Government tightening up on multinational tax dodgers

New legislation, which is intended to tighten the accountability standard for multinational companies, was introduced to Parliament last week. This follows moves in Australia to tighten the tax rules for multinationals operating there.

The move comes as Facebook announces that it will book its New Zealand advertising sales in New Zealand rather than Ireland where it has its international base. Other large multinationals such as Google and Microsoft have not indicated whether they would follow suit.

For years there has been concerns about how much tax large multinationals are paying in New Zealand, how honest their accountants are and whether the required level of transparency around them is appropriate. Some companies have been accused of paying no tax at all in New Zealand in particular financial years. Apple for example admitted in April 2017 to paying no tax in New Zealand for a decade, despite making sales of N.Z.$4.2 billion over that period.

Similarly with Facebook, questions arise as to how much Facebook should be really paying in New Zealand, following revelations that its stated revenue in New Zealand was $1.2 million for 2014. These get more interesting when a Wellington cafe showed reporters its bill, which recorded it as having spent $100,000 on advertising or slightly less than 10% of all profit Facebook New Zealand claimed. A

Failure to pay tax on the scale that Apple has, should result in a fine equivalent to the unpaid tax, plus a fine of say N.Z.$5 million for every year it failed to pay tax. In the case of Apple, this could be construed as willful tax dodging at its finest.

How many major surgeries in hospitals could be paid for if Apple, Facebook and other multinationals had paid its full tax bill in full and on time? How much Government debt could have been paid off, or how many new police officers could that have paid for?

Facebook and Apple, like other multinationals will have overseas subsidiaries whom they will try to reroute profits that they do not wish to be subject to the taxman. These will have links to known tax havens such as those in the Cayman Islands.

Each year I spend a few hundred dollars on advertising for my blog on Facebook. I am just one of scores of New Zealanders who would be using Facebook’s advertising services. I suspect that the amount spent by New Zealand businesses promoting themselves and their products on Facebook are significantly more than what Facebook is admitting to.

Dodgy accounting? Or plain dishonesty.

I’ll let you judge.


Foreign trusts flee New Zealand

A year ago a political storm erupted over a company based in Panama and a huge release of potentially explosive papers. Their scope was vast. Their contents muddy. The Opposition parties were delighted – here was something that they thought could be smeared all over the Government.

A year on, how has the Government fared in the wake of the Mossack Fonseca affair? Surprisingly well it would seem, with most people having probably forgotten that this even happened. Despite having mud not of their own making getting smeared over them by the Government in one of their more desperate moments of defence, Amnesty International and Greenpeace seemed to quickly move along to more pressing concerns.

But what of the foreign trusts at the centre of the scandal?

At a first glance, the effect seems to have been dramatic. In an effort to shut down the Opposition attacks, which appeared to be gaining traction, the Government of then Prime Minister John Key had announced an inquiry into what had become known as the Panama Papers. In June 2016 the inquiry reported it had completed its work. The inquiry had found:

  • New Zealand laws were not adequate for a country that prides itself on co-operating with other countries in deterring money laundering and other illegal activities
  • Likelihood of detection of such illegal activities by authorities to be low
  • Whilst no evidence was immediately obvious that illicit funds were being stored by foreign trusts in New Zealand it was reasonable to conclude that foreign trusts are being used in such a manner

John Shewan’s inquiry recommended tighter and more wide ranging disclosure rules, a registry that can be viewed by I.R.D. and a $500 annual fee be implemented. The Government agreed to implement most of the recommendations.

In April 2016 there were 11,645 known foreign trusts in New Zealand. When a deadline to file required information on their structure and activities expired last week, fewer than 3,000 had done so, meaning well over 8,000 trusts were no longer able to operate in New Zealand. 3,000 of these had said to Inland Revenue Department that they were not prepared to be subject to the tighter rules, thus rendering them ineligible to operate here. Another 5,000 had never made contact before the deadline expired, thus also rendering them ineligible.

Why? It depends on whom one talks to. Labour spokesperson Michael Wood believes that many of them could have been a legal front to hide money laundering and other illegal activities. Minister of Justice, Judith Collins on the other hand believes that it is wrong to think that the companies that moved out of New Zealand were engaged in illegal activities.

I believe that that a significant number, even if they were not necessarily engaged in illegal activities, would have known about or even in some capacity been an accessory to money laundering and aggressive tax activities. Because of this, I believe that a further deterrent of heavy penalties to both trusts and the people behind them should be established. This would be so that trusts that do set up in New Zealand know it does not pay to be an illegitimate operation.

Because after all, a 75% drop in registered foreign trusts I believe is rather telling.

Foreign trusts could damage New Zealand’s reputation

For months now we have been hearing about the Panama papers that were leaked from the offices of a legal firm. In them New Zealand was mentioned thousands of times. Not surprisingly the Opposition in Parliament were quick to jump on the Government and rightfully so, trying to make the case that New Zealand is a tax haven.

Against a backdrop of growing inequality, with public sentiment moving against tax evasion, the Government is trying to give the impression there is no problem. Prime Minister John Key insisted that there would not be any reform of tax evasion laws and may use the review of the report into allegations of New Zealand being sympathetic to tax evasion to  advance  his case. That report written by former PriceWaterhouseCooper Chairman John Shewan found no serious evidence of New Zealand being a tax haven, though he said that the disclosure laws are not good enough.

However it also found that the term “Tax Haven” is viewed as obsolete by the Organization for Economic Co-operation and Development. And Mr Shewan pointed to the significant debate about whether New Zealand should be labelled one as a useful illustration of the reasons for the O.E.C.D. view of the term. Mr Shewan’s report made numerous recommendations, the major ones being:

  • Establishing a register of foreign trusts searchable by regulatory agencies
  • Trust beneficiaries be declared

Although the Government appears to come out relatively unscathed on the foreign trusts issue so far, it needs to implement all of the recommendations before the 2017 election to have true credibility. It needs to aggressively pursue money laundering and offer to help South Pacific nations whose legal systems are not so robust with resourcing. As I have mentioned in previous posts the penalties for money laundering are nowhere near high enough, not only in terms of severity but also in terms of preventing individuals carrying out further such acts in the future. Whistle blowers who notify the authorities of illegal happenings also need to be granted protection – this is a separate issue in that whistle blowers are covered by separate legislation, but relevant because not being protected increases the risk of abuse.


Prime Minister and the media owe charities an apology

On Tuesday 10 May in the House of Representatives Prime Minister John Key used a tactic that I thought and hoped that New Zealand politicians were above. As another day of Opposition attacks over the Mossack Fonesca papers (a.k.a. the Panama Papers)continued in the House, Mr Key decided to to try a deflecting move. His means of deflection was to try to link three charities whose names had been used in a scam to the Mossack Fonesca scandal.

Amnesty International, Greenpeace and the Red Cross were the charities. In a database that had been outed as fraudulent, the three charities names were listed. The scam had been outed sometime ago and it was determined that the charities had had their names improperly used in it.

Unfortunately for all three, it was case of political expediency that seems to have paid off for the Prime Minister to try to implicate them. More unfortunately elements of the media including, but not limited to, Yahoo! New Zealand News seem to have fallen for it hook line and sinker. Despite bringing it to their attention on Twitter and Facebook, no acknowledgement has been made by Yahoo! New Zealand News.

Amnesty demanded an apology. As did Greenpeace. In the case of Amnesty International since such corruption is often linked to human rights abuses on the side, the attempt to implicate the organization in money laundering and ill gotten gains because all the more incredible. I doubt though that either the Prime Minister or Yahoo! New Zealand News have the maturity to apologize for their mistakes – the Prime Minister for knowingly dragging the charities into the mud, and Yahoo! New Zealand News for falling for it hook, line and sinker without checking their facts.

But they should. Now.

More tax haven revelations cast doubt on National’s claims

For not the first time in the last few months, revelations of large sums of money being hidden in New Zealand because of our lax laws, have been revealed. The claims come at the end of a week where Prime Minister John Key’s lawyer Ken Whitney was found to have lobbied extensively to get the Government to drop a review into the laws around foreign trusts. Whilst unlikely to change anything in terms of getting a law change enacted, the new revelations will be further munition for the Opposition.

National claims to be taking the matter seriously. This is a claim that depends entirely on whom one talks to. From the perspective of a New Zealander wanting all taxpayers, corporate or not, to be treated equally before the law, I beg to differ. From the perspective of one who thinks there is much to be gained from cracking down hard on money laundering, and large scale illegal appropriation or other use of money, again I beg to differ. You cannot tell me this Government is taking the matter seriously when individuals are able put nine digit sums of money into a New Zealand bank account so that authorities cannot find it.

New Zealand will be a stronger nation of better repute than it is now, when the law is such that criminals determine it is not worthwhile using New Zealand bank accounts, for the activities of the like described above.

It should be a first term priority to crack down on this sort of behaviour, not least because the law abiding tax paying individuals/companies/corporates that operate in New Zealand deserve to know there is not one law for them and another for tax evaders. I doubt that unless this problem gets so bad that it could cost National the election, that it will be dealt with, and even then it is possible that because of historical odds not favouring a fourth term Government, it may be put into the “too hard basket”.

Well done to Labour, New Zealand First and the Greens for putting the acid on the Government. However this is still in its early days and none of the parties have given a clear indication other than wanting an inquiry about what they might do about changing the law. All three parties need to stage a co-ordinated offensive, and seek opportunities for an urgent debate should any particularly damning revelations arise. And if National does – probably for the sake of political expediency – agree to an inquiry, consideration about how to implement the recommendations should be given.