By Bernard Hickey
Avoiding or evading tax used to be socially acceptable, or at least not socially unacceptable.
There was a time before the Global Financial Crisis when most people in the moneyed class were perfectly relaxed about discussing how they minimised their tax bills through Loss Attributing Qualified Companies (LAQCs) and family trusts.
Dinner party conversation about using trusts and rental property 'losses to reduce 'taxable income' so as to qualify for Working for Families, Student Loans and Nursing Home subsidies used to be perfectly acceptable.
Some are still mystified that anyone would be upset that they deliberately set out to avoid paying tax.
Finance Minister Bill English recounted at a business conference this week how one self-employed voter was angry with him after missing out on an ACC payment because he had structured his affairs to show little taxable income and therefore qualify for Working for Families and the like.
"I told him that's what you get when you don't declare any income, but he was still upset ... ," English said with the shake of his head to an amused audience in Auckland.
Even Revenue Minister Peter Dunne and Prime Minister John Key appeared relatively sanguine about the issue earlier this month when they said some tax avoidance was legitimate, particularly when it involved the use of shelf companies in New Zealand by wealthy foreigners, while tax evasion was not legitimate.
Public opinion on the legitimacy of avoiding tax is, however, far from sanguine in countries such as Britain, where the sting of austerity is cutting benefits and jobs. Tax avoiders and evaders have become public enemy number one.
Starbucks was in the crosshairs in Britain this week after Reuters reported Starbucks had racked up over 3 billion pounds (NZ$5.88 billion) in sales since 1998, but had paid just 8.6 million pounds (NZ$16.8 million) in taxes. Over the last three years its paid no income tax, despite comments from management to shareholders that its British operation was so successful and profitable that it was moving its British CEO to head up the American operation.
Starbucks forces its British operation to pay 'intellectual property' fees to its Dutch operation, from where it's unclear where the money goes.
Starbucks is not alone among many multi-nationals who use perfectly legal but morally questionable tactics to shuffle money through tax havens and structures that have the effect of reducing their overall tax rates. Google, Apple and Facebook are masters at it.
Google, for example, made losses for tax purposes in New Zealand in the last two years, despite advertising industry estimates that it made revenues from New Zealand of over NZ$100 million last year. Last year it paid just NZ$109,000 in tax in New Zealand.
This is a growing problem for most developed economies where tax bases are migrating offshore and into the cloud.
Industries which were once immune from international competition, such as media, medical services, education services and accounting services will increasingly have to compete with foreign companies who structure their affairs to pay the lowest tax possible in any countries.
British consumers are getting very grumpy about the dilution of Britain's tax base, particularly given the pressure it is under after years of recession.
This week they launched a boycott against Starbucks and various celebrities, including comedian Jimmy Carr, who was forced to apologise to the public after his use of a tax haven was exposed.
Perhaps it's time New Zealand consumers and taxpayers started targeting companies such as Google and Facebook that don't pay their fair share of tax globally.
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This piece first appreased in the Herald on Sunday. It is used here with permission.
31 Comments
MIST: If you slowed down and put your mind to it, you could probably produce a better response. Read what Bernard said and then re-examine your response.
Think: cross-border transfers of funds. Starbucks(UK) shifted funds to Starbucks(NL). The funds didn't go to Starbucks(US). Wonder why?. The funds left UK as tax-deductible management fees. Do you really think the funds arrived in the Netherlands as taxable revenue in the form of taxable "management fees", or did they change character and arrive as a "capital transfer". Ask yourself, why weren't the payments repatriated back to the US? Why route them to or through another country? What Bernard didn't do was ask, how much tax did Starbucks Netherlands pay. Reasonable bet they paid very little also.
If stafbucks brought the money back to the USA it would pay tax, instead it holds it offshore waiting for the day the US declares a tax free holiday. I think Romney has said he'd do it if elected.
I suspect this is one of the reasons foreigners buy up at ahigher price, they wont be paying tax so their "overheads" are lower.
Personally I'd bring in a 25% tax on profits pre-franchise payments where those were owed offshore.
regards
this using losses to reduce income tax has been going on for years but unfortunately successive governments have not possessed the kahunas to do much about it.
a freind of mine recently told me that his 50 acres was only profitable because of being able to write off losses against his income.
meanwhile the fifty acres continues to increase in value
not sure what you are asking here.....I worked for EDS in the mists of the past, awful company to work for. I did go for a job at Computerland at one stage but they wouldnt tell me the salary range. When I turned up they offered 18k less than what I was already earning.....I got up and left.
regards...
Here's the mechanics of how it works. Using the artifice of delayed taxation by periodic transfers. Use as an example $1 billion taken out of the UK and shifted to NL to be used as seed capital to set up a bunch of franchises, using the capital transferred from the UK. No tax so far. Squeeze all the local coffee shops in the Netherlands out of business. Then, when the franchises have been sold off, at the end of the second year transfer the funds to France. Do the same thing. Money transferred into Holland is transferred out before it becomes taxable. Takes two years. Then transfer it out of France to Belgium. Same thing. And so on. Over ten years no tax is paid. It has been postponed. Then at the end of the tenth year, finally repatriate the funds to the US and pay tax. In the meantime a lot of local businesses have been destroyed. Domestic, tax-paying businesses cannot survive against inter-national competitors who don't pay tax.
Icon,
No doubt you are largely right. From memory the Netherlands itself has some pretty tax friendly policies, and especially countries like the Netherlands Antilles, have some 1% tax rates. It would not be all that difficult for companies then not to pay profits back to their US shareholders as dividends; but to have capital returns.
One answer to this could be a turn over tax.
According to the Daily Mail, Starbucks had revenues of GBP 3Billion over 14 years, and yet paid only 8.6 Mil in corporation tax.
Turn over tax has been tried before, I used to live in Vanuatu, ironically a low tax jurisdiction place itself, and they bought it in there.
Must have been effective, because a certain bank there, who became subject to it, immediately levied it on thier customers in the form of a special fee.
And so it goes on - here's another one.
Online auction and shopping giant eBay has reportedly avoided paying nearly £50 million ($A78 million) in corporation tax in Britain through legal accounting schemes. The group paid just over £1 million in UK corporation tax despite making nearly £800 million annual sales in Britain, according to a Sunday Times investigation.
http://www.businessspectator.com.au/bs.nsf/Article/eBay-saves-80m-in-UK-tax-dodge-ZAL9A?OpenDocument&src=hp17
Doesn't say if they are or are not paying VAT(GST)
Neither the Australia nor the New Zealand Sanitarium companies pay company tax on their profits, due to their ownership by a religious organisation (Seventh Day Adventist). This is something which has been criticised and is considered unfair by their competitors.
Maybe it is now time for consumers to boycott Sanitarium as being socially unacceptable.
I agree whole heartedly. What is even worse with Sanitarium is their petty battle with a small importer of marmite, Rob Savage, whose stock of UK made marmite is held up in customs and threatened with distruction. Rob, a small shopkeeper importing products for homesick ex-pats pays more tax than this so called morally superior and religious "charity' who pay no tax at all!
I have stopped buying Sanitariums products, and I suggest others do as well, regardless of whether you disagree with their bully boy tactics to small shop owners or not.
Let's look at what Bernard is really advocating here: he is advocating for consumers to boycott firms for higher prices for goods and services. Tax is a cost.
That's really going to help low income earners on harsh budgets. Your view is both morally repugnant, Bernard, and as someone I assume not on a budget, completely selfish.
Indeed, Bernard's view is as backward, morally, as this MSM reporter's unthinking view of tax dodgers. Quoting myself:
" ... so what we are really talking about here [as IRD admit to] is many businesses, hardworking independent Kiwis, on the breadline, that aren’t able to pay their tax, without taking food from their own tables, or paying the insurance for the heart operations on themselves and their loved ones. That’s how the welfare state has punched an iron fist through the heart of self-reliance, with this reporter cheering ghoulishly from the side-lines. At the very least, this ‘fact’ reported by Alanah shows New Zealand needs a tax-free income threshold, of $35,000 to $40,000, that allows a family a living, and independence, before they have to start coughing up the tax to support the lives of total strangers and their life decisions, many of them monumentally mental."
Mark , anyone who followed Bernard's advice over the years would now be a renter in someone else's house , have no search engine on their computer , and be going without their daily latte .....
..... no one takes the big guy so seriously anymore .... sadly , he's become the financial equivalent of a carnival barker , screaming headlines of gloom , doom & woe , to get visits to interest.co.nz
In the past 3 financial years , Stabucks paid tax of 31 , 34 , and 30 % on their annual profits to the IRS , and similarly , Google paid 21 , 21 , and 22 % tax rate in the years to October 2011 , 2010 and 2009 respectively ....
.... facts are always so bloody ugly aren't they Bernie , they do screw up a decent story !
Oh please, thats completely bonkers Mark, come back over the sane side of the line.
1) You are criticising Bernard for advocating an entirely voluntary change in behaviour. (Did you just say voluntary consumer behaviour in morally repugnant?)
2) Starbucks is not an essential item, nobody ever was harmed because they didn't get their Starbucks coffee. Seriously we are hardly talking about essential items.
3) Even if someone was going to be harmed because of a voluntary boycott of Starbucks they could take the personal decision to skip the boycott.
4) Didn't you just 'force' people to consume Starbucks coffee as much as Bernard 'forced' them to boycott it.
5) Almost nobody shares your value that 'paying tax is immorral', in fact most people feel the opposite.
I'm completely about voluntarism, Nic: Bernard is not.
Feel free to boycott, or not. But tax is a cost: if you advocate more tax, you're advocating higher costs for goods and services. Just the same as those that advocate protectionism. Spin it anyway you want, but the only way to deny that fact, is to deny reality.
So you and Bernard don't share values, hardly a surprise, who cares.
What you are claiming is absolute BS. You are just advocating for the big guys over the small guys. If all corporates pay the same tax rate then thats clearly more fair than the big guys getting a rate advantage. This is quite clearly one thing putting little guys out of business.
Additionally if all businesses are captured in the tax pool, then the overall rate could be reduced while still capturing the same government revenue. Why should some rich investors in the US profit (at their exaggerated rate) from revenue earned in the UK anyway?
Basically your tax argument is simplistic gibberish, and it obviously doesn't apply on a macro economic level. For one thing one persons higher or lower cost is another persons income, or government revenue as in this case. Just advocating for all the costs to be taken out will not necessarily make the economy function any better. It certainly won't in this case.
I agree with you that given Penny and Hooper there is no even playing field between big and small/medium sized firms. IRD now expect all SME's to pay the highest personal rate of tax across all income.
However the answer is, and it's the answer to life, the universe and everything, is to tax everyone and every entity, less. Freedom from coercion, baby.
But really, Nic, you're reveal in the vicious language and tone you use, you're just another statist bully, like this guy, Chris - the Fist - Trotter. I'm a peaceable guy, almost a pacifist, in fact, so I'll toddle off and do some work, and leave you to threatening everybody with the big fist of state
Tribeless - Your right on the button there - SME's are getting a terrible hard time and it's not just on the tax front - all the other cumbersome, costly, compliance is taking a huge toll. I'm officially enslaved - thanks to all the past and present Governments.
Taxing less is the only way to go !!!!!!!!
But really, Nic, you're reveal in the vicious language and tone you use, you're just another statist bully, like this guy, Chris - the Fist - Trotter.
Well if the evidence is good enough for the inquisition, I guess I didn't have a point because I used my potty mouth. Must remember to self sensor when talking about t*x and g^&###!%@t in future.
But tax is a cost: if you advocate more tax, you're advocating higher costs for goods and services.
Care to explain the difference in per-capita health expenditure between the UK and US?
http://www.guardian.co.uk/news/datablog/2012/jun/30/healthcare-spending-world-country
Yes, don't worry, we all know the Guardian is biased. They probably just made the numbers up to make the US health care system look expensive and dissfunctional.
Nic, that's government expenditure on healthcare, and yes, this table simply shows that the US is one of the biggest welfare states in the West, as I've written on here.
So what's your point?
A tax is a tax....whether its paid to a private entity or a public one its still an overhead a person has to pay, so really the goal is to minimalise that overall. Yes the US healthcare is by and large privately funded....so at double the impact on GDP the US has a poorer outcome than any other OECD country (from memory).
regards
Just because you assert something that doesn't make it true, in fact the article is pretty damn clear, unlike your ridiculus diatribe which tries to assert that having a functional health system is just a teaser for communism, its ridiculus, a-factual and an insult to all of the other OECD countries which run a functional health care system. There is a reason that the democratically elected government in the UK won't touch the NHS with a barge poll, thats because people tell the state they want health care. Oddly the current UK government would prefer to cut health care spending, e.g they want to tax and spend less for health care than the population, despite your assertion that the opposite is true.
Regardless of these value judgements, the point I was making was about cost savings,
The US has the highest health spending in the world - equivalent to 17.9% of its gross domestic product (GDP), or $8,362 per person. And it's not all private - government spending is at $4,437 per person, only behind Luxembourg Monaco and Norway.
Under half of all US health spending is by private companies - 46.9%. But it has the highest rate for health insurance in the world - 67.8% of all private spending. Which means the rest comes from out of pocket expenses, ie paying for health as you go.
What can clearly be observed is that virtually every other industry in the US would be able to pass on the savings if the US health system was single payer, e.g tax and spend like the UK one. The UK system appart from being cheaper also has better outcomes and 100% coverage by the way. You need to go down to third world countries (Cuba a very similar example both geographically and in terms of outcomes) before you get to similar results.
That doesn't make the US a welfare state, it makes it a first world country with third world health outcomes.
But the point I was making was simple, the statement,
But tax is a cost: if you advocate more tax, you're advocating higher costs for goods and services
is completely factually incorrect. Economic theory doesn't backup your ridiculus assertions either, literally the only statements to back up your arguments, you invented.
uh no, if the big companies are in effect paying no tax V mom and pop businesses then what we are saying is that isnt fair.
I think its pretty clear that more than a few large companies partially brought about be paying no tax are holding huge cash reserves offshore while small one man bands are not and are in effect struggling to make ends meet. So we are not talking about more tax just that everyone should be paying their fair share so its minimalised for all.
regards
Not necesarily if I have a choice to buy off mom and pop for a product and they pay the full tax (which is built into their pricing) or a corporate who's paying none then we level the playing field...the mom and pops price stays the same. The corporate now has to "enjoy" less profit as there is competition....
As per normal it seems you are happy to twist the argument in any shape or form necessary to justify the un-justifiable...
regards
No he isnt. I'd contend that this means local NZ companies can do better or even lower prices to us.
Starbucks pays no tax and charges $5 a coffee....corner shop pays taxes and charges $5 a coffee.
Starbucks choice is now raise their price or have a smaller profit.
Local coffee shop now finds that because the likes of starbucks is paying NZ tax that the NZ govn can reduce the business tax rate by say 1%.
The corner business now enjoys a bigger profit which will probablt be spent in NZ or has scope to reduce prices...or expand and employ more ppl.
regards
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