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By James Penn
Physical borders may be on the up worldwide, but the digitalisation of industries from entertainment to retail to finance has meant commercial borders are less defined than ever before. In that context, Kiwi business leaders are raising questions as to the tax status of their global competitors.
Chinese ecommerce giant Alibaba opened a NZ office this year, while commentators are tipping Amazon to make a play in the NZ market over the next year or so. Such a move would not only affect retail, but also media, with Amazon Prime a potential buyer for New Zealand rugby broadcast rights.
While most responding to the Herald CEOs survey were hesitant about the idea of the Commerce Commission investigating these global behemoths, a number were concerned about the tax implications.
"They provide an amazing customer experience and business model," said an agribusiness CEO. "But they don't pay their share of taxes, nor is NZ likely to be much more than a 'shop front' for these players."
A full 74 per cent of respondents considered multinational companies (MNCs) are not paying their fair share of tax within New Zealand. Alongside the ecommerce giants, tech players such as Google, Apple, and Netflix have come in for criticism in the past.
"MNCs by their scale have an unfair advantage being able to shift income around to different jurisdictions," said Kim Campbell, chief executive of the EMA. "However, we must be mindful that whatever we impose may well be imposed on our MNCs should they operate offshore."
Such concerns have been present for some time. The Government responded with a series of policies to address Base Erosion and Profit Shifting (BEPS) intended to enacted by midway through next year.
"These decisions have been arrived at after weighing up public feedback on three government discussion documents relating to: hybrid mismatch arrangements; interest limitation rules; and transfer pricing and permanent establishment avoidance," Revenue Minister Judith Collins said in a press release last month.
"These changes will result in an estimated $200 million a year in additional tax being paid by multi-national companies," said Finance Minister Steven Joyce.
When asked whether the Government had made progress on BEPS issues, 40.5 per cent in the survey said no. Many others (31 per cent) were unsure, while a minority (28.5 per cent) said yes. Of that group, a significant proportion were hesitant about the extent of the progress.
CEOs responded with comments such as:
• "Yes, but very slow progress."
• "Progress but not enough progress."
• "Keep going on this!"
"It's hard to tell through the rhetoric," said Campbell. "One gets the sense the US will stonewall anything that looks likely to get traction."
An alternative solution floated by the Labour Party is a diverted profits tax (DPT), which has been introduced in Australia. The survey tends to reflect a need to educate the public on such solutions. Just under 50 per cent supported a DPT, but a further 42 per cent were unsure. When asked whether it would raise more than the anticipated $100m planned for in Australia by 2018-19, a full 63 per cent were unsure.
The debate is characterised by a mix of frustration and appreciation. "Do we want these companies trading with us?" asked another chief executive in the agribusiness sector. "And if we impose an impost that other countries don't, do we end up being worse off?"
Global technology companies by virtue of their scale and network effects clearly present a threat to New Zealand businesses. But the CEOs are sharply divided on what the response should be.
Asked if they should be constrained in New Zealand or have their market power investigated by the Commerce Commission, 38 per cent said yes, 34 per cent said no, and a further 28 per cent were unsure.
A handful of CEOs portrayed pointed concern in their comments - one arguing in relation to Amazon's expected arrival that "there are currently few who truly understand how ubiquitous their presence will become".
"Possibly," answered another. "Need to be careful with these companies."
Others were less sure.
"As long as their market activity is on equal grounds with the rest of us, then we must learn to compete accordingly," said Don Braid, group managing director at Mainfreight.
"I don't think you can hold out against global trends without looking rather silly," said a chair of two high profile companies.
The impact of global technology giants Google and Facebook on New Zealand news media was cited by NZME and Fairfax (now Stuff) in their unsuccessful merger application to the Commerce Commission.
The argument was made that in a digital economy NZME and Fairfax now compete with Facebook and Google for advertisers - and the merger would have allowed them to compete with the scale of those companies.
That theory was reflected in the comments of another Mood of the Boardroom respondent who also operates in the media sector.
"The Commerce Commission should enable greater merging of NZ entities to more effectively compete with global scale disruptors."
But with a sizeable chunk of respondents answering "unsure", it was evident that CEOs had not yet come to anything close to a consensus on what may be one of the major emerging issues of the next few years.
"The question combines two very different actions," said a legal chair.
"An investigation to ascertain whether there is a misuse of market power is appropriate; jumping to a conclusion and constraining without first having an investigation to find the facts is not."
The Herald's Mood of the Boardroom 2017 Election Survey attracted participation from 118 respondents. The results were debated this morning by shadow finance spokesman Grant Robertson and National's Finance Minister Steven Joyce.
Prospect of rivers of fresh tax revenues shrank, on reflection, to mere trickles.