McClay Todd: Taxation (Annual Rates Employee Allowances and Remedial Matters) Bill — In CommitteeText is incorporated into the Bound VolumeMcClay Todd: Taxation (Annual Rates Employee Allowances and Remedial Matters) Bill — In Committee[Sitting date: 17 June 2014. Volume:699;Page:18593. Text is incorporated into the Bound Volume.]Hon TODD McCLAY (Minister of Revenue):I want to thank the last speaker Mr David Clark for his fulsome support of Part 3 of the Taxation (Annual Rates Employee Allowances and Remedial Matters) Bill. I know that this is one of the most important parts of the legislation for him. All the way through he has been extremely supportive—understanding of course man of the world that he is when it comes to international negotiation some of the stages. But there are a couple of points I just want to help with and clarify here because in his enthusiasm I am not sure that he meant to say some of the things that he did.The first was that he said that the Government has lost touch with ordinary New Zealanders like him. Well I have got to say that I do not think he is an ordinary New Zealander—special maybe but ordinary I am not sure. What I would say is that in as far as this legislation is concerned what this does is allow banks to collect and provide information to the Inland Revenue Department to pass on to meet its obligations to US authorities. Mr Clark is correct: where people do not do that they face a significant tax of up to 30 percent on their business in the US. All financial institutions in the world except for those where an exception is given are covered by this legislation—every single country of the world. There will be some countries that do not meet that obligation and their citizens who are involved with those financial institutions will be affected by a significant tax. It is interesting to see that Australia and the UK and France have already entered into an agreement with the US similar to that that the New Zealand Government has entered into to make it easier for the financial institutions to provide them with some certainty and to provide some controls around this.Mr Clark said information will be collected on every single person in New Zealand. That is factually not correct. These financial institutions already have information on all of the people who bank with them. They will be under a duty to provide information on clearly defined US citizens and to provide that to the Inland Revenue Department to pass on. There will be no information provided to the department or passed on to the US authorities on New Zealand citizens only on those who are US taxpayers under US law. This creates no new tax obligation. The US taxes its citizens based on their citizenship not their place of residence and not their place of domicile. So anybody who is a tax resident in America a citizen the US legislation has an interest in at all times. So we are not creating new tax obligations; we are merely providing information on behalf of financial institutions to US authorities.Very importantly this is reciprocal. It is reciprocal. The US authorities will provide information to the Inland Revenue Department on New Zealand taxpayers so that we can make sure that everybody who has a duty to pay tax in New Zealand is doing so fairly. The intergovernmental agreement was signed last week here in this Parliament and will enter into force before this legislation is adopted and itself enters into force. That is the right balance and the right way that this should be done. The reason it may have taken a little bit longer than Mr Clark might have wanted is that we were looking specifically at a number of institutions in New Zealand that might not need to be included in the breadth of this US law. There are exceptions that have been agreed for some New Zealand institutions to do with the Crown for superannuation schemes and for anybody who has an account who may be a US taxpayer but who has less than NZ$50000 in it—for them information will not need to be provided.It is important that we do this. If financial institutions in New Zealand did not meet their obligations they would be significantly affected. The Government is merely providing certainty and assisting them. It will reduce red tape compliance and costs upon the financial institutions and therefore others who may be involved with them or bank with them. It is not going to change the obligation of any US taxpayer based in New Zealand to the US tax authorities; it will merely provide information to them and it is reciprocal to us.So this is a very important part of the legislation. I think the Government has been responsible as many other Governments around the world have been. Almost every OECD country is in a current situation of either having agreed or negotiating the same arrangements as New Zealand. The very good news for New Zealand financial institutions is that we have agreed through negotiation a number of exemptions with US authorities and this will give greater certainty and make sure that there is not unnecessary cost to these financial institutions and therefore New Zealand taxpayers.The question was put that the amendments set out on Supplementary Order Paper 455 in the name of the Hon Todd McClay to Part 3 be agreed to.Amendments agreed to.Part 3 as amended agreed to.