Shaw James: Oral Questions — Questions to MinistersText is incorporated into the Bound VolumeShaw James: Oral Questions — Questions to Ministers[Sitting date: 29 March 2016. Volume:712;Page:9922. Text is incorporated into the Bound Volume.]4.JAMES SHAW (Co-Leader—Green) to the Minister of Revenue: What estimates if any does he have for the total amount of tax multinational enterprises operating in New Zealand may have avoided paying in the last tax year through incorrect transfer pricing practices?Hon MICHAEL WOODHOUSE (Minister of Revenue): The Inland Revenue Department does not distinguish between companies based on whether they are multinational or not. This is because we expect all companies to pay the correct amount of tax regardless of where they are owned. But to the extent that incorrect transfer pricing practices are identified by the Inland Revenue Department they would be disallowed.James Shaw: Is New Zealand Herald investigative journalist Matt Nippert’s figure of $500 million of lost tax revenue from multinationals in the last financial year about right or is tax expert Professor Craig Elliffe’s estimate of $1 billion more accurate?Hon MICHAEL WOODHOUSE: Well both estimates are speculative based on their value judgments about what companies with that level of turnover should pay. It is not the Inland Revenue Department’s job to estimate based on gross turnover. As I am sure the member is aware the amount of tax paid is assessed on the taxable profit and that is what they pay.James Shaw: So is the Minister of Revenue saying that he has less of an idea about how much revenue is being lost than Matt Nippert and Craig Elliffe?Hon MICHAEL WOODHOUSE: I should hope so. But look if the member is saying that this does not look right or does not look fair I have some sympathy with that point of view. But what is considered unfair is multinationals not paying tax anywhere in the world and for that reason this is a global issue that requires a global response. I think the OECD is the best place in which to have that analysis.James Shaw: Given that the Inland Revenue Department advised his office in 2013 that “We will be closely involved in and guided by the OECD work. However this does not prevent us from addressing potential deficiencies in our own rules which we have concerns about.” why is he still to address these deficiencies in our own tax rules?Hon MICHAEL WOODHOUSE: I do not accept that they have not been addressed to the degree that there are robust tax policies already in place for the establishment of rules around permanent establishment and for the unfair transfer pricing for the purpose of avoiding tax. I think we have a really good tax policy framework. The Government invested nearly $20 million in last year’s Budget for the audit and compliance work that needs to go on in those large businesses and I think we have a good system.James Shaw: Well given that answer how many staff at the Inland Revenue Department currently work on base erosion and profit shifting to address multinational tax avoidance?Hon MICHAEL WOODHOUSE: I do not have that specific number to hand but I would be very happy to get it to the member if he wanted to put that question down in writing.James Shaw: Then will he introduce new law like Australia has recently to better police multinationals to require greater transparency and to collect a fair share of tax revenue from them?Hon MICHAEL WOODHOUSE: The member is referring to laws that have been passed in both the UK and Australia on what is known as diverted profits tax which disallow arrangements where foreign companies exploit permanent establishment rules and contrive tax advantage by having deductions that lack economic substance. I am getting some advice about that but I am satisfied in the interim that we already have those sorts of rules in the Income Tax Act.James Shaw: What does he have to say to New Zealanders and domestic businesses that are paying their fair share of taxes while international businesses that are operating in New Zealand can avoid them?Hon MICHAEL WOODHOUSE: Putting aside that I do not absolutely agree with the second part of the question I think all New Zealanders would agree that it is appropriate that everybody regardless of their ownership pay their fair share of tax on transactions that take place here in New Zealand. I am confident that we have good policies to enable that to occur and good resources deployed to check compliance with them and where there are improvements that can be made they will be.