Adams Amy: Taxation (International Taxation Life Insurance and Remedial Matters) Bill — In Committee Third Reading 
Adams Amy: Taxation (International Taxation Life Insurance and Remedial Matters) Bill — In Committee Third Reading 
[Volume:657;Page:6647] 
AMY ADAMS (National—Selwyn) 
: 
 I am very pleased to take another call in the Committee stage of the Taxation (International Taxation Life Insurance and Remedial Matters) Bill. It has been some time since we last debated the bill’s Committee stage and since I last spoke. We have heard other speakers talk today about the comprehensive and extensive nature—perhaps too extensive—of the bill and there certainly are a number of important elements within it. I hope my contribution is able to add more to the wisdom in this debate than the contribution of the member who has just resumed his seat the Hon David Parker who held up the bill and said there was a lot in is. I thank Mr Parker very much for that in-depth analysis of this 823-page bill. Yes there is a lot in it; he got that quite right. I hope to talk in a little more detail about some of the matters in it. 
International taxation and life insurance are two of the big component parts of this bill but a number of smaller aspects have been a little overlooked in the debate due to the comprehensive nature of the bill and the big elements in it. One that I will touch on because I do not believe it has been mentioned in the debate thus far is the provisions around stapled stock. Stapled stock is not something that is discussed widely outside tax and business circles so I will take a moment to explain what I mean by that phrase. Stapled stock is a set-up that companies often use whereby debt securities—debt instruments—are attached to equity instruments sold by that company. We have seen that this structure can be used to enable companies to pay moneys to shareholders that would otherwise be classed as dividends and to call it interest thereby giving themselves quite a substantial tax advantage through the interest deductions that the company gets although the money ends up in the same place. 
The bill set out to say that for that sort of stapled stock arrangement issued after 25 February last year all the payments were eligible to be treated as dividends as if the entire payment related to the shares as if the entire security was a share. That is an important part of ensuring that there is fair treatment of those moneys and that companies cannot use that sort of structure to effectively avoid tax. The date of 25 February 2008 is important. As far as we know at the time when this rule change was announced no major NZX companies had stapled stock in existence. We also know that a number were certainly looking at doing that so it was a step that had to be taken. 
As the bill proceeded through the Finance and Expenditure Committee we looked at this matter in a little depth. We recommended some important changes to make sure that there was not excessive overreach in terms of these provisions. Among those we looked at was ensuring that debt stapled to a wide range of fixed-rate shares could still be treated this way as a valid instrument. We also thought it was important and appropriate that people with small closely held companies—family companies and the like—where this sort of arrangement came about through a shareholders’ agreement had the freedom and flexibility to enter into that arrangement. We were working to ensure that we protected the tax base against the inappropriate claiming of interest deduction as a way to avoid paying tax that would otherwise be payable but without going into the realm of unnecessarily cutting down the flexibility and the options open to companies to arrange their affairs. As I said what we will now have under these rules will enable all the payments to be treated as if they are shares all the payments to be treated as dividends. But when we talk about company thin-capitalisation rules with those stapled instruments the debt component can still be treated as debt. 
In respect of that particular provision it highlights that there is quite a lot in the bill beyond the title provisions of international tax and life insurance. Those are the leading ladies in the bill but there are a number of quite important lesser issues that the select committee spent an awful lot of time working through. 
At this stage I take a moment to thank Craig Foss for his chairmanship of the select committee. It was a difficult process to work through the bill but the committee worked very well. All the committee members should be acknowledged for their contribution to the work on the bill. Certainly the officials spent a lot of time with us. I commend the Minister of Revenue for not only introducing the bill last year but also having the political tenacity— 
Hon Peter Dunne 
: Masochism! 
AMY ADAMS 
: —perhaps it was—to still be here shepherding the bill through the House despite a change in Government. It is no small piece of work on his behalf and on the behalf of our committee as well. It is an excellent piece of work and I think it makes real progress in ensuring that out tax regime is brought up to speed.