Labour labels Government action on multinational tax 'unambitious'
New Zealand might end up "whistling in the wind" if it charted its own course tackling multinational tax avoidance, Revenue Minister Judith Collins says.
Collins also revealed China's tax commissioner hopes to visit New Zealand later this year to discuss measures to prevent tax dodging.
Labour revenue spokesman Michael Wood questioned whether proposals put forward by Collins in March to tighten multinational tax rules were "a little unambitious", at a select committee meeting on Tuesday.
Collins said the most reliable estimate was that multinationals were avoiding paying about $300 million of tax in New Zealand annually.
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But the Government estimated in the Budget that its proposed new measures – which would tighten the rules around interest deductions, transfer pricing, tax residence and hybrid instruments – would together bring in about $100m annually.
Questioned about the difference, Collins said she believed the $100m Budget estimate was "very conservative".
In support of that, she said Inland Revenue had forecast it would collect $40m a year from its so-called "Netflix tax" on imported digital services, but had hit that total just six months after the tax was first introduced in October.
Under the Netflix tax regime, foreign companies have to collect GST on the likes of television, music and software subscriptions they sell to New Zealanders from overseas, if their sales to Kiwis exceed an annual threshold of $60,000.
A global crackdown on multinational tax avoidance by the OECD could have bigger implications for New Zealand than the $300m avoidance estimate suggests.
That is if it encourages multinationals to base more of their operations in countries such as New Zealand, rather than in countries with weak tax laws that allow them to funnel profits to tax havens.
Collins said multinationals had an advantage over national governments when they worked out how to structure their operations.
"Companies have in front of them every single tax position of every country they are dealing with and they are sitting around making decisions as to which country is going to be beneficial to them from a tax point of view, and that is how they operate.
"We in New Zealand do not always know exactly what is happening in some of these companies because they are not based here."
That meant New Zealand had to tackle the issue in conjunction with other countries, she said.
Labour MP Raymond Hou said there were reports Asians and non-Asians who were resident in New Zealand were avoiding tax by living outside the country for most of the year, putting Inland Revenue in the position of being told "tax me if you can".
Collins responded that a new OECD information-sharing agreement signed in Paris earlier this month – to which New Zealand and China were both signatories – meant that if anyone was not complying with the law "then the law might be coming to them."
China's tax commissioner wanted to discuss "what else we can do", she said.