Friday, March 18, 2016

Multinational tax-cheats

A study by the Herald's Matt Nippert has found pervasive tax-cheating by multinational corporations in New Zealand:

A major Herald investigation has found the 20 multinational companies most aggressive in shifting profits out of New Zealand overall paid virtually no income tax, despite recording nearly $10 billion in annual sales to Kiwi consumers.

The analysis of financial information of more than 100 multinational corporations and their New Zealand subsidiaries showed that, had the New Zealand branches of these 20 firms reported profits at the same healthy rate as their parents, their combined income tax bill would have been nearly $490 million.

But according to their most-recent accounts filed with the Companies Office, most covering the 2014 calender year, these 20 companies overall paid just $1.8m in income taxes after several claimed tens of millions of dollars in tax deferments and losses.

The companies in question, including Facebook, Google, Pfizer and Pernod Ricard, said they followed New Zealand laws and differences in profitability between its New Zealand operations and elsewhere were the results of different business models.

Astonishingly, the Minister of Revenue Michael Woodhouse doesn't want to comment about this failure to collect taxes. But he should - because $500 million a year is a lot of money. On a government scale, its a huge policy; not quite KiwiSaver (~$750 million / year), but much bigger than expanding paid parental leave (~$150 million). Or, to put it another way, its a third of the entire police budget. That's not money the government should just be leaving lying around to be stolen by greedy companies and their immoral tax lawyers.

As for how to get it, Australia had the right idea: hold committee hearings, and summon these companies to justify their tax position. Put them in the chair, threaten to burn their public goodwill and reputation, and make them squirm. That, and start applying the generalised anti-avoidance rule to transfer pricing and artificially uneconomic loans. The sole purpose of these arrangements is to minimise tax in New Zealand by artificially transferring profits to offshore tax havens; that's already illegal, and the law should be enforced.

And then there's Methanex, which is hugely subsidised by government carbon credits while paying a 1% tax rate due to "past losses". If they're that unprofitable in the long-term, then it seems that the subsidies are the only thing keeping the business afloat. The government should not be in the business of propping up unprofitable businesses or of subsidising tax cheats; we should withdraw the subsidies and let them fail. Anyone want to take a member's bill on that?