Government chases $200m a year in extra tax from multinationals with BEPS measures

The government has doubled its estimate for extra tax it may reap from multinationals as a result of plans to crack down on base erosion and profit shifting (BEPS) that are used to minimise their taxes worldwide.

Finance Minister Steven Joyce and Revenue Minister Judith Collins announced a series of measures they say will result in an estimated $200 million a year in additional New Zealand tax being paid by multinationals. That's twice the amount the government had previously budgeted in out-years for additional tax starting with Budget 2018, they said.

Among the tactics targeted by the changes are hybrid mismatch arrangements, where multinationals exploit differences in tax rules between two or more countries to minimise their overall tax bill. The measures will also impose restrictions on interest that foreign parents charge their local subsidiaries (known as interest limitation rules) as a way to reduce their taxable profits; transfer pricing (where a related company charges a New Zealand subsidiary an artificially high price for inputs such as raw materials, head-office services, or the rights to use intellectual property) and permanent establishment (taxable presence) avoidance, which are both designed to allow multinationals to report low taxable profits in New Zealand.

The measures would also increase Inland Revenue's powers to investigate uncooperative multinationals, the ministers said.

"While most multinational companies follow the rules there are some that attempt to minimise or eliminate their New Zealand tax obligations," Joyce said in the statement. "The proposals target these multinationals. The new measures will significantly strengthen our tax rules and our ability to ensure that multinationals are taxed fairly and on the basis of their actual level of economic activity in New Zealand."

The measures are expected to be included in a tax bill to be introduced before the end of 2017 and enacted by July 2018, the ministers said.

Companies including Google, Facebook and Apple have been criticised for booking profits in low-tax jurisdictions and the huge reduction in tax owed prompted the Organisation for Economic Cooperation and Development to call for a worldwide crackdown on that kind of behaviour through its BEPS initiative.

(BusinessDesk)