WELLINGTON: New Zealand is losing more than $700 million a year as a result of profit shifting schemes by multinational companies, a new study has found.
The figure is more than double the $300m estimate given this month by ministers Judith Collins and Steven Joyce, when they announced proposals to crack down on tax-avoiding multinationals.
The study, carried out by the UK-based Tax Justice Network using 2013 data, found global losses as a result of profit shifting amounted to about US$500 billion ($711b) a year.
The organization describes profit shifting as the process of companies moving profits from their subsidiaries in higher-tax countries – where the real economic activity takes place – to other subsidiaries in tax havens.
This is typically achieved by the company setting up internal trades which exploit international tax rules to move taxable profits from one jurisdiction to another.
In response to questions, a statement from Revenue Minister Collins said the $300m figure was based on information Inland Revenue had compiled through tax returns, investigations and surveys of companies operating in New Zealand. She said it was more detailed and specific to New Zealand than the Tax Justice Network’s $700m estimate.
“The OECD maintains that estimating the revenue impact of BEPS [base erosion and profit shifting] is difficult from a global perspective,” said Collins. “The best source of information concerning the loss of revenue to BEPS in any country is the revenue authority in the jurisdiction itself.”
She said the three BEPS consultation papers released by the Government this month were an important part of the solution, as was New Zealand’s adoption of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS.
University of Auckland tax expert Michael Littlewood, a professor of law, said nobody really knew how much New Zealand was missing out on, and that was a big part of the problem.
