Nash Stuart: Taxation (International Taxation Life Insurance and Remedial Matters) Bill — In Committee 
Nash Stuart: Taxation (International Taxation Life Insurance and Remedial Matters) Bill — In Committee 
[Volume:656;Page:5993] 
STUART NASH (Labour) 
: 
 I would also like to respectfully disagree with the Minister of Revenue the Hon Peter Dunne. He said this bill was not rushed but I think the feeling of those on the Labour team is that there was not enough time to give considered deliberation to very important parts of the bill. I would also like to elaborate a little further on something that Peter Dunne David Cunliffe and John Boscawen have spoken about and that is do with petroleum mining rules. I would like to outline a bit about why we are implementing what we are implementing or suggesting in this bill. 
The current petroleum mining legislation allows an upfront deduction for exploration expenditure that is of a capital nature. This is to encourage petroleum exploration and development in New Zealand. It is becoming a very important industry for this country and these rules were put in place to encourage that. The primary reason though why we did not support limiting the scope of the proposed amendment is to ensure that New Zealand receives its proper share of benefit from New Zealand petroleum resources. Given the substantial increase in oil production in recent times the Government considers it is critical to protect the New Zealand petroleum mining base. I stand to be corrected when I mention this but I think a lot of this comes out of a very large multinational company that incurred significant expenses offshore but claimed expenses against New Zealand income in the millions of dollars— 
Hon David Cunliffe 
: Hundreds of millions of dollars. 
STUART NASH 
: In the hundreds of millions of dollar—that is my understanding. That was a loophole that needed to be closed off and that is why the matter was addressed in this bill. 
Petroleum mining generally involves large amounts of expenditure incurred by companies that operate in a number of countries. Two or three I think of the 10 largest companies in the world are petroleum mining companies. The reality is that these companies by their very nature have considerable flexibility over what jurisdiction they structure expenditure through. The costs of a significant foreign exploration or development programme could eliminate in New Zealand a petroleum miner’s tax liability on its New Zealand income. This is what did occur this is why we needed to address it reasonably quickly and it is why it has been addressed in this bill. 
This concern applies whether the company is owned by residents or non-residents. The current provision in the bill is in line with practice in a number of other countries such as the United Kingdom that do not allow foreign petroleum mining expenditure to be offset against domestic mining income. We are not leading in this; we are putting into place global best-practice tax legislation. 
The current tax treatment of petroleum mining expenditure is arguably concessionary. The concern is that the concession is not working as intended because some New Zealand - resident companies are in effect gaining a significant subsidiary from the New Zealand tax base for overseas petroleum exploration. Officials were alerted to taxpayers using foreign branches to shelter significant amounts of New Zealand petroleum mining income in late 2007 and the proposed legislation merely ensures that the concession is available only for the exploration and development of New Zealand’s petroleum resources. Clauses 71 74 93 and 97 relate to these changes. 
I would also like to talk about another area that the Minister mentioned and that is the taxation of life insurance businesses. The words “life insurance” are actually in the title of the bill so I think it is important that we discuss that as well. Minister Dunne has alluded to the fact that significant changes are being made to the life insurance business. Those changes result from work that began in July 2006. This has been an ongoing process it has been a consultative process and it is in response to submissions and comment received on two officials papers and one Government discussion document. 
In terms of this part of the bill wide industry consultation has been undertaken and the officials have released discussion documents and sought feedback. Life insurance companies carry on the business of life insurance and they are registered under their own Act the Life Insurance Act 1908 to write life insurance policies.