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Govt tackles multinational tax avoidance

NZ Newswire logoNZ Newswire 2/03/2017

Revenue Minister Judith Collins wants to stop multinationals moving profits offshore in a crack down on tax avoidance.

She and Finance Minister Steven Joyce released three consultation papers at an international fiscal conference in Queenstown on Friday.

"We welcome multinationals' participation in our economy, but we also expect them to pay tax based on their actual levels of economic activity in New Zealand," Ms Collins said.

The first proposal would apply new anti-avoidance rules to multinationals with a global turnover of more than euro 750 million ($NZ1.1 billion) that avoid having a taxable presence in New Zealand, including administrative rules to make it easier to assess and collect tax from "uncooperative multinationals".

Current rules allow non-resident companies to structure their business to avoid a taxable presence.

The new rules would create a deemed permanent establishment in New Zealand where they meet conditions including supplying goods or services in New Zealand.

The door has been left open for a diverted profits tax, as proposed by Australia and France and adopted in the UK, but the government "would like to investigate an alternative approach" first.

Opposition parties have been urging the government to follow Australia's lead and require foreign companies to register for GST or duty on physical goods sold in the country.

But that's not included in the proposals and according to Retail NZ that means the government is missing out on at least $200 million.

"Our government has already moved to crack down on tax avoidance in digital services by making foreign companies register for GST when selling online," public affairs manager Greg Harford said on Friday.

"The Australian government is moving to do the same for physical goods and it just makes sense that our government should tighten the net and do the same."

Labour's revenue spokesman Michael Wood said "kudos is due" to Ms Collins for taking this step, but urged greater consideration of a diverted profits tax.

"For Kiwis it's important that the tax is paid, as credible experts estimate it's worth somewhere between $500 million and $1 billion in lost revenue," he said.

"We also believe that we should have at our disposal all the tools we need to get this lost money. As such the current process should include greater consideration of a diverted profits tax."

Among the suite of proposed reforms is a plan to strengthen interest limitation rules.

That proposal would cap deductible interest rates on related-party loans from a non-resident to a New Zealand borrower.

"While we do not think most firms are gaming the system, there are some who appear to be doing so," Ms Collins told the conference.

"We have firms, for example, with both third party and related party debt, where the interest rates on related party debt are much higher than on third party debt."

The third paper proposes aligning New Zealand's double tax agreements with OECD recommendations in an international convention.

Ms Collins said New Zealand expected to sign the agreement in June.

Ahead of the consultation paper release Ms Collins told RNZ it's been estimated multinationals operating in New Zealand are collectively avoiding about $300 million in tax.

"There will be an increase in the tax take but we really don't know (how much)," she said.

The consultation papers are open for submission until April before Ministers consider final proposals later this year.

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