Let’s talk about tax (and multinationals).
In her time your correspondent has been mistaken for a number of things. This has included being a
- Card player; and
But – you know what – apologist for foreign capital really hasn’t ever been one of them. So with this in mind I have been following the campaigns against multinationals and their non-taxpaying behaviour. And much as I hate to say this – I actually feel a bit sorry for them. Not a lot mind – but a bit.
A year or so ago while I was still at Treasury I went to the Accountants tax conference. Highlights included a Hip Hop presentation from a group in South Auckland in lieu of an after dinner speech. Pretty progressive for a bunch of tax geeks.
Also one of the main presentations showed the UK enquiry on multinationals where politicians – with no sense of irony – were giving Apple and the likes biffo for how they structured their businesses in response to the laws the politicians had enacted. Facepalm.
Now the public information surrounding multinationals non-taxpaying isn’t pretty. Double Dutch Irish sandwiches and the like. Great for headlines but not for taxbases.
All done through a combination of being in a country in substance but not for tax – the preparatory and auxillary out from a permanent establishment; treaty shopping in the form of royalties going to low tax counties and/ or excessive royalty payments. None of it – even to me – is the behaviour of a good corporate citizen.
But here’s the thing – in New Zealand a country where tax laws can be changed and cases can be run successfully in the courts – one of two things will be the case:
Option one. It is tax avoidance.
Now when I say ‘tax avoidance ‘ – this is tax avoidance in terms of the statutory provisions not tax avoidance coz people think they should pay more tax than they are.
If it is tax avoidance according to the law then my former colleagues will be getting right stuck in. Now Corporate Legal – remember breathe out – all these issues are beyond public domain. They would – Corporate Legal note conditional tense -be getting right stuck in as they/we did with the banking cases; avoidance of the top marginal rate; and the hybrid instrument cases. None of which required public outcry before that happened. Just a tax department getting on with its job.
However public outcry is pretty awesome for the front line in tax policing. Always good to know you are on same page as people you are serving.
Now there is quite a delay from problem indentification to going to court – dispute rules; fully discussing the issue with the taxpayer; briefing experts and ensuring all parts of the department are on board or at least don’t disagree and so on. And then there is the possiblity a taxpayer settles; in which case it is never public.
But dear readers never assume that just because you haven’t heard anything that nothing is happening. Because secrecy provisons. The very same ones I spend every blog post negotiating.
Option two. It is not tax avoidance in terms of the statutory provisions.
Now if that is the case this means the outcome was intended by Parliament. In the same way currently:
- Sales of businesses; houses; farms and other assets such as shares bought without the intention of resale are not taxed;
- Interest deductions for capital assets that may have incidental income are allowed and can be offset against other unrelated income;
- Income earned by contractors who do very similar work to employees are allowed work related deductions;
- Imputed rents are untaxed;
- Industries such as bloodstock and forestry either have accelerated deductions or deductions for capital;
- Businesses operated by charities are untaxed;
- There can be significant delay between income earned at the company level and when it is paid out to shareholders
- Transfer pricing or associated persons rules don’t apply to consortiums acting together as one entity;
- The thin capitalisation rules allow businesses funded by creditors the ability to strip profits by way of excessive interest.
Now there is also a move to make multinationals disclose how much tax they pay. Ok cool. But why is it only multinationals and not any beneficiary – which would include a lot of you dear readers I know it would include me – of the above list? Why is their non taxpaying so special?
And here’s the thing. Parliament – or really the government of the day – can change its mind. So if any or all of the above is ok but the multinational thing isn’t – Hon Mike can propose a law change. The current solution du jour is a diverted profits tax.
So maybe the target of the campaigns should be the politicans who continue to allow it rather than some companies that couldn’t help themselves? Just saying.
The campaigns will have been very useful in giving Hon Mike an ’empowering environment’. But maybe coz Hon Mike hasn’t done anything yet maybe it is tax avoidance. Even then taking avoidance cases ad infinitem is no way to run tax system.
So Hon Mike GET ON WITH IT!
Coz it is not like boycotting products is an option. At least for me. I am an Apple addict. Not so sure about ios 10 though.
One final thing dear readers – although I am now back to posting twice a week – Monday is Labour Day. So as a good lefty I am downing tools and will be back next Friday.