Analysis: Tax reform: govt should go further and target multinationals' profit-shifting – Spark boss

See also: Spark shares jump on its return to operating profit growth

From the time Netflix NZ launched in March, going head-to-head with Spark's [NZX: SPK] Lightbox, Spark has been lobbying for GST to be applied to all online purchases, including those from companies based offshore.

It seemed to get its wish on that one yesterday as the government released a white paper on the subject, and Prime Minister John Key started to soften up the public for what seems like the inevitable introduction of GST on all online sales.

But Spark wanted more. What about multi-national rivals who shift profits offshore to minimise tax? Vodafone NZ has been in the gun about the practice. It could also be argued that Netflix itself should pay tax on its business generated in New Zealand, not just customers in the form of GST. Spark says it wants a level playing field.

"It’s encouraging that the government is taking steps to ensure our tax system better reflects the realities of an increasingly globalised and digital economy. But it’s not just online GST, which will simply be collected from already taxpaying New Zealanders, the much bigger issue of corporate taxation avoidance by multinational companies operating digital services across borders also needs to be addressed," Spark chief executive Simon Moutter said in a statement to NBR.

"While a company may gather a large amount of revenue inside a country, the amount of profit left behind to be taxed is often significantly reduced by various profit-shifting mechanisms. This places an unfair burden on local taxpayers and puts huge pressure on the public funding that pays for essential services, such as hip operations and our kids’ education. In essence, every tax dollar that a multinational avoids paying in New Zealand has to be made up by local individuals or companies in the tax they pay.

"A basic principle should be that all companies making money from doing business in New Zealand, regardless of where they are located, should make an equal contribution to our society by collecting and paying their fair share of taxes," he says.

Crackdown in Oz
An OECD taskforce began looking at the multinational tax-shifting issue in 2013. The plan is to get anti tax-avoidance measures spanning multiple countries in place by 2016 or 2017. The New Zealand government is part of that process; Revenue Minister Todd McClay has a working group analysing the issue.

If Mr McClay wants to accelerate reform, there is a template across the Tasman. In its May budget, the Australian government introduced its so-called "Google tax" measure that will target multinational companies that artificially avoid having a taxable presence in Australia despite having a significant presence and "permanent establishment" in the Australian market.

These multinationals will have to pay regular company tax rates from January 1 next year.

If it’s deemed they’ve shifted profit to a subsidiary in another, lower-tax country, they will face a 100% penalty.

"Under this new law, when we catch companies cheating, they will have to pay back double what they owe, plus interest," Treasurer Joe Hockey said.

His government budget gave the Australian Tax Office (ATO) $A88 million in new funding to enforce the measure.

Mr Hockey said 30 companies met this criteria. He did not name any but Google, Apple and Facebook are among those regularly named by pundits.

The flipside
NBR has previously criticised Spark for raising profit-shifting when it owns 50% of Southern Cross Cable, which is incorporated in low-tax Bermuda.

Spark says the island state is a convenient neutral location given Spark and fellow shareholders Verizon and Singtel-Optus are all located in different countries. The company also points out it pays tax in New Zealand on Southern Cross profit repatriated as dividends.

Another issue to keep an eye on: Do we want New Zealand-based cloud companies to pay sales tax in overseas markets? (Admittedly most small businesses will claim back any sales tax paid on a, say, a monthly Xero subscription, but it could hit software-as-a-service providers or app sales in other areas). And do we want New Zealand companies with offshore operations to be pressured to pay more tax in those overseas markets?

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