Spark New Zealand has backed Government plans to tighten multinational tax arrangements, following a recent Inland Revenue audit highlighting that large multinationals are using sophisticated techniques to defeat the tax rules.
“Multinational taxation arrangements are costing New Zealand hundreds of millions every year in lost taxation revenues,” says Simon Moutter, Managing Director, Spark New Zealand.
“So it’s encouraging to see the Government identifying this issue as a key focus for tax policy work.
“As a business leader and passionate New Zealander, I’m concerned about the way many large multinational companies, especially ‘weightless’ businesses operating in the digital sector, are exploiting the differences between tax jurisdictions to pay minimal tax in many countries in which they do business.”
According to Minister of Revenue, Todd McClay, non-resident withholding tax has not been significantly reformed since it was introduced in 1964, originally designed when financial transactions were much less complex than today.
McClay believes that without changes to the rules, there is an incentive and ability for non-residents to shift profits out of New Zealand with no or minimal New Zealand tax paid.
McClay says that Inland Revenue’s audit activity had uncovered instances where large multinationals were using sophisticated techniques to defeat the tax rules.
“What they do may well be possible under tax laws, but we should understand the implications and ask ourselves whether it’s right or not,” Moutter adds.
“Every tax dollar these digital companies avoid paying in New Zealand has to be made up by New Zealand taxpayers. The social and economic implications are significant.”
Notwithstanding the coordinated global approach being led by the OECD, Moutter says other countries like Australia and the United Kingdom are already taking steps, so the sooner the issue is addressed in New Zealand, the better.
“This matter is a domestic law issue and is consistent with the aims of the OECD’s action plan to tackle base erosion and profit shifting,” McClay adds.
“Acting to remedy this deficiency in our tax laws is part of New Zealand’s response to the issue of multinational tax avoidance.
McClay says the Government has already taken steps to tighten the thin capitalisation rules to stop foreign firms from artificially loading debt onto their New Zealand operations in order to minimise their New Zealand tax.
New Zealand has also signed and ratified the OECD multilateral tax assistance convention which, together with a growing network of bilateral tax treaties, allows information sharing with other countries to limit tax avoidance opportunities.
“We’ll continue to support the OECD work to eliminate opportunities for companies to avoid paying tax,” he adds.