Written By: - Date published: 8:10 am, May 3rd, 2016 - 65 comments
Categories: national, Privatisation, same old national, tax, the praiseworthy and the pitiful, you couldn't make this shit up - Tags: compass, Jill Ovens
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):
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?