By Pattrick Smellie
Some of New Zealand's largest companies are calling on any future government to lower the corporate tax rate, which is becoming high compared to other countries, and a "New Zealand first" approach to policing cross-border finance arrangements that under-tax revenue in other countries.
Published jointly by peak business lobby Business New Zealand and accounting firm Deloitte, the Major Companies Tax Survey also expresses concern that "attention on multi-nationals should not tar all large companies, and it is important that the government play its part to clarify the reality of the policy issue, not fuel any inaccurate perceptions" about levels of tax paid by multinational companies.
The "general perception across society" that multinational companies don't pay their fair share of tax is "not always based on an informed view", says the report, based on a survey of Business NZ's Major Companies Group, some 80 large New Zealand businesses, and the Corporate Taxpayers Group, a separate body representing some 40 large New Zealand businesses.
The report says New Zealand's corporate tax rate of 28 per cent was starting to look high compared to an OECD average of 22 per cent and Australia's commitment to drop to a 25 per cent rate by 2027.
To remain competitive, "this may require a reduction to between 20 percent and 25 percent in the next decade," the report says.
High on the list of large businesses' wishes is an end to non-deductibility of so-called 'black hole expenditure', such as depreciation for industrial buildings and seismic strengthening work, the latter of which requires either direct government compensation or tax deductibility.
"Related to the issue of global competitiveness, when developing policy, major companies are also calling on the government to put New Zealand's interests first," the report recommends. "When presented with the example of another country under-taxing a particular corporate activity, 86 per cent of respondents thought that New Zealand's response should be to levy taxation based on our domestic tax policy principles, rather than deliberately seeking to overtax New Zealand activity as a means to compensate for under-taxation elsewhere.
"This is directly relevant to some of the BEPS (international tax avoidance) measures currently being considered, where New Zealand's treatment of certain cross-border financing instruments could hinge on the treatment offshore. The survey response suggests that how another country chooses to tax such an instrument should not be our concern."
It also calls for tax policy that avoids "avoid unpredictable or time-consuming administration, regular shifting of the boundaries, changing interpretations and increasingly complex legislation".
"Three sets of changes to the thin capitalisation rules in the space of five years (assuming current proposed changes proceed) and a view issued by Inland Revenue advising that debt capitalisation (a well-trodden path) is tax avoidance are good examples of this," the report says.
It also suggests big businesses need more discretion when doing taxpayer 'self-corrections' than the current $1,000 threshold.
"The current self-correction threshold of $1,000 is trivial for our largest companies - too low to be of practical benefit. The threshold must be higher given the compliance costs incurred by larger businesses in making adjustments to a previous period."
"The self-correction of errors should to some extent be based on an approach that is linked to the significance of the error to the taxpayer - for example up to the greater of 1 percent of taxable income for that period, or $10,000. This approach would provide a threshold that is high enough to provide some benefit to taxpayers, without being significant enough to cause concern," the report suggests.
Respondents also favoured tax incentives to encourage commercial research and development.