18 Jul 2017

VIDEO: Labour threatens punitive tax on multinationals

10:06 am on 18 July 2017

Labour is promising to claw back hundreds of millions of dollars a year from multinationals such as Apple, Facebook and Google if they don't pay their fair share of tax.

Watch Guyon Espiner's interview with Labour leader Andrew Little on Morning Report:

If elected, the party would impose a diverted profits tax (DPT) on multinational firms that sent profits offshore to minimise their tax bill.

Leader Andrew Little has written to 50 multinationals setting out the pledge.

He told Morning Report an extra $200 million a year could be collected, which would make a "huge difference" and represented "a heap of teachers, a heap of nurses and doctors".

"It more than pays for the extra police that would go into the police force to get assaults and robberies and burglaries down."

Under a diverted profit tax, Inland Revenue would nominate the rate a company should pay, he said.

"The experience in the United Kingdom has been positive, as companies such as Amazon are now booking their profits in the UK rather than in the tax haven Luxembourg."

He doubted firms would pull out of New Zealand in response; it hadn't happened in Britain when it implemented the DPT law.

Mr Little said the companies generated revenue from New Zealand and benefited from the country's infrastructure.

If Labour formed the next government, he said, he would hold a roundtable meeting with leaders from large foreign corporates about "rising discontent" among New Zealanders on the issue.

"At a time when we need to urgently invest in hospitals, schools and housing, we need multinationals to make their fair contribution too," Mr Little said.

Mr Little also promised to give Inland Revenue an additional $30m to beef up its investigations unit.

The government is also proposing to tighten the rules on multinational firms, but is expected to collect only about a third of the estimated $300m in tax being avoided.

"The government's performance on multinational tax is pathetic. It's time for a fresh approach," Mr Little said.

DPT would risk repercussions for NZ companies - Collins

New Zealand is already implementing recommendations from the OECD to clamp down on tax avoidance by global corporates.

Revenue Minister Judith Collins told Morning Report the measures, signed a few weeks ago in Paris, focused on companies that avoided having a permanent establishment in New Zealand and charged their New Zealand entities inflated royalties.

Complying with the OECD recommendations would get the same result as a diverted profit tax, which the government hadn't ruled out entirely, but believed was heavy-handed.

"It's another tax on top of everything else, where [Inland] Revenue would guesstimate what someone's tax might be, then add this on. Generally it's talked about as a 40 percent tax."

There was a risk New Zealand companies might be subject to similar actions in other countries, she said.

"We have big New Zealand companies that export a lot overseas so you really wouldn't want to get that sort of thing wrong."

Ms Collins said the government had estimated in this year's budget that it would get $100m in extra tax from its new proposals, but believed that was just "the start of it" and it would eventually get the full $300m estimated by Treasury and Inland Revenue.

Tax expert Michael Littlewood said there was no prospect large international firms would withdraw from New Zealand if it introduced a diverted profit tax as Australia and the UK had.

He said the OECD was making fairly good progress on taxation, but the Australian and British measures had gone further.