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NZ lacks power to fix tech tax loopholes

20 Dec 2012

The IRD has backed the government's claims that they lack sufficient power over tax loopholes, saying large technology companies cannot be forced to pay more tax.

According to a new report released this week, corporate tax loopholes can not be easily closed, with any law changes being overridden by international treaties.

"Even if we changed our domestic tax laws so that we could tax all business income earned by non-residents from any sales to New Zealanders, our tax treaties would override the new laws,'' IRD says.

Indicating that there were "strong reasons" for Kiwis to be in line with international norms on tax, the IRD warned any changes could make New Zealand "an unattractive place to base a business."

The news follows recent government criticism from the Labour, after Facebook New Zealand paid only $14,500 tax last year, "making a mockery of tax loopholes for multinationals according to the opposition party.

At the time, the party’s revenue spokesperson David Clark said the social media giant was exploiting Revenue Minister Peter Dunne’s refusal to close tax loopholes and believed action was needed to combat such tiny tax bills.

But in light of the recent IRD report, Dunne has released a statement, underlining his determination to tackle the issue.

"It is a problem facing many countries, but no one country can solve it alone," Dunne said.

"It is a global issue and it will have a global solution, and New Zealand is constructively working on being part of that solution.

"There is no doubt that more needs to be done, but I am satisfied that we are on the right track."

Clark responded to the statement, saying the following:

"I welcome his u-turn because it is a report that says New Zealand can and should do more.

"If a problem is even potentially worth $1.5 billion to New Zealand, it's worth tackling, it's worth setting up an expert advisory panel through the Treasury, like the Australians have done, to report back on ways to address this issue."

What can New Zealand do to tackle the tax loopholes in the country? Tell us your thoughts below