14 Feb 2013

Minister backs global action on tax avoidance

9:08 pm on 14 February 2013

Revenue Minister Peter Dunne says New Zealand doesn't want to be seen as a soft touch when it comes to taxation and will support a global move to stop tax avoidance by multinational companies.

An Organisation of Economic Cooperation and Development report urges member countries, which number most of the world's richest nations, to develop a shared action plan to crack down on international corporations that move profits to countries with a lower tax rate.

The OECD says multinational corporations must be made to pay their fair share of corporate tax and individuals and small businesses shouldn't be left to bear the burden.

In Britain, loopholes mean some big firms pay as little as 5% in corporate tax while small firms pay 30%.

While legal, the Paris-based organisation says this hurts investment and growth as well as employment. It is drafting an action plan to help governments try to close these gaps in the global taxation system.

Just over $8.5 billion in corporate tax was collected in New Zealand in the last financial year, but it is not known how much some multinational companies may have avoided paying.

Mr Dunne told Radio New Zealand's Morning Report programme it is unfair that some companies are able to avoid paying tax.

He said New Zealand has to take a balanced approach to the problem because it doesn't want to be hostile to foreign investment, nor does it want to be seen as a soft touch.

Mr Dunne believes traditional tax structures are being superseded by new technologies and supports the idea of an international coordinated response to tax avoidance by multinationals.

"If we get a fair regime then everyone will collect more, but if we get a system that is somewhat convoluted or somewhat uneven then the abuses that we fear are occurring at the moment will simply intensify. That's why global action is what is going to resolve this problem."

Care must be taken over any changes - lawyer

Corporate tax lawyer Casey Plunket from Chapman Tripp says whatever action New Zealand decides to take, care must be taken not to scare off foreign investment and a coordinated approach will need to be taken with other OECD countries when making any changes to the tax system.

PWC tax specialist Geof Nightingale says it is fair to assume there are cases of multinationals moving their profit out of New Zealand to maximise returns, but warns it is impossible to fully protect against this.

"Each country's tax policy starts to become a political matter and you get this competitiveness between countries where one country might allow a loophole to attract investment."

However, Mr Nightingale said New Zealand will benefit from the report's findings.

The chairman of IT business lobby group NZ Rise, Don Christie, says if the Government is serious about being part of a global crackdown, it should start by only purchasing services of companies which are ethical about paying taxes.

Mr Christie says this will send a clear signal to multinational companies, though he concedes it won't solve issues such as the internet giant Google having its headquarters in the tax haven of Bermuda.

New Zealand software company Equinox Ltd hopes the move will lead to a more level playing field. Chief executive Paul Ramsay thinks the changes aimed at cracking down on tax avoidance will result in a more competitive and genuinely fair environment.

Mr Ramsay wants the Government to give more consideration to the broader economic impact when awarding large contracts to multinationals, taking into account whether they pay tax at an individual or corporate level.