Multinational tax plan lacks punch - NZ expert

By Ben Chapman-Smith

The low tax payments by major global companies such as Starbucks have sparked public anger in Europe. Photo / AP
The low tax payments by major global companies such as Starbucks have sparked public anger in Europe. Photo / AP

A major new global plan aimed at forcing multinationals to pay more taxes has been described as underwhelming and disappointing by a New Zealand tax expert.

The Organisation for Economic Cooperation and Development (OECD) announced a 15-point plan on Friday in response to growing international anger at low taxes paid by companies like Facebook, Google, Starbucks and Amazon.

With a special focus on the online economy, the 'Action Plan on Base Erosion and Profit Shifting' identifies specific actions that will give governments the domestic and international instruments to prevent corporations from paying little or no taxes.

While US Treasury Secretary Jacob Lew labelled the plan as a "major step toward addressing tax avoidance by multinational firms", a local tax expert said it was lacking in any real hard solutions.

Elly Ward, a tax partner from PricewaterhouseCoopers, said the plan was "a little bit of a disappointment" because it merely established the fact that OECD nations needed to begin looking more closely at global tax issues.

"It's not particularly unexpected where they've gone and we were hoping for a bit more," Ward said.

"If you actually read a lot of that action plan you realize it's a case of 'We need to look into x, y and z in more detail'. I was a bit underwhelmed by the report."

Ward said she was hoping to see clear steps outlined to address problems like America's controlled foreign corporation (CFC) rules, which allow US companies to keep profits untaxed in the hands of foreign subsidiaries until they are repatriated to the US parent.

A report in the Wall Street Journal earlier this year found that 60 of the largest US companies parked a total of $US166 billion offshore last year.

Ward said many of the action points in the OECD plan had very tight time limits of one to two years, which were quite unrealistic.

"They've set stringent time restrictions which are going to require the US, the UK, the really big economies to sit down and sign up to a whole load of provisions."

Ward said she was not hugely optimistic about countries reaching consensus.

"There's not a lot in the document as to how you actually get people around a table agreeing the one thing that they can control their economy with, which is their fiscal policy."

The main concern for New Zealand in entering into any agreements would be ensuring the country came out with a fair deal, she said.

"There's going to be a real fine line to walk to ensure that we're being a good global citizen and we're collecting our tax but also that we're still attractive to businesses wanting to set up here."

New Zealand needed to make sure it remained competitive rather than taking on the position of "global tax policeman".

"You don't want to be the country with a 28 per cent tax rate and refusing deductions when other jurisdictions have got a 20 per cent tax rate and they're allowing the deductions," Ward said.

Released at a meeting of the Group of 20 finance ministers in Russia, the plan was welcomed by many last week.

Former UN Secretary General Kofi Annan urged the G-20 leaders to look past their differences and agree on the tax evasion plan when they meet again in September.

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