web analytics
The Standard

Polity: Taxing multinationals via sales

Written By: - Date published: 11:35 am, July 22nd, 2014 - 30 comments
Categories: Economy, tax, us politics - Tags:

polity_square_for_lynnReposted from Polity.

An interesting idea out of the US for how to fairly tax multinationals around the world:

First, have them declare a worldwide profit, netting off worldwide sales and worldwide qualifying expenses1

Second, find out where they made their sales.

Third, apportion the profit to various jurisdictions based on whatever portion of the sales took place in that country.

So if Facebook made $10 billion worldwide, and made 30% of its sales in the USA, then the US government would collect tax from Facebook on the basis of a $3 billion nominally-USUS profit.

I’m sure there are issues to iron out, and you’ll need good multilateral government cooperation to make it work. But this kind of international cooperation sounds a lot fairer to me than an international race-to-the-bottom on corporate tax rates.


 

  1. I am presuming using national rules in the country where the expense was paid to figure out what is a “qualifying expense.” This could be an area where the system gets gamed, so governments would need to plan carefully.

30 comments on “Polity: Taxing multinationals via sales”

  1. infused 1

    Good luck with that. Not because I don’t think it’s a bad idea, but because govt’s will protect their countries businesses. Won’t happen.

    But at the same time, if a company is selling stuff overseas, ie amazon, they pay tax wherever they are based. They are not based here, so you can’t really bitch about it. Countries just need to fix up their tax avoidance laws.

    • Molly 1.1

      “at the same time, if a company is selling stuff overseas, ie amazon, they pay tax wherever they are based. “

      Not true at all. For example, Apple has created a Dutch company that owns the intellectual property for ipads. The ipads sold in the US, pay an intellectual property expense to the Dutch company – which then benefits from low intellectual property taxes.

      That is a simple real world example of just one of the many ways that multi-nationals avoid tax in the country from which the income is generated.

      (This example came from the documentary: The Tax-Free tour)

      • infused 1.1.1

        Yep, so see my comment “Countries just need to fix up their tax avoidance laws.”

    • Lanthanide 1.2

      “Countries just need to fix up their tax avoidance laws.”

      That’s what this proposal is…

  2. RedBaronCV 2

    Up to a point we could do this unilaterally. If the company is listed on the stock exchanges we will know what the worlwide sales/profits are. Overseas owned companies here have to file local accounts locally. Simple calculation and the local tax is the greater of this calculation or the one the company comes up with. If we felt really nasty we could do a USA and tax any overseas company operating here on their worldwide stock exchange declared income or use that as the default assessment.

    Good place to start would be the US companies – as far as I know we don’t have a double tax agreement with the USA(given the fiscal imperialism they practice – tax on worlwide profits) so companies couldn’t hide behind that.

  3. RedBaronCV 3

    Up to a point we could do this unilaterally. If the company is listed on the stock exchanges we will know what the worlwide sales/profits are. Overseas owned companies here have to file local accounts locally. Simple calculation and the local tax is the greater of this calculation or the one the company comes up with. If we felt really nasty we could do a USA and tax any overseas company operating here on their worldwide stock exchange declared income or use that as the default assessment.

    Good place to start would be the US companies – as far as I know we don’t have a double tax agreement with the USA(given the fiscal imperialism they practice – tax on worldwide profits) so companies couldn’t hide behind that.

  4. infused 4

    Could just drop the corp tax rate here to that of Ireland, or lower. Why not attract all the big business here. It would probably make up the shortfall in tax easily.

    • One Anonymous Bloke 4.1

      Why not? Ethics and competence, mostly. Not everyone is so stupid they can’t recognise a race to the bottom.

      • infused 4.1.1

        That was scarc. But anyway… The whole world started a race to the bottom decades ago.

        • Draco T Bastard 4.1.1.1

          Yeah, we know – everyone jumped on the delusional neo-liberal bandwagon. You know, the policies that National and Act utilise to enrich the already rich at everyone else’s expense.

    • McFlock 4.2

      Copy the PIIGS?
      Great idea /sarc

    • satty 4.3

      I didn’t know New Zealand is now part of the EU.
      That was/is the main reason for global companies to be in Ireland: Access to the EU, but lower tax rates than most other EU countries. Also close to the EU market;
      sort of between Central Europe and US in case of shipping products.

      None of this applies to NZ. The only thing NZ attracts are dodgy trusts, which hardly helps the economy creating large number of long term, skilled jobs.

    • KJT 4.4

      As Ireland found out, it is the exact equivalent of a business charging half the usual rate to attract customers, and then going out of business because they cannot meet their costs.

  5. Ennui 5

    The idea sounds good until you realise that you will never get international agreement….the corporations are just too embedded into the political landscape.

    There are lots of easy things to do however:
    1. We already know what each companies sales are because they have to submit GST returns. The IRD consequently knows the sales are and what the costs because they see the GST offset, plus the PAYE etc. Which means they know what the profit should be and tax it.
    2. If any international money transfers were disallowed except as remittance of taxed profit then the multinationals would not be able to do the spurious movement of funds such as “management fees” etc and all monies would become taxable.
    3. Executive remuneration / shareholder remuneration….just tighten up exemptions and make them all at a high rate with capital gains on shares etc.

    Personally I think that there is an even easier way to tax companies: that is to take away the GST offset….make all transactions GST payable as it is today BUT take away the offset. For example today a company sells $10 on which the GST is $1.50 ($11.50 total), but their costs are say $8.62 which includes $1.12 GST, so they only pay the difference (a mere 38 cents). If we took away the ability to claim costs then we would get about 4 times the revenue.

    • infused 5.1

      GST offset? How many businesses have you run? That would kill off most. Fool.

      • Ennui 5.1.1

        Lets stand your question on its head Infused, how many companies have you run? What would kill in my proposals are the rates, it would not pay to kill the goose who produces the golden egg. (For the record I own and run several, all doing well).

    • Lanthanide 5.2

      All that would do is ensure big vertically integrated companies existed so that they could process goods from start to finish without having to buy anything from another company or sell it.

      The entire point of GST is that the end user pays it, not the intervening companies.

      If you want to streamline it, allow companies to sell things to each other without charging GST in the first place, so they then don’t have to do the paperwork dance to claim the money back from the government.

      Would save small companies a lot of time, put a lot of accountants out of work and make IRD’s job easier to. This would come at the (not inconsiderable) risk of people rorting GST, which at the moment is one of the hardest taxes to avoid because of the way it is implemented.

      • KJT 5.2.1

        Or we could remove GST.

        Apart from GST being horribly regressive.

        It is one of the reasons, along with the exchange rates and RBA for NZ companies losing sales offshore.

        • greywarbler 5.2.1.1

          kjt 11.07
          GST being part of nz companies losing sales offshore? I thought GST only applied to us here.

          Is it that problem of people personally importing stuff through on-line etc. which because of no GST on it, is cheaper often than a similar thing here that you are referring to?

          • KJT 5.2.1.1.1

            The problem is that it only applies to sales in New Zealand.

            Anything you buy offshore online up to a few hundred dollars is exempt.

            The latest NZ firm to fall over because of non taxed (GST) imports is Postie Plus.

            Millers, and other stores even encourage you to buy direct from their Australian/Asian post centre, as the goods are then tax free.

            Any NZ business has to charge an extra 12.5% as well as adding their interest costs, which are several % higher than offshore competitors, and then there is the exchange rate.

      • Ennui 5.2.2

        Lanth, yes it would probably drive toward vertical integration, good point.

        On the idea that GST is designed to make the end user pay I agree: surely what we are trying to achieve is to make the companies pay fair tax on profits? Not the end user, so why not just get rid of GST and have a higher company rate with no easy exemptions?

        On putting accountants out of work, good, the whole admin of GST represents non productive work and could be regarded as inflationary.

    • mikesh 5.3

      “Personally I think that there is an even easier way to tax companies: that is to take away the GST offset….make all transactions GST payable as it is today BUT take away the offset. For example today a company sells $10 on which the GST is $1.50 ($11.50 total), but their costs are say $8.62 which includes $1.12 GST, so they only pay the difference (a mere 38 cents). If we took away the ability to claim costs then we would get about 4 times the revenue.”

      The whole point of gst is that it is recoverable by all payers except the final consumer.

  6. saarbo 6

    Google ad words are invoiced directly out of Singapore and charged onto your business credit card. No gst at all.

  7. infused 7

    And now you have crypto currency…

  8. Draco T Bastard 8

    I’m sure there are issues to iron out, and you’ll need good multilateral government cooperation to make it work.

    Don’t need international cooperation to make it work but it would make it work better. Just make it so that expenses external to the local economy aren’t tax deductible,i.e, income in the local economy is taxed fully by the local government.

    When a local business contracts another local business and deducts that as an expense that other local business will then pay tax on that income. The government still receives the taxes (although, as far as I can make out, it will be somewhat decreased) from that business. When that other business is over seas though the government won’t get any taxes from that income meaning that the government is losing tax revenue. This needs to be stopped.

    • john 8.1

      That wouldn’t work.

      Looking at it from the other side, Fonterra would be paying a fortune in tax in China, but not be allowed to claim for the actual expense of producing the milk in the first place here in NZ.

      And the suggestion at the top would be impossible to work as well. NZ would collect zero tax from our exporters. But would have to attempts to get tax from the millions of companies around all points of the globe who sold products in NZ.

  9. The Real Matthew 9

    This mirrors the thoughts I have on how to deal with this complex issue.

    No doubt some countries will win and others will lose, that isn’t the point. The point is what is the fairest way to tax multinationals.

    This leads onto more interesting ponderings.

    The next issue is then how do you countries from implementing new taxes that are subversive to the intention of the regime?

    Then you start to realise that our nations based tax system does not work in a global economy and then the debate really begins!

Recent Comments

Recent Posts

  • Labour mourns Dame Dorothy Fraser
    Labour Leader Andrew Little said the party is today mourning the loss of the youngest person to join the Labour Party, Dame Dorothy Fraser, who went on to be a stalwart of the Dunedin community and tireless worker for others.… ...
    9 hours ago
  • The ultimate scapegoat: PM blames fruit fly for new tax
    The Prime Minister has found the ultimate scapegoat for breaking his promise not to introduce a new tax – the Queensland fruit fly, Labour’s Biosecurity spokesperson Damien O’Connor says. “John Key’s first policy upon taking office and assigning himself the… ...
    11 hours ago
  • How many victims missing out on protection?
    Hundreds of domestic abuse victims could be missing out on getting protection orders because they are unable to get legal aid, Labour’s Justice spokesperson Jacinda Ardern says.“In the last two years some 351 people who applied for legal aid for… ...
    2 days ago
  • Government kicks hardworking whanau
    A major incentive to help young Kiwis and people on low incomes to start saving has been kicked out from under them with the National-led Government ramming through short-sighted legislation under Urgency today, Labour’s Maori Development Spokesperson Nanaia Mahuta says.… ...
    2 days ago
  • Speculator tax political stunt gone wrong
    Bill English’s admission he doesn’t know whether National’s new speculator tax will have any effect shows last weekend’s announcement by the Prime Minister was a desperate political stunt, says Labour’s Housing spokesperson Phil Twyford. “This Government is so desperate to… ...
    2 days ago
  • The value of parenting
    This week, as part of the Budget, the government introduced a bill to address child poverty. This bill will require parents receiving income support to look for part-time work once their youngest child is three years of age rather than… ...
    GreensBy Jan Logie MP
    3 days ago
  • Another new tax, another broken promise
    National has unveiled yet another new tax in this budget – a rural broadband levy that will almost certainly result in an immediate price hike for internet and telephone connections across New Zealand, Labour’s ICT spokesperson Clare Curran said “The… ...
    3 days ago
  • Anniversary of Sri Lankan Tamil Massacre
    This is not going to be a happy story but if the Green Party of Aotearoa doesn’t want to know who else will? May 18th marks the anniversary of what is known as the ‘Mullivaikal massacre’ of Tamils in 2009 at… ...
    GreensBy Catherine Delahunty MP
    3 days ago
  • Labour MPs join youth to take part in 40 hour famine
    A team of Labour MPs took part in the 2015 World Vision 40 hour famine and we were told by World Vision and the young people, that it was the first time MPs had joined them and how appreciative they… ...
    3 days ago
  • Rodeo: ‘Family entertainment’ or animal abuse?
    Recently  TVNZ ran a story with confronting footage showing rodeo animals being punched, repeatedly shocked with electronic prods and having their tails violently twisted over their backs. It was clear that significant force was being used behind the scenes to make… ...
    GreensBy Mojo Mathers MP
    3 days ago
  • Budget puts the squeeze on police
    The Government has cut funding to the New Zealand police force in the latest Budget, says Labour’s Police spokesperson Kelvin Davis. “The reduction is a whopping $15.3 million that could put front line officers at risk. ...
    3 days ago
  • Crucial social services take another hit
    The Government looks set to slash half a million dollars of funding for critical social services, including Women’s Refuge and Barnados, says Labour’s Social Development spokesperson Carmel Sepuloni “Taking $500,000 from organisations aimed at improving the lives of vulnerable families… ...
    3 days ago
  • Saying it Loud on Climate in Christchurch
    The Government’s Christchurch consultation meeting on New Zealand’s emission targets was inspiring – not for what was in the Ministry for the Environment’s (MFE’s) defeatist video about the obstacles to changing to a low carbon future, but for what the… ...
    GreensBy Eugenie Sage MP
    4 days ago
  • Budget silent on small business
    The Government has completely ignored one of the most important sectors of the economy – small and medium-sized enterprises – in Budget 2015, Labour’s Small Business spokesperson Jacinda Ardern says. "A stunning 41 per cent of jobs were created by… ...
    4 days ago
  • Thank you John, it’s been bloody marvellous
    The departure of John Campbell is a blow to current affairs investigative journalism, Labour’s Broadcasting Spokesperson Clare Curran says. “Campbell Live stood out in its field. Its axing comes as local broadcasting in New Zealand remains in a state of… ...
    4 days ago
  • KiwiSaver cut shows no long-term plan
    National’s cutting of the KiwiSaver kickstart is incredibly short-term thinking, typical of a Budget that is woefully short on ideas to generate wealth and opportunity, Labour’s Finance spokesperson Grant Robertson says. “New Zealand’s savings rate is far too low. KiwiSaver… ...
    4 days ago
  • National hits the panic button for its 7th Budget
    National has hit the panic button for its 7th Budget in a desperate attempt to look like they’re taking action to reduce our shameful child poverty rates, but they are giving with one hand and taking with the other, Opposition… ...
    4 days ago
  • Panic and back-flips can’t hide twin deficits
    National’s token measures to fight fires they have left burning for seven long years can’t hide a Budget that is long on broken promises, short on vision and fails to reach surplus, says Labour’s Finance spokesperson Grant Robertson. “After being… ...
    4 days ago
  • Auckland land measure seven years too late
    National are so desperate to look like they are doing something about the Auckland housing crisis they have dusted off Labour’s 2008 inventory of government land available for housing and re-announced it, says Labour’s housing spokesperson Phil Twyford. “Despite National… ...
    5 days ago
  • Access to gender reassignment surgery essential
    I was frankly disgusted to hear the Minister for Health say that funding gender reassignment surgeries is a “nutty idea”. A recent study found that in New Zealand 1% of young people identified themselves as transgender, and 3% were unsure… ...
    GreensBy Jan Logie MP
    6 days ago
  • Global milk prices now lowest in 6 years
    The latest fall in the global dairy price has brought it to the lowest level in six years and shows there must be meaningful action in tomorrow’s Budget to diversify the economy, says Labour’s Finance spokesperson Grant Robertson. “Dairy prices… ...
    6 days ago
  • Big risks as CYF checks stopped
    Revelations that Child, Youth and Family is no longer assisting home-based early childhood educators by vetting potential employees should set alarm bells ringing, Labour Children’s spokesperson Jacinda Ardern says. “Doing away with an extra mechanism for checking potential new employees… ...
    6 days ago
  • Housing crisis about real people not numbers
    The Government’s continued failure to tackle the housing crisis is seeing thousands of vulnerable Kiwis being kept off social housing waiting lists, while others, who are on the list, are being forced to live in cars and garages, says Labour’s… ...
    6 days ago
  • Housing crisis about real people not numbers
    The Government’s continued failure to tackle the housing crisis is seeing thousands of vulnerable Kiwis being kept off social housing waiting lists, while others, who are on the list, are being forced to live in cars and garages, says Labour’s… ...
    6 days ago
  • State of origin
    Kiwis are increasingly concerned about the food they give their families. New Zealand consumers have the right to know where their food has come from, particularly when it involves animals, and should be able to expect our Government to label… ...
    GreensBy Steffan Browning MP
    6 days ago
  • Relationships Aotearoa
    It is disturbing that Relationships Aotearoa, a voluntary organisation set up in 1949 to help couples struggling with their relationships following the upheavals of World War II, may be forced to close, says Acting Spokesperson for the Voluntary and Community… ...
    7 days ago
  • An economy that is just working for some is an economy that is not working
    The National Party presents itself as a great manager of the economy, but if the economy is only working for some we really need to question that assertion. Alongside the perpetually elusive surplus, the levels of risk in our economy are… ...
    GreensBy Jan Logie MP
    7 days ago
  • An economy that is just working for some is an economy that is not working
    The National Party presents itself as a great manager of the economy, but if the economy is only working for some we really need to question that assertion. Alongside the perpetually elusive surplus, the levels of risk in our economy are… ...
    GreensBy Jan Logie MP
    7 days ago
  • House prices to a crack $1 million in 17 months
    The average Auckland home is on track to cost $1 million in 17 months’ time if nothing substantial is done to rein in soaring price rises, Labour’s Housing spokesperson Phil Twyford says. “Auckland’s house prices have skyrocketed 63 per cent… ...
    7 days ago
  • Vital support services can’t be left in lurch
    The National Government has big questions to answer about how a provider of services to thousands of vulnerable New Zealanders is set to fold, Labour’s Finance spokesperson Grant Robertson says. Relationships Aotearoa which provides support and counselling to families, individuals… ...
    1 week ago
  • Treasury and IRD on a capital gains tax
    Both the Treasury and IRD have been advising the National Government on the benefits of a capital gains tax. Documents released to the Green Party under an Official Information Act request show that John Key has been selective with the… ...
    GreensBy Russel Norman MP
    1 week ago
  • Charity legislation needs review
    It is unacceptable that the big corporate based charities claim  millions in annual income tax exemptions, while small community based and operated non-profit organisations  struggle to gain official charity status, Labour’s acting spokesperson for the Voluntary and Community Sector Louisa… ...
    1 week ago
  • John’s panic-Key response to housing crisis
    John Key needs to tell New Zealanders what caused his sudden change of heart that led to the Government’s scrambled and last-minute housing measures, Opposition Leader Andrew Little says. “The Prime Minister’s sudden rush of blood to his head followed… ...
    1 week ago
  • Keep our Assets Christchurch Campaign: An update
    I recently presented my submission to keep Christchurch Council assets at the Christchurch City Council’s public hearings on its 10 year plan on 13 May. The hearings are live-streamed and recorded so you can watch them on www.ccc.govt.nz. The Council’s… ...
    GreensBy Eugenie Sage MP
    1 week ago
  • John Key finally admits there’s a housing crisis
    John Key’s weak measures to rein in the astronomical profits property speculators are making are an admission – finally – that there is a housing crisis, Labour Leader Andrew Little says. “But yet again National is tinkering with the housing… ...
    1 week ago
  • Government stifles voices in CYFs review
    The Government’s exclusion of the Māori Women’s Welfare League in a panel on the future of CYFs is a cynical ploy to stifle views, says Labour’s Māori Development Spokesperson Nanaia Mahuta. “It's unbelievable that a significant review on the future… ...
    2 weeks ago
  • Speech to the Otago Chamber of Commerce
    Thank you very much for the opportunity to be here today. It’s a pleasure as always to be back in the town that raised me. Growing up in St Kilda meant that there was one thing that was a big… ...
    2 weeks ago
  • Key can’t just be Prime Minister for Parnell
    John Key must show New Zealanders in next week’s Budget that he is more than the Prime Minister for Parnell, and is also the Prime Minister for Pine Hill, Putararu and Palmerston North, Labour’s Finance spokesperson Grant Robertson says. In… ...
    2 weeks ago
  • Stop the conversions
    This week, some Waikato locals took me and intrepid photographer Amanda Rogers on a tour of some  lakes and waterways in their region, and up to the massive dairy conversions in the upper catchment of the Waikato River. It… ...
    GreensBy Catherine Delahunty MP
    2 weeks ago
  • More regional jobs go in Corrections reshape
    News that 194 Corrections staff are to lose their jobs will have ramifications not only for them and their families but for the wider community, Labour’s Corrections spokesperson Kelvin Davis says. Prison units at Waikeria, Tongariro and Rimutaka face closure… ...
    2 weeks ago
  • Government’s climate meetings off to a bumpy start
    On Wednesday, I attended a hui and an evening meeting that the Government had organised in Nelson as part of its climate change consultation tour, to support the Nelson community telling the Government to take meaningful action on climate change.… ...
    GreensBy Steffan Browning MP
    2 weeks ago
  • Taxpayers the only ones left feeling blue
    Ministry of Social Development bosses could have saved themselves thousands of dollars in consultants’ fees by providing staff with rose-tinted spectacles, Labour’s State Services spokesperson Kris Faafoi says. A report out today reveals the Ministry is spending over half a… ...
    2 weeks ago
  • Why are the regions still facing restrictions?
    Labour's Housing spokesperson Phil Twyford is questioning why the regions should continue to be saddled with LVR lending restrictions announced by the Reserve Bank today. “Labour has been calling for the regions to be exempted from LVRs for the best… ...
    2 weeks ago
  • The high costs of weak environmental regulation
    Te Waihora/Lake Ellesmere is described on the Department of Conservation website as “Canterbury’s largest and New Zealand’s fifth largest [lake], and an internationally important wildlife area.” But the lake is also polluted by nutrients leaching from farms in the catchment.… ...
    GreensBy Eugenie Sage MP
    2 weeks ago
  • Submissions to Wellington City Council on their Gambling Venues Policy
    Every three years Councils across the country are required to check that their gambling venue policies are still fit for purpose and they can choose to consult on their policy if they are thinking of making changes. Councils don’t have… ...
    GreensBy Denise Roche MP
    2 weeks ago
  • Reserve Bank action shows Govt out of touch and out of ideas
    The Reserve Bank’s unprecedented measures today show it understands the serious risks of the overheating housing market – in complete contrast to John Key’s refusal to acknowledge the crisis, Labour’s Finance spokesperson Grant Robertson says. “The Bank is right to… ...
    2 weeks ago
  • Send us your snaps: 25 Years of the Green Party
    This year we've hit a milestone. We're turning 25.To help celebrate a quarter of a century, please send us your photos from the last 25 years of the Green Party Aotearoa New Zealand! Note: Photos must be jpg, gif or… ...
    2 weeks ago
  • 25 Years of the Green Party
    This year the Green Party sends 25. To help us celebrate a quarter of a century please send us you photos of 25 years of the Green Party!Photos must be jpg,gif or png and smaller than 2MB. If you are… ...
    2 weeks ago
  • Bay growth plan too little too late
    Today’s Bay of Plenty growth study from MBIE is another example of Government spin - lots of talk but little action, says Labour’s Regional Development spokesperson David Cunliffe.  “This is a region that desperately needs to develop the downstream processing… ...
    2 weeks ago
  • Government bows to ACC pressure
     The Government has finally buckled to pressure from Labour and the New Zealand public in making a half billion dollar cut to ACC levies, but the full benefits are two years away,” says Opposition Leader Andrew Little.  “$500 million over… ...
    2 weeks ago

Public service advertisements by The Standard

Current CO2 level in the atmosphere