Who pays company tax?

Update: After I wrote this blog post, I thought that it would be good to see if I could get wider coverage for the ideas in it. There has been a mass of articles about multinationals and taxation in the papers, especially in the NZ Herald, but none touching on the idea of the price of civilization, and none taking on the claim that PAYE and GST “paid” by multinationals is a sufficient contribution to the tax take here in NZ. So I redrafted the post, taking out the more informal language, and it has been published in the NZ Herald: Govt has the means to make multinationals pay.

enrolmenttaxation

Enrolment for taxation

Not multinationals, as it turns out.

Top multinationals pay almost no tax in New Zealand.

Multinationals are taking advantage of their ability to charge internal fees, and set royalties, and increase the “cost” of products sold from one part of a company to another (transfer pricing), to shift profits around the world, preferably into jurisdictions with very low corporate tax rates. It’s a comparatively simple thing to do, even when there are robust anti-avoidance laws and intense scrutiny of transfer pricing practices.

I very much hold to the view that taxation is the price of civilization – health, education, welfare, parliamentary democracy, robust rule of law, smoothly functioning institutions, and all those other accoutrements of first world living that the multinationals rely on.

At the same time, I think that as citizens, one of our better avenues for checking the power of government is to give it less money. That means minimising the tax we pay. Of course I am not advising tax evasion, or even aggressive tax avoidance, but if the law permits us to reduce our taxes, then we should go ahead and do say. Pay absolutely all the tax you owe to government, but not a penny more. If government wants to collect more in taxes, then it can do so through changing the law, and thus ensuring that its tax collecting activities are exposed to the full scrutiny of our democratic processes.

So perhaps the way to deal with the problem of multinationals earning large amounts of revenue in New Zealand, but paying very little tax here, is to change the law. My preference would be to look at some form of transaction tax. We already have a tax that is based on adding a certain amount to each transaction in New Zealand, in the form of GST. Perhaps we could add a new transaction tax for companies whose head office is not located in New Zealand. We could even allow them to offset any company tax paid in New Zealand against the total transaction taxes they pay here. That would make the point very clear: either pay a reasonable amount of company tax here, or pay the full quantum of a transaction tax.

Multinationals are of course bleating, and saying that they already make a magnificent contribution to the price of civilization in New Zealand by paying GST and PAYE on their employees wages.

Other companies, notably from the alcohol industry, stress that their total tax payments — including PAYE for local employees, GST and excise taxes on the sale of alcohol — are a better measure of their contribution to New Zealand than income taxes alone.

Source: NZ Herald: The tax gap – where do their profits go? How Apple, Facebook and Google move their earnings overseas

That’s a canard. While companies bear some of the cost of GST, ultimately the full cost of GST is borne by end users. And in the alcohol industry, that’s you and me, the consumers. By and large, companies act as tax collectors for GST, but they don’t by any means bear the full cost themselves.

As for PAYE on their employees wages, again, that’s not the company paying tax. It’s the employee paying tax. All the company is doing is collecting the tax on behalf of government.

So not only are these companies engaging in fairly interesting tax avoidance activities, but they’re also trying claim some kind of social good credit for their employees’ taxes too. “We’re good citizens because our employees pay tax.”

Ahh… no. That would be like you giving some money to an accountant for your taxes, and the accountant paying it over to IRD and claiming it towards her or his own tax.

Not paying company tax, and engaging in cutesy pie non-justifications of their behaviour. Somehow, for me, that makes it all even worse.

Time to get the multinationals to pony up and pay the price of civilization.

This entry was posted in Economics, NZ Politics, Taxation. Bookmark the permalink.

2 Responses to Who pays company tax?

  1. I don’t think tax is the price of civilisation at all. The reverse: it’s the abyss of the surveillance and totalitarian state again.

    Re the issue of multi-nationals, I’ll simply copy what I commented on Dimpost:

    My first point would be tax is a cost so these firms moving tax to low rate jurisdictions means consumers get cheaper products (with more profit left for future innovation). So good on these companies prudently mitigating tax for *our* benefit.

    Outside that, careful what you wish for. These co’s have no real physical presence here. The same rules necessary to tax them here will allow overseas jurisdictions to tax our exporters on their exports. Why shouldn’t, for example, China tax our apple sales being made there, even if our orchardists have no physical presence in China? The world devolves again into the limited consumer choices wrought by protectionism.

    Far better for a small country like NZ to compete on tax. Have a low taxing regime here to make these co’s move profit and staff plus work here.

  2. Jamie Nicholson says:

    Sure allow corporations to store their profits in NZ and profit from that, we must remain competitive globally.

    Also make sure corporations disclose negative product information, such as tax paid to NZ government or financial authorities, thus making consumers aware that buying an iPad / Samsung doesn’t support the local government and companies. Push that locally and globally.

    We’re all too aware of the benefits they bring, increased productivity, collaboration etc etc. Keep in mind not all multinationals are just minimising tax legally, some may be targeting their profits and investing in communities to achieve good social outcomes but as a global community how can we understand which company is meeting social responsibilities and which isn’t?

    From your article it sounds like none of them are making good social investment, because their not investing in the government. I think we’ve all seen figures on tax avoided but we don’t seem to get the full picture; perhaps because it’s really, really bad 😦

    I’d love to see % of income distributed per product, breakdown as follows:
    -> tax paid (government benifits)
    -> social investment (specific social communities benifit)
    -> income returned to shareholder (some money must be made)
    -> income retained for business (businesses require money to remain competitive)

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