Globalisation was meant to provide for all through increased trade and allow everybody more freedom. Unfortunately it’s done the exact opposite, placing more people into servitude and helping businesses avoid paying their fair share by exploiting loopholes purposefully left in our tax and employment laws.Yesterday it was revealed by One News that a British based company, Reckitt Benckiser (RB), reduced its global tax bills by around $395 million over a period of three years by exploiting various tax systems around the world.
How exactly the anti-competitive conglomerate managed such a large additional profit through tax evasion and not just through exploiting children and forced labour is detailed in Oxfam's Making tax vanish in New Zealand report (PDF):
RB restructured its business in 2012 and 2014 to create regional hubs in the Netherlands, Singapore (now closed) and Dubai. In doing so, Oxfam estimates that RB reduced its global tax bills by around $395m from 2014 to 2016, including by up to $118m in developing markets. RB says ‘none of its operations are linked to tax avoidance in developing countries’, and that these restructures were motivated by a desire to ‘be close to our customers’ (see Appendix 2 in the main report for RB’s full response).
By being close to their customers RB actually means they want to put the economic squeeze on tax paying citizens and ensure their government’s cannot afford to pay for essential services because of decrease government revenue.
However, Oxfam believes that a significant business reason was to save tax. Oxfam's research suggests that RB restructured its transfer pricing (manipulating the price of transactions between subsidiaries of the same group) model to avoid taxes. This has been done by funnelling intracompany transactions through the low-tax jurisdictions of the Netherlands, Dubai and Singapore, such that more profit accumulates there, rather than in the countries in which the MNC’s core business activity takes place—and where tax rates are higher.
Of course RB has denied these claims, while also saying it's normal international practice.
Oxfam estimated that New Zealand lost a total of $15.2 million in 2013–15 because of RB's dishonest tax practices, which would go a long way to helping New Zealand’s homeless crisis. But perhaps the main problem here is that a public boycott of RB products is simply not going to work.
The multinational companies undertaking such tax avoidance have their dirty fingers in too many pies, and the businesses that import and sell their products here aren’t going to change their profitable practices anytime soon either. The solution really needs to come from government, and to that effect Oxfam makes a number of recommendations:
Oxfam calls on governments to implement public CBCR for all
MNCs:
The New Zealand government must set out a timeline for when it
will introduce public CBCR in the absence of a multilateral
agreement, to ensure implementation by the end of 2019.
Oxfam calls on governments to agree a new round of domestic and
international tax reforms that will prevent MNCs from shifting
profits.
The New Zealand government should:
• urgently update and strengthen New Zealand’s transfer pricing
rules to address profit shifting; and
• expand Inland Revenue's Significant Enterprises programme to
include all foreign owned companies with turnover in excess of
$1 million; and
• join with other governments to adopt more stringent measures to
prevent the use of tax loopholes, such as debt-related
deductions, to shift profits to low tax jurisdictions.
Unfortunately the glacial pace at which the National led government has set for its entirely mediocre tax reforms isn’t going to mean a change to the widespread tax avoidance many international companies practice anytime soon. That’s another good reason to vote in a government that will actually do something about the tax loopholes being abused in New Zealand.
