Category: Volume 16 Issue 2

Coercion and persuasion are the two main approaches to increase tax compliance. The former attempts to promote tax compliance mainly by using penalty and tax audits, while the latter focuses on increased taxpayer services, simplified tax law and enhanced mutual understanding. There has been little attempt to provide a contextual explanation as to why an instrument fails or succeeds in boosting tax compliance of large corporations – a gap this paper attempts to fill. Using an empirical analysis, this research found that factors underlying the power of the coercive approach are the rationality and regularity of its application, along with its legal and financial imperatives. Reasons contributing to the appeal of the persuasive approach are a reduction in tax compliance costs, an improvement in accountability and a reduction in knowledge gaps, and coordination of the various tax laws. The research found that the explanation of tax compliance patterns is not straightforward, and in countries with different taxation and institutional systems, instruments tested would not be expected to yield similar outcomes. Therefore, verification of the study results in different contexts is essential.

Political commentators have long said that the enactment of a comprehensive capital gains tax (CGT) in New Zealand (NZ) would be political suicide. However, sentiment towards a CGT in NZ has softened more recently with a number of commentators as well as business and political leaders supporting the introduction of a CGT.

In both the 2011 and 2014 General Elections the centre-left Labour Party campaigned on inter alia introducing a comprehensive CGT levied at a rate of 15 per cent. They lost in both elections but on the basis that a CGT is now part of the NZ political agenda of the left-of-centre parties coupled with the current mixed member proportional (MMP) electoral system (which lends itself to coalition-based governments) it is arguably only a matter of time before a CGT is introduced in NZ by a Labour-led coalition.

This paper, using Adam Smith’s canons for a good income tax, considers the Labour Party CGT proposal and the United States (US) experience in dealing with capital gains. It notes that the NZ proposals are consistent with CGT regimes generally, such as it being realisation-based and not permitting indexing, but may involve complexities and pitfalls that the US system has previously encountered.

This article analyses the problem of base erosion and profit shifting (BEPS) and establishes how it can be targeted through information exchange systems. Particularly this article looks at the operation of information exchange provisions in existing bilateral Double Taxation Agreements (DTAs) and Tax Information Exchange Agreements (TIEAs) and examines their deficiencies. The last part of the article looks at tackling BEPS through the establishment of a new multilateral treaty focused on automatic information exchange and discusses what such an instrument would require.