A major Herald investigation has found the 20 multinational companies most aggressive in shifting profits out of New Zealand overall paid virtually no income tax, despite recording nearly $10 billion in annual sales to Kiwi consumers.

The analysis of financial information of more than 100 multinational corporations and their New Zealand subsidiaries showed that, had the New Zealand branches of these 20 firms reported profits at the same healthy rate as their parents, their combined income tax bill would have been nearly $490 million.

Green party co-leader James Shaw on why and how the government should crack down on profit-shifting.

The Green's Shaw said the potential sums involved vastly exceeded other areas of government priority for enforcement and could be put to good use.

"It obviously exceeds benefit by several orders of magnitude. That $500m could pay for 26,000 hip operations, 4,000 doctors or 7500 cops. This is a boatload of money," he said.

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Shaw this morning cited a briefing from Inland Revenue to the Minister of Finance and Minister of Revenue in August 2013, that outlined the problem of "base erosion and profit shifting" (BEPS), and highlighting potential deficiencies in New Zealand's own rules.

"We recommend that initiatives to protect the New Zealand tax base from BEPS should be a key focus when developing the next 18-month tax policy work programme," the briefing states.

Mr Shaw said National could have returned to surplus a year earlier if it had cracked down on foreign multinationals. Instead, it had tightened welfare rules and enforcement.

Labour's Robertson said the Herald analysis showed the system was broken and the party was calling for a full inquiry into the tax practices of overseas corporations.

"This is failing the basic test of fairness for the tax system.

"Other countries such as the United Kingdom and Australia have held inquiries that have revealed highly dubious practices in some cases. New Zealand should do the same. The public must have confidence the tax system isn't being treated with contempt."

A spokeswoman for Finance Minister Bill English referred questions to Woodhouse.

Last year the Australian Tax Office generated A$1 billion in additional tax revenue after targeting 30 companies from the pharmaceutical, energy and technology sectors - collectively known as the "Dirty Thirty" - suspected of large-scale profit-shifting.

Hear Labour's Revenue spokesman Stuart Nash speak to Early Edition's Rachel Smalley on corporate tax here:

The twenty companies identified by the Herald with the largest difference in profitability rates are dominated by firms in similar industries, ranging from the well-known, such as Apple, to under-the-radar methanol producer Methanex.

Of those companies who responded to questions, all insisted they were meeting their legal obligations. Several pointed to their New Zealand operations being almost solely as distributors, with the vast majority of their employment, research and manufacturing taking place offshore.

The Herald's analysis was guided by Victoria University emeritus professor of accounting Don Trow and former IRD senior manager Adam Hunt.

Hunt, who also served as the head of strategic intelligence at the Financial Markets Authority and now consults on taxation matters for the International Monetary Fund, said the estimate of $500 million in missed taxation from profits being shifted offshore was probably light and represented only around five per cent of the total corporate tax take.

"But it still sounds like a good number to me. So why wouldn't you chase it? It could be our surplus. I'd think Bill English would be very interested in this," he said.

Former IRD Intelligence Chief Adam Hunt. Photo / Nick Reed
Former IRD Intelligence Chief Adam Hunt. Photo / Nick Reed

Inland Revenue's manager for international audits John Nash said he was aware of the difference in profitability rates that underpinned the Herald analysis and that as a result certain industries - which he would not name directly - were more prominent on his radar.

"Certain industries are more susceptible to profit shifting and playing games with us. Logically that's where we put more resources in terms of monitoring," he said.

Hear Greens co-leader James Shaw talk to Newstalk ZB's Mike Hosking on multinational corporate tax:


Nash disagreed with suggestions Australia or the United Kingdom were more active in clamping down on profits illegitimately leaving the country and said the difference was mostly down to volume. "We're just a little more low-key, while they tend to perhaps be a bit more vocal," he said.

As why multinational companies engage in profit-shifting, the twenty companies on the Herald list paid effective tax rates of 22 per cent on their non-New Zealand income, considerably lower than our 28 percent corporate rate.

Apple, Google and Methanex

iPhone maker and music retailer Apple Inc is one of the most profitable companies in the world, but a Herald analysis of its accounts shows its New Zealand operation appears to barely break even.

Apple Inc's New Zealand subsidiary Apple Sales New Zealand recorded $732 million in sales for the year, up nearly a third from 2014. But despite this stellar growth in sales the company reported relatively meagre profit margins here of only 3.6 percent, after its parent billed $702m for costs of goods sold.

That transaction led to the subsidiary reported profits of only $17.8m, leading to a mere $8.8m being paid in income taxes to Inland Revenue.

Meanwhile, according to filings with the United States' Securities and Exchange Commission, Apple Inc during the same period reported the world's second-largest corporate profit ever with margins of 31 per cent.

Had its New Zealand operation reported profits at a similar level to that of its New York Stock Exchange-listed parent, its tax bill would have been $64m.

Apple representatives in Australia said it was "unlikely" they would comment on issues of tax planning or profit shifting when contacted by the Herald, and the company subsequently failed to respond to questions put in writing.

Internet services and search provider Google had a similar story to tell in its accounts, reporting $14.9m in revenues but a cost of goods charge of $14.4m - 97 per cent of revenue. This left it with profits before tax of just $521,795 and an income tax bill of $361,542.

A Google spokesman said the company complied with tax laws in New Zealand and stressed an aversion to unilateral action by governments seeking to combat a problem it believe required a global solution.

"We believe international forums like the OECD are the right places to decide tax rules for multinational businesses because everyone would benefit from a simpler and more transparent system," the spokesman said.

Methanex, the Taranaki-centred methanol producer, reported revenues of $1.5b and pre-tax profits of $105.2m, but income taxes of just over $1m.

Their financial reports filed with the Companies Office show their tax bill was heavily reduced by prior tax losses. A year earlier, with similar revenues and pre-tax profits, their tax bill was only $740,000.

A spokesman for Methanex said: "The tax due in any one country varies over time depending on a wide range of factors. We can assure you that Methanex complies fully with all tax legislation and requirements in the countries it operates in, including New Zealand."