Key: Multinationals' tax take unfair

Prime Minister John Key (Simon Wong)
Prime Minister John Key (Simon Wong)

Prime Minister John Key has admitted the small tax take from some multinational companies is unfair, and he isn't ruling out a law change to crack down on them.

It follows revelations that many operating here pay back in tax only a tiny fraction of what they earn.

Pharmaceutical company Merck Sharp & Dohme (MSD) has made headlines in New Zealand over the high price of its melanoma drug Keytruda. It wants $30 million from the taxpayer to fund the lifesaving medicine.

But MSD is now in the spotlight for another reason, revealed along with the likes of Google, Facebook and Pfizer as a multinational corporation that pays startlingly low income tax.

"I don't think that it's fair," says Mr Key.

In 2014, MSD made $46.9 million in revenue. It says its profits were only $2.3 million. Those profits were taxed at a rate of 28 percent. That amounted to $666,000, but after several deductions and adjustments its tax bill was a fraction of that – just $127,000.

Tax expert Robin Oliver says the small tax take is down to that income being generated overseas.

"We're just the place where they sell some stuff, so if you just simply sell stuff into the country there's no income generated in the country, and therefore nothing to tax."

In a statement, Merck, Sharp & Dohme says it fully complies with all local and international tax laws, and maintains a cooperative relationship with Inland Revenue.

But Mr Key says what's legal, may not always be right.

"Multinationals should pay their fair share of tax – not just about what's legally right but also what's ethically right," says Mr Key. "To fix that situation I think you need all of the countries working together." That's just what our Government is relying on the OECD to do. But if that doesn't work, Mr Key says he'd consider a law change.

"If we couldn't get a resolution through the OECD, who are working on it through all of their tax experts for all the countries around the world, then we wouldn't rule out doing something unilaterally, but we'd have to be sure it worked."

It's a potential move Mr Oliver believes could come with a high cost.

"If you have stringent rules on foreign investment and tried to tax them far more, you'll definitely not get the investment in jobs in New Zealand, so you'll lose out."

Australia and the UK have already moved to crack down on multinationals. The question now is – will we be next?