Intentionally, and by design, New Zealand has entered into double tax agreements designed to limit the ability of New Zealand to tax New Zealand sourced business profits in circumstances where the foreign multinational does not operate a “permanent establishment” in New Zealand. Generally speaking, this policy has been eminently sensible in the past and it has served us well for a long period of time but it does assume that the country of residence imposes a tax.
Furthermore, the concept of permanent establishment has not kept pace with technological advancement and the digital age. Multinationals have been more nimble than governments and have sometimes been able to structure their affairs so that they have enjoyed double non-taxation.
Some multinationals have therefore been operating their business here without triggering a tax liability because they have been, legally, stepping around the taxation of business profits by making sure they do not have a permanent establishment in this country. Other aggressive multinationals enter into arrangements with related parties that reduce their taxable profits in New Zealand through transfer pricing avoidance techniques.