Editorial: Big companies on notice over tax structures

Editorial

Multinational tax policy isn't easy or simple and it isn't usually sexy. But, like a lot of things, the internet has livened up the debate.

Big tech companies such as Apple, Google and Facebook are now deeply integrated into the daily lives of New Zealanders. We also rely on multinationals for most of our chemicals, medicines, fuel, as well as the soft drink, fast food and sneaker brands we have adopted as part of our global culture.

So when a Herald investigation highlighted 20 multinational companies that paid virtually no income tax, despite recording nearly $10 billion in annual sales to Kiwi consumers, it raised inevitable issues of fairness.

If companies are making good profits operating here then they should be paying tax here, too.

Aside from the loss of Government revenue - which could be used to build schools and hospitals, thus ensuring the next generation of happy global consumers - there is the issue of a level playing field for local business.

New Zealand companies are paying income tax and GST to support a modern country in which decent profits can be made. If their rivals aren't then they are disadvantaged.

The problem has been exacerbated by the nature of the digital economy which makes geographic location increasingly less relevant.

In fact, as consumers we win individually when we buy online and avoid GST, even if we collectively lose out.

So the political response isn't an easy one either.

The central question is a familiar one that faces a small nation on nearly every matter of foreign policy - from global conflicts to climate change.

Do we take stand on principle and act unilaterally even if our actions are largely ineffectual? Or do we wait pragmatically for multilateral agreement?

Unsurprisingly opposition MPs have called on the Government to take the moral high road and legislate now - pointing to similar moves in Australia and South Africa.

The Government leans towards waiting for an international agreement - no doubt under advice from a legion of tax experts who will be reminding it of the consequences of bad tax law.

But a definitive solution may not be far away.

The OECD has a high quality process underway which should result in an international treaty to standardise tax treatment of multinationals. The process has already made it clear that GST should be paid by companies in the country where goods and service are consumed.

It has opened the way for the Government to move and a "Netflix" tax to catch offshore digital services is expected later this year.

On that basis there is good cause to wait for the multilateral outcome on the issue of profit shifting and tax arrangements.

That doesn't mean New Zealanders shouldn't be watching the process closely. If it delivers a result that doesn't satisfy our national interests then a more direct response may be required. Multinationals should now be on notice that the game has changed. One would hope that they are prepared to start adjusting their behaviour in anticipation of that change.