Why? Because the issue of multinationals being able to shift profits from countries like New Zealand to low tax countries like Bermuda means that they pay less tax in New Zealand than many small companies. For example, Google New Zealand paid tax of $109,038 on New Zealand income of $4.5 million. Google is able to do this by taking advantage of international laws. So for example, money paid by New Zealand advertisers for Google ads is deemed earned by Google Ireland. In 2011 Google Ireland had gross profits of €9 billion. You’re probably thinking that Google paid a large amount of tax in Ireland but you’re wrong. That huge income was offset by “administrative expenses” and the profits were routed to a tax haven. Google is acting in a rational and legal manner, maximising shareholder value and complying with the tools that it has been handed by tax laws that have failed to keep up to date with changes in international practices. Because of these types of business practices it is estimated that New Zealand missed out on $1.5 billion of taxes last year. Not only does this mean less money available to the government to pay for the things the country needs, it is unfair to other businesses, and individuals, who have to pay their taxes in full because they don’t have access to sophisticated tax planning schemes.
Dealing with these issues will require greater legislative cooperation between countries. The OECD report is a step in that direction. It recognises that tax shifting is a problem for many Western countries and that they need to work together to develop a plan to make the tax system fairer to everyone.