Changes to ensure multinational companies pay a fair share of tax have been outlined by the Government.

Finance Minister Steven Joyce and Revenue Minister Judith Collins have released three consultation papers, that propose new measures for taxing multinational companies.

"We welcome multinationals' participation in our economy, but we also expect them to pay tax based on their actual levels of economic activity in New Zealand," Collins said.

"By closing loopholes and reducing opportunities for gaming the system, we not only ensure that multinationals and others pay their fair share of tax, but we also help maintain confidence in the fairness of the tax system."


Collins said today Inland Revenue had told her that up to $300 million a year in tax was being lost because of multinational tax avoidance.

The proposed changes include:

• Addressing concerns about multinationals booking profits from New Zealand sales offshore, despite the same sales being driven by New Zealand-based staff.

Under the proposal, a non-resident will be deemed to have a New Zealand permanent establishment if they sell goods or services to a person in New Zealand, and have a related entity carrying out activities in New Zealand to bring the sale about.

• Stopping companies using interest payments to shift profits offshore.

• Strengthening transfer-pricing legislation.

• Beefing-up Inland Revenue's powers when a company does not cooperate with a tax investigation.

New Zealand is among 96 countries that are working on a multilateral tax treaty developed by the OECD to tackle tax avoidance strategies used by multinational companies, that are known by the acronym for base erosion and profit shifting (BEPS).


Joyce said New Zealand's tax system performs "very well" overall.

"However, it's important that it keeps evolving to ensure that all companies operating in New Zealand pay their fair share of tax.

"The proposals in these documents are in line with the recommendations from the OECD's base erosion and profit-sharing project."

A Herald investigation in March last year found the 20 multinational companies most aggressive in shifting profits out of New Zealand collectively paid virtually no income tax.

The companies in question, including Facebook, Google and Pfizer, said they followed New Zealand laws, and differences in profitability between their New Zealand operations and elsewhere were because of different business models.

Facebook paid just $43,000 tax in New Zealand on $1m in revenue, according to recent financial statements.


Labour's revenue spokesman Michael Wood said the proposed changes were welcome.

"However we have to wonder why it's taken nine years of delay tactics to get there. Just last year Michael Woodhouse said 'I am satisfied that we have good, robust rules in place' and 'If you are asking me if New Zealand is missing out somehow, I have seen no information to suggest that that is the case'.

"You have to wonder if the Minister's actions have a lot more to do with this year's election then any real attempt to force multinationals to pay their share of tax."

Retail NZ said it was disappointing the proposals didn't include requiring firms to register for GST if they sold goods to New Zealand customers.

"The Government is moving today to collect between $200 and $300 million that big multinational firms are sending to tax havens, but the Government is also missing out on at least another $200 million because it does not require foreign firms to register for GST when selling to Kiwis," Greg Harford, Retail NZ's general manager public affairs said.

"Our Government should be requiring retailers to register for GST, just like domestic retailers are required to. As the Aussies have recognised, this is a cost-effective and simple way to plug a hole in the tax system and make sure foreign firms are paying their fair share of tax."


In December, then Revenue Minister Michael Woodhouse said proposals outlined in a cabinet discussion document tabled last month would arm Inland Revenue to tackle the problem and could be accompanied by increased enforcement funding for the taxation authority.

The proposals included granting broader information-gathering powers to Inland Revenue investigators, shifting the burden of proof to multinational companies in disputes over transfer pricing, and tightening loopholes that allow companies to claim they have no taxable presence in New Zealand.

The moves stop short of a full-scale diverted profits tax, as introduced by Australia and the United Kingdom.