Rob Campbell: Compromise needed on corporate tax

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A couple of issues, not obviously related, have occupied my mind recently.
A couple of issues, not obviously related, have occupied my mind recently.

Like Bruce Springsteen in Tougher Than the Rest, I have been around a time or two. That, and the time to reflect which accompanies the ageing process, allows one to think through the noise of political debate. A couple of issues, not obviously related, have occupied my mind recently.

The media have recently discovered that some major corporates, significantly those whose technology footprint allows flexibility in recording profits where it is convenient for tax purposes, pay evidently low rates of tax relative to revenue in this country. This in itself is not news, nor a discovery to those in business or who read business media.

There are two broad options available to those who find this unacceptable. That group seems likely to include thirsty tax gatherers, those who are paying evidently higher rates of taxation without equivalent flexibility, and those who may not pay or collect much tax but rely on tax for their support and would therefore rather more was collected than less.

In other words, all of us.

The first option is to devise tax rules and procedures which limit this flexibility and capture more of the supposed earnings made locally in the local tax net.

Most countries would like to do that and some do it by structuring affairs to encourage such earnings their way. Such countries are part of the problem.

Not all countries can do this, but there are various efforts being made to get a better share in some countries.

They seek to get more without annoying the corporates concerned so much that they redouble their efforts to divert earnings away.

Australia and the UK are doing some of this and at the margin it seems likely there are positive returns to such effort which are greater than whatever "strong man" political posturing accompanies the effort. But these may be quite small.

The second option, not mutually exclusive, is to work on a multinational basis to deal with a multinational issue. In our case, and for many countries, this involves an OECD-wide effort to develop "global" tax rules which will cover the transfer pricing and other flexibility available to global corporates.

I understand that this work is quite advanced, and it seems likely that in time some almost global convention will emerge.

It is illogical to expect that global processes and outcomes will not be strongly influenced by the corporates that operate at that level.

This will not be quick, it will not be to everyone's satisfaction, and it may lack enforceability. It will be full of compromise. It will be influenced by those very corporates who are the targets.

Sounds a bit like another recent cause of political noise, does it not? Yes our friend the Trans-Pacific Partnership agreement.

When one sets out to have these "global" arrangements these characteristics of limited satisfaction, compromise, limited enforceability and major corporate influence are intrinsic to the process.

So there is a respect in which one has to be careful what one wishes for. It is illogical to expect that global processes and outcomes will not be strongly influenced by the corporates that operate at that level. Or that New Zealand will get everything it may want with so little power.

In most such contexts, no matter how much we like to think we "punch above our weight", we exercise the skills of the courtier or beggar, more than the prince.

It is all a bit frustrating for many. Politicians like to say that they can control such matters by building walls in various dimensions.

They are wrong in any ultimate sense, although they can and do build costly obstacles which are as much monuments to unintended effects and vanity as practical solutions.

For the citizen, the frustration can boil over as what elements of political power they may have imagined disappear over the horizon to New York, Brussels or somewhere else far away.

Nation states are losing power, sometimes giving it away.

I'm not sure that matters or that much can be done about it. But it does make our ability to have freedom, security and influence in our own environment important.

Debate on this article is now closed.

- NZ Herald

Rob Campbell is a professional company director.

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