Labour plans crackdown on multinational tax avoidance to help fund spending plans

Labour is threatening to crack down on multinational companies that are dodging paying their fair share of tax in a move it believes will net $200 million a year in extra tax for the Government.

Leader Andrew Little said according to Inland Revenue, New Zealanders were missing out by hundreds of millions because multinational companies can hide their profits in complicated international schemes.

He had written to the 50 largest companies operating in New Zealand that were majority foreign owned “outlining Labour’s intention to make every company pay their fair share of tax like everybody else”.

That could include introducing a “diverted profits tax” so IRD could impose tax at a penalty rate if it believed that tax had been deliberately avoided.

The experience in the United Kingdom has been positive, as companies such as Amazon were now booking their profits in the UK rather than in the tax haven Luxembourg.

“The fact is, many multinationals are ducking their tax obligation and leaving it to Kiwi taxpayers to foot the bill. This is simply not fair. At a time when we need to urgently invest in hospitals, schools and housing, we need multinationals to make their fair contribution too,” Little said.

“A diverted profits tax is an important tool to encourage multinationals to behave appropriately and pay their fair share of tax like every hard working New Zealander. They don’t have tricky accountants to help them dodge their obligations.”

He said even on current settings multinationals should be paying more.

“Labour is budgeting to collect an additional $600m over three years. We will resource IRD’s investigations unit to do their job properly with an additional $30m injection each year.”

Little said National had been going “soft” on multinationals and its performance was “pathetic”.

“It’s a joke that the Government itself has estimated that multinationals are avoiding $300m of tax per year, but is only budgeting on its policies recouping $100m of that.”

In the May Budget, the Government said it expected to net $250m over three years from moves it has set in place to clamp down on multinational tax avoidance.

Finance Minister Steven Joyce said the $250m forecast in extra revenues from the changes was probably “conservative”.

“I expect that will probably rise once we get greater finality in terms of the final measures we take there.”

Inland Revenue began consulting in March on new measures to stamp out tax rorts.

The likely steps include new rules to limit the interest that foreign companies can charge their Kiwi offshoots on intra-company loans.

There could also be new controls on “transfer pricing” where local subsidiaries pay for functions performed at overseas head-offices, such as accounting services and marketing support.

The Government’s moves were part of the OECD’s international base erosion and profit shifting (BEPS) drive aimed at clamping down on multinational tax avoidance.

Little said the extra $600m Labour planned to raise could be used to pay for more classrooms, better health and more social housing.

“It’s simply not acceptable that Kiwi kids are doing homework in the back of cars while multinational companies reap big profits but skirt around their obligations to pay tax.”

If he led the next Government he planned to hold a round-table meeting with leaders from multinationals operating here.

“I intend to address the rising discontent among New Zealanders regarding multinational companies not contributing fairly. I invite you to attend this meeting and work together to ensure New Zealand is a fair place to operate and a great place to live,” he said in his letter to the big multinationals, which he released to the media.

“The next Labour-led Government will welcome all international investment that genuinely creates jobs and wealth, but we will not support exploitative investment such as property speculation or companies that shirk their responsibilities to contribute to the cost of a decent society.”