In addition to the newly negotiated and highly controversial TPP agreement, the rollout of the OECD’s Base Erosion and Profit Shifting (BEPS) project has New Zealand’s political and business leaders in heated discussions this week.
The business community is concerned about the far-reaching ramifications of the reform of corporate tax rules underway through the BEPS project.
The worldwide tax gap is currently estimated to be US$100 billion – US$240 billion per annum, arising out of gaps in current laws enabling multi-national corporations to artificially manipulate taxable income downwards in countries with high corporate tax rates, by using techniques to ‘shift’ revenue to countries with low/no corporate taxation.
Public backlash continues to grow as figures are released for MNCs based in various OECD countries, revealed an allegedly striking contrast between levels of revenue and corresponding tax liabilities.
Facebook, for example, has been under the gun in New Zealand for several years, for what has been described in the New Zealand media as a ‘tiny and barely believable tax bill’. One year the MNC allegedly paid only NZ$14,000 in tax.
Public backlash has frequently focussed on perceived immorality, economic inequity and socially irresponsible behaviour by such entities and the backlash continues to grow.
New Zealand’s top 20 corporations face greatly increased compliance costs should New Zealand adopt the OECD’s BEPS action plan. However, it is not only corporate giants which will be affected. New Zealand companies doing business offshore of all sizes are likely to be affected, depending on the reach of their operations and business structure.
Dovetailing with information reporting now occurring under ramped up Tax Information Exchange Agreements, notably involving the Foreign Account Tax Compliance Act, the OECD has been fast to land on country-to-country reporting. The OECD’s action plan involves reporting commencing from January 1, 2016, for MNCs which have global revenue of more than EUR 750 million per annum.
According to OECD Secretary-General Angel Gurria, “for the first time (minimum standards being introduced) will give tax administrations a global picture of the operations of multinational enterprises”.
