A tax expert says Labour's new policy to go after multinational companies dodging paying their fair share of tax will be costly.

Labour intends to introduce a Diverted Profits Tax that will impose a penalty rate if they believe that tax has been deliberately avoided by multinationals.

Ernst and Young executive tax director David Snell told Nadine Higgins it will be difficult to pin down.

He said it applies to multinationals trying to avoid tax by shifting profits out of New Zealand, by way of transactions with little economic substance.

"No it's very hard to actually pin down what a transaction with very little economic substance is. I would say there's not a lot of them in New Zealand, in that our tax culture is pretty compliant. IRD has a long series of winning things."

LISTEN ABOVE AS ERNST AND YOUNG EXECUTIVE TAX DIRECTOR DAVID SNELL SPEAKS TO NADINE HIGGINS ON EARLY EDITION