Multinational tax clampdown challenged

Archer and Snell say they are concerned that Revenue Minister Michael Woodhouse "has debt levels. Photo / Mark Mitchell

New research by EY tax specialists has challenged the Government to "justify there's a real problem" before moving to change the tax rules for multinational companies.

"Multinational companies are not ripping off New Zealand through excessive levels of interest-bearing debt," say EY international tax partner Andy Archer and executive director David Snell.

Using publicly available information, they reviewed the debt levels of 108 foreign-owned companies and compared them with 45 widely traded New Zealand-headquartered companies listed on the NZX-50.

The results show that a lot of recent commentary on the issue has been "overhyped", they write in an opinion piece published on the Herald website.

Archer and Snell say they are concerned that Revenue Minister Michael Woodhouse "has debt levels and interest deductions claimed by multinationals in his sights" and that he "could see dollar signs".

They note Woodhouse recently told Parliament's finance and expenditure committee the Government would "probably be a net beneficiary" when tax rules applying to multinationals are reformed.

There had also been a release of government papers taxing inbound investment that suggested moves to strengthen "the interest limitation rules, which will further limit the ability of multinationals to strip profits out of New Zealand through excessive interest payments".

Archer and Snell warn there is a risk of moving to a "complex, ineffective rule which will just add bulk to the statute book for no real purpose".

NZ already has rules which limit the amount of tax-deductible interest when an NZ operation is financed with more than 60 per cent debt.

Research showed most foreign-owned firms stayed well within that and the average level of debt finance for an inbound multinational here is only 20 per cent. Archer and Snell also say their research found no significant difference between multinationals and NZ-based firms.