Philanthropy and tax avoidance – a critique of the NZ Listener

By   /   May 27, 2014  /   9 Comments

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Among the wealthiest, generosity is a cost benefit calculation which hides a sordid truth; philanthropy obscures systematic tax avoidance. My thoughts on this matter were triggered by two recent cover stories, one dreadful and the other excellent.

There is no such thing as a free lunch, or free philanthropy.

Among the wealthiest, generosity is a cost benefit calculation which hides a sordid truth; philanthropy obscures systematic tax avoidance. My thoughts on this matter were triggered by two recent cover stories, one dreadful and the other excellent.

Let’s begin with the former case. The New Zealand Listener cover story for May 17-23 was entitled `The new philanthropy of the ultra-rich. Whats driving it?`. The international answer to this question was provided by the editorial headline `Sweet charity`; the joy of giving it seems should be taken at face value. The editorial subheading rammed this point home ;`Just as we condemn capitalisms excesses, we can be thankful for the increasing generosity of the wealthy`. An accompanying photo shot of Belinda and Bill gates was captioned `Giving away billions`.

Actually, this is simply not true.

The Gates empire has profited more from tax avoidance than it has given back through philanthropy. A January 6 Guardian article by Ian Birrell noted that Microsoft was used as a case study in a Senate investigation into US corporate tax avoidance. In one cited example profits offshored through a tiny Puerto Rico office saved Microsoft US $4 million a day in taxes. By moving earnings through low corporate tax countries such as Ireland, Luxembourg and Singapore the company saves itself almost US $3 billion annually. The headline for Birrell`s piece posed the real question at stake here ; `Bill Gates preaches the aid gospel, but is he just a hypocrite?`.

Let’s just answer `yes` and move on to another philanthropist mentioned in the Listener editorial, Richard Branson.

His business empire operates through a maze of offshore trusts and companies. In a 2002 Guardian article entitled `Naked truth about brand king` (27 July) Branson candidly admitted that his company would only be half its size if he hadn`t avoided tax via offshore structures.

Philanthropy in the New Zealand context was discussed in Karl Du Fresne`s Listener article `And the giver is….`. Here, one observation sticks out. In 2007 the Labour–led government removed the limit on the tax rebate people were entitled to claim for charitable donations. The result was `a surge in giving from 2008 when the change kicked in`. This puts philanthropy in a less altruistic light, further investigation was required. De Fresne might also have mentioned Dame Rose Horton`s recent claim that the wealthy should not have to pay extra taxes to assist lower income New Zealanders. Apparently, this would `just discourage hard work` ( Radio NZ, 9 February ).

It would be interesting to know how many of New Zealand`s well known philanthropists hold such views. The second cover story by Bevan Hurley for the Herald on Sunday, was entitled ` The fight for Sir Owen Glenn`s fortune` (May 18). Apparently, Sir Owen is in a protracted legal stoush with two long -time business advisors; David Miller and Peter Dickson. This has provided a fascinating glimpse into the connection between philanthropy and tax avoidance. It now seems that Sir Owen`s financial difficulties have reduced his charitable donations. In July 2012 he publicly promised an $8 million donation to Otara community organisations. Much of this has not been forthcoming. One major initiative, the Family Centre has not been built. Sir Owen`s original promise followed the sale of his logistics business in January 2012. An estimated $500 million from the sale was transferred to trusts in St. Kitts and Nevis in the West Indies.

Bevan Hurley`s excellent reporting (see also HoS, `Daughter helps father fight for fortune` May 25) corresponds nicely with information on the Tax Justice Network`s website. Their Secrecy Index ranks tax havens according to a range of indicators including banking secrecy, records of company ownership, availability of company accounts,country-by-country financial reporting and international money laundering scrutiny.

The Tax Justice Network (TJN) places Nevis and St . Kitts towards the top end of the secrecy scale (80 secrecy points out of a potential 100). It notes that St. Kitts and Nevis `does not maintain company ownership details in official records` and that it `does not comply with international money laundering standards`. The message here is obvious. When Sir Owen`s business is going well taxes are secretly minimised, profits are protected and Otara`s communities receive assistance. In short, successful tax avoidance advances philanthropy.

My preferred state affairs is stated, inadvertently, by the TJN. They declare that Bill Gates `should publicly acknowledge that the most sustainable way of financing education, health, and other public services is through paying tax to a democratically accountable government`.

New Zealand`s wealthy philanthropists should also follow this advice.

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  1. Gosman says:

    I presume Bill Gates pays his share of income tax from the share of Microsoft profit he receives. Therefore this is taxed. It just isn’t taxed at the company level.

    • Oh, well, that’s ok then, Gosman? All is hunky-dory?

      • Gosman says:

        The issue is not really about money not being taxed but where and how it is taxed. If Microsoft avoids paying billions of dollars in corporate tax this money still needs to go somewhere eventually. If it is paid out to the shareholders in the form of dividends then it will be taxed as part of the income of these individuals (often at a higher rate than the corporate tax rate). If it is spent on acquiring assets then the previous owners of those assets will pay tax on it. The only way the money is truly lost to the taxman is if Microsoft sits on the pile of cash and does nothing with it. If they did that they would be a very foolish company indeed.

    • You “presume”? What do you base that assumption on? Good faith? Your love of corporates? Pixies?

      You’ll have to do better than that, Gosman.

  2. Mike the Lefty says:

    The idea of claiming tax on charitable donations comes from the idea that by donating to charities, you are saving the government money that the government would have had to give that institution to keep doing what it is doing. That is the theory, but in practice it has become a tax avoidance thing. Just look at all the dodgy quasi sporting charitable trusts set up by the gambling industry to take back a lot of the money that should be paid out to the community from gambling machines. A true philanthropist would just give the money and not claim a tax rebate on it.

  3. Mark says:

    John Key pledged his income to charity before he won his first election.
    I don’t know if he has followed through on this pledge but if he has then he is doing so to avoid tax, I say this because charitable donations give us a tax rebate.
    Now it used to be up to a certain amount but I remember quite a number of years ago the govt saying they are changing the rules to be any amount of donation. Considering the guy is worth $50 million, a nice rebate would be helpful and also considering us taxpayers pay him his salary, its not costing him anything.

    • Cagey says:

      It was Labour under Helen Clark in 2007 and “…there was a surge in giving from 2008 when the change kicked in” – the Listner.

      Look up some of these philanthropidsts comments on stuff like minimum wage (Bill Gates on YouTube) – is it always for goodness or “cha-rridy”

  4. Richard Christie says:

    Let them eat crumbs.

  5. her says:

    But what about when you don’t agree with what your govt wastes the money on?
    70 Billion dollars really, really?

    I can see why people would want to give the money away to causes they believe in.