The Dim-Post

April 5, 2016

Random tax shelter TPPA thought

Filed under: Uncategorized — danylmc @ 8:22 am

With all this fuss about multinationals not paying tax in New Zealand and people using our dodgy trust laws as a gigantic shelter to avoid paying tax in their home countries, I can’t help think about the TPPA and how it was supposed to be this great mechanism for standardising business conditions across the region. And so it has chapters to standardise copyright laws and trade tariffs and it has the famous investor state dispute mechanisms. It regulates government procurement and competition. Pharmac needs to be more open about its decision making because that impacts on the multi-national pharmaceutical companies, which were heavily involved in the TPPA negotiation process.

So it seems like that would be a good place to negotiate and standardise rules about tax and tax shelters and avoidance and banking secrecy and trusts. Right? Isn’t it weird/telling/completely predictable that the TPPA regulates the way all of the governments who are signatories carry out their purchasing, or intervene in their domestic market so as not to disadvantage multinationals, but doesn’t reciprocate by requiring any kind of standardised tax regime to force them all to pay tax someplace.

50 Comments »

  1. You make a good point and raise an excellent idea.

    Comment by Matthew Hooton — April 5, 2016 @ 8:28 am

  2. Hmm. In a different way this is kind of what the OECD BEPS project is trying to do.

    Comment by robhosking — April 5, 2016 @ 8:31 am

  3. Yes and no. You can sensibly regulate things like procurement when only a portion of govts are signatories. You cannot easily regulate taxes when only a portion of the world participate – all you do is drive taxation to places like Ireland.

    One of the big gaps here is that all company taxes are simply a withholding tax. Company profits are always taxable in the hands of shareholders, and they always pay tax at the relevant marginal rate for their tax regime. So there’s really no barrier to NZ just reducing the company tax rate in NZ below that of where-ever these companies otherwise pay tax, inducing them to declare profits in NZ. We’re on a hiding to nothing attempting to get them to pay tax in NZ at a higher rate than whereever they otherwise ultimately pay tax.

    Comment by PaulL — April 5, 2016 @ 8:33 am

  4. In a different way this is kind of what the OECD BEPS project is trying to do.

    No doubt our diplomatic service will move every mountain to see it succeed.

    Comment by danylmc — April 5, 2016 @ 8:35 am

  5. > Company profits are always taxable in the hands of shareholders, and they always pay tax at the relevant marginal rate for their tax regime.

    “Always”?????

    Comment by Mark — April 5, 2016 @ 8:47 am

  6. “Always”?????

    Can you prove they don’t by pointing to, say, a huge breaking news story about global tax avoidance by financial elites? I didn’t think so.

    Comment by danylmc — April 5, 2016 @ 8:51 am

  7. David Cameron is trying to get some traction on this issue to his credit (although hard to tell how much is hot air). Presumably he wouldn’t have raised it as an issue if he didn’t see it as a problem.

    The missing link in this story is Trump. Surely he’s taken advantage of these laws. I can imagine journalists right now doing ctrl-f “Trump” in all these documents trying to find a link…

    In terms of your original point, yes completely predictable. Neoliberalism has eroded the power of the state in favour of corporations, so much so that states are missing out on loads of tax revenue from these offshore tax havens. Unfortunately I don’t really see this changing until there is some kind of emergency or economic collapse that results in a shift in power back to the state.

    Comment by Seb Rattansen — April 5, 2016 @ 9:05 am

  8. I think what PaulL is trying to say is that when profits actually enter shareholders’ accounts as dividends, they are always taxable.

    The evasion/mitigation/avoidance we’re currently seeing comes at an earlier stage, when those profits are inflated by avoiding taxes on the company’s operations.

    Comment by Ortvin Sarapuu — April 5, 2016 @ 9:07 am

  9. The missing link in this story is Trump. Surely he’s taken advantage of these laws.

    With everything we know about the Clintons, it’s pretty hard to imagine them not stashing millions of dollars in secret tax havens.

    Comment by danylmc — April 5, 2016 @ 9:10 am

  10. With everything we know about the Clintons, it’s pretty hard to imagine them not stashing millions of dollars in secret tax havens.

    And the Blairs.

    Comment by Paul Rau — April 5, 2016 @ 9:13 am

  11. We already have a tax treaty with the US.

    The difficulty with international tax regulation is countries like Panama who do not want to become part of an international agreement.

    Comment by NeilM — April 5, 2016 @ 9:18 am

  12. I was pointed yesterday to new global reporting rules due to take effect next year, which may catch this sort of activity: http://taxpolicy.ird.govt.nz/topical-issues/implementing-aeoi

    Comment by Sacha — April 5, 2016 @ 9:21 am

  13. The difficulty with international tax regulation is countries like Panama who do not want to become part of an international agreement.

    It’s funny how that argument only seems to work with international norms that benefit the very rich. If Panama’s government wanted to export cocaine, the rest of the developed world woudn’t throw up its hands and say ‘Oh well!’ The US actually invaded Panama to prevent its involvement in the drug trade!

    Comment by danylmc — April 5, 2016 @ 9:26 am

  14. It’s obvious – we need one government to rule them all. The Don will have an answer.

    Comment by BOF — April 5, 2016 @ 9:28 am

  15. The difficulty with international tax regulation is countries like Panama who do not want to become part of an international agreement.

    Why wouldn’t this work:

    (1) Draw up a set of “best practice” rules for financial institutions, requiring that they disclose account holder details of all non-residents (including identity of settlors/beneficiaries/trustees of trusts) to other national governments when and if asked to do so (as the US is requiring of NZ banks at the moment).

    (2) Transfers between jurisdictions that adhere to those rules are fine – let each country work out who it wants to tax and how to do it.

    (3) Jurisdictions that adhere to those rules can then slap a “suspicion tax” on transfers to/from any jurisdiction that refuses to do so – they can stay outside the agreement if they want to, but anyone and everyone who does business through their financial institutions pays the price.

    Comment by Flashing Light — April 5, 2016 @ 9:48 am

  16. “Neoliberalism has eroded the power of the state in favour of corporations, so much so that states are missing out on loads of tax revenue from these offshore tax havens.”

    I don’t think anyone would describe the EU as a hotbed of any variety of neoliberalism and the tax minimisation schemes involving places like Ireland or Holland are entirely within the rules set down by the dreaded Brussels bureaucrats. Tax minimisation is a feature of most if not all political regimes, although high tax rates do increase the rewards or incentives for reducing your tax liabilities.

    Comment by Tinakori — April 5, 2016 @ 9:57 am

  17. @Tinakori,

    But are we seeing tax minimization here or tax evasion?

    Comment by Flashing Light — April 5, 2016 @ 10:00 am

  18. “One of the big gaps here is that all company taxes are simply a withholding tax. Company profits are always taxable in the hands of shareholders,”

    No they are not, you are confusing company profits with company dividends. And global companies have moved into share buybacks as a way of distributing their wealth to their shareholders. Someone like IBM has since 2000 paid around $30 bill of dividends but $100 bill in share buybacks. As well not all company profits went into dividends, you could retain most of it and buy up the competition. Or like Microsoft for a long time was famous for not paying any dividends inspite of its incredible profits

    Comment by dukeofurl — April 5, 2016 @ 10:12 am

  19. Neoliberalism has eroded the power of the state in favour of corporations

    It hasn’t really, though. By extending copyright laws it’s enhancing the power of the state. The state plays more of a role in the market. The trick is to either expand or minimise the state in whatever way maximises corporate wealth

    Comment by danylmc — April 5, 2016 @ 10:13 am

  20. ” the tax minimisation schemes involving places like Ireland or Holland are entirely within the rules set down by the dreaded Brussels bureaucrats.”

    No they were not. Thats why they have had to change them. And UK has stopped accepting companies saying that have paid VAT in EU so dont have to pay VAT in purchases made in Britain. Luxembourg was the home of special tax deals that werent in EU rules
    http://fortune.com/2015/01/22/luxembourg-tough-times-for-a-favorite-tax-haven/

    Comment by dukeofurl — April 5, 2016 @ 10:16 am

  21. “The US actually invaded Panama to prevent its involvement in the drug trade!”

    That’s not really the reason the US invaded, though. That was just the cover story.

    Comment by Ortvin Sarapuu — April 5, 2016 @ 10:40 am

  22. Oh Danyl, you naive fool. The US invaded Panama because they were interfering with the CIA’s control of the cocaine trade🙂

    Comment by Robert Singers — April 5, 2016 @ 10:44 am

  23. The US actually invaded Panama to prevent its involvement in the drug trade!

    No they didn’t.

    George HW Bush was perceived as a foreign policy “wimp” and needed an easy target to bolster his credentials (a la Grenada).
    Noriega had also committed the ultimate crime of biting the hand that feeds.

    Comment by Gregor W — April 5, 2016 @ 11:40 am

  24. Isn’t it weird/telling/completely predictable that the TPPA regulates the way all of the governments who are signatories carry out their purchasing, or intervene in their domestic market so as not to disadvantage multinationals, but doesn’t reciprocate by requiring any kind of standardised tax regime to force them all to pay tax someplace.

    Shit, don’t give them ideas.

    An international adjudicator to regulate how NZ collects tax and this adjudicator to be under the control of the TPPA.

    How much lower would the corporate tax rate in NZ have to be under that regime?

    Comment by unaha-closp — April 5, 2016 @ 11:46 am

  25. I worked in healthcare in Guernsey -a tax haven and I can tell you the island was completely dependent on its links to its bigger neighbours which it was parasitizing off and they knew it. If at any point -like post Sept 11 and their big neighbours wanted to regulate capital movements better -it was done. If Guernsey (or any of the other tax havens -Monaco, Andorra, Isle of Man……) tried to play hardball -it would lose its air link to Gatwick and Manchester (or the equivalent), the NHS would stop offering specialist healthcare services…. Tax havens exist because of a series of nods and winks. The big boys and wanna be big boys like Key can pretend they are not giving tax breaks to the rich and influential -when really they are.

    Comment by Brendon Harre — April 5, 2016 @ 12:15 pm

  26. ” the tax minimisation schemes involving places like Ireland or Holland are entirely within the rules set down by the dreaded Brussels bureaucrats.”

    No they were not. Thats why they have had to change them

    You’ve just refuted the assertion in your first sentence with the assertion in your second sentence.

    “Yes, it is true that Amazon pays a lower rate of corporation tax by basing itself in Luxembourg, and Google and Facebook in Ireland. But doing this is not a sign of corporate chicanery or crafty lawyers exploiting loopholes; rather it is the very point of the Single Market (articles 26, 28, 49, 54 and 56 of the basic European Union Treaty). A company that wants to sell to all 27 EU countries needs to have its European headquarters in only one EU state. VAT is charged (except, oddly, on digital goods) where the delivery is made to, and corporation tax is levied on where that single brass plate is. As HMRC has recently pointed out, this is not avoidance, this is just the way corporation tax works.”

    http://www.timworstall.com/2012/11/19/timmy-elsewhere-1154/

    “But are we seeing tax minimization here or tax evasion?”

    If it’s legal it ain’t tax evasion but tax avoidance or minimisation.

    Comment by Tinakori — April 5, 2016 @ 12:16 pm

  27. “No they were not. Thats why they have had to change them”

    Dukeofurl’s comment should be in quote marks in the response above

    Comment by Tinakori — April 5, 2016 @ 12:17 pm

  28. If it’s legal it ain’t tax evasion but tax avoidance or minimisation.

    But isn’t there very strong reason to suspect that the secrecy involved in many (if not all) of these off-shore accounts in tax-friendly places is because they involve practices that are not legal (under the rules of the owner’s home state)?

    In other words, let’s not conflate two things. Practices such as the “double Irish”, etc, which avoid tax in an open way (thus allowing us/national governments to decide if they want to stop them) and hiding assets/income in non-transparent accounts so that they never show up on the tax authorities’ radar and so tax is evaded completely (plus because we don’t know what is being done, we don’t know whether we want to stop it).

    Comment by Flashing Light — April 5, 2016 @ 12:27 pm

  29. “No they were not. Thats why they have had to change them”

    You’ve just refuted the assertion in your first sentence with the assertion in your second sentence.

    I think the “they” in the second sentence refers to those undertaking the tax avoidance measures, not the dreaded Brussels bureaucrats.

    Comment by Flashing Light — April 5, 2016 @ 12:31 pm

  30. Danyl, you’re partially correct, but you’re actually talking about TISA https://en.wikipedia.org/wiki/Trade_in_Services_Agreement

    Comment by Mark Harris — April 5, 2016 @ 1:18 pm

  31. Tax policy isn’t normally included in free trade agreements, nor in BITs. I would be surprised if there is a single trade agreement or BIT that includes binding international commitments on tax measures such as rates or disclosure requirements, but I’m willing to be proven wrong. Trade agreements often do have enforceable provisions about not using taxes in a discriminatory manner or as a disguised restriction on trade, however.

    I think tax policy is simply seen by governments as too sensitive an area to give away any control at all. I’m not arguing that this interpretation is “correct,” or that tax policy is objectively any more or less sensitive than say, competition or environmental policy, but I could see why a government would not want to cede any control whatsoever over one of its core functions – tax collection – versus for example giving up some control over agricultural subsidies, which don’t make much economic sense anyway.

    So I think the chances for developing a standardised international tax regime, at least through a trade agreement, are probably slim to none. Through the OECD or some other forum – hypothetically possible. Through a trade agreement – quite unlikely.

    Comment by B_sha — April 5, 2016 @ 1:55 pm

  32. @ B_sha,

    But what prevents a bloc of nations agreeing to common standards of disclosure and transparency for financial institutions that operate within any of the members states of that bloc, complete with a binding dispute resolution regime to determine if those standards are being adhered to, and then applying punitive sanctions to all transactions with financial institutions based in places that fail to meet those standards? And why is this development not being pursued with the same alacrity/determination as (say) the TPP?

    Comment by Flashing Light — April 5, 2016 @ 2:44 pm

  33. @Flashing Light

    What is stopping a group of countries doing that? Technically, nothing. In reality, political will. A bloc of countries absolutely could get together and take the steps you outlined, but I think the odds of that happening are currently very, very low, even with the release of the Panama papers. The revelations will add political pressure on countries to “do something,” but as taxation is a fiendishly complicated and sensitive area, if countries decide to do the “something,” it will move very slowly. For example, see the OECD’s BEPS project.

    I would suggest that the initiative you describe probably doesn’t have the same sort of push behind it as the TPP because (i) taxation is particularly sensitive, as I noted above, and (ii) the advantages from a trade agreement come from being in the bloc and having access to preferential tariffs and common regulatory standards etc, whereas with respect to tax, it would probably be countries outside the bloc that benefit, as corporations and individuals will move away from jurisdictions with tougher standards and higher rates (in the bloc) and move towards those with comparatively lower standards and rates (outside the bloc). In other words, the benefits accrue to those on the outside, not on the inside. So, to make that really work, you need as many countries as possible to join, and the more countries you add to the negotiations, the harder and more complex they become, and the slower they will move.

    Not impossible, and definitely laudable, but also incredibly difficult – both technically and politically.

    Comment by B_sha — April 5, 2016 @ 3:21 pm

  34. @ B_sha,

    Two things. First, common and thorough transparency/disclosure aids tax enforcement without involving any commitment to a particular form/level of tax anywhere. So the regime I’ve described wouldn’t commit any country to having to change its tax structure in any way at all – it would simply disincentivise individuals/companies from using places that allow assets to be hidden to escape existing tax regimes (as well as disincentivise countries from allowing such hiding to take place, as doing so incurs a cost on all financial transactions with “the Clean Bloc” nations). Get enough rich countries on board and then the system becomes all but mandatory internationally.

    Second, in this light the question of political will (or lack thereof) then becomes … interesting. The fiendishly difficult task of harmonising trade and investment rules (to the satisfaction of a myriad of business interests) is simply a challenge to be confronted and overcome (like getting to the moon!). But shining light on the places that rich folk stuff their money so that it doesn’t get taken away from them? Well, let’s be realistic, shall we! Can’t expect miracles!!

    Comment by Flashing Light — April 5, 2016 @ 3:59 pm

  35. Good to see Flashinglight has moved on from justifying Greens policy for children to continue suffering while waiting till the science is settled, to finding assertions that may or may not be there. Is there no end to your pointy head. Does the wording, ‘No, they[the schemes] were not within the [EU] rules’ suffice. Is the grammar settled yet?

    Comment by dukeofurl — April 5, 2016 @ 4:01 pm

  36. @dukeofurl,

    I actually wrote a longish response to you on that vaccination subject, but it disappeared into moderation purgatory. In brief, anti-vaxxers are nuts, the Greens (insofar as they may actually be committed to an anti-vax platform, which isn’t by any means clear) are nuts in that respect, but all parties have parts of their policy platforms that are nuts (National on drug reform; ACT on climate change; Labour on Chinese named home buyers; etc) because all parties have some stupid members with nutty views that they have to pander to. So it is what it is – anti-vaxxing hurts kids, but climate change could kill us all. Pick whatever policy matters more to you and vote accordingly.

    Comment by Flashing Light — April 5, 2016 @ 4:25 pm

  37. Oh, and as for “Does the wording, ‘No, they[the schemes] were not within the [EU] rules’ suffice. Is the grammar settled yet?” … that’s what I actually said in defence of your position. No need to shoot your own side.

    Comment by Flashing Light — April 5, 2016 @ 4:28 pm

  38. @Flashing Light: When you imagine a ‘clean bloc’ are you thinking of something like this: http://www.oecd.org/countries/monaco/listofunco-operativetaxhavens.htm

    Comment by Ortvin Sarapuu — April 5, 2016 @ 4:41 pm

  39. AS I understand it, PaulL’s comment that company taxes are essentially withholding taxes refers to the fact that, ideally, the taxes that companies pay on their profits reduce the amount the shareholders pay on their dividends. To quote the IRD, “What is imputation? Imputation is a mechanism that a company can use to pass on credits for tax it has paid on its profits, to its shareholders when it pays them dividends. These imputation credits offset the amount of tax that the resident shareholders would otherwise be liable to pay on those dividends, so they don’t have to pay “double tax”.

    The basics are described here…

    http://www.ird.govt.nz/business-income-tax/imputation/imputation-basics/imputation-basics.html

    Got that?

    So, ideally, when a company avoids paying much, if any, tax via a tax haven or what-have-you, then the shareholders still have to pay tax on the dividends they receive, because the dividends do not come with imputation credits. However the company has still avoided tax on the part of its profit that is not distributed to shareholders via dividends.

    How this all works in the real international world, with variable tax rates, uneven reporting, complicit governments (including ours, apparently) and smart lawyers and accountants, I have no idea. But I suspect “double tax” is the least of our worries.

    Comment by Mark — April 5, 2016 @ 4:43 pm

  40. @Ortvin Sarapuu,

    yeah – something like that … except effective.

    Comment by Flashing Light — April 5, 2016 @ 5:03 pm

  41. @Flashing Light: Ah, but how to make it more effective?

    Comment by Ortvin Sarapuu — April 5, 2016 @ 5:17 pm

  42. Danyl, I don’t want to get people rarked up for going off thread so won’t go into it here, but could you put up something around the impact, options for Labour and Greens, positioning etc which would be as interesting as the technical discussion here, but more relevant to our immediate political scene in NZ. I mean if the last few days developments aren’t a chance for a functioning opposition to corner Key and own an issue, what is?

    Comment by Joe-90 — April 5, 2016 @ 8:31 pm

  43. I can recall when Iceland’s banking bubble popped in 2008, a lot of Brits were caught up in it via the Icesave division, and London used anti-terrorism legislation to freeze the assets involved.

    http://www.telegraph.co.uk/finance/businesslatestnews/3185190/UK-freezes-4bn-of-Icelandic-assets.html

    Comment by Kumara Republic — April 5, 2016 @ 11:18 pm

  44. could you put up something around the impact, options for Labour and Greens, positioning etc which would be as interesting as the technical discussion here, but more relevant to our immediate political scene in NZ. I mean if the last few days developments aren’t a chance for a functioning opposition to corner Key and own an issue, what is?

    This seems highly unlikely to impact on Key – unless a subsequent story ties him directly to the scandal – because it doesn’t really affect anyone or speak to his ability to run the country. If they pick up in their polling that it’s impacting their credibility then they’ll just announce a review or inquiry of the trust laws.

    Comment by danylmc — April 6, 2016 @ 7:09 am

  45. @Flashing Light: Ah, but how to make it more effective?

    I dunno – how can we make sure nation states abide by their commitments not to expropriate the investments of companies/individuals from other nation states? If we’ve the will to address that issue … .

    Comment by Flashing Light — April 6, 2016 @ 7:30 am

  46. I think you are right at the micro level but wrong at the macro: this is for Key potentially what smacking was for Clark. I’m not saying we’ll find he is on the list. Or even people he likes on Facebook. But people of his type, they’re his class, he has a paper trail of steps to effectively support and maintain this state of affairs (e.g. the now notoriously Fran O’S article – what content and what timing!), there is an opportunity to permanently shift brand key in a way it would be very difficult for him to dissociate from under his usual methods. Sales don’t always fall immediately but when the brand falters they are ripe to follow sooner or later. But this requires a functioning opposition. Not saying we have one.

    Comment by Joe-90 — April 6, 2016 @ 7:37 am

  47. Use of “foreign” trusts vis-à-vis company taxation and dividend taxation. I thought I understood the use of these trusts to work thus (in relation to income coming from companies):
    (1) own shares in companies registered/headquartered in tax havens (no/little corporate tax paid)
    (2) Receive dividends from those companies (not taxed, obviously, when paid from a havened company) and not taxed in NZ, well, because that’s how foreign trusts work here?
    (3) make distributions to beneficiaries in a tax-free way, eg, non_NZ beneficiaries’ beneficiary income not subject to NZ tax?

    Comment by Clunking Fist — April 7, 2016 @ 1:00 pm

  48. Flashing Light @36 “So it is what it is – anti-vaxxing hurts kids, but climate change could kill us all.
    FFS, still not read the IPCC’s latest Assessment Report I see?

    Comment by Clunking Fist — April 7, 2016 @ 1:01 pm

  49. FFS, still not read the IPCC’s latest Assessment Report I see?

    Is this your acceptance that AGW is a real thing? You now accept that the IPCC accurately reflects the settled science on the matter? Well, that’s progress … .

    Comment by Flashing Light — April 8, 2016 @ 11:54 am

  50. It’s just one more thing that gives the game away about our present political leadership. They lead for the benefit of the wealthy few and expect the many to pay for it either in taxation or through reduced services.

    Trickle-down is still their primary policy setting.

    Even now.

    It’s been discraceful to witness our government actively defending tax avoiders……..while at the same time putting the boot into small players like students and people who import shoes and phones just to get some variety.

    Comment by Steve Withers — April 10, 2016 @ 9:33 am


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