While the Organisation of Economic Co-operation and Development urges member countries to crack down on companies that move profits to countries with a lower tax rate, New Zealand as a target would be at the bottom of their list, according to a survey by Grant Thornton.
The survey of more than 3400 businesses in 44 economies found that New Zealand businesses were the most reluctant to relocate their businesses overseas for a lower tax rate with 94% happy to stay.
They are followed by Georgia (92%), Switzerland (90%), France (88%), Germany (87%) and Ireland (86%). The economies in which the most businesses would move for a lower rate are Russia, India, Taiwan, Greece, Botswana, Norway and Malaysia.
Murray Brewer, Auckland partner for Grant Thornton New Zealand Ltd, said that there were a number of reasons why New Zealand stood out in the poll. “When you couple our isolation and average company size with the fact that businesses seem to be generally happy with the present tax regime, then you can understand why we are the most reluctant country in this survey.
“Many New Zealand businesses are domestically focused and migration of head office is not commercially viable.
“Also, shifting head office may provide a tax deferral in some cases but the ultimate tax cost for the New Zealand shareholders may in fact increase.
“The bottom line is that New Zealand tax resident shareholders are subject to New Zealand tax on their world-wide income. The comprehensive nature of our international tax rules means that migration of the company head office would have limited tax advantage unless the shareholders go to the extreme and also head offshore to become non-resident for New Zealand tax purposes.
Globally, over two-thirds of business leaders (67%) said they would not consider moving abroad for a lower corporate tax rate.
“Two other very interesting points came out of the survey. Over half of New Zealand businesses thought the Government was doing enough with tax to ease the economic pressure with 22% saying ‘yes definitely’ and 30% ‘yes probably.’ This compared very favourably with the global average of 11% and 22%.
“When it came to the question of lowering the tax rate against eliminating some current tax deductions, businesses were evenly divided at 48%. This was in sharp contrast to the global average where 68% of businesses favoured lowering the tax rate even if it meant eliminating some tax deductions.
“A trade-off between tax breaks and headline rates of tax, leading to a simple low tax rate with no or few deductions, does have the advantage of bringing simplicity. The difficulty is that tax breaks are hard to remove once in place, especially in those economies, which are currently struggling to find growth and which use tax breaks to stimulate certain sectors or industries.
“Important decisions can be taken on the basis of existing tax breaks and if the breaks go, the decision may look like a poor one because the goal posts have changed. Business likes certainty so any change needs a long lead in and clear communication,” he said.
Murray Brewer
T +64 9 308 2570
E murray.brewer@nz.gt.com