OPINION: Governments and the Organisation for Economic Co-operation and Development (OECD) are concerned about tax base erosion and profit shifting (Beps) because it reduces tax revenue.
You are probably familiar with news reports about multinationals paying relatively low levels of tax in various, usually western, countries.
Those are examples of Beps. Governments, tax authorities and the press portray such actions as not being fair.
Fairness is key element in any tax system. Our tax legislation contains a specific provision that Inland Revenue Department officials are required to preserve the integrity of the tax system, including public perception. Today I discuss another concept of fairness, the Fair Tax Mark (FTM).
There is debate in the United Kingdom about the introduction of a FTM. I believe that we should have a similar debate in this country. I have incorporated comments by both Richard Murphy, a UK fair tax campaigner, and the Institute of Chartered Accountants of England and Wales.
To have credibility a FTM would need to be awarded by a recognised and trusted body rather than a self-appointed group.
The FTM would be applied for, not awarded and no company would be obliged to apply. It would give New Zealand companies wishing to make a public statement about their tax affairs an opportunity to do so.
The FTM should not be imposed on companies or companies above a certain size. There has to be freedom of choice for companies as there is for consumers. However, it is right that consumers should be concerned about the attitude that businesses take to tax.
Should the FTM be limited to companies? What about limited partnerships, general partnerships and trading trusts?
Would the FTM be limited to company tax?
Should the FTM be limited to companies that trade solely in New Zealand? Extending the FTM to foreign-owned multinationals with subsidiaries in this country will pose some considerable challenges but may be necessary to create meaningful comparisons.
There must be total transparency and consistency in the criteria for assessing "fairness", to achieve credibility. The FTM must explain how and why its assessment differs from that of any relevant authorities if their assessment of "fair" and "right" is to be widely accepted.
I firmly believe the development of a FTM in New Zealand would be a positive initiative as it would give consumers information should they wish to decide between companies on the basis of their tax compliance.
* Murray McClennan is director of Tax Central Ltd, a specialist tax consulting firm. Email firstname.lastname@example.org for contact. The above comments are of a general nature only and are not a substitute for specific advice.
- The Southland Times