Nicholas Jones is a New Zealand Herald political reporter.

Peter Dunn aware of 'urgent' multinational tax issue

United Future leader Peter Dunne.
United Future leader Peter Dunne.

United Future leader Peter Dunne said he was well aware of the "urgent" issue of the tax paid by multinational companies during a recent stint as Revenue Minister.

Labour has this morning called for an inquiry into the issue after a Herald investigation found the 20 multinational companies most aggressive in shifting profits out of New Zealand collectively paid virtually no income tax, despite close to $10 billion in annual sales to Kiwi consumers.

Mr Dunne, who was Minister of Revenue from 2005 to 2013, said that experience meant he was not altogether surprised by the disclosures in the Herald.
Determining what share of income multinational companies should be taxed for, in what country was "becoming more and more impossible," he said.

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"The [Herald findings] are consistent with the information that was starting to come to light towards the tail end of my own time as Minister of Revenue almost three years ago," Mr Dunne said.

"What they highlight is that in today's globally connected world, the old concept of a business being physically located in one place and taxed accordingly is increasingly redundant.

"Large businesses, multinationals especially but not exclusively, trade across international boundaries, so determining what share of their income should be apportioned to particular jurisdictions and taxed accordingly is becoming more and more impossible."

Mr Dunne, who is now Internal Affairs Minister, said the focus needed to be on international solutions, negotiated as part of free trade agreements and focussed on businesses paying their fair share of tax in each of the countries that they operate.

The problem is becoming more and more urgent and needs to be at the centre of work by organisations such as the OECD.

"Tax avoidance as a consequence of globalisation is not limited to just the multinationals, of course. The same thing is happening daily at a much more individual level, every time a person makes an online purchase offshore, and avoids GST, for example. That is a potentially larger tax loophole to be plugged."

Labour Party finance spokesman Grant Robertson said a full inquiry into the tax practices of overseas corporations was needed.

"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."

Green Party co-leader James Shaw 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 says.

We can't afford to wait another year to close this massive multinational tax loophole.

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.

"The Government will say they are working multilaterally with the OECD to address this tax rort, which is good, but the OECD has been trying to address this issue since 1979," said Mr Shaw.

"We can't afford to wait another year to close this massive multinational tax loophole."

A spokeswoman for Finance Minister Bill English referred questions to Mr Woodhouse. His office is yet to respond to a request for comment.

The companies in question said they followed New Zealand laws and differences in profitability between its New Zealand operations and elsewhere were the results of different business models.

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.

Mr 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.

- NZ Herald

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