New Zealand should adopt new rules to prevent big multinational companies avoiding tax in this country, according to Professor Craig Elliffe of the University of Auckland.
Elliffe, who specialises in taxation at the law faculty, also believes foreign trusts, as highlighted in the Panama Papers, should not be left in place if they threaten New Zealand's "hard won" reputation as a responsible tax nation.
"International tax has been front-page news in New Zealand as the Government grapples with some difficult policy decisions like the amount of tax paid by large multinationals," he says. "An investigation into the level of taxation paid by large multinational companies operating in New Zealand suggests the effective rate of tax is very much lower than the expected corporate tax rate."
The implication was clear - some multinationals are structuring their affairs to reduce their New Zealand tax burden significantly. That perception (correct or not) provoked allegations of unfairness.
"I think we need to understand exactly what the problem is here. Some multinational subsidiaries will be using certain tax planning techniques where New Zealand has pretty much state-of-the-art anti-avoidance legislation and appropriate legislation.
"Our anti-avoidance rules are probably the most stringent in the common law countries and hence the world."
However, Elliffe says some very large multinationals have been "remarkably capitalist" in their approach to paying tax in countries in which they do business.
"They have businesses which focus on the digital economy and the OECD Base Erosion and Profit Shifting (BEPS) programme hasn't really been able to address concerns about the taxation of their profits in the countries where they operate and where some of their profits are sourced. This has led to the suggestion that the Government should consider similar anti-avoidance rules to those in the United Kingdom and Australia.
"I think they should. Furthermore, we can legally do it in circumstances of tax avoidance."
New rules would only apply to a small number of huge multinationals and so deal with a substantial part of the perception problem without destroying foreign investment in New Zealand, he says.
"We can look across the Tasman but they borrowed the idea from the UK. The Australian rules have two parts. The first is a beefed up multinational anti-avoidance rule.
The second, recently announced in their budget, mimics the UK's diverted profits tax and applies only to global entities with a turnover of A$1 billion."
Where profits are diverted from Australia and are taxed at a rate less than 80 per cent of the Australian tax rate, then the rules apply: "In other words it is aimed at large multinationals not paying relatively full amounts of tax on their profits.
Such multinationals will now have an interesting discussion with the Australian Tax Office."
As to the Panama Papers, the New Zealand role in facilitating, through the use of foreign trusts, foreigners' ability to structure their investments has called into question the issue of tax competition and New Zealand's international reputation.
"The question is whether New Zealand is operating a harmful tax regime by providing an exemption from New Zealand taxation for New Zealand-based trustees in the foreign trust rules," he says. Alternatively, supporters of the regime suggested the level of disclosure and the principled basis for the rules (taxation based on the tax residence of the settlor of the trust) mean it has a legitimate role to play in the New Zealand tax system.
The Government has decided an independent inquiry into foreign trust disclosure rules is necessary before deciding on a future course of action.
"It's a shame both these tax issues arise at the same time and they should not be conflated together because one is to do with New Zealand taxation and the other relates to overseas tax," says Elliffe.
"But I think we need to be aware New Zealand's good reputation is hard won and, if the New Zealand foreign trust regime is being used by foreigners to avoid foreign tax (leaving aside the question of criminal activity), then maintaining the regime is not a responsible approach to international tax comity."
Against a background of highly outraged public debate and discussion, people needed to be reassured there is a consistent attempt to ensure the adequacy and effectiveness of New Zealand's international tax regime. New Zealand's response to the OECD proposals on BEPS and other domestic reforms independent of the OECD continue, says Elliffe.
"Much of the focus is on how non-residents are taxed in New Zealand or on other inbound investment through multinational subsidiaries based in New Zealand. New Zealand tax policy has to balance being an attractive place to do business for non-residents with the fairness of the system for New Zealand residents and the perception that everyone contributes equally."
Professor Elliffe, previously Professor of Taxation and Law at the University of Auckland Business School, is speaking at the Taxing Non-Residents: A Global Response to BEPS conference at the University of Auckland Business School on July 15.