Compass serves up very little tax

Written By: - Date published: 8:10 am, May 3rd, 2016 - 66 comments
Categories: national, Privatisation, same old national, tax, the praiseworthy and the pitiful, you couldn't make this shit up - Tags: ,

I can see this becoming a regular series.  Another day, another example of how this Government’s blind ideological incompetence is causing harm to New Zealand’s society has come to light.

This time it is another unfortunate juxtaposition of issues where the privatisation of a service that the public service was able to do perfectly well has provided unacceptable results and now we find out that the multinational involved appears to have adopted measures to ensure that it pays as little tax in New Zealand as it can get away with.

This story also highlights the marvellous work that John Campbell and Radio New Zealand are doing on keeping us informed.  From Radio New Zealand:

Catering company Compass is under fire for the food it’s been serving up to hospital patients, but now questions are being asked about whether the multinational is paying enough tax.

Compass New Zealand has lent its British-based parent millions of dollars, none of which has been paid back, while the fees and royalties it has paid to the UK have quadrupled over the last four years.

Tax experts have said such transactions are commonly used by multinationals to shift profits between subsidiaries to avoid paying tax.

Thankfully there is analysis and figures.  And the story lets reality speak for itself.

Accounts filed with the Companies Office show its New Zealand arm has been lending the company’s British parent millions of dollars.

Those loans increased six-fold over the last four years to $33 million for the year ended September 2015, up from $5.5m in 2012. Royalties and fees quadrupled over that same period, from $805,000 to $3.5m.

Such so-called transfer pricing transactions are all legal.

However, Auckland tax consultant Terry Baucher described the loans as “unusual”, especially given the interest rate of between 2.9 percent to 3.8 percent was a lot higher than what Compass would pay for borrowing money in the UK and none of the money had been repaid.

There is also a PR polished response to the allegation that suggests that everything is fine and there is nothing to see.

RNZ News asked Compass to explain why a multinational that made a global profit of $2.5 billion last year needed to borrow $33m from its New Zealand arm.

In a statement, Compass said there were no loans.

“The figure shown in the accounts is a standard cash deposit facility, effectively like a current account, used by Compass to manage its working capital requirements,” Compass national development and innovation manager Lauren Scott said.

The accounts filed with the Companies Office describe the transactions as loans. The 2015 accounts state “the receivables from related parties arise mainly from loans and are receivable on call”.

There are no loans.  The fact that Compass itself called them loans is apparently irrelevant.

Compass New Zealand has not paid a dividend to its British parent in the last four years, but has paid about $1m in fees and services to its Australian arm each year. Fees and royalties to its British parent between 2012 and 2015 have quadruped to $3.5m.

Dividends and royalties were taxed by Inland Revenue (IRD), and loans were not. Compass New Zealand paid $2m in tax last year, just over 1 percent of its revenue of $170 million.

And what efficiencies has Compass created?  Well you can get meals like this (please note the meal on the top right is for Cabinet Ministers only):

Compass hospital food Coleman

And all of this should be served up with a big dose of “I told you so”.

Back in 2014 when the changes were first made Jill Ovens, then of the Service and Food Workers Union was reported in this article.

But the Service & Food Workers Union disputes these claims. Union organiser Jill Ovens told New Zealand Doctor an independent review of the business case had found nearly one in five DHB food workers would lose their jobs under the new arrangement.

“They [DHBs] are telling us they won’t know until after Compass goes in there what the extent of job losses will be,” Ms Ovens says.

She says food will be cooked and chilled by “a variety of suppliers that have nothing to do with hospitals” raising issues of quality and safety.

So job losses, quality issues with the food that is produced and Compass looks like it is taking steps to avoid tax.

Remind me again why we did this?

66 comments on “Compass serves up very little tax ”

  • Comments are now closed

  1. Sabine 1
    3 May 2016 at 8:17 am

    Maybe we could apply the “Whats wrong with Kansas” to NZ?

    http://www.theatlantic.com/business/archive/2016/03/state-budget-crisis/473157/

  2. maui 2
    3 May 2016 at 8:52 am

    I thought I would have a look and see what Compass NZ does in the community. Looks like they sponsor Canteen and allow for their christmas cards to be sold on their sites. This arrangement is probably more beneficial to Compass than the other way round. Not much cost really for a company destroying peoples health, jobs and wages.

    http://compass-group.co.nz/being-responsible/supporting-our-community/

  3. AsleepWhileWalking 3
    3 May 2016 at 8:56 am

    What are the royalties for? Is that some kind of franchise thing?

    • Colonial Viper 3.1
      3 May 2016 at 9:15 am

      It’s a bullshit way of making sure the local subsidiary does not have to pay any tax.

      Apple does it as well.

      The corporate headquarters themselves in a tax haven like Ireland or Bermuda.

      The local branch in NZ pays a shitload of “licensing fees” and “royalties” to the HQ, ostensibly for rights to use the good will, logo, trademarks etc, of the parent corporate.

      Those fees and royalties are legitimate “business expenses” of the local branch. That drastically chops back the end of year profit and hence end of year tax paid of the local branch.

      And the HQ, living in a tax haven, gets the money and has to pay fuck all tax on it anyway. Win win for the corporation, its investors and shareholders.

      • Lanthanide 3.1.1
        3 May 2016 at 9:45 am

        I had a deluded Irish flatmate who assured me that Apple and other tech companies setting up HQs in Ireland is because Ireland was the tech powerhouse and had lots of good graduates from their universities that the companies moved there to hire.

        • Colonial Viper 3.1.1.1
          3 May 2016 at 9:54 am

          Some of these “corporate headquarters” ended up being no more than an office door with a name plate on it, with a fax machine and a desk inside.

        • lprent 3.1.1.2
          3 May 2016 at 12:33 pm

          Probably explains the large amount of immigration of graduates from NZ and the UK from the late 90s to pre-GFC. From what I have read and what people who used to work for those internationals in Ireland has said, they hired skilled staff from everywhere and brought them to Ireland.

          Not that it is that different from here over the last 20 years in the tech industry. Very few centres for tech excellence have sufficient capacity to generate their own grads, including Ireland. They import them.

          I think that your flatmate is just deluded.

          • Lanthanide 3.1.1.2.1
            3 May 2016 at 1:16 pm

            I did say “I had a deluded Irish flatmate”.

          • Sabine 3.1.1.2.2
            3 May 2016 at 1:31 pm

            Nike, at the end of the 90’s shut down all of the individual european houses and opened the European HeadQuarters in Hilversum, Holland.
            We all got shipped there, worked from tents more or less and lived in Hotels until we found accom.
            Good fun, the Office Kanteen resembled an international Airport with a few soccer playing and running superstars every now and then.
            But yeah a lot of people lost their jobs in their home countries (if they could not and would not move – mainly those that had families) and the rest of us was shipped in from all over the world.

      • AmaKiwi 3.1.2
        3 May 2016 at 10:21 am

        To the Labour Caucus:

        TPPA’s purpose is tax scams for multinationals.

        TPPA’s purpose is tax scams for multinationals.

        TPPA’s purpose is tax scams for multinationals.

        What’s Labour’s position on TPPA now? We await your reply.

  4. One Anonymous Bloke 4
    3 May 2016 at 9:07 am

    Clearly the solution is to defund Radio New Zealand. And spend the weekend shredding documents hiding the money trail making sure I have no personal involvement.

  5. Colonial Viper 5
    3 May 2016 at 9:09 am

    Let’s cut these profiteering pricks out of the system entirely.

    That will completely cut out all this noise about tax dodging and BS transactions.

    Which political party will commit to re-opening local hospital and prison kitchens and sourcing ingredients and labour locally to each hospital and prison?

    • One Anonymous Bloke 5.1
      3 May 2016 at 9:26 am

      Labour’s been pretty vocal about it on social media. You’re a member of the NZLP, aren’t you. Well done guys.

      • Colonial Viper 5.1.1
        3 May 2016 at 9:33 am

        Labour has been vocal about reopening local hospital and prison kitchens to cut out Compass? Would love to see a link on that from Labour. Can you post one please?

  6. weka 6
    3 May 2016 at 9:18 am

    John Key’s legacy: stealing the food out of the mouths of the elderly.

    • AmaKiwi 6.1
      3 May 2016 at 10:25 am

      John Key’s legacy: replacing local companies with tax-dodging multinationals.

    • Wensleydale 6.2
      3 May 2016 at 10:44 am

      John Key obviously cares very deeply for the plight of our older folk. As you can see from the photos above, the food provided by Compass is “pre-digested”, so as to avoid the potential discomfort of toothless geriatrics having to inexorably gum their way to a full belly. He does it, like most everything he does, because he cares. Ladies and gents, our Prime Minister, John Key…

      *cue applause*

      And yes, before anyone gets indignant, I’m being facetious.

  7. Draco T Bastard 7
    3 May 2016 at 9:19 am

    Remind me again why we did this?

    So that a few bludgers in a far off country can get richer without doing any work or paying for the services that they use.

  8. Tiger Mountain 8
    3 May 2016 at 9:31 am

    Compass–the Serco of slops–shipping cook/chill food substitutes the length of a country laden with local produce and workers makes little sense until you factor in the 15 year contract and transfer pricing methods of tax avoidance

    it is revoltingly obvious that Compass is not really in the food business, it is in the profit making business of short changing hospital patients, send them packing asap

    • Colonial Viper 8.1
      3 May 2016 at 9:34 am

      We’re a signatory to the TPP, we can’t abrogate their contract with the Crown without severe penalties.

      That’s the purpose of the TPP.

      • save NZ 8.1.1
        3 May 2016 at 9:38 am

        +100 CV – have to keep the gravy train going incase their is an unexpected change of government and or public sentiment about their services….

        • save NZ 8.1.1.1
          3 May 2016 at 9:44 am

          joke.

          Why does compass serve so little tax
          It was on the gravy train!

      • ianmac 8.1.2
        3 May 2016 at 11:16 am

        Exactly CV. And should we ever add a royalty to water being bottled for sale we would be sued by the water companies, not only for the added cost but also for the loss of future earnings. It is so written!

      • Tiger Mountain 8.1.3
        3 May 2016 at 1:44 pm

        @8.1; er, doubtful given Compass is UK based according to Micky’s piece and other media stories, UK is not a TPPA signatory though there is the Euro equivalent TTIP under negotiation that NZ is not involved with at this stage

        Compass can be told to stick their 15 year contract under certain conditions like Serco could be, except the Nats obviously did not want to too severely punish Serco

        • save NZ 8.1.3.1
          3 May 2016 at 2:31 pm

          @ Tiger Mountain

          But didn’t in the Philip Morris case they try to argue conditions of a previous FTA were applicable even though they were not a signatory. Corporates have nothing to lose by trying anything on. It is not like the government can sue them back in Free trade business ‘courts’ and the threat and cost of defence normally makes the government back down.

          In the case of Serco and Compass the same applies – the government does not want to get into litigation and change the contract – just keep having a substandard service for 15 years. Make it someone else’s problem.

  9. save NZ 9
    3 May 2016 at 9:35 am

    Fantastic post. +100

    Apparently transnational profits is actually one of our biggest exports. More than milk powder and fishing apparently.

    Come to NZ and plunder from the NZ economy, money to send offshore…. bring your own cheap workers, or easy to bring them in…
    Free offshore tax haven for non residents by PM’s own private lawyer…..
    Our government can give you a free grant to help you get started…
    Special rates and tenders for donors to the National party or through intermediary cronies and trusts….

    We want your transnational profits in our export business “The New Zealand Company” sarc.

    • Draco T Bastard 9.1
      3 May 2016 at 6:56 pm

      Exactly. The amount of profits going of shore is period that we don’t need foreign investment and never have done.

  10. Sutton's li'l helper 10
    3 May 2016 at 9:35 am

    Surely the money spent on lawyers, accountants and pr firms trying to dodge and justify tax dodges is close to what they would pay in tax anyway. Is it just an ideological hatred of paying their share.

  11. Lanthanide 11
    3 May 2016 at 9:42 am

    Actually there was a photo on stuff.co.nz where someone in one of the southern hospitals was served the same meal that the minister got, with the same portion size too. It looked pretty much the same as the minister’s.

    Hard to tell if that was PR massaging of course.

    • AmaKiwi 11.1
      3 May 2016 at 10:35 am

      Compass will be on their best behavior while under media scrutiny. Then the garbage trucks will roll again. The media will ignore it because it’s old news.

      There is a fundamental cultural issue:

      Do we want to be a TPPA homogenized transnational sweatshop or a free people?

    • McFlock 11.2
      3 May 2016 at 10:37 am

      I suspect that the PR massaging involved picking the best looking meal out of the entire menu, and making sure it was cooked properly rather than being an outlier.

      I’m sure some of their meals are quite pleasant, and are usually served cooked to spec. The problem is the apparently high number of meals that fail to meet those standards.

    • weka 11.3
      3 May 2016 at 1:06 pm

      John Campbell did a piece on the this last week. The day before the protest Compass invited the media along to try out the meals. JC talks to his reporter who was there. He asks him at the start if it seemed like a big PR exercise and the reporter is circumspect and just describes what happened. A couple of minutes later, after the reporter being all neutral and shit, JC asks him again, and the reporter goes “of course, it was completely PR spin”.

  12. Observer (Tokoroa) 12
    3 May 2016 at 10:45 am

    .The Culprit

    . Billy English charges Tax on New Zealanders including on Pensioners.
    He collects it by dint of compulsion and by aggressive Tax Collectors.

    . People get it ripped off them through a demeaning method called PAYE.

    For some reason Billy seems unable to get tax off people who have businesses and who are operating within the New Zealand market. He may get a little. But the Business men decide what they shall pay. Not the Minister Billy English.

    He has allowed a whole series of Firms to run ring rings around him. They have a great laugh at the poor man.

    Now, nobody could call Billy Bright. But if we supplied him with a relatively young graduate from the Accounting sector, he might be able to look a bit more fit for purpose.

    Stop hemorrhaging.NZ – you damned conceited little twirp.

    The Opposition must begin to take Billy to the Supreme Court on a charge of blatant neglect and destruction of the Common Man’s resources and equality.

    • Rod Young 12.1
      3 May 2016 at 5:06 pm

      Media is owned offshore.

      Media gets big parties over line for a win in elections.

      To win ministers sell off valuable assets.

      Currently $20,000 billion of crown minerals is before cabinet when TPPA is signed in.

      So let’s look at a tax that is assessed equitably internationally down to the individual.

      And a way to have an independent media follow that tax implementation.

      University and media need to be joined at the hip.

      Doctors producing journalist news.

  13. Ralf Crown 13
    3 May 2016 at 12:07 pm

    Why is someone making the decision to give it all to an overseas operator? Are there no Kiwis left who can cook, but isn’t the food cooked in New Zealand anyway, or is it just the well known New Zealand corruption model at work? Has the decision maker been promised a cushy nice well paid consultancy or board job later in life? I guess we will never fins out – really.

  14. Magisterium 14
    3 May 2016 at 1:02 pm

    I don’t get the point of articles like this.

    Of course this corporation has structured its affairs in order to pay as little tax as possible. Why on earth would it do any different?

    If there’s anyone here who voluntarily pays more tax than the law requires, put up your hand.

    • weka 14.1
      3 May 2016 at 1:09 pm

      “If there’s anyone here who voluntarily pays more tax than the law requires, put up your hand.”

      I’d say pretty much everyone who can’t afford a tax consultant. Not sure you can call the voluntarily exactly, but many people think it’s fair to pay tax as it was designed to be paid rather than exploting loopholes.

      There are also companies that take an ethical approach to business rather than the greedy fuck approach. Some people do actually care about the way the world works. You may not understand it, but plenty of people do.

      • lprent 14.1.1
        3 May 2016 at 1:26 pm

        “If there’s anyone here who voluntarily pays more tax than the law requires, put up your hand.”

        I pay more tax than required. I haven’t filed a return in at least a decade.

        I do PAYE, investments pay tax automatically, I can’t be arsed chasing charities for the bit of money I drop on them each year, I do straight donations of my time etc for non-charity ststus like this site, and as a end-consumer I don’t bother with GST. It isn’t worth the paperwork or time to create a company to artificially shaft the tax system (as I suspect you probably do).

        When I run a check calculation my taxes every 3 years to make sure I aren’t underpaying, my return comes out within a few hundred dollars. Which means that my time expended for calculating it wouldn’t be covered at the charge out rate my employer uses.

        Frankly it is a lot easier and a lot less effort to raise my income, or to figure out how I could reduce my expenditure if I want to figure out how to get more disposable income or how to generate more savings.

        Besides I don’t carry the baggage of your ideological obsessions.

        • Honora Renwick 14.1.1.1
          3 May 2016 at 11:55 pm

          Ditto. Too lazy to chase a couple of hundred dollars tax return or whatever.

        • Richard McGrath 14.1.1.2
          5 May 2016 at 5:55 pm

          I was going to just trust the Aussie government to take the legal amount of money from my earnings, but someone suggested I get a tax accountant to check. Good thing I did, as the Australian Tax Office had taken $15,000 more than they legally should have. They have now returned my money. Had the boot been on the other foot, I would no doubt have been prosecuted and possibly jailed. Funny how the tax bureaucrats seem to get away with it.

          • One Anonymous Bloke 14.1.1.2.1
            5 May 2016 at 6:02 pm

            That’s one way to look at it.

            Another way to look at it is that your tax accountant reduced your contribution to society using who knows what money-laundering voodoo and you’re proud of it, despite having gained so much from society.

            Some consider it shameful. I just think you’re ungrateful and greedy, and a little bit stupid. Pay your taxes, and then look out of your window and say to yourself :”look what we made!”

            Or enjoy your cholera in Randistan*.

            *if the cultural baggage offends, read Randopolis.

            • Chuck 14.1.1.2.1.1
              5 May 2016 at 6:41 pm

              I assume you work for a living OAB??

              Are you an employee on PAYE or self employed / company owner??

              • One Anonymous Bloke …
                5 May 2016 at 7:24 pm

                Yes, and yes, as though it’s any of your business, wingnut trash.

                Too funny: the number of times querulous wingnuts ask me the same revealing questions. Dullards the lot of you.

                My comment history could have informed you were you not so tragically lazy. Stop projecting your crap reckons onto me and rebut my argument, if you can.

                • Chuck …
                  5 May 2016 at 7:39 pm

                  The chip on your shoulder must be huge.

                  To rebut your argument is simply…pay the tax that is due, no more no less. And I am not talking about multi nationals…rather mum and dad kiwis, be them employees on PAYE or self employed contractors / business owners.

                  If someone is of the view that they want to contribute more…then nothing wrong with donating to worthwhile charities.

                  • One Anonymous Bloke …
                    5 May 2016 at 7:45 pm

                    Your Prime Minister’s lawyer summed it up perfectly.

                    It may not be morally as white* as it could be but it’s normal practice.

                    He means it’s normal for criminal and/or right wing trash.

                    *interesting choice of metaphor, that.

                    • Chuck …
                      5 May 2016 at 7:55 pm

                      You are ducking my rebuttal dear chap!

                      Should mum and dad kiwis pay more tax than they legally required to?

                    • McFlock …
                      5 May 2016 at 8:22 pm

                      How was that ducking the question? You’re quite clearly asking about moral shoulds compared with legal shoulds.

                      Even key’s former lawyer believes that satisfying the legal requirement doesnt always satisfy the moral requirement, especially when possibly using legal mechanisms in ways that were not intended by the legislature..

                    • One Anonymous Bloke …
                      5 May 2016 at 8:53 pm

                      You reckons this is about people who pay too much tax?

                      Has someone set up a charity for you yet? Or is baby steps for wingnuts a lost cause?

        • Chuck 14.1.1.3
          5 May 2016 at 7:51 pm

          Fair enough Iprent…hundreds of dollars is not worth the effort no argument there.

          But what would be your threshold to claim a tax refund? if for example doing your tax calculation and finding out you had over paid by $1000 or $5000 or $10,000 etc…?

          • One Anonymous Bloke 14.1.1.3.1
            5 May 2016 at 7:55 pm

            Duh! Show IRD the books and claim it back, and that isn’t what’s happening here.

      • Magisterium 14.1.2
        3 May 2016 at 1:27 pm

        Anyone who files a tax return can afford a tax consultant. Hell, there are places like the Citizens Advice Bureau that’ll give you advice for free.

        I’ve never had an accountant charge me more than a fraction of the financial benefit that the accountant’s services got me, and the accountant’s fees are themselves a tax-deductible expense.

        If you pay more tax than you are required to, then you’re either lazy, an idiot, don’t know any better, or you’re so privileged that you don’t have to care about money. Individuals and corporations – like Compass – should pay every cent that the law requires. That’s the deal we all have with the government. Here’s the law, here’s what it says, pay up. If you don’t like the amounts involved, the problem is the law – not the individual or the corporation.

    • AmaKiwi 14.2
      3 May 2016 at 1:21 pm

      @ Magisterium

      In some countries it is legal to stone a woman to death for adultery. It’s a law made by males.

      Tax havens are legal. Tax laws written by and for the wealthy.

      What is “legal” and what is “fair” are often polar opposites. Pity you can’t tell the difference between right and wrong, but then neither can the Natzies.

      • Magisterium 14.2.1
        3 May 2016 at 1:33 pm

        Then I think we’re sort of saying the same thing. “Unfair law allows Compass to pay very little tax” is a headline we might both agree on. The problem isn’t the company paying the tax, it’s the legal framework that determines how much is to be paid.

    • save NZ 14.3
      3 May 2016 at 2:40 pm

      Magisterium – yes just let the poor and middle class pay taxes. We can then pretend corporates pay tax and are as important to society as people and should get more rights.

      The problem is also non corporate paying corporates undercutting others in local tenders that do pay taxes. So to compete every corporate has to avoid tax.

      It must be more of the loony right accounting that seems to be destroying privacy, human rights and justice, into greedy, competitive, win at all costs, isolated individuals.

      • Magisterium 14.3.1
        3 May 2016 at 3:03 pm

        Please try and keep up.

        • Instauration 14.3.1.1
          3 May 2016 at 8:36 pm

          A stated tenet of this post is;
          “Such so-called transfer pricing transactions are all legal.”
          So this post is about the inadequacy of the law to support what is fair.
          Look beyond the headline Magisterium – will save you some key-strokes.

  15. alwyn 15
    3 May 2016 at 2:45 pm

    @Mickysavage.
    Some of the things you have put in the post don’t seem to make sense.
    You seem to be suggesting that Compass are doing these things in order to reduce the tax they have to pay in New Zealand.

    However when you say
    “Terry Baucher described the loans as “unusual”, especially given the interest rate of between 2.9 percent to 3.8 percent was a lot higher than what Compass would pay for borrowing money in the UK”
    That is surely interest that is considered to be paid TO the New Zealand company and that would therefore be taxable income in New Zealand. That would increase their liability here. If a lower rate was charged that would reduce their New Zealand tax liability.

    People, including the Radio New Zealand report also say that not paying dividends reduces their tax liability IN NEW ZEALAND, as dividends are taxable. They are, but dividends paid to a foreign person or organisation aren’t taxable in New Zealand as far as I am aware.
    I think the treatment is just like Australia. I get dividends from Australian companies. I have to declare them in my New Zealand tax return but I don’t have to pay any Australian tax.

    How do their activities in this vein have any effect on reducing their New Zealand tax.
    Others might of course, such as excessive fees or royalties. The effect of that may be to increase their income in their home country. The higher rate of tax, in particular though, is reducing it there and increasing it here though

  16. Observer (Tokoroa) 16
    3 May 2016 at 3:47 pm

    . Save Nz + 100

    . People such as Magisterium will never understand that the PAYE mug pays the income tax in New Zealand.

    Business people (including Corporates and black marteers) pay only what they wish to.

    They do not declare their true income. They also inflate their expenses. They hide their truth. Even push their billions into tax free havens.

    Or else they return their money to their Mother Nation. Secretly.

    A Paye person – poor mug – does not have these same avoidance avenues.

    The Greeks stopped paying Income Tax. They are a complete basket case as a result. Bludging money off other people like beggars. The young struggling generations of Greeks will despise their politicians for decades to come.

    Other Euro and Mediterranean nations will regard the Greeks as total wasters.
    Do not be surprised if Aotearoa is heralded as the second Greece.

    Thanks to Billy English who is responsible for Treasury.

    .

  17. Michael who failed Civics 17
    3 May 2016 at 11:34 pm

    I’d like to know how much koha Compass kicks back to the Nats (via the slush funds administered on their behalf by big, right-wing law firms). Compass has form for this (as do the Nats). In the UK, where Compass has behaved even worse than it has in NZ (early days though) its shovels big money into the Tory Party’s coffers. Why else would National party lackeys on our DHBs have voted to shitcan their own hospital cooks and kitchen hands and let Compass in?

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