Revenue Minister Michael Woodhouse warned a Parliamentary Select Committee yesterday to be careful what it wished for if it wanted to impose a more rigorous tax regime on multi national companies operating in New Zealand.

The Minister’s comments came a day after Spark CEO, Simon Moutter, described Google’s New Zealand tax bill as “despicable”.

Mr Moutter posted a tweet after Google NZ  filed its annual financial returns.

“Despicable behaviour – posting $10m revenue despite generating $67m annual ad revenue in NZ to offshore entity,” he tweeted.

Google NZ reported a loss of $601,463 last year after revenue of $10.7 million, but the NZ Interactive Advertising Bureau says the total search and directory segment of the New Zealand interactive market attracted $800 million of advertising last year, and Google is estimated to hold about 90% of the search market.

Industry publications estimate that Google earns  $67.4 million in annual ad revenue in New Zealand but most of that ($56.7 million is booked to an associate company offshore).

Labour MP Stuart Nash suggested to the Finance and Expenditure Committee that total tax avoidance by multi nationals in New Zealand could be anywhere between one and seven billion dollars.

MNr Woodhouse said it was important to note that those figures were estimates “not based on any robust analysis and they are frankly unhelpful.”

Mr Nash said that regardless they did shine a light on the scale of the problem.


“This is seen as the major tax problem around the world,” he said.

“That’s right,” said Mr Woodhouse.

“That’s why it’s absolutely crucial; that countries that are affected by this work in harmony.”

The Minister said he expected to be releasing soon a Cabinet paper detailing 15 separate initiatives that the New Zealand IRD was taking to clamp down on multi national tax avoidance.

But he warned the committee that any international; agreement on multi national taxation could backfire on big New Zealand companies – he named Fonterra as an example.

That was because the key to whether a company would be required to comply with New Zealand tax law would be whether it had a permanent establishment in this country.

“We need to be a bit careful what we wish for when we have large companies trading with the rest of the world that don’t have a permanent establishment in those countries and repatriate their profits back to New Zealand and pay tax on them here.”

Mr Nash said, “all we wish for is that people pay their fair share of tax”.

“To that degree Mr Nash I agree with you,” said Mr Woodhouse. 

“It doesn’t feel fair that reported gross income in a country like New Zealand does not have a commensurate tax obligation.

“To the degree that there is multi national tax avoidance, it is not a question that tax is not being paid here; it’s tax that is not being paid anywhere.

“My sense is that when the noose is tightened around those companies, we will probably be net beneficiaries of the tax base, but we need to be careful to make sure that those companies that export our products which don’t have a permanently established base in those markets don’t then end up paying more tax.”

Mr Woodhouse revealed that Inland Revenue monitored the country’s top fifty companies, by turnover, on a one on one basis.

“In last year’s Budget, we beefed up the compliance resources to effectively case manage a significant proportion, the 50 top companies by turnover, on a one on one case management basis to ensure they are comlying with New Zealand tax law.”

And Mr Woodhouse said New Zealand was also entering into international agreements which would enhance tax transparency.

We have joined more than  100 countries to sign on to the United States Foreign Account Tax Compliance Act as well as working with the Organisation for Economic Cooperation and Development on developing common reporting standards and other base erosion and profit shifting measures.

The Minister also answered questions about foreign trusts (suggesting MPs wait for the Shewan report) and land tax (he said nothing was going on, IRD Commissioner Naomi Ferguson suggested it could appear in a future work programme) and the business transformation project computer upgrade which he said would lead to a 25% reduction in IRD staff.

But Mr Moutter’s complaints mean the emphasis within the IRD and for its Minister is now going to be on multi national tax avoidance.