Global drive to stamp out tax rorts will survive Trump, NZ experts believe

Donald Trump's election could trigger a global scrap over multinationals' tax hoards, PwC partner Geof Nightingale says.
CARLO ALLEGRI/REUTERS

Donald Trump's election could trigger a global scrap over multinationals' tax hoards, PwC partner Geof Nightingale says.

A global battle is looming over tax in the wake of Donald Trump's United States election win, but New Zealand will probably be best off watching from the sidelines, Kiwi experts say.

President-elect Trump has estimated US firms have stockpiled US$2.5 trillion (NZ$3.6t) of profits outside the US. He has proposed encouraging them to repatriate that money to the US by offering to tax the profits at a reduced rate of 10 per cent.

The one-off tax windfall could go part way to funding a US$1 trillion spend-up on infrastructure that Trump promised as part of his election campaign.

Much of the cash has been diverted to tax havens through tax rorts such as the notorious "double-Irish". But Deloitte tax partner Bruce Wallace said some of it would still be sitting on books of multinationals' operating subsidiaries in countries including New Zealand.  

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PwC tax partner Geof​ Nightingale forecast an "arm wrestle" with the EU which was also eyeing the cash mountain.

The EU ruled in August, for example, that Apple Computer should pay Ireland up to €13 billion (NZ$20b) in back taxes plus interest, saying tax breaks the Irish government had given to the consumer electronics company between 2003 and 2014 amounted to "illegal state aid".

"That could turn into an arm wrestle, because if the EU taxes first, the US could be obliged to give a tax credit and it would reduce the impact of that 10 per cent tax, Nightingale said.

"There is a political tussle not only about who gets to tax that pool of unrepatriated profits but who gets to tax the profits going forward that are still being made in the 'weightless' economy.

"The next year or so is going to fascinating [but] New Zealand doesn't need to get tangled up in that."

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Neither Nightingale nor Wallace believed the tensions threatened the Organisation for Economic Cooperation and Development's (OECD's) "Beps" tax initiative.

Beps is attempting to shut down the multinational tax rorts that led to the untaxed cash mountain being accumulated in the first place. It has been backed by the New Zealand government as the best way to tackle multinational tax avoidance.

OECD tax policy director Pascal Saint-Amans said he could not comment on the implications of Trump's election.

But Nightingale believed Beps would continue whether or not US lawmakers ultimately sanctioned the legal changes that would flow from the global initiative.

"Even if they didn't, there is so much momentum in the rest of the world that it would carry on," he said.

Nightingale said that in New Zealand, the party political response to multinational tax avoidance appeared to have switched somewhat, with Labour revenue spokesman Stuart Nash talking up Beps and now distancing the party from the idea that the country could successfully take unilateral action against multinationals.

But the Government – which had previously emphasised the benefits of Beps' multilateral approach – now appeared to be considering bowing to pressure from some quarters of the media by looking into unilateral measures, he said.

The Government might review the benefits of a "diverted profits tax" adopted in Australia and Britain, as a sop to public opinion, but was unlikely to follow through, he believed.

"The question is whether it would be good policy or just 'good politics". I don't the think the case has been made we are losing lots of tax revenue.

"There is not a lot happening in New Zealand when we buy an Apple iPhone, so how much of that economic activity can we by rights get our hands on?"

Wallace agreed a diverted profits tax would be unlikely to raise much money. "I think officials and ministers are probably still of the view that we don't need unilateral measures. The reality is our rules here are pretty robust," he said.

 - Stuff

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