Thursday 1st February 2018
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New Zealand is out of step with its trading partners in fully accepting possible changes to its Double Tax Agreements (DTAs) under an OECD framework that's meant to stamp out rorts by multinational corporations intent on minimising their tax, Parliament's finance and expenditure select committee heard yesterday.
The committee is dealing with two related pieces of work on cross-border tax reform - the Taxation (Neutralising Base Erosion and Profit Shifting) Bill (BEPS) and the Multilateral Convention to implement tax treaty-related measures to prevent base erosion and profit shifting. Submitters were appearing before the committee yesterday on the latter, the Multilateral Convention, or MLI.
New Zealand has some 40 DTAs – bilateral tax treaties which are open to abuse by multinationals intent on reducing or eliminating their worldwide tax bill. Of those, the most significant may be the relationship with Australia, where 'dual resident' companies are worried they will face more red tape for little gain. Taking into account all the signatory nations to the MLI, the number of DTAs run into the thousands and changing them all to cut down on BEPS could take years.
The MLI was devised under the auspices of the Organisation for Economic Cooperation and Development "to quickly and efficiently amend a significant number of double tax agreements around the world to take into account new treaty standards relating to treaty abuse and dispute resolution," IRD says.
But KPMG partner John Cantin told the committee that other countries "have taken a more partisan approach to what is in their national interest" and New Zealand's national interest assessment (NIA) should, at a minimum, "assess the economic cost and benefits of adopting particular articles of the MLI."
The Corporate Taxpayers Group (CTG), which represents 42 companies and generates some $2.2 billion a year of tax for the state coffers, includes a table comparing New Zealand's position on what it says are the eight articles of the MLI that are of high importance to the country. Of the seven, Australia and Japan have signed up to the most, at five apiece, with the UK next on saying yes to four articles in the MLI. But China and Hong Kong have only said yes to two and Singapore to one. The US position isn't available.
While the table is generated by "high level/simplistic information", it does highlight "just how out of step New Zealand is with our major trading partners," CTG said in its submission.
The work started on the law change and associated positioning on the Multilateral Convention under the previous National-led administration, and made progress with support from Labour. Former Finance Minister Steven Joyce put it to KPMG's Cantin that New Zealand was a bit of a price taker because given its small size "we don't get to set the rules" on international agreements and that it was "appropriate we cling pretty closely to international treaties."
Cantin replied that the question was what New Zealand would actually achieve against taking an alternative pick-and-choose approach.
Committee chair Michael Wood told BusinessDesk the committee was just kicking off on hearing from submitters on the Multilateral Convention. He expected the committee would maintain its bipartisan approach to the measures, which "comes out of quite a robust piece of work."
He said the position of a number of submitters may reflect their relationships with multinationals including the suggestion that New Zealand "is racing out in front."
"We're checking that out now," he said. In some instances, some countries had domestic legislation in place covering the issues. What was perhaps new from some submitters was the idea that New Zealand take more of a tactical approach to the Multilateral Convention so that it wasn't disadvantaged in the ensuing negotiations over DTAs, he said.
"The reality is we're dealing with international tax law and dealing with people with a range of views on that," he said. "There are issues we need to look at more closely, particularly the treatment of people operating between Australia and New Zealand."
The bill and convention are part of a global push being championed by the OECD, which has estimated global losses through tax avoidance amount to US$240 billion a year.
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