War on tax dodging prompts U-turn on foreign profit reports
War on tax dodging prompts U-turn on multi-nationals’ profit reports
By Pattrick Smellie
Oct. 31 (BusinessDesk) – The government is reversing a decision that would have excluded most foreign-owned New Zealand companies from having to publish annual financial statements publicly as global tax authorities focus on the growing problem of multi-national corporate tax avoidance.
Commerce Minister Craig Foss tabled a revised version of the Financial Reporting Bill in Parliament today, removing the previous intention to exempt foreign-controlled companies with assets of less than $60 million and annual revenue of less than $30 million from having to file financial statements.
Instead, the existing exemption will remain, meaning such companies need not file publicly accessible financial statements if they have assets of less than $20 million and annual revenues of less than $10 million.
“For overseas entities, the reporting requirements will remain the status quo,” said Foss.
The Inland Revenue Department already had the necessary investigation and discovery powers to chase tax avoidance without public disclosure of financial statements, said Foss.
However, the Cabinet had become aware of a “trust and transparency” issue raised by exempting a larger pool of foreign-controlled companies from such disclosures, prompting today’s Supplementary Order Paper changes to the Bill.
The change of heart was signalled in a joint IRD/Treasury paper from August, released last week by Revenue Minister Todd McClay, which noted greater transparency is increasingly seen as a tool in efforts by members of the rich countries’ club, the OECD, to combat global tax avoidance by multi-nationals.
The paper on the base erosion and profit-shifting (BEPS) issue acknowledged the OECD’s two year action plan will be difficult to achieve because so many governments are involved and some countries will always seek to play tax rules off against others to attract foreign investment.
McClay said last week he was “not of a mind to make it any easier for multi-national companies who may or may not be meeting their obligations to the New Zealand taxpayer.”
The revised reporting thresholds were originally advanced as a business-friendly move to lower the cost of doing business in New Zealand, but the BEPS paper suggests the tide has turned in favour of encouraging disclosure of revenues, profits and tax paid by foreign companies.
The UK, South Africa and Spain are proposing to implement a code of good behaviour for corporate taxpayers to encourage public scrutiny, while Australia proposes insisting all foreign-controlled entities with revenues above A$100 million annually be required to report tax liabilities in each fiscal year.