The government has passed a new law which aims to stop multinational tax avoidance.
Activists protest multinational tax avoidance in Paris. Photo: AFP
It passed its final stages at Parliament last night and will come into affect from 1 July.
The United States' National Bureau of Economic Research estimated multinationals have been shifting as much as $1.4 billion of profits a year from New Zealand into tax havens.
Revenue Minister Stuart Nash said the new law will make it a lot harder for them to avoid their New Zealand obligations.
"Inland Revenue estimated it's going to bring in $200 million [a year], but the bottom line is it's going to improve the integrity of the tax system," he said.
Mr Nash said from next week, multinational companies will have to pay tax on business generated by staff based in New Zealand.
And subsidiaries based here won't be able to shift profits to a parent overseas.
The National Party supported the legislation and revenue spokesperson Paul Goldsmith said the new law isn't a permanent fix but part of the ongoing cat and mouse game with multinational companies.
"It's a very complex legislation and we think we're making a step in the right direction, but I fully suspect in two or three years we'll be coming back and making some changes because we didn't get it all right," he said.
University of Auckland Business School Professor Craig Elliffe said the legislation won't touch digital companies like Facebook.
"In the future we will need to be looking at whether the perfectly legitimate use of digital business is in fact something we should be taxing," he said.
But Stuart Nash said tackling digital companies is on their radar and they're working with other OECD countries on the issue.
Mr Nash agreed with Mr Goldsmith that frequent changes are likely to be made to the law to ensure companies don't find new ways to avoid paying their fair share.
