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How much freedom should individuals or companies have to change their affairs in response to tax rules? Bernard Hickey calls on us to join a British boycott of companies that do this. Your view?
By Bernard Hickey
Avoiding or evading tax used to be socially acceptable, or at least not socially unacceptable.
There was a time before the Global Financial Crisis when most people in the moneyed class were perfectly relaxed about discussing how they minimised their tax bills through Loss Attributing Qualified Companies (LAQCs) and family trusts.
Dinner party conversation about using trusts and rental property 'losses to reduce 'taxable income' so as to qualify for Working for Families, Student Loans and Nursing Home subsidies used to be perfectly acceptable.
Some are still mystified that anyone would be upset that they deliberately set out to avoid paying tax.
Finance Minister Bill English recounted at a business conference this week how one self-employed voter was angry with him after missing out on an ACC payment because he had structured his affairs to show little taxable income and therefore qualify for Working for Families and the like.
"I told him that's what you get when you don't declare any income, but he was still upset ... ," English said with the shake of his head to an amused audience in Auckland.
Even Revenue Minister Peter Dunne and Prime Minister John Key appeared relatively sanguine about the issue earlier this month when they said some tax avoidance was legitimate, particularly when it involved the use of shelf companies in New Zealand by wealthy foreigners, while tax evasion was not legitimate.
Public opinion on the legitimacy of avoiding tax is, however, far from sanguine in countries such as Britain, where the sting of austerity is cutting benefits and jobs. Tax avoiders and evaders have become public enemy number one.
Starbucks was in the crosshairs in Britain this week after Reuters reported Starbucks had racked up over 3 billion pounds (NZ$5.88 billion) in sales since 1998, but had paid just 8.6 million pounds (NZ$16.8 million) in taxes. Over the last three years its paid no income tax, despite comments from management to shareholders that its British operation was so successful and profitable that it was moving its British CEO to head up the American operation.
Starbucks forces its British operation to pay 'intellectual property' fees to its Dutch operation, from where it's unclear where the money goes.
Starbucks is not alone among many multi-nationals who use perfectly legal but morally questionable tactics to shuffle money through tax havens and structures that have the effect of reducing their overall tax rates. Google, Apple and Facebook are masters at it.
Google, for example, made losses for tax purposes in New Zealand in the last two years, despite advertising industry estimates that it made revenues from New Zealand of over NZ$100 million last year. Last year it paid just NZ$109,000 in tax in New Zealand.
This is a growing problem for most developed economies where tax bases are migrating offshore and into the cloud.
Industries which were once immune from international competition, such as media, medical services, education services and accounting services will increasingly have to compete with foreign companies who structure their affairs to pay the lowest tax possible in any countries.
British consumers are getting very grumpy about the dilution of Britain's tax base, particularly given the pressure it is under after years of recession.
This week they launched a boycott against Starbucks and various celebrities, including comedian Jimmy Carr, who was forced to apologise to the public after his use of a tax haven was exposed.
Perhaps it's time New Zealand consumers and taxpayers started targeting companies such as Google and Facebook that don't pay their fair share of tax globally.
This piece first appreased in the Herald on Sunday. It is used here with permission.