the punitive approach in the New Zealand psyche is so strong we’ve become one of the most imprisoned populations in the developed world without even flinching.

The loudest calls are for even longer prison sentences.

Do we really want more prisons?

Or can we see the sense in more policing, more rehabilitation and less offending?

One thing that Gilbert doesn’t mention is drug and alcohol links to a lot of offending. Addressing addictions is a critical part of rehabilitation.

Collins happy with new portfolios

Judith Collins has been move to three new portfolios – Revenue, Energy and Resources, and Ethnic Communities. Some have described it as a demotion, but Collins says otherwise.

And so does Bill English who denies ‘payback’ behind Judith Collins, Jonathon Coleman demotions:

Bill English says Judith Collins and Jonathan Coleman weren’t demoted as “payback” after they challenged him for the leadership of the National Party.

“It isn’t payback time. Look, we have been focusing on refreshing the Cabinet – that means moving some people up. They can’t all sit in the same seat. So a number of the ministers who’ve been around a while have found their individual rankings dropped a bit.

“But look, it’s what this Cabinet does rather than the intricacies of who’s sitting in number nine and who’s sitting in number 11.”

Collins seems happy (and is probably grateful) to have new challenges.

NZ Herald: Judith Collins speaks out after Prime Minister Bill English’s reshuffle: ‘I’m not wounded at all’

It has been portrayed as a demotion but Collins said she had long been interested in taking on more business-focused portfolios.

“I’m not wounded at all. I’m actually interested that so many people think I would be.”

Although she had made a name for herself in the Police and Corrections portfolios, Collins said she had long wanted a business-related portfolio and believed serving in a range of areas was important to become a well-rounded minister.

“The problem is you get terribly pigeon-holed and I’ve always really enjoyed them, and I’ve really enjoyed the people. But I do have a lot of law and tax experience and as Bill rightly said, it hasn’t really been used in the past.

She is a former tax lawyer and is currently studying health and safety so said both portfolios fitted well with her.

“I’m probably one of the few people in Government that gets excited about areas like tax policy.

I’m very pleased to have the Revenue and the Energy and Resources portfolios because they are such important business portfolios, economic portfolios. They are both areas that are incredibly important to New Zealand’s future so I’m very happy to have those. And Bill has asked me to really run with them and get right into them and I will be.”

Although Revenue tends to be a low-profile portfolio, she will have some problems to sort out. Top of the list is Inland Revenue’s $2.6 billion ‘Business Transformation’ programme upgrading its ageing IT infrastructure which is at risk of getting bogged down in delays and cost blowouts.

Collins said English had also given her the Ethnic Affairs portfolio which she had held previously. “He said he wanted me to do that because I’d done such a good job last time, which I took as a compliment.”

There’s a lot of consideration that has to be given to decide who gets which portfolio. It sounds like Collins has quite an appropriate set to work with – and that’s what she has to do, do her best with them in her service to Government and to the country.

Judith Collins’ new challenges

There has been suggestions that Judith Collins has been demoted in the latest ministerial assignments.

She has lost Police and Corrections and been given Revenue, Energy and Resources, and Ethnic Communities. And she has slipped down the rankings slightly to 16 – while that might have a slight ego factor it makes very little difference in reality.

Jo Moir at  Stuff: Who are the winners and losers in Bill English’s Cabinet reshuffle?

THE LOSERS

Judith Collins – Minister of Revenue, Minister of Energy and Resources, Minister for Ethnic Communities

“It’s the PM’s day and I won’t be commenting”. That was all the dumped Police and Corrections minister had to say after English announced his new Cabinet. The demotion comes after Collins contested English for the leadership, along with Health Minister Jonathan Coleman, who has kept his portfolios.

I think ‘demotion’ is questionable. Collins was demoted in 2014 when she was dropped from Cabinet. She has been given different challenges here.

Rachel Smalley in Women the winners and the losers in Cabinet reshuffle:

Upston’s promotion comes, to a certain degree, at Judith Collins demotion. She loses not just Corrections but also Police — two portfolios she really stamped her name on. She is now Minister of Energy and Resources, Minister of Revenue and Minister of Ethnic Communities too, so she’ll be busy but she’ll be busy out of the public eye.

Those three portfolios are much lower profile than Police and Corrections, so if Collins still has leadership aspirations, she won’t be in a position to build her public profile while she’s in charge of those three portfolios — certainly nowhere near the profile she gained as Minister of Police, and Minister of Corrections.

That said, it’s widely reported that Collins wanted Revenue, and as a former tax lawyer, she lobbied John Key for some time for that portfolio. Still, she drops two places to 16. It can’t be viewed as anything other than a demotion.

Audrey Young at the Herald: Bill English shakes it up: team rejuvenated at the topBill English shakes it up: team rejuvenated at the top

English has moved to keep Judith Collins in check by removing Police and Corrections from her and giving her portfolios from which it will be difficult to build any public following: Revenue, and Energy and Resources. No politician has gained in popularity by being minister in charge of taxation.

It is understood English was not very impressed by Collins using the leadership contest against him to press her case for extra police officers.

While she was particularly fond of Corrections, she won’t be too unhappy with her new mix. With a master’s in taxation studies as well as her law degree, she had lobbied John Key in the past for Revenue.

So Collins seems to be well suited to Revenue and has been interested in the portfolio. Her background may be very useful with major upgrades under way in IRD systems and with a move by the Government to address tax avoidance by overseas companies.

Collins also has credentials for working with Ethnic Communities – which are important especially in relation to immigration.

And Energy and Resources could become important in limiting the appeal of the Greens.

So there are challenges for Collins in her new roles.

I think the ‘demotion’ angle is being overplayed. She is still in Cabinet with new roles that suit some of her strengths.

I also don’t see the relevance of “out of the public eye”, ” difficult to build any public following” or “no politician has gained in popularity by being minister in charge of taxation”.

Collins should be safe with a 5,000 vote majority in her Pakuranga electorate (although her personal vote of 46.07% was less than the National party vote of 51.01%).  Public profile through her portfolios won’t make much if any difference there.

And if Collins still has leadership aspirations, perhaps with an eye towards opportunities should Bill English fail in next year’s election, a public profile is no use. National leaders are voted by their caucus only. So competence in taking on new challenges, and being able to work well with other MPs, are far more important than getting on the telly occasionally.

The most important thing for Collins is she is still in Parliament and still in Cabinet, so she is still in the mix.

Apart from doing a good job in her new portfolios the best thing Collins can do to enhance her career is maintain a distance between herself and Whale Oil. The Minister of Ethnic Communities is unlikely to want to be associated with a blog that keeps giving ethnic groups derogatory descriptions and wages a campaign against Muslims. Especially as Slater promises more dirty politics.

Coleman, McCully, Collins and Smith

Prior to the Ministerial reshuffle there was particular interest in what might happen to Murray McCully, who is retiring next year, Nick Smith, who is considered a friend of Bill English and who has struggled dealing with housing in Auckland, And Jonathan Coleman and Judith Collins who challenged English for the leadership.

McCully has kept his Foreign Affairs portfolio to help with transition but will be replaced on May 1. English said:

“I am keen for Murray to stay on for this transitional period to ensure I have the benefit of his vast experience on the wide range of issues that affect New Zealand’s vital interests overseas.”

Jonathan Coleman has slipped down the order from 5 to 7 (to accommodate a promotion for Simon Bridges) but retains his Health and Sport and Recreation portfolios. He had indicated an interest in Foreign Affairs.

English could take over Foreign Affairs when McCully goes, or could give it to Coleman.

Michael Woodhouse has jumped up from 16 to 9 but doesn’t have heavy duty portfolios (he kept Immigration and Workplace Relations and Safety, but had Revenue swapped for ACC), so could pick up Health, a field he has experience in.

Collins has dropped from 13 to 16 and has lost Police and Corrections, picking up Revenue,
Energy and Resources  and Minister for Ethnic Communities.

There is some irony in the latter portfolio, probably not deliberate of English, after a post by Collins promoter and fan Cameron Slater yesterday:

But bizarrely, Little made Michael Wood, the bland white man that parking meters are taller than, the ethnic communities spokesman. Imagine if National had Todd McClay, a man who is whiter than white appointed as Ethnic Communities Minister because he has some brown people in his electorate. That is precisely what Labour have done and there is not even a mention, nor a mutter, nor a murmur about it from the usual outraged suspects. Total silence.

I guess from this that Slater didn’t have advance notice of the appointment of Collins to the Ethnic Communities portfolio.

Wood also has responsibility for Revenue for Labour. He could find Collins tough to deal with.

Media and pundit knives were out for Nick Smith as he hasn’t exactly had a stellar year, struggling to deal with Housing and stuffing up liaison with Maori on both housing issues and the Kermadec sanctuary.

Smith has slipped down the pecking order from 11 to 15, which is a significant drop. But he retains Environment, and Building and Housing has morphed into Building and Construction. What’s the difference between Building and Construction?

Social Housing is a separate ministry, and has been transferred from Paula Bennett to Amy Adams.

Perhaps adding to leadership rivalry, Bennett has taken over Police from Collins.

Hugging a political corpse

There’s a saying in politics that it’s unwise to hug a corpse, and it has been quoted often by Cameron Slater, but he seems to be intent on assassinating PM heir apparent Paula Bennett’s credibility to pave the way for his favoured Judith Collins.

I thought Collins acquitted herself well in her brief leadership bid last week, and I have found her to be the most approachable and most willing to provide information of Ministers. But her bid didn’t come close to seriously challenging Bill English.

In Unwrapping 2016’s winners – and the turkeys who had a shocker  Duncan Garner writes:

Judith Collins: Once the hard-arse darling of the party, now she can count her supporters on less than one hand. She could have been the National Party leader and prime minister by now if she’d played her cards right. But she didn’t. She played hardball, looked arrogant and treated people too roughly, not to mention her questionable ethics. The party lost faith. And she lost her chance. Judith’s loss became Paula’s gain.

During the leadership contest Slater promoted Collins often and rubbished English more often, but the National caucus ignored him.

After English was anointed as Prime Minister Slater continued to rubbish him and National.

Then when Bennett won the deputy spot he turned on her and now frequently tries to discredit her.

The obvious implication is that Slater wants English and National to lose next year’s election, allowing Collins to emerge from the fray as new leader ahead of Bennett.

But according to Garner and a number of other journalists Collins hasn’t got a chance of becoming leader – she might continue as a competent Minister if English keeps her in the Cabinet, but she has too little support across the Caucus (despite Slater’s claims she had been busy winning over the back bench when she was stood down from Cabinet thanks to him) to be a serious contender.

But it appears that Slater is intent on ignoring his own advice as he continues to hug a political corpse. A toxic corpse with his continued association.

English to be Prime Minister

In what Peter Dunne as referred to as “as quick and slick a contest as I can recall” Bill English was confirmed as the next Prime Minister this afternoon as endorsements from National MPs kept rolling in through the day, and then Judith Collins conceded early this afternoon, followed by Jonathan Coleman late this afternoon.

So it is confirmed that English will take over from John Key, presumably as planned early next week.

His deputy is still to be decided by the National caucus, possibly by vote on Monday, but it looks like his heir apparent Paula Bennett will get that spot.

English has already indicated that Steven Joyce will take over from him as Minister of Finance.

There will be a lot of interest in who English names in his Cabinet, with special attention on whether Collins and Coleman will retain or improve their rankings or get demoted, and how the carrots get dished out to supporting MPs.

National should benefit from having been seen to have at least some semblance of a contest rather than an uncontested passing of the PM batten, but this was a quick and ruthless leadership change.

Soon Parliament will shut down for the summer break so that will give English and his new team (which may contain more than a smattering of same old)  to sort themselves out ready for an election year.

With a likely by-election if David Shearer leaves for a UN job in South Sudan talk of an early election has increased, but I suspect English will be wanting to take advantage of improving financial conditions and get a budget under his Government’s belt.

Time will tell how well the National caucus works with their new leader.

Collins: “I am polarising”

Judith Collins has just been on Paul Henry. It was a friendly environment for her because Henry is openly a fan of hers. She has promoted “I am polarising” but her performance suggested otherwise.

I have to say that Collins presented herself very very well.

judithcollins

Her visuals have deliberately softened her image, quite feminine which I guess is to contrast with the two blokes, Bill English and Jonathan Coleman. Smart.

But most impressive is the calm clear determined way she speaks. No bull.

Ironically she says she is polarising – I guess she could be to an extent – but has done a lot in this appearance to appear non-polarising and non-threatening.

Henry put her on the spot once, asking what she would do about Pike River. She didn’t avoid the question, she stated that she thinks it is too risky to enter the mine and it should be closed up as a permanent tomb.

There’s no doubt that Collins offers the biggest change for National and for Government. Coleman and English will struggle to differentiate themselves from each other and from the same old.

Collins would be a risk for National. John Key was a risk.

There is probably a bigger risk if National appears to be much the same but minus Key. They could easily lose the public next year.

I think that Collins looks up for the challenge and a real prospect if National wants real renewal.

Collins versus Andrew Little, Collins versus Winston Peters, Collins versus Metiria Turei, that would make next year’s election a really interesting contest.

I’m not backing Collins, just saying that she has impressed (and I don’t get to choose anyway). I’ll evaluate how Coleman and English present themselves too.

If you are interested in the National leadership check out Collins’ interview when it’s up on Newshub.

‘Anonymous MP’ cuts Collins

Newshub are reporting that ‘unnamed sources’ in the National Party are saying that the leadership contest is effectively Bill English versus Jonathan Coleman with Judith Collins a distant third.

English versus Coleman: ‘Two horse race’

A National Party MP has revealed to Newshub the leadership race is down to just two candidates.

The anonymous MP says the true competition to become the next leader of the National Party is between Finance Minister Bill English and Health Minister Jonathan Coleman.

My guess is that Newshub is being used. Any ‘unnamed sources’ and anonymous MPs within National have some sort of vested interest, in this case trying to eliminate Collins from the caucus reckoning because it suits their agenda.

The MP also told Newshub there is a “sentiment for change” within the party – which could be expressed in a different style of management, or an unexpected leader or deputy.

English is hardly ‘change’, he is as close to a continuation of the same as anyone could be.

‘An unexpected leader or deputy’ sounds like someone promoting Coleman.

 

English, Coleman and Collins

So Bill English has decided to have a go at being Prime Minister, but he has to be chosen by National’s caucus first. Jonathan Coleman and Judith Collins have also put themselves forward,

It is excellent to see a good contest on offer. It would have been a real shame to see English get the job unopposed, but after  a decade of no contest it is not surprising there’s interest from multiple contenders.

There could be more to join  the contest, but Amy Adams and Simon Bridges have ruled themselves out.

The three already in offer a good variety of options, from much the same  minus Key to something quite different, a distinctly new phase in Government and for national.

English is the early favourite with about 8 Cabinet Ministers pledging support but there are 59 National MPs who get to chose their new leader.

Coleman was regarded as an outside chance but it’s now up to him to make a case.

Slater has still been plugging Collins and rubbishing the rest, indicating his personal interests have a higher priority than being an objective political commentator. Whale Oil is a device to push his interests more than a right wing blog.

I don’t care who wins this battle. It’s a fascinating time in politics, and a critical decision required from the National caucus.