DISPUTE ON TAXATION

Press, Volume CV, Issue 30959, 15 January 1966, Page 1

DISPUTE ON TAXATION

F oreign—Owned Firms In N.Z. (From Our Own Reporter) WELLINGTON, January 14. Political circles expect a dispute between the Inland Revenue Department and various major local companies with overseas principals over taxing procedures to come to a head this year.

It has been suggested that the Supreme Court may be asked to resolve the dispute and this is said to be one reason why the AttorneyGeneral (Mr Hanan) places extraordinary importance on the choice of a new’ SolicitorGeneral, to replace Mr H. R. C. Wild, Q.C., who was recently named Chief Justice.

The new Solicitor-General may well have to lead the Crown’s case in the Courts.

Some reports have suggested that some of the big oil companies are involved in the case, but there has been no official confirmation for this.

The Commissioner of Inland Revenue (Mr L. J. Rathgen) was away on holiday today and was not available for comment.

In any case, he has, so far, remained reticent about the matter ever since he first gave sketchy details in his report to Parliament last year. Under the heading “Evasion,” his report recorded additional income tax assessed after investigations during the year ended March 31 last at a total of £3.2 million.

In the previous five years, the highest annual amount assessed under this category had not exceeded £1.9 million. “The large increase over previous years results from specialised investigations of businesses with overseas ramifications, particular attention being given to the pricing of raw materials and other commodities in transactions not at arm’s length,” Mr Rathgen said in his report. “These special investigations are continuing, and further substantial gains of revenue are expected.” As much, if not more, as was assessed last year may be again assessed during the current year. But although it speaks of "substantial gains to the revenue,” the report gives no indication that the extra tax has so far actually been collected.

It has been contended that some firms with pricing arrangements and other intercompany adjustments with their overseas principals pay a high price for goods to those overseas principals. Then, it is alleged, the

goods are sold through the local subsidiary at a modest profit. Sources claim that taxes are paid in the Dominion on this modest profit, while the overseas principal pays tax to its own government on the original profit—but, significantly, at a lower rate than would have to be paid in New Zealand.

As outlined, the arrangement not only cuts potential tax revenue, but also makes a greater call on overseas exchange than would be necessary if the companies bought the goods abroad at the lowest possible price and took their full profits in New Zealand.