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Home / Business

Tax experts query IRD's strength after 'messy' decisions

Matt Nippert
By Matt Nippert
Business Investigations Reporter·NZ Herald·
10 Jul, 2016 05:00 PM5 mins to read

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Michael Woodhouse says the department is adequately resourced. Photo / NZME

Michael Woodhouse says the department is adequately resourced. Photo / NZME

A Government flip-flop over a major international tax-information sharing agreement has been labelled "messy" and "amateurish" and raises questions over Inland Revenue's resourcing levels, tax experts say.

A briefing note prepared by Inland Revenue in October said New Zealand had signed up to the Automatic Exchange of Information (AEOI) initiative, which would see Inland Revenue sharing information with other tax authorities from 2018.

But this timeframe, which resulted in New Zealand being described as a "late adopter" of the international agreement, was delayed 12 months after officials conceded Inland Revenue was under "extreme pressure" over other Government priorities and its looming billion-dollar information technology upgrade.

The briefing note said this delay would not make New Zealand popular with fellow signatories in the OECD and G20.

"Some OECD and G20 countries are likely to be unhappy with this decision," the note said.

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Such criticism is understood to have crystallised, and was behind a decision in February to rescind the delay and adopt a 2018 implementation once more.

Minister of Revenue Michael Woodhouse, in a written statement issued through a spokeswoman, denied the AEOI implementation was messy or amateurish.

"There was nothing chaotic about any decision to delay the implementation of AEOI," the statement said.

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Woodhouse said the reasons given in the briefing note were incorrect, and all changes in implementation date were done to shadow Australia.

He insisted Inland Revenue was adequately resourced.

The AEOI is intended to crack down on those using offshore bank accounts to avoid tax and New Zealand financial institutions will be required to inform Inland Revenue of bank accounts held by foreign nationals. Inland Revenue would then be required to share this information with tax authorities in other countries.

EY tax director David Snell said the stuttering process was far from ideal and the multiple changes of position over the past 12 months had created considerable uncertainty for financial institutions.

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"It's sensible that the Government is now meeting the international obligations it signed up to.

"But the way in which the timetable has shifted is less than ideal. It looks a bit messy, and it looks a bit amateurish," Snell said.

He said the "extreme pressure" cited by officials had been building for some time.

"They have been under pressure for some years, and Inland Revenue has always been under pressure to deliver. I think it has become worse in recent years and it's going to become even more challenging given the international agreements entered into," he said.

A Cabinet paper made public last month said legislation to enable the AEOI was intended to be introduced to Parliament next month.

Snell said this left New Zealand lagging well behind Australia, which has an identical implementation date but had passed such legislation in February.

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Massey University senior lecturer in accountancy Deborah Russell said the citing of over-full workloads in this case and instances such as the dropping of a review of the foreign trust industry in 2014 were a concern.

"The other thing this points to are questions over whether IRD is adequately resourced," she said.

The later-reversed decision to delay implementation and face an international backlash was a poor one, she said.

"The Government's choice of priorities means [we considered] not meeting our international commitments," she said.

The stop-start policy process also cast a new light on government claims, particularly following the Panama Papers, that New Zealand was transparent, co-operative and at the forefront of the international sharing of tax information.

Inland Revenue released the note and handful of other documents instead of complying with an Official Information Act request from the Herald for all advice prepared for ministers on tackling multinational company profit-shifting. That rejected request is now the subject of a complaint by the Herald to the Ombudsman.

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Some of the documents were prepared in the wake of the Herald's tax gap series showing the 20 multinational companies most aggressive in shifting profits out of New Zealand paid only $1.8 million in net income tax despite booking $10 billion in revenue here.

Inland Revenue officials said the biggest risk to New Zealand from aggressive tax avoidance by large companies was a collapse in public confidence.

"More fundamentally, the perceived unfairness resulting from [base erosion and profit-shifting] jeopardises citizens' trust in the integrity of the tax system as a whole, thereby undermining voluntary tax compliance."

The documents also said companies that structure their local subsidiaries as "matchmaking services", shifting revenue earned in New Zealand from transport and accommodation services, were facing specific scrutiny from IRD policymakers.

Flip and flop

• New Zealand has signed up to the Automatic Exchange of Information (AEOI) initiative, which will see Inland Revenue sharing information with other tax authorities from 2018.

• That timeframe was delayed by 12 months, which officials blamed on IRD being under "extreme pressure" as a result of other priorities.

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• After copping criticism, 2018 implementation was reinstated, a move labelled "messy" and "amateurish" by tax experts.

• The initiative will require New Zealand financial institutions to inform IRD of bank accounts held by foreign nationals.

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