Labour leader Andrew Little is threatening to apply a penalty tax on the profits of multinational companies that deliberately avoid paying their fair share of tax in New Zealand.

Little has written to the leaders of multinational companies setting out his intention if Labour leads the next Government.

Little has not specified yet how Labour would determine a fair share or what the penalty tax would be, but has announced it would collect an extra $600 million from multinationals over three years.

If it was introduced, however, the penalty tax would likely be higher than the corporate rate of 28 per cent, as is the case in Britain where, since 2015, a new diverted profit tax was set at 25 per cent, compared with company tax of 20 per cent.

Advertisement

Labour's extra $600m revenue from the penalty tax has been budgeted to help fund its alternative Budget, which is to be unveiled tomorrow.

Little said Labour would give the Inland Revenue Department a further $30m in order to collect the extra $600m.

"If multinationals aren't prepared to pay their fair share, Labour will introduce a diverted profits tax, to enable New Zealand tax authorities to impose tax at a penalty rate if they believe that tax has been deliberately avoided."

A diverted profits tax would be an important tool to encourage multinationals to behave appropriately and pay their fair share of tax, like hard-working New Zealanders, Little said.

A discussion document issued by the IRD in March estimated that up to $300m of tax a year was being lost because of multinational avoidance. It included proposals that were in line with recommendations from the OECD base erosions and profit-sharing project.

Labour said its policy was aimed at collecting all of the $300m.

Little is writing to up to 50 multinational companies operating in New Zealand, including the 20 companies identified in a Herald investigation into which companies paid virtually no tax in New Zealand because they or their New Zealand subsidiaries shifted profits out of the country.

Among them are Apple, Harvey Norman, ExxonMobil, Methanex, Chevron, Unilever, Pernod Ricard, Johnson and Johnson and Independent Liquor.

The letter says: "The next Labour-led Government will welcome all international investment that genuinely creates jobs and wealth but we will not support exploitative investment such as property speculation or companies that shirk their responsibilities to contribute to the cost of a decent society.

"We will not condone practices that see ordinary New Zealanders bear the burden while overseas shareholders reap the rewards.

"If I have the privilege of leading New Zealand after the general election on 23 September I will immediately take steps to hold a round-table meeting with leaders from multinational companies operating in New Zealand.

"I intend to address the rising discontent among New Zealanders regarding multinational companies not contributing fairly."