Multinationals tax avoidance

It has long been public perception that multinationals were not paying their fair share of tax in New Zealand. Using tax loopholes, they managed to shift profits to low tax judications and avoid paying tax at a higher rate here. The government while not denying the fact has been reluctant to do anything about, maybe because multinationals provided many benefits for the economy and the issue could see them tone down operations.

However recent media coverage has been enough for the government to crack down on multination tax avoidance. In the BEPS (base erosion and profit shifting) decision announced last month the government estimates to rake in an additional $200 million a year.

In combination, the new measures will:

• Stop foreign parents charging their New Zealand subsidiaries high interest rates to reduce their taxable profits in New Zealand.
• Stop multinationals using artificial arrangements to avoid having a taxable presence in New Zealand.
• Ensure multinationals are taxed in accordance with the economic substance of their activities in New Zealand.
• Counter strategies that multinationals have used to exploit gaps and mismatches in different countries’ domestic tax rules to avoid paying tax anywhere in the world.
• Make it easier for Inland Revenue to investigate uncooperative multinational companies.

It’s a good start although there have been little changes from the original proposals. However, the effectiveness of these measures remains uncertain. 

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