Revenue Minister Peter Dunne says New Zealand will work through international channels to tackle the issue of whether multinational companies such as Facebook are paying an appropriate level of tax in New Zealand.
Dunne's comments come in response to recent criticism from the Labour Party over the likes of Facebook using tax loopholes to minimise the amount of tax they pay in New Zealand. Labour's revenue spokesman David Clark noted both Australia and Europe were introducing laws to clamp down on this behaviour, but the New Zealand government wasn't’ even considering it.
Now Dunne says the answer to taxing multinationals appropriately will be found through international projects and agreements. New Zealand was involved in these talks, particularly through the Organisation for Economic Cooperation and Development (OECD), he said.
“This is a global problem requiring a global response and New Zealand will be involved in working up that response,” Dunne said.
New Zealand participates in the OECD project on profit shifting by multinationals and the global erosion of the corporate tax base, he said.
“Part of the OECD’s work will focus on how tax structures such as the double Irish technique may be used to minimise the tax which is payable in Ireland and other foreign countries."
“We are also closely involved with related initiatives such as the systematic reviews of country regimes being undertaken by the Global Forum on Transparency and Exchange of Information for Tax Purposes and the OECD’s Forum on Harmful Tax Practices," added Dunne.
“I can assure you that any activities multinational businesses, or their New Zealand subsidiaries, perform in this country will be taxed appropriately."
His comments come after Clark pointed out Facebook paid NZ$14,500 tax in New Zealand, "give or take a few dollars", last year.
“In 2010 its tax bill was a mere NZ$5,238. For a company that has 2.2 million users in New Zealand and makes billions worldwide, that’s barely believable," said Clark.
“It appears Facebook is using the ‘double Irish’ tax technique. That’s where it uses Irish Facebook, which pays just 12.5% tax, to determine revenue and expenses. This ensures the company can put most of its revenue through countries with low-tax systems."
“Peter Dunne calls that ‘legitimate tax avoidance’. I call it a rort," Clark added.
Clark also noted that Google paid just NZ$109,038 tax in New Zealand on NZ$4,447,898 in revenue.
"That’s 2%, way below our 28% corporate rate. These companies should pay the right amount of tax here,' said Clark. "We must work with Australia to ensure this sort of tax avoidance is stamped out.”
However, Dunne said tax systems around the world are adjusting to corporate giants with huge internet footprints, but very little physical presence,
“The reality is that tax regimes internationally have generally been developed for an industrial age, and have struggled to keep pace with new business models and technologies not contained by location or national borders,” Dunne said.
“That is the challenge that we face in New Zealand, but it is very much a global issue faced by other nations too. The problem is not just that these large companies are not paying substantial tax here, but that they tend not to be paying substantial tax anywhere."
“We see Britain and Australia facing exactly the same issues, and our rules are already very similar to those adopted by Australia last week,” said Dunne.
A key issue was that foreign companies are taxed on the activities they actually perform in New Zealand.
“However, the internet has made it possible to provide an increasing range of services to distant customers from anywhere in the world. This means that overseas-based internet companies have a very limited physical presence in most countries in which they operate - including New Zealand," Dunne said.
“Since the bulk of what these companies do, in terms of programming, designing websites, running servers, selling advertising, is done overseas, New Zealand, like other countries, may have very limited taxing rights."