IR could get extra $550m from multinationals if impact of global tax reforms spread evenly
Thursday, 20 February 2020
Hundreds of millions of dollars could flow into Inland Revenue's coffers each year from a new global agreement on multinational taxation.
The OECD has estimated multinationals might have to cough up an extra US$100 billion (NZ$156b) a year from the proposed overhaul, which is limping towards an uncertain conclusion.
The Paris-based organisation estimates the reform plan it is considering, which it hopes to conclude by the end of the year, would increase the company-tax take in 'high-income countries' – which include New Zealand – by an average of just over 4 per cent.
Businesses paid just under $14b in company tax in New Zealand last year, which would mean that Inland Revenue could expect about an extra $550m in tax if the OECD pulled-off its reforms and the impact was spread evenly between developed countries.
**READ MORE:
* 'Politics' may keep digital services tax in play as OECD readies for crunch year
* Digital services tax would have 'chilling effect', Government told
* Trump threat shows proposed extra tax on internet giants 'just not worth it'
For comparison, the total tax take last year was $86b.
Russell McVeagh partner Brendan Brown said the latest statements from the OECD suggested there was a commitment to find a multilateral solution.
'Whether that commitment will translate to agreement remains to be seen, however.'
The OECD is considering a two-pronged approach, which it hopes to design by July.
A so-called 'pillar one' reform would mean multinationals could be taxed on some activities in countries where they might not necessarily have an office, but where they were deemed to have significant business.
That would capture technology companies that had structured their businesses to base their operations and home their intellectual property in low-tax countries, but could also impact many other multinationals that had established strong global brands.
Overall, the bulk of the extra tax revenue the OECD is forecasting in high-income countries would come from the separate 'pillar two' reform that would also require multinationals paid a minimum level of tax on their profits.
The United States originally appeared to support pillar one as a way to broaden the focus of the multinational tax clampdown away from its original narrow goal of capturing internet and social media firms.
But progress on the overall reform package was thrown into doubt when US Treasury secretary Steven Munchin wrote to the OECD in December saying that it believed pillar one should only be used as a 'safe harbour' regime, which OECD tax director Pascal Saint-Amans said meant it would in effect be voluntary for multinationals.
US secretary-general Angel Gurria appeared to warn in response that failure by the OECD to reach agreement would increase the risk that countries would act unilaterally 'with negative consequences on an already fragile global economy'.
Brown questioned how much extra tax pillar two would raise in New Zealand, given it was not a common base for multinationals.
But a deal that saw only pillar two implemented could have advantages for New Zealand, as pillar one could see New Zealand exporters of branded products having to pay more company tax to foreign governments, instead of to Inland Revenue, he said.
Pillar two had the advantage that it was 'less about how you 'divide the pie'', he said.
Instead, it had more in common with the first 'Beps' round of OECD multinational tax reforms, which were designed to stamp out notorious rorts such as the 'double Irish' and 'Dutch sandwich' that technology companies in particular had used to route their profits to tax havens.
But it was not clear if pillar-two alone would be enough to stave off some countries from imposing their own unilateral taxes on multinationals, Brown believed.
'Pillar two might sound very good to the developed countries where multinationals are headquartered, but might not seem so good to developing countries that feel they have to offer low tax in order to attract investment.'
The Government consulted last year on a proposed 'digital services tax' that would see New Zealand unilaterally impose a tax of about 3 per cent on the revenues of large internet, social media and 'gig economy' companies such as Facebook, Google, Uber and Airbnb.
That revenue tax, commonly referred to as a 'Facebook tax', would be in addition to the tax that their New Zealand subsidiaries already pay on their profits.
The public consultations went ahead despite warnings from officials that such a tax risked breaching either World Trade Organisation rules or tax treaties New Zealand has agreed with other governments.
Fonterra, Spark, Trade Me, The Warehouse and Air New Zealand also warned in submissions released under the Official Information Act that unilaterally imposing the tax could invite retaliation or otherwise backfire.
France delayed imposing a similar tax in January, after the US government threatened to impose retaliatory tariffs on US$2.4b (NZ$3.7b) of French goods, including champagne and cheese.
Brown said the New Zealand government had been sensible in not taking any further step towards implementing its version.