Lack of action by Revenue Minister Stuart Nash on tax transparency disappointing

Tuesday, 4 February 2020

Apple doesn't appear to be skimping on paying tax on its NZ profits and it is Inland Revenue, not the company, that has questions to answer.

OPINION IPhone-maker Apple appears to be continuing to pay at least some of the tax on its New Zealand profits to the Australian Tax Office, rather than to Inland Revenue.

The subsidiary's latest accounts show Apple Sales NZ paid $9 million of tax on its annual profit of $30 million for the year to September 28, which means that, overall, it paid tax at the Australian company tax rate of 30 per cent, rather than New Zealand's tax rate of 28 per cent.

The question of where Apple is paying tax on its New Zealand profits, and why, has long been a bit of a mystery.

It is believed the Australian Tax Office (ATO) has demanded the subsidiary pay tax in Australia, on the basis that its directors and 'management control' of the Auckland company reside in Australia.

Revenue Minister Stuart Nash's views on tax transparency appear to have reversed after he moved off the Opposition benches.

* Cisco pays Inland Revenue $4.6m after transfer pricing audit

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New Zealand's double tax treaty with Australia is intended to prevent businesses and individuals being taxed on the same income in both countries, so it is conceivable that Inland Revenue may simply have have been outmuscled by the ATO.

Even if Apple is paying most of its tax to Inland Revenue and only a 'top-up' payment to the ATO to take its tax rate to 30 per cent, Kiwi consumers would likely be wearing some of that extra cost by way of higher prices for Apple products.

Inland Revenue has declined to provide any explanation.

As a general principle, Inland Revenue is obliged to keep individuals and companies' tax affairs confidential.

But the Tax Administration Act gives – or at least used to give – its commissioner reasonably broad discretion to override that principle where disclosure would help the department do its job or to improve the tax system.

One of the commissioner's duties is to maintain public trust and confidence in the tax system, which is obviously vital when it comes to maximising voluntary compliance with the tax system.

It hardly helps trust and confidence in the tax system if Inland Revenue can't assure Kiwi taxpayers that the New Zealand arms of technology giants such as Apple are paying tax in the right country when legitimate questions are raised by their publicly-filed accounts.

Certainly, it is risible to suggest there are significant privacy considerations at issue, given there is no question of Apple being at any fault.

If anything its New Zealand businesses might be paying too much tax.

The only question concerns which tax authority is collecting that tax – a 'sensitive' subject for Inland Revenue perhaps, but not for Apple, one would have thought.

In 2017, Inland Revenue said it 'thoroughly considered' explaining what was going with Apple Sales NZ's tax money.

But this year it has pulled its head right back into its shell, maintaining section 18 of the Tax Administration Act prevents it from releasing information.

Inland Revenue has huge discretion to enter into tax settlements, with its interpretation of secrecy provisions ruling out oversight of the deals it signs off.

It may simply be a case of bloody-mindedness.

Or, perhaps, it should be Revenue Minister Stuart Nash who takes the rap.

When in Opposition, he argued for Inland Revenue to open up more.

In 2016, Nash rightly noted it was 'almost impossible' for Inland Revenue to assure the public that tax issues were being addressed appropriately without providing specifics of individual companies' practices.

He argued then that the Tax Administration Act could allow Inland Revenue to respond to questions about the local tax affairs of Vodafone (seemingly high interest payments to its UK parent), Microsoft (switch of ownership to Luxembourg) and APN (in relation to a $36m tax settlement with IRD), despite the department's insistence to the contrary.

But, inexplicably, Nash appears to have changed his spots since becoming the responsible minister.

An overhaul of the Tax Administration Act in 2018 could be interpreted as narrowing the circumstances under which Inland Revenue is able to make disclosures, removing some of the discretion it was granted in 2012 but which it appeared too aloof to exercise.

Internationally, the long-term trend has been towards less tax secrecy and more transparency.

Both New Zealand tax law and the culture at Inland Revenue will improve for the better, one day.

IRD regularly enters into tax settlements with businesses worth millions of dollars while operating in a legislated vacuum of accountability over its decision-making, and that is not a state of affairs that can continue happily, indefinitely.

How much tax Apple will have paid on its New Zealand profits to Australia by the time change comes is anyone's guess, however.