Hard News by Russell Brown

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Hard News: Aiming for the feet

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  • Sacha,

    A modest universal financial transactions tax might be harder to avoid.

    Ak • Since May 2008 • 19745 posts Report Reply

  • TracyMac,

    If anyone thinks NZ-homed companies aren't doing tax avoidance and other financial jiggerypokery via offshore banks (or places like Ireland and London that might as well be termed "offshore"), then they are being stupidly naive.

    If Labour formulated a plan for cracking down on our businesses first, then they might have a prayer of tackling the others. As Craig says, dismantling the entire "grey" edifice that a huge amount (in terms of value) of world financial transactions run through is incredibly complex and will require international buy-in.

    A local financial tax wouldn't be likely to solve this issue by itself. NZ has lots of double taxation treaties around the world, including with Ireland. This means revenue "earned" there will be taxed at the Irish rate, and additional tax cannot be applied in NZ. This is one technique Bear Stearns used before they went down the gurgler (with the fun fact that the Irish regulator at the time believed he didn't need to regulate "foreign" companies). Maybe a financial transaction tax wouldn't be subject to the usual rules - it's an appealing idea to me too.

    See Treasure Islands by Nicholas Shaxson for lots more infuriating detail. He does have suggestions in the final chapter for tackling the problem.

    Canberra, West Island • Since Nov 2006 • 701 posts Report Reply

  • Sacha, in reply to TracyMac,

    EU nations introducing FTT should help us follow suit.

    Ak • Since May 2008 • 19745 posts Report Reply

  • Rob Stowell, in reply to TracyMac,

    Treasure Islands by Nicholas Shaxson

    There's a Teasure Islands website too :)
    (It should come with a warning - can cause rage and helplessness)

    Whakaraupo • Since Nov 2006 • 2120 posts Report Reply

  • Rich of Observationz,

    An FTT as usually proposed would be trivial for large companies to evade. It would only take one jurisdiction not to participate or to set a smaller rate/flat fee/etc. Banks would then simply structure transactions such that they nominally took place in Vanuatu or the Cayman Islands between shell companies set up for the purpose. Look at the Eurobond market for an example.

    Back in Wellington • Since Nov 2006 • 5550 posts Report Reply

  • Kumara Republic,

    If anything, David Clark's proposal to revoke Facebook's Internet access would probably have been redundant. FB is already showing signs of collapsing under its own weight.

    Much as I favour an FTT, it really needs backing from at least one or more G8 nations to be meaningful.

    The southernmost capital … • Since Nov 2006 • 5446 posts Report Reply

  • Joe Wylie, in reply to Kumara Republic,

    FB is already showing signs of collapsing under its own weight.

    Got a link for that? Because without knowing what you mean by "collapse under its own weight" it's a little reminiscent of Robert Metcalfe's 1995 prediction that the entire internet would go “spectacularly supernova” and “catastrophically collapse” within a year.

    flat earth • Since Jan 2007 • 4593 posts Report Reply

  • Hebe,

    The Cunliffe announcement looked rather like the sort of slight chaos that can happen when a new team is still being formed: lack of co-ordination, haste, and a lack of detail thinking by those with strategic oversight. (Nitpickers are an essential part of any campaign). The timing was dreadful: worryingly disconnected from their potential audience's lives when a local hero is literally on the world stage on a holiday day in the biggest vote catchment. Wouldn't have happened in Chch East with the old warhorse Anderton on every detail.

    Christchurch • Since May 2011 • 2899 posts Report Reply

  • Tim Michie, in reply to Joe Wylie,

    I think DeepRed was drawing on items like this Joe. But whatever the next MyFace is, I expect more of the same, both for privacy and profits.

    Auckward • Since Nov 2006 • 614 posts Report Reply

  • Joe Wylie, in reply to Tim Michie,

    I think DeepRed was drawing on items like this Joe.

    With respect, that appears to be a prediction of wasting away rather than becoming unsustainably bloated.

    flat earth • Since Jan 2007 • 4593 posts Report Reply

  • Matthew Poole, in reply to Rich of Observationz,

    You and I pay tax on our earnings on a progressive basis. So do most businesses

    Minor correction, companies pay a flat tax rate not a progressive one.

    Auckland • Since Mar 2007 • 4097 posts Report Reply

  • Matthew Poole, in reply to Kumara Republic,

    Much as I favour an FTT, it really needs backing from at least one or more G8 nations to be meaningful.

    It needs the backing of, at a minimum, the EU. If European businesses have to take their banking right out of the Union in order to avoid an FTT, such a measure has a prayer of success globally.
    NZ trying to do it alone, unless there are utterly draconian penalties for avoidance and a well-funded investigator with inquisitorial powers sufficient to make the NSA blush, would just see any business bigger than the local fish-and-chip shop open a bank account with the Australian parent of their local bank and start instructing clients to "Remit your payment to <Australian bank account number>".
    Joe Muggins who owns the local garage will get screwed because he'll have to cover the tax for all his own banking, but Joanne Swindle who runs his parts importer will be fine because she banks using NAB or CBA and is thus outside the taxation regime. She'll have to work a bit harder to manage money for local payments, due to processing delays, but the additional fees will be negligible because they'll get treated as inter-bank payments (and a lot of her other suppliers will be banking in Aus too) so she'll almost certainly be up overall.

    Auckland • Since Mar 2007 • 4097 posts Report Reply

  • Rich of Observationz,

    Here's an example of the type of tax avoidance that goes on:
    Apple pays $3.9mln in NZ tax on $500mln plus turnover

    Back in Wellington • Since Nov 2006 • 5550 posts Report Reply

  • Rich of Observationz, in reply to Matthew Poole,

    My understanding is that an FTT is not meant to catch ordinary business transactions such as import/export payments, but to tax global speculative capital flows, which form the majority of financial transactions of all kinds.

    Sadly, even if all the OECD countries were to participate, this wouldn't stop speculative transactions moving to some offshore location that's willing to operate an untaxed market.

    Back in Wellington • Since Nov 2006 • 5550 posts Report Reply

  • tussock,

    As I understand it, google nz is owned by and pays a fee to google Ireland for the use of the google brand and software and so on. That fee is always roughly big enough to eat up each year's operating profits. google Ireland pays some pathetic tax on it as a profit, and then sends it back to google USA as "tax already paid".

    Obviously that's not a real licensing fee, it's an obvious tax dodge. The problem for the IRD is google's too big and are making too much money off the dodge all around the world for a court case to ever naturally resolve and become a precedent. It would never get out of court.

    Ideally the government would just keep a list of tax havens and insist any fees paid to companies, trusts, and other legal persons therein are paid from after-tax profits and earnings or not at all. Obviously google would shift ownership to some country which was not on that list and continue it's creative accounting, but at least someone would be getting a decent amount of tax out of them.

    Since Nov 2006 • 611 posts Report Reply

  • Matthew Poole, in reply to tussock,

    pays a fee to google Ireland for the use of the google brand and software and so on. That fee is always roughly big enough to eat up each year’s operating profits.

    Bumped into an acquaintance on the train home the other day, and we were talking about something similar. He works for a subsidiary of a subsidiary of a subsidiary of NTT, and the parent of his employer's parent (based out of South Africa) charges a brand fee to his employer despite their not using the brand at all. Amongst other fees, of course, all designed to siphon away as much pre-tax profit as possible.

    The easy fix would be for the law to change to restrict such fees to no more than x% of gross profit, and require that the rate for such fees be set at the start of the company's financial year. The ceiling could be the mean branding rate charged by the parent companies of McDonald's, Coca Cola, Denny's, and Starbucks, to pick a clutch of high-profile international brands (could be adjusted by the Minister of Revenue). After all, if it's a good enough rate for that lot it should be good enough for Google, Apple, and all the other usual international-tax-dodging suspects.

    Changing the taxing basis for companies with branding arrangements to overseas parents so that there's a deemed taxable gross profit after costs of inputs, but before payments to the branding parent for intangibles, would also make a huge difference. It wouldn't much affect the franchised lot I mentioned above, because they trade through local companies that pay branding fees to a local company, but for the Googles and Apples that trade through effectively a local shell it'd be an end to a lot of their options for minimising tax.

    Auckland • Since Mar 2007 • 4097 posts Report Reply

  • Chris Waugh,

    Kinda OT just a lot, but Labour's not the only ones aiming for the feet:

    Vessels had a rite of passage

    I'm sure the do. And many other rites besides.

    Wellington • Since Jan 2007 • 2401 posts Report Reply

  • linger, in reply to Chris Waugh,

    rite of passage

    [ sic, for “right of passage"] – Is that typo the Herald ’s, or was it already in the ODT source article?

    Answering my own question – the online ODT version has the correct phrasing.

    ETA: snap.

    Tokyo • Since Apr 2007 • 1944 posts Report Reply

  • Chris Waugh, in reply to linger,

    Well, the ODT has it correct now. But I don't see why the Herald would've uncorrected it in the process of reposting the ODT's report.

    Wellington • Since Jan 2007 • 2401 posts Report Reply

  • Matthew Poole, in reply to Chris Waugh,

    But I don’t see why the Herald would’ve uncorrected it in the process of reposting the ODT’s report.

    As much as I'd be tempted to say that Granny's sub's thought that their brand of what passes for English was "correcter" than ODT's, the total lack of any kind of editorial perusal of other stories that come through from overseas suggests that the original fuckup was ODT's and Granny just sucked it off the wire.

    Auckland • Since Mar 2007 • 4097 posts Report Reply

  • Kumara Republic,

    For lack of a better analogy, are Paddy Gower and John Armstrong the political journo equivalent of James McCullen Destro - an arms dealer who sells weapons to both sides of the same war?

    The southernmost capital … • Since Nov 2006 • 5446 posts Report Reply

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