Some wealthy multinationals are thumbing their noses at the taxman and are not paying their fair share of tax, according to Labour.
An example is the Wellington power lines company which appears to take an "optional" approach to paying tax, says the party's associate finance spokesman David Clark.
Companies Office documents show Inland Revenue is auditing the books of the company, Wellington Electricity, which is linked to Asia's richest man Li Ka-Shing.
Other firms in Li's Cheung Kong group also face an A$776 million unpaid tax bill in Australia, though that is being appealed.
Wellington Electricity has paid no company tax since its sale by Auckland-based Vector in 2008 for $785 million.
The tax losses came despite healthy profits at operating "ebit" level of close to $50m a year in 2012. Clark claimed the lines company looked to be avoiding tax and was an example of "those who are wealthy finding it optional to pay tax in New Zealand".
The electricity lines company may not be doing anything illegal, but getting around the law, "doesn't make it right", he said.
A tax expert, who declined to be named, said Wellington Electricity's high debt levels effectively meant it paid no tax.
The debt looked "very aggressive" and it was perhaps no surprise IRD was carrying out an audit of past tax years.
If a company was being "aggressive" it was more likely to face an audit, but that was not to suggest it was doing anything illegal, the tax expert said.
Such high debt levels among foreign companies were a "real challenge" to Inland Revenue, he said, and changing the rules could make New Zealand look unattractive to invest.
"The practical reality globally is these companies (multinationals) choose where they pay their tax and that means New Zealand doesn't get much of a look in," he said.
"Low-tax countries like Hong Kong do."
Clark said the taxman could be missing out on "tens of millions" in tax from multinationals, which made it hard for local companies to compete with them and added to the burden of other taxpayers.
"A lot of large multinationals are thumbing their nose at paying tax and it does seem to be optional. That's not OK, because it is middle New Zealand who are carrying the tax burden and are being squeezed more and more."
An IRD audit "of certain historic tax years" was noted in the latest Wellington Electricity accounts, but the company has made no provisions arising from the audit. An IRD audit usually happens for large multinationals every five to seven years, but more often in some cases.
Other multinationals were also avoiding tax in New Zealand, Clark said, and the Government should "go hard on this and look for any signs of illegality".
There were tax rules limiting debt to no more than 60 per cent of total assets, down from 75 per cent a few years ago, but even that 60 per cent was high and could make a mess of profits.
The Government is looking at rules around debt ratios. "You can expect some announcement around thin capitalisation rules later in the year, so the settings are appropriate with no incentive for multinationals to structure their affairs to avoid tax in New Zealand," Revenue Minister Todd McLay said.
Thin cap rules limit the ability of a company to extract profits as interest payments while paying no tax.
- © Fairfax NZ News
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