A major Herald investigation has found the 20 multinational companies most aggressive in shifting profits out of New Zealand overall paid virtually no income tax, despite recording nearly $10 billion in annual sales to Kiwi consumers.
The analysis of financial information of more than 100 multinational corporations and their New Zealand subsidiaries showed that, had the New Zealand branches of these 20 firms reported profits at the same healthy rate as their parents, their combined income tax bill would have been nearly $490 million.
But according to their most-recent accounts filed with the Companies Office, most covering the 2014 calender year, these 20 companies overall paid just $1.8m in income taxes after several claimed tens of millions of dollars in tax deferments and losses.
It’s a bit weird, on the face of it, that companies pay tax on their profits while workers pay tax on their revenue. If you earn $100,000 a year in salary you don’t get to go on holiday, buy a new car and some jewels and then tell the tax man ‘Sorry, but I broke even this year. I got nothing for you.’
There are good arguments for taxing companies this way but they all rely on businesses actually wanting to make a profit. If many of our largest companies don’t want to be profitable – if they exist to channel revenue directly to parent holders in lower tax jurisdictions overseas and then declare a loss – then the model fails.
Here’s one solution, that I half-thought through while brushing my teeth this morning: give IRD the power to designate deliberate non-profit companies and tax them based on revenue, not profit. Just like the rest of us. This might cause them all sorts of terrible problems during economic downturns but if they’re worried about that then they can shift back to the old model where they declare profits and pay dividends to their parent, not ‘licensing fees’, or whatever, which turn vastly profitable companies into loss-makers.