Matt Nippert is a business investigations reporter.

Mood of the Boardroom: Foreign firms not paying fair share

Global corporate tax avoidance has become a hot-button issue, as Matt Nippert reports

Concerns about corporate tax avoidance are no longer the concern of only Thomas Piketty-reading May Day protesters, with nearly three-quarters of New Zealand chief executives now saying multinational companies do not pay their fair share of tax globally.

The results, from the Herald's Mood of the Boardroom survey, shows two-thirds (65 per cent) of business leaders think the issue is a problem for the New Zealand tax base -- with specific concerns flagged around digital businesses like Google, Facebook and Apple -- and only 16 per cent think the Government is making progress in addressing the problem.

The issue has crept up the agenda over the past few years but gained national traction in March when a Herald investigation into tax avoidance by offshore companies found 20 large multinational companies with combined revenues of $10b had paid just $1.8m in corporate income tax.

Lightweight companies reliant on intellectual property or digital operations -- particularly the pharmaceutical and technology sectors -- were found to be the most aggressive in shifting profits out New Zealand.

The issue remains a hot button internationally with Australia in May using its budget announcement to crack down on multinational profit-shifting -- effectively the transfer of profits to lower-tax jurisdictions -- and implement a so-called "Google tax" on diverted profits.

The scale of the issue was cast into sharp focus earlier this month when the European Union concluded Apple had used Ireland as a tax-free funnel for its international revenues, and slapped the iPhone maker with a retrospective $20b tax bill.

New Zealand bosses said public concerns were partly misplaced, and the aggressive tax planning of a few was tainting the reputation of all global-spanning corporates.

One boss of a New Zealand branch of a multinational said: "It's an all-encompassing term and not reflective of the many multinationals that behave as good corporate citizens and fulfil their tax obligations."

Kim Campbell, chief executive of the Employers' and Manufacturers' Association, agreed the reputation of the multinational sector was uneven: "It's a mixed bag and depends on the company and type of business."

These concerns, as well as rising disquiet about inequality, sees 88 per cent of chief executives believe there is now a general mistrust across society that the rich don't pay their fair share.

The chief executive of Deloitte NZ, Thomas Pippos, said the issue was possibly more one of perception rather than reality but was nonetheless critical: "This is a major issue that goes to the integrity of the tax system."

The concentration of wealth has an unintended impact of perpetuating an underclass in New Zealand. This is not the New Zealand way, and will bite us all eventually.
Sam Stubbs, Simplicity

Sam Stubbs, chief executive of KiwiSaver startup Simplicity said ignoring concerns was not an option.

"The concentration of wealth has an unintended impact of perpetuating an underclass in New Zealand.

"This is not the New Zealand way, and will bite us all eventually.

"The rich get richer, the poor get the picture -- and the pitchforks," he said.

Though most -- 64 per cent -- of chief executives said the Government did not have the right tax setting to cope with the challenges presented by multinational tax planning -- some chief executives were willing to point the Inland Revenue Department in the right direction.

"Thin capitalisation rules and inter-company and offshore related-party transactions need to have much, much more scrutiny," one power company boss said.

TAX TAKES:

• 65 per cent of chief executives believe multinational tax avoidance is an issue.

• 88 per cent believe there is now a general mistrust across society that the rich don't pay their fair share.

• 64 per cent say the Government does not have the right tax setting to cope with challenges presented by multinational tax planning.

- NZ Herald

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