barry coates mp

Closing the tax loopholes used by multinationals

Death and taxes. It is said that you can’t escape them. But some corporations can and do.

There has been an outcry over multinationals like Apple avoiding tax in New Zealand. Matt Nippert at the NZ Herald has revealed that Apple paid no tax in New Zealand over the last ten years despite sales of $4.2 billion.

These issues are not new. When I was living in the UK twenty years ago, I headed an NGO that campaigned for a fair tax on multinationals using tax havens to minimise their tax. These avoidance techniques give multinationals an unfair advantage over small, local companies. They are part of a wider system of tax loopholes that load the burden of taxes onto the rest of us.

The unfairness of the tax system hasn’t escaped the attention of the wealthy themselves. Rich lister Steven Jenkins said recently that our tax rules “favour the old and rich” and the overheated property market is exacerbating social divisions. Tax reform is overdue.

The OECD has developed rules that would prevent multinationals using some forms of tax avoidance. The UK has gone further, however, by introducing a Diverted Profits Tax that puts the onus on the multinationals to declare a fair level of tax, and charges them a penalty rate if they don’t. Australia followed suit last year. France and other countries are moving to introduce a Diverted Profits Tax.

National has dragged its feet on multinational tax avoidance. We now finally have some proposals for consultation. These reflect the OECD’s principles, and are a welcome step forward. However, they are fall short of a tougher approach, like a Diverted Profits Tax.

The Minister, Judith Collins, introduced the proposals with the comment, “Just because we’re nice, friendly little Kiwis, we’re not stupid.” From the multinationals’ perspective, that’s probably debatable, given the fact that the rules lack a penalty tax mechanism and will not become law for years.

There are other problems that have not been addressed by Collins’ proposals. While National have introduced GST on digital services from overseas, imported goods with a value of less than $400 come in GST-free. Most Australian jurisdictions charge GST on imports of more than $20-30.

Now there are new threats to NZ retailers from a new Amazon warehouse in Sydney aimed at the Australian and New Zealand markets. Over a hundred people have been hired over recent days by Amazon.  National have kicked this issue, along with proposals on taxing multinationals, into the long grass and talked about proposals in 2018 or 2019. That’s not going to be helpful to NZ retail outlets that will face unfair competition very soon.

We need a commitment to strong action from the Government, not just more OECD discussions. The stakes are high. The IRD is missing out on at least $200 million on GST, and $300 million from the limited proposals it has made on closing loopholes for multinationals (it would be far more if there were more fundamental tax reforms). In addition, we could join the UK and Italy who have clawed back past unpaid taxes from major multinationals including Google and Amazon.

The principles are also important. It is about fair tax for all. It offends taxpayers if they are forced to pay taxes while big companies and wealthy individuals don’t.

And it is unfair to those of us who are being denied government services on the excuse that there isn’t enough money for over-stretched health services or low decile schools when they see the government going soft on the big multinationals. Additional revenue of $500 million or more would provide much-needed funds for mental health, educating children with special needs, and cataract surgery.

In government, the Green Party will close the loopholes on the wealthy and the multinationals. We will restore trust in the integrity and fairness of our tax system.