Quote:
Originally Posted by Lynx-lynx
Proudly!!! 
EDIT
What's NZ doing to get the big internationals to pay their full taxes? |
Well if an international company's subsidiary in NZ does not pay its taxes on its profits then it is taken to court.
If it is an international company overseas (an Australian one, for example) that exports goods or services to NZ then that company pays taxes in the country it is resident in (in Australia, for example).
That is how tax works.
To give you an example based on myself. I have worked for many years as a consultant (Yeah, I know, no cheek please
) for both local and overseas clients. So, for example if a client in Australia phones me to do a report for him, then I charge him for the time on the phone and the time preparing the report, he pays me and I pay tax in NZ, not in Australia. If he asks me to send him some software over the internet then the same. If he comes to NZ and asks me to pay for then charge him for us both going for a helicopter ride (yes it has happened
) then the same.
But if he asks me to send him a piece of machinery then again the same except he may be liable to duties and GST on its crossing the border into Australia. That is HIS Problem and the AUSTRALIAN Governments problem not mine, and as another has said it is taxes at the border on its own citizens (whether those be Australian companies or people) that apply, not some misguided effort to tax non Australians.
And there is the crunch, just as, for example, NZ'ers do not have to abide by Australian laws unless they are in Australia, NZ companies do not have to abide by Australian laws (because by definition they are on the NZ Register of Companies and so never in Australia) so they do not have to pay tax in Australia (as Harry and others have already alluded to). Now if a NZ company has a subsidiary in Australia then that subsidiary is on the Australian Register of Companies then that pays tax in Australia, however if the NZ parent company of that subsidiary makes a supply to an Australian citizen then the NZ parent company pays tax in NZ, not Australia, and if the subsidiary in Australia plays no part in the supply then it pays none.
And just because the NZ company tax is less in NZ (28% vs 30% in Australia) that still does not mean the NZ parent company has to pay anything in Australia. And the same applies if the parent company is in a country where the company tax is 15% say (like Hong Kong, ? haven't checked there recently) or zero (like some others). But if the parent company repatriates profits to its country of residence (say the NZ parent repatriates profits of its Australian subsidiary to NZ) then it may have to pay tax on those, or part of those in its own country. Then if those profits are distributed by the NZ parent to its shareholders by way of a dividend then the shareholders pay tax on the dividend they receive less the tax paid already in NZ by the company (Imputation).
Now some people take some sort of ill informed moral high ground and loathe countries that have no company tax. I had never thought much about it until I did some work for a client in one such country and spent some time there on business visits; that country has no tax on company profits and no personal taxation either (it had a flat payroll tax and sales taxes), it also has no natural resources to export.
That country is also consistently among the top few countries in the world insofar as GNP per capita is concerned as are its citizens' average personal incomes. It, of course, is a popular place for companies to reside in even though such a company's shareholders may all be in (lets just say) NZ and all its business be done in other countries through its subsidiaries resident in those countries. It is commonly pushed by those taking the high moral ground of ignorance that it is immoral that such companies "are not paying ANY tax", but the actual situation is that if the company is to distribute its profits to its shareholders in NZ then those shareholders then in effect pay the company's tax as the profits will not come with imputation credits.
For example, if a NZ shareholder's marginal tax rate is 33% (the highest rate in NZ) then, broadly speaking, dividends received from a local company will come with a 28% imputation credit (or lesser amount if the company has paid less tax than that) for the tax the company has paid already on those profits (profits are not taxed twice here, nor are they in Australia, for example) and so the shareholder, in effect, pays around 5% tax on the dividend received. If the company the shares are held in is resident in a zero company tax country then the shareholder receives no imputation credits (not only because the company has not paid any tax but also because there will be no bilateral tax agreement covering imputation with the foreign country; for example we do not get Australian imputation credits here on dividends paid by Australian companies) and so the shareholder pays his full marginal rate of 33% on those dividends.
So the outcome is, broadly speaking, that even though the company is resident of a tax free country when it comes to repatriating its profits to its shareholders back in NZ those shareholders in effect pay the company's 28% tax in NZ (which for dividends from a local company they would not pay) plus the above mentioned 5% of their own.
However, that means that the tax is only paid on distributed profits so the profits the company retains for capital expansion, R&D, etc. are not taxed and so leaves the company with more cash for business growth or new endeavours. It also means that those retained profits remain with the non resident NZ owned company and so are still part of the collective wealth of NZ. Now all that may or may not be regarded as a good thing, depending on whether on believes in a free capitalist economy or in a socialist one where government attempts to micromanage centrally (without exception, always poorly- there are no successful examples).
Moving on to imported digital material (ebooks, software, videos, etc.) that are imported as digital files across the internet then the argument is that no VAT/GST/duties is collected. But as was covered a bit in a recent thread it is not the exporting company's responsibility to pay that. Nor can they be forced in law to do so as the laws of the importing country cannot apply to it (and cannot be enforced), but as I said in that other thread they may be able to be jawboned into voluntarily doing so by blackmail or other threats (e.g. threat of banning from government contracts in the importing country, the stirring up of hatred of the foreign company as activists are now doing).
The difficulty is how does the importing country go about collecting GST/VAT/duties on those essentially invisible transactions that come in over fibre optic cable rather than in a box. What most people do not realise this issue has been around for many decades in that imported services also do not come in boxes and so many have not been subject to GST/VAT/duties (certainly so in NZ and I suspect most other similar jurisdictions). So, taking my example way, way above where I might charge for my time talking over a fibre optic cable to a client in Australia that charge received by me is not subject to border taxes.
But, as I have been at pains to point out, the collection of taxes at the border crossing are the responsibility of the importing country, not of the foreign exporting company over which it has no jurisdiction even if it has a local subsidiary that played no part in the supply. If they cannot work out a way to do it and they want the tax then that is the importing country's problem and no one else's.
If the foreign company has a local subsidiary that played a part in the supply (whether the supply is in a box or comes over a fibre optic cable) then it will be liable to company taxes on the profits gained from that part of the supply. What some people are saying (and they are saying that even though their having no understanding of tax law nor any knowledge of how great a part the local subsidiary has played in the imported supplies
) is that such local subsidiaries are not paying enough tax. Now if that is the case then it is only due to the laziness of the importing country's local Revenue in not pursuing the local subsidiary for company tax on its part played in facilitating the imported supply, or if their is disagreement over the magnitude of the profit to be taxed then not pursuing it through the courts.
While I have used NZ, Australia and another nameless tax free country as examples, things work roughly the same throughout the western world. I have not named the tax free country as doing so for such countries usually arouses rabid and immoral noise from the apparently, so they tell us, "moral" activist types.
Wow that was a filibuster (and the appearances of a bit of a lecture
) so I am off to the 'fridge to get a tinnie. Anyone else got this far deserves one too, it is my vicarious tax free shout
.