Multinationals' profit-shifting: Spark boss unloads with both barrels
Spark chief executive Simon Moutter has become somewhat of a political animal.
Last year he pushed hard for offshore companies selling online services to New Zealanders (like Lightbox rival Netflix) to charge GST.
His campaign succeeded – and I think it’s fair to call it his campaign; no one else really picked up the baton on virtual imports (the retailer lost a similar campaign on imported physical goods, or at least the government kicked for touch by delaying an options paper until late this year).
But the Spark boss concedes the GST reform was relatively straightforward. It was an easy fix in technical terms, and barely created a ripple politically.
Profit-shifting by multinationals is his next target. He concedes that will be harder.
Speaking to NBR shortly after his company’s half-year result, Mr Moutter did not name any companies directly. But it’s safe to assume Vodafone NZ’s aggressive accounting is in his sights, as will be new over-the-top competitors in communications and other online services, such as Google and Facebook (both of whom openly bill services sold to New Zealanders to subsidiaries in lower-tax Ireland).
He wants to level the commercial playing field for New Zealand-based companies, he says. And, with Spark trying to push into new markets, he's obviously got a strong incentive to keep the heat on "over-the-top" players like Google.
But he says there’s a larger issue at stake, too.
“I'm a very proud New Zealander and I really want New Zealand to be a growing, thriving, digitally-savvy innovative nation,” he says.
“But if we don't get some of these policies and frameworks in place and level up the playing field, all we'll really succeed in doing is building a digital superhighway to American innovation and American companies who'll just come in over the top, strip all the value out and make no contribution to the New Zealand public system through taxes or leaving any meaningful amount on the ground here and just take all the value away.”
So what does he want to happen?
“I'm a big advocate of early, strong thinking from our political leaders on this; early action and just making sure New Zealand companies who're investing have got a fair chance of footing it against these big global players – and they are at the very least not disadvantaged by having to pay taxes that their global competitor's don't,” Mr Moutter says.
An OECD taskforce began looking at the multinational tax-shifting issue in 2013. The plan is to get anti tax-avoidance measures spanning many countries in place by the end of 2017. The New Zealand government is part of that process. The government’s broad take is that such measures can only be effective if all major economies are onboard – although it’s keeping a watching brief on the much more assertive approach being taken by Australia.
Mr Moutter says he’s “displeased” with progress here.
“Every time I raise it, “I get told ‘Mr Moutter, this is a complicated business; we have to work through it with the OECD and it will take a long time and we have to act in tandem with many other countries’. But I do see other countries [acting alone] – there wouldn't be a month go by where you don't read about another country taking a more aggressive position around these global tax-dodging schemes that these very large digital businesses are using.”
The Aussie approach
Our neighbours across the Tasman are a case in point.
On January 1, Australia introduced the so-called “Google tax” measure targeting (in former Treasurer Joe Hockey’s words) multinational companies that artificially avoid having a taxable presence in Australia despite having a significant presence and "permanent establishment" in the Australian market.
If it’s deemed they’ve shifted profit to a subsidiary in another, lower-tax country, they will face a 100% penalty on the tax it is deemed they were due to pay.
The Australian Tax Office (ATO) has been given $A88 million in new funding to enforce the measure.
Mr Hockey said about 30 companies met the criteria of the law change. He did not name them but Apple, Facebook, Google and Microsoft were among those name-checked by a senate inquiry in the build-up to the law change.
In NZ: softly, softly, slowly, slowly
In the immediate future, there will only be more frustration for Mr Moutter, it seems.
While ministers in Australia’s government have fallen over each other to give profit-shifting multinationals the bash, trying to get any comment from our government has been like pulling teeth.
Recent revenue ministers Peter Dunne and Todd McClay only made vague, tepid statements on the issue. And NBR’s attempts to get any sort of timeline from newcomer to the portfolio Michael Woodhouse have been unsuccessful.
In a statement to NBR, Mr Woodhouse reiterated that the government is part of the OECD process, offering: “The government is committed to getting the most robust measures to combat multinational tax evasion by cooperating with other countries and we are actively working on this.
“Inland Revenue is currently examining how New Zealand’s tax rules might be developed to help implement elements of the OECD’s recent 15-point action plan to combat base erosion profit shifting.”
He added, “We’re also currently in public consultation to advance the Automatic Exchange Of Information (AEOI), which aims to increase the transparency of international financial transactions.”
Submissions close March 31 with an eye to possible reform that would kick in from July 2017.