IRD targets overdue tax debt

IRD targets overdue tax debt

  • IRD targets overdue tax debt
  • GST on directors’ fees
  • RBNZ analyses housing


Inland Revenue has begun taking more action on outstanding tax debt. It dialed back how hard it was pushing on overdue tax debt during last year in the wake of Covid-19. But in recent weeks, its activity has stepped up, and those involved with corporate reconstructions are seeing much more activity with Inland Revenue pursuing tax debt.

There are some reports that it’s particularly targeting the housing and construction sector, but that’s not necessarily the case, as I understand it. But the housing and construction industry has a record of nonpayment. Inland Revenue is particularly concerned about those companies or individuals not keeping up to date in relation to their GST and PAYE obligations. Inland Revenue’s longstanding view is that such receipts are held on trust (because they’re being withheld from the payees) and therefore the companies have no right to the payments and need to pass them straight through to Inland Revenue.

An Inland Revenue spokesperson confirmed they were taking more action adding “We give high priority to any business that has failed to pay employee deductions when due.” In the past Inland Revenue sometimes seemed quite extraordinarily slow in taking action with overdue PAYE. But if it’s boosted its efforts in this space that’s all well and good because following Gresham’s law, bad money drives out the good. And those conscientious employees and businesses that follow the rules and make the payments as required are being undercut by more unscrupulous operators.

In that context, what I’ve been told is that Inland Revenue is also upping its efforts in relation to developers who are claiming GST on land purchases, but then failing to declare the GST when they make the subsequent sales of the properties. In some cases, you also have what they call “Phoenix companies” where there’s a pattern of developers establishing companies which then fall over leaving unpaid tax debts. Inland Revenue got itself extra powers to try and deal with those matters.  And I would expect that with its enhanced capabilities following completion of the Business Transformation programme, Inland Revenue should be on top of that situation.

As always with tax debt the key thing to do if you run into trouble, is talk to Inland Revenue. It is actually surprising how little tax debt can soon become unmanageable for people. Inland Revenue’s own research suggests that break point is as little as $10,000. This ties in anecdotally what I’ve seen.

The key thing is, if you get in front of Inland Revenue early, tell them that you have hit difficulties and want to arrange an instalment plan, they will be cooperative. Where they won’t be cooperative, and in fact they may look to take action and prosecute, is where someone persistently fails to meet their obligations in relation to paying over PAYE and GST and then tries to evade any responsibility by attempting to liquidate the company. Such scenarios increasingly will lead to prosecutions by Inland Revenue.

People will be surprised at how reasonable Inland Revenue can be. But to do so you have to be front up early, put all your cards on the table and you can then hope to get a reasonable hearing. Sometimes it doesn’t work out, but you would be surprised at how often these issues can be resolved.

And this also takes the stress away from people, employers and business owners who get into tax trouble quite naturally stress about the matter and often put their heads in the sand. It’s remarkable how much of a difference to stress levels it makes once you’ve spoken to Inland Revenue, and you find is this they are prepared to come to some form of arrangement. That’s dependent on a number of factors, the key factor being willing very early on to deal with the issue.

GST for directors’ fees

Moving on and still talking about GST, Inland Revenue has released some draft guidance for consultation on the treatment of GST for directors’ fees and board members’ fees. This covers a number of draft public rulings and is accompanied as well by a very useful fact sheet. I’m liking how Inland Revenue is sending out a lot of these fact sheets alongside the longer papers with detailed consultation, because the fact sheets of what you can put in front of clients as they are a good summary of the issues.

The rulings will cover directors of companies, board members not appointed by the Governor-General and board members appointed by the Governor-General or the Governor-General in Council. Basically, what the rulings say is board members or directors must charge GST on the supply of services where the director or board member is registered or liable to be registered for a taxable activity that they undertake, and the director or board member accepts a directorship or membership of a board in carrying on that tax taxable activity. Remember, liable to be registered means they are carrying out taxable supplies which over a 12-month period would exceed $60,000.

And the director or board member cannot charge GST on the supply of services where they are engaged as the director or board member in their capacity as an employee of their employer or they’re engaged in in that capacity as a partner in a partnership, or they do not accept the office as part of carrying on a taxable activity.

As I said, these draft rulings are accompanied by a fact sheet, which includes a very handy flowchart, these flow charts and fact sheets makes life a lot easier and more understandable for those affected. The proposed rulings are reissues of previous rulings on the matter. They’re fairly uncontroversial as they generally are simply restating the law, updating the statutory references and setting it out in a clearer and more understandable format for the general public.

Tax take up strongly

Now, this week, the Treasury released the government’s financial statements for the 11-month period ended 31st May 2022. And it all looks a lot better than what was being forecast in May’s Budget.  Core tax revenue is $2.9 billion ahead of forecast just at just under at $98.9 billion. Now, the main reason it’s ahead of forecast is a higher than expected corporate income tax take which is $1.6 billion ahead of forecast. There’s also more tax from individuals which is $700 million ahead of forecast and PAYE collections are another $600 million ahead of the Budget forecasts.

The corporate income tax take for the 11 months of the year to date is just under $17.9 billion compared with a forecast $16.2 billion. Just for comparison, in the year ended 30th June 2021, the total corporate income tax take was $15.7 billion. So corporate profits look strong, and I think one or two economists might be pointing to whether that might be feeding inflation. But whatever its role is, I’m sure the Government will be grateful for the continued strong growth in the corporate income tax take. By the way, that increased corporate income tax take will also reflect the fact that the New Zealand Superannuation Fund will be paying substantially less tax this year than in 2021 because of the volatility in the financial markets.

Favourable winds for windfall taxes

Elsewhere in the world President Macron in France is under pressure to consider a windfall tax on some parts of the corporate sector where high energy prices have resulted in higher profits. Britain, you may recall, imposed a windfall tax on some oil companies, although it’s come with a potential subsidy which may dilute the impact of that. Windfall taxes have no real history in New Zealand, so are unlikely to happen here. But it is to see how other jurisdictions are reacting to questions of what they perceive as excessive profiteering.

Housing’s tax-free advantage

And finally, this week the Reserve Bank of New Zealand issued an Analytical Note on how the New Zealand housing market looks in the international context. What it does is compares facets of the housing market in New Zealand with those in 12 other developed countries[1] over the 30-year period from 1991 to 2021.

And it notes that several other economies, Australia is one, have experienced increasing house prices in recent years, but the rate of increase has been the highest here. Interestingly we have also seen the steepest decline in mortgage rates since the Global Financial Crisis and then almost the strongest increase in population. Apparently, although we’ve been ramping up construction quite dramatically in the past few years, the number of dwellings per inhabitant remains low and below the average for the OECD.

There was some mostly passing commentary in the note about the impact of tax. The paper does touch on the absence of a general capital gains tax commenting:

“Another feature of the New Zealand economy that may support higher housing demand is the absence of a comprehensive capital gains tax. New Zealand is unique in that aspect in the sample of countries we consider, fiscal authorities in other countries tax capital gains from asset sales at or close to the personal income tax rate.”

Being an analytical note, it doesn’t make any recommendations as to whether there should be increased taxes on housing, although the OECD has been for a long time pushing that point. It’s always interesting to consider the role of tax in our housing market and also whether the absence of the fact that housing is treated so generously for tax purposes means that investment is driven into that rather than into more productive sectors.

On that point, there’s a very interesting graph illustrating the surge in Irish GDP per capita over the last ten years or so, it’s really quite marked. The note comments that this surge

“was supported by high-performing multinational companies that relocated their intellectual property assets to Ireland attracted by lower corporate tax rates [12.5%] as well as Brexit-related uncertainty in the United Kingdom.”

Figure 4: per capita GDP in US dollars at current PPP

This Reserve Bank note reinforces my long held view that our favourable tax treatment of housing does divert funds away from productive investment and we need to change that treatment. As previously stated, my preference is for the Fair Economic Return approach Susan St John and I have proposed. .

Well, that’s all for this week.  I’m Terry Baucher and you can find this podcast on my website or wherever you get your podcasts.  Thank you for listening and please send me your feedback and tell your friends and clients.

Until next time kia pai te wiki, have a great week.

Inland Revenue guidance on the tax implications of the Clean Car Discount

Inland Revenue guidance on the tax implications of the Clean Car Discount

  • Inland Revenue guidance on the tax implications of the Clean Car Discount
  • Latest on Inland Revenue’s audit activity
  • Insights from the OECD’s latest report on Corporate Tax Statistics


In the week that the Intergovernmental Panel on Climate Change report declared that climate change is “unequivocally caused by human activities” it is rather opportune of Inland Revenue to release its guidance on the tax implications of the Government’s Clean Car Discount Scheme.

To recap, the Clean Car Discount Scheme has been introduced to make it more affordable to buy low emission vehicles. Between 1st July 2021 and 31st December 2021, a rebate will be paid to the first registered person of an eligible vehicle or to a lessor where that person is a lessee.

Starting 1st January 2022, it’s proposed that the Clean Car Discount will be based on vehicle’s CO2 emissions and vehicles with low or zero or low emissions will qualify for a rebate and those with high emissions will incur a fee (subject to enactment of the relevant legislation).

Now obviously, if you’re in business, you need to be aware of the tax consequences if you receive a rebate or pay a fee under the Clean Car Discount Scheme, or lease a vehicle that comes under the Clean Car Discount Scheme. And obviously the outcome varies depending on what you use a vehicle for.

If you get a rebate under the scheme, you will not have to pay income tax on the rebate. It’ll either be treated as excluded income under the rules for government grants if you’re claiming depreciation on the vehicle or a capital receipt. Conversely, if a fee is paid under the Clean Car Discount Scheme, it will be treated as a capital expense and so no deduction will be available. And that’s obviously going to be something which should be watched carefully.

Now, if you’re using the vehicle in your business, and seeking to claim depreciation, then the base cost for these purposes will be either reduced by any rebate received or increased by the amount of any fee. That’s again something to watch out for.

When it comes on to FBT, and this is going to be quite critical, I would say given that we suspect there’s a fair bit of under compliance in this area, FBT will be payable if the car is made available for private use. FBT will be calculated on the cost of the car when purchased or its value if being leased. The cost will either be reduced by the amount of any rebate or increased by the amount of any fee.

For GST purposes, if you get a rebate under the Clean Car Discount Scheme for a vehicle that you use in your taxable activity, the rebate will be treated as consideration for a deemed supply under the rules relating to government grants. So that means you must the return the GST in your next GST return. Conversely, if a fee is payable, then the GST component of that may be claimed as input tax if you’re carrying on a taxable activity.

Overall, this guidance is useful. Inland Revenue have included some examples as well. As I said, it is quite opportune that it arrived at this time when there’s going to be increasing focus on the question of environmental taxation and the role it may have in enabling us to meet our targets under the Paris Accords.

Tracking Inland Revenue audit activity

Moving on, as I mentioned just now there is a suspicion that there’s perhaps non-compliance with FBT going on at the moment. And so it’s quite interesting to see the latest statistics on Inland Revenue audit activity from Accountancy Insurance.

This is the company that provides insurance against Inland Revenue audits and reviews.

For the period to 31 March 2021, they saw the total number of claims increased by 31% compared with the year ended 31 March 2020. So even though it was in the middle of a pandemic, Inland Revenue is still active in reviewing taxpayers. What is interesting to note here is that GST verification claim activity increased by 48% and that for income tax return related activity increased by 67% over the 12 months to 31 March 2021.

Now, this apparently includes two projects Inland Revenue began last year, the bright-line property rules and also the automatic exchange of financial account information programme relating to the Common Reporting Standards.

GST verification activity actually accounted for 90% or more of all claim values in New Zealand, even though actually only 55% of all claims related to GST verification. So that’s a timely reminder that Inland Revenue is still keeping a watchful eye on matters.

It’s actually a little encouraging to hear that Inland Revenue is still actively reviewing GST returns. I’ve seen one or two instances where I’ve wondered how claims got through including one warranty case going on right now where I am really surprised why Inland Revenue was not onto what was happening much, much sooner.

But the fact is, despite the pandemic and the impact it had on general operations for Inland Revenue last year, GST activity has still been maintained. You have been warned

Interntional benchmarking

The OECD recently released its third edition of its corporate tax statistics. It’s a treasure trove of information relating to corporate tax around the world and with the topics covered and statistics reported being steadily expanded. And there’s some very interesting insights in the report which is based on 2018 numbers.

For that year, the average corporate tax revenue as a share of total tax revenues, was 15.3%. New Zealand was just above that at about 15.5%.

Interestingly, that the percentage of corporate tax revenues has risen since 2000 from an average of 12.3% then to 15.3% in 2018. Similarly, you see a rise in the average corporate tax revenues as a percentage of GDP from 2.7% in the year 2000 to an average of 3.2% in 2018. New Zealand by the by at 5.2%. is well above that average for 2018.

This is an interesting statistic because over that same time period since 2000, the average statutory tax rate has fallen by 8.3 percentage points from 28.3% in year 2000 to 20% in the year 2021. Over that time the rate has fallen in 94 jurisdictions, stayed the same in another 13, but increased in only four jurisdictions. And that supports the argument that was made that lowering the statutory tax rate and broadening the base would lead to higher revenues.

I do think that we probably now plateaued out with tax cuts. I don’t see corporate tax rates continuing to fall. Over in the United States, they’ve signaled that they will rise.

The report drills down into the statistics by considering effective marginal tax rates as well. And that’s where it gets interesting from New Zealand’s perspective, again, because we adopted more thoroughly than most and the broad-based low-rate approach to corporate taxation by stripping away a lot of preferential regimes, our effective marginal tax rate is at just over 20% is amongst the highest in the OECD. Apparently, that is because we have less general fiscal depreciation rules than other most other jurisdictions, although the report notes that we are now more generous after increasing rates in 2020 in the wake of the arrival of the pandemic.

The report also has details of the impact of the implementation of BEPS and statistics relating to anonymised and aggregated country by country reporting although New Zealand doesn’t feature in this part of the report.

But it also has something that I think policymakers here would want to perhaps think hard on, and that is the question of tax incentives for research and development.

What the report notes is that R&D tax incentives are increasingly used to promote business, with 33 of the 37 OECD jurisdictions offering tax relief and R&D expenditure in 2020, compared with just 20 in 2000. New Zealand is one of those countries now doing that.

And perhaps we need to think very hard about that because in the statistics showing what the direct government funding and tax support for business R&D as a percentage of GDP in 2018, New Zealand is way down the list at just over 0.1% of GDP. You see countries like France and Russia at 0.4% and the United Kingdom, Korea and Israel close to 0.3%.

So we are way off the pace here. And it has been noted for some time that we do not invest enough in R&D. It was one of the reasons the R&D tax incentive scheme was introduced. So, as I said, there’s plenty to consider in this report with heaps of detailed appendices that you can trawl through.

Robin Oliver tax policy scholarships

And talking about tax policy, this week the Tax Policy Charitable Trust announced its annual Robin Oliver tax policy scholarships worth $5,000 for students majoring in tax at either Victoria University of Wellington or at the University of Auckland.

And later this year the Tax policy Charitable Trust will be launching its 2021 competition scholarship competition for tax policies. You may recall that we had the 2019 winner, Nigel Jemson, as well as one of the runner ups John Lohrentz on the podcast. I’m looking forward to seeing what comes out of these policy submissions in due course.

Well, that’s about it for this week. But before I go, it so happens that it is now 17 years since Baucher Consulting started. And as some of you may know, we recently undertook a slight reorganisation carving out some of our compliance functions to Agentro Limited. Big step that, it’s been a great journey for the last 17 years. And I’m looking forward to the future.

I’d just like to take this opportunity to thank my colleagues Eric, Darryn and Judith for helping me get here together with all our clients and many well-wishers who responded to our latest newsletter covering this news. Thank you very much. We really couldn’t have done it without you.

Well, that’s it for this week. I’m Terry Baucher and you can find this podcast on my or wherever you get your podcasts. Thank you for listening. And please send me your feedback and tell your friends and clients. Until next week, ka kite āno.

Terry’s top five

Terry’s top five

When a post COVID-19 world dawns, there’ll be plenty of options for new taxes. Photo: Terry Baucher.

Terry Baucher on rising tax rates, the taxation of capital, environmental taxes, a rising corporate tax take and increasing power and reach of tax authorities

1) In the short-term tax rates will rise. 

The initial shock to government balance sheets is enormous. To compound the problem, many governments are still recovering from the effect of the Global Financial Crisis in 2008. Here in New Zealand, the Government’s books were in good order coming into this crisis. But with projections of a potential doubling of net government debt in a matter of months the Government’s finances will undoubtedly come under strain.

In case you missed it, not only will there be a huge hole in the Government’s books as a result of this pandemic, but the inexorably rising cost of New Zealand superannuation remains. As is the not so small matter of responding to climate change. Remember, it was barely three months ago that smoke from Australia was affecting our atmosphere here.

The tax system was going to have to change to adapt to those two issues, and those changes will accelerate in the wake of the COVID-19 pandemic. The first sign of how those issues will be addressed will be in next month’s Budget.

My guess is that next month’s Budget was going to include an adjustment of the tax thresholds probably targeted, as the Tax Working Group recommended, at low to middle income earners. I think that will still happen because putting money in people’s pockets in a recession would be a reasonable measure at this stage. It will however, be the last such adjustment for quite some time.

Medium-term, maybe within a couple of years, personal income tax rates are likely to rise, at least for high earners. It’s worth keeping in mind that the top individual tax rates in those countries we compare ourselves with, are several percentage points higher than New Zealand. In Australia and the United Kingdom, it’s 45%, the United States top rate is 37% and across the EU-28 it averages 39.4% with Sweden and Denmark the highest at 55%.  A move higher seems inevitable, if not back to the 39% rate which prevailed between 2000 and 2009.

During the 1970s and early 1980s the Robert Muldoon led National Government responded to a series of economic shocks with several ad-hoc measures.  These were increasingly ineffective and were swept away during the reforms of the 1984-1993 period. However, desperate times call for desperate measures and Grant Robertson or his successor might be tempted to follow the overseas examples of special levies.

For example, in 2011 the United Kingdom introduced an annual charge on certain balance sheet liabilities and equity of banks. In 2017 Australia introduced a similar levy essentially only applicable to the four largest trading banks.

Australia also had a Budget Repair Levy of 2% on incomes over A$180,000 between 1 July 2014 and 30 June 2017. It was replaced by a permanent increase in the Medicare Levy to 2.5% for those with income over A$180,000.

Separate from special levies, the ugly combination of the inexorably rising cost of New Zealand Superannuation, a significantly damaged economy and weaker government finances, means the continued universality of New Zealand Superannuation will be increasingly debated.

Options might include means testing, or a reintroduction of the deeply unpopular New Zealand Superannuation Surcharge, which applied in the 1990s.  An alternative to these might be the proposal made by Susan St. John, for a special tax to apply to recipients of New Zealand superannuation who are earning above a certain threshold. This proposal at least has the merit of fitting in with the principles of a progressive tax system as it targets those whose income indicates that they are not really in ‘need’ of New Zealand Superannuation.

One other possibility might be to increase the GST rate, and barely three weeks ago Simon Bridges did not completely discount the option of doing so. 

However, the TWG noted that GST is seen as a regressive tax for low-income earners. It’s also worth noting that increasing the rate of tax for a consumption tax such as GST could slow down spending, which is contrary to what’s going to be required in order to help restart the economy.

Instead what may happen over the medium-term is that GST may be extended to apply to financial services, something the TWG recommended be investigated.  This could happen in the wake of overseas changes in this area. Globally I expect to see a fierce debate emerge on the matter of expanding the ambit of GST, with countries looking to withdraw or tighten current exemptions around food and financial services.

2. The taxation of capital.

Aside from short-term measures a longer-term implication will be increasing the tax on capital. This will also be a global issue.

Inevitably, here in New Zealand that will mean the reignition of the debate over whether New Zealand should introduce a comprehensive capital gains tax. That’s already begun with former Prime Minister Bill English raising the possibility in a briefing to private investors.

In the short term I suggest the answer will still be “no” for the simple reason it would do enormous damage to the Prime Minister’s reputation (and re-election hopes) for her to repudiate what she said little under a year ago that there would be no CGT while she was leader of the Labour Party.

Putting that aside, we can expect Inland Revenue to ramp up its enforcement of property disposals. It’s even possible New Zealand First might be persuaded to abandon its opposition to making all residential property investment subject to a CGT.

One of the key drawbacks to CGT is that it is a transactional tax – the tax only arises on disposal. If people aren’t buying and selling, no tax rises and there’s always been great concern about what they call the ‘lock in’ effect of a CGT. That is, people will not sell because they do not wish to trigger a tax liability. This means CGT revenues can be either a feast or a famine for governments who prefer more regular tax streams such as PAYE and GST.

Given the politics around CGT other alternatives may be considered. Globally, the idea of a wealth tax has been gathering momentum since Thomas Piketty raised the idea in his monumental work Capital in the 21st Century.  A wealth tax is part of Senator Bernie Sanders’ platform. Here in New Zealand, the TWG dismissed a wealth tax as “a complex form of taxation that is likely to reduce the integrity of the tax system.”

Re-examining the role of a wealth tax in the wake of the COVID-19 pandemic seems likely. The 5% fair dividend rate applying as part of the foreign investment fund regime is a de-facto wealth tax which could be adapted for this purpose (although at a much lower percentage, maybe a maximum of 2% as Piketty suggests). The fair dividend rate had its origins in the suggestion of the MacLeod Tax Working Group in 2001 of a applying risk-free rate of return methodology to the taxation of investment property.

The TWG also rejected the idea of a land tax, noting Maori concerns and its terms of reference. But maybe a land tax could be introduced for non-resident landowners only. This would be in line with a trend I see repeatedly in overseas jurisdictions of either taxing non-residents more heavily than locals or restricting the available exemptions. For example, in Australia non-residents do not qualify for the 50% discount for assets held for more than 12 months. Together with higher income tax rates the result is the tax rate on property disposals can be as much as 45%. Similarly, in the United Kingdom and the United States estate taxes of up to 40% apply to assets situated there. Expect to see these issues debated both here and abroad over the coming decade.

Like the cost of New Zealand Superannuation, addressing the cost of climate change will soon push its way back up the tax agenda once the immediate COVID-19 pandemic crisis is past.

As part of this, the importance of environmental taxes to the tax base will rise. The TWG final report noted that according to the OECD, New Zealand ranked 30th out of 33 OECD countries for environmental tax revenue as a share of total tax revenue in 2013.

The TWG’s reference to the growing importance of environmental taxes was something that got drowned out last year with the debate over CGT.  In his briefing at the launch of the TWG’s final report, Michael Cullen stressed the need to initially recycle revenues to help those farmers most affected transition to a greener economy.

What we will see emerge is a range of short-term tactical actions with immediate application allied to longer-term measures all intended to encourage a switch to a greener economy.

Tackling emissions in the transport sector could involve the use of congestion charging, putting more money into public transport including rapid electrification of trains and buses. Charging vehicle emissions could be part of this, perhaps allied with subsidies to get older cars off the road, replacing them with newer, more fuel efficient cars as an interim measure. This could achieve three benefits: it lowers emissions, reduces costs for families who are dependent on cars to move around and finally improves road safety because newer cars are safer. It would be a better use of funds than subsidising the purchase of electric cars.

The TWG recommended increasing the Waste Disposal Levy, currently $10 per tonne at landfills that accept household waste. The TWG noted the effect of increases in the equivalent levy in the United Kingdom as illustrated by the following graph:

Landfill tax rates and waste volumes in the United Kingdom

Other initial measures which would also raise revenues and simultaneously encourage behavioural change would be to remove fringe benefit tax on the use of public transport and, as in the United Kingdom, tie FBT to the level of emissions of the vehicle.  (The coming clampdown on the non-compliance around FBT on twin-cab utes might have the indirect effect of taking these high emission vehicles off the road).

Longer term measures could include widening the scope of the emissions trading scheme although I would like to see that introduced alongside John Lohrentz’s proposal for a progressive tax on biological methane emissions.  

4. The corporate tax take will rise. 

Tax is power. And maybe once matters have settled down, one of the most significant effects will be a shift in the power of taxation back towards the state and democracies. This will reverse the trend of the past 30 years ago or so, where lobbyists for corporates and special interests have been able to drive down corporate tax rates. This trend has been most noticeable overseas but as the CGT debate last year revealed New Zealand is not immune to the same influences.

The COVID-19 pandemic has almost certainly put paid to any idea of corporate income tax cuts. But the TWG noted that there was little justification for lowering corporate tax rates and a background paper prepared for it noted:

“…the two recent reductions in the company tax rate in New Zealand (from 33% to 30% on 1 April 2008 and from 30% to 28% on 1 April 2011) did not cause a surge of FDI into New Zealand. Nor did it show up in New Zealand’s level of FDI increasing relative to Australia’s.”

How the backlash against corporates will initially manifest itself will be in the adoption of the OECD’s international tax initiatives such as Base Erosion and Profit Shifting, or BEPS, and the recently launched Global Anti-Base Erosion Proposal (“GloBE”) – Pillar Two. The OECD estimates aggressive tax planning by multinationals costs US$240 billion annually.

Late last year, prior to the outbreak of coronavirus, these initiatives looked in danger of stalling after the United States indicated it might not adopt the measures.  This appeared to be the result of lobbying by American multinationals. However, the US Government’s finances like those of every other country have been devastated by the pandemic.

So, for a brief moment, I can see the OECD and the US government’s intentions aligning, resulting in a relatively quick agreement on the changes to multinational taxation.

In any case, the digital giants such as Google, Facebook, Apple and Amazon might well drop their opposition to the OECD’s proposals as the price of stopping the widespread introduction of digital services taxes. (The UK government has pushed ahead with its 2% DST effective as of 1st April).

Notwithstanding the OECD measures, social media tech companies might find themselves hit with advertising levies as a means of supporting local media. India raised 939 crores (about $207 million) for the year ended 31st March 2019 from a digital advertising levy. Expect to see other countries follow suit (it could be one way of supporting New Zealand journalism and media which is in crisis as the collapse of Bauer Media shows).

This may now be the time to implement a global financial transactions tax. However, in order for an FTT to be effective, it must be universal. The European Union outlined a possible FTT back in 2013 but has been unable to reach agreement on its introduction. Without that universal agreement, an FTT is effectively inoperable because it is too easily avoided. Adopting the principle of never wasting a crisis, it will be interesting to see if the objections to an FTT are overcome by governments’ need for new sources of revenue.

5. The power and reach of tax authorities will increase.

The final trend that will accelerate is one which has been happening very quietly over the past 10 years since the GFC. That is the swapping of data between tax authorities through initiatives such as FATCA and the OECD’s Common Reporting Standards or the Automatic Exchange of Information. 

According to Inland Revenue, since the CRS exchanges started in 2018 it has “received more than 1.5 million records on New Zealand tax residents from 74 jurisdictions.” These records relate to approximately 80,000 New Zealanders. Inland Revenue apparently intends to contact all those for whom it has received information and confirm they have met their obligations.

Separately Inland Revenue has used information sharing agreements with Australia to collect $46 million of overdue child support for the year ended 30th June 2019. In the same year it sent the Australian Tax Office details of 149,031 student loan debtors for matching and obtained contact information for 81,875.

The scale of this information sharing is unprecedented and has happened with very little public debate on the matter. Furthermore, exchanges under CRS are separate to specific information sharing which can happen as part of a double tax agreement between New Zealand and another jurisdiction. No specific data on those information exchanges is made public but anecdotally it is significant.

A little-known feature of the multilateral agreement under CRS is that all signatories agree to undertake to assist in the collection of unpaid tax. Prior to CRS such agreements were negotiated individually as part of a double tax agreement. Under CRS Inland Revenue can now assist any of the other 68 jurisdictions with which it has activated the CRS Multilateral Competent Authority Agreement.

As Inland Revenue’s Business Transformation upgrade continues its data analytic capabilities will increase. My understanding is that the latest upgrade will now enable it to automatically assimilate information it receives under CRS and automatically connect it with taxpayers. This information will only be available to Inland Revenue who can then monitor the taxpayer’s compliance against the data it holds. A question then arises as to the extent Inland Revenue is using artificial intelligence and how that use is being monitored.

Information sharing and the growing use of AI by Inland Revenue and other tax authorities will be a trend about which we should see increasing discussion over the next 10 years. For the moment, citizens appear to be paying little attention to what is happening.  How much longer will that inattention will continue? And what are the implications for privacy and democracy? Or is it a case of the ends of higher tax collections justify the means?

Writing about the Easter 1916 Uprising a couple of years before Lenin’s alleged aphorism, Irish poet, W.B. Yates wrote “All changed, changed utterly.”  It is indeed all changed, changed utterly and the extent and impact of those changes to the tax landscape will only become clearer over the coming years.

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