IRD to get tougher powers in multinational tax crackdown

Under the proposed law, multinational firms would face fines of up to $100,000 for failing to comply with a request for information. Picture / Janna Dixon

New Zealand's Inland Revenue Department will get tougher powers to demand overseas information from uncooperative multinational companies under a new law aimed at discouraging complicated tax structures to unfairly minimise a firm's tax obligation.

The Taxation (Neutralising Base Erosion and Profit Shifting) Bill passed its first reading in Parliament yesterday after a false start when Revenue Minister Stuart Nash missed his cue to deliver the government's speech to the legislation.

The new law would adopt a number of measures developed to stifle the ability of large global firms to use base erosion and profit shifting (BEPS) strategies to reduce their tax bill.

It is part of a global push being championed by the Organisation for Economic Cooperation and Development (OECD). The OECD has estimated global losses through tax avoidance amount to US$240 billion ($345b) a year.

The legislation would also give IRD greater teeth in demanding information from multinational firms held overseas, which commentary on the bill says is "difficult or impossible for Inland Revenue to obtain" and "can allow a multinational to stymie an Inland Revenue investigation through non-cooperation, particularly through withholding the information required by Inland Revenue to perform the investigation".

Labour Party MP Kiripatu Allan, who sits on the finance and expenditure committee examining the bill, noted the increase in power during her speech to the House, saying uncooperative multinationals have "really been an issue for IRD, and I think that we expect to hear substantive submissions on that in the finance and expenditure committee".

Under the proposed law, multinational firms would face fines of up to $100,000 for failing to comply with a request for information, compared to current sanctions of just $4,000 for not providing information or up to $25,000 for knowingly not providing it.

The legislative change would also let the tax department make an assessment based on the information it has to hand and prevent the taxpayer from admitting the requested information as evidence in a dispute or court proceeding.

MPs largely focused on Google, Facebook and Apple when criticising the complex tax structures, although none of those companies' local units say they're being audited in their respective financial statements lodged with the Companies Office.

Labour's Michael Wood, the finance and expenditure committee chair, ended up reading the minister's speech, saying the bill aims "to address a source of unfairness in the tax system" which was a key tenet of the government's plans to overhaul the broader tax system.

"A broad, low-based system relies on everyone paying their fair share, and we cannot allow a situation to carry on in which a small number of multinational companies shirk that obligation," Wood said.

"This won't necessarily be the only set of measures that this government undertakes in pursuit of that objective, but it is an important set of measures."