Bennett David: Taxation (International Taxation Life Insurance and Remedial Matters) Bill — In Committee 
Bennett David: Taxation (International Taxation Life Insurance and Remedial Matters) Bill — In Committee 
[Volume:656;Page:5986] 
DAVID BENNETT (National—Hamilton East) 
: 
 In relation to the Taxation (International Taxation Life Insurance and Remedial Matters) Bill I think that the first point that all members of this Committee would agree on is that we should acknowledge the hard work of the officials and thank them for the support they gave to the Finance and Expenditure Committee. It is a tremendously big bill on a very complex subject area so we were very grateful for their advice and wisdom. 
However I disagree with Opposition members. They feel the bill is beyond the scope of Parliament and it has been rushed through. That is simply not the case. The reality is that with any kind of legislation dealing with taxation matters that are complex and engaging parliamentarians find it difficult because they do not have the experience that tax officials have. We had specialist tax officials who basically spend their whole lives on this kind of legislation trying to find holes in it and trying to understand it. Even they admitted that they do not understand everything about taxation legislation in this area so heaven knows how politicians are supposed to know everything about anything. 
It is a matter of concern when Labour members try to be detrimental about the nature of this legislation and say that it has not been through a thorough process when it has. We had the best legal minds that we could engage to do that. With their help and the help of the Inland Revenue Department we came to the conclusion of this bill. Taxation legislation in this area is not something that is easily maintained in a watertight container. There is always room for tax lawyers and accountants to try to take advantage of the legislation and that perennial problem will go on for ever and a day. Probably the only way to avoid that is to have a huge rewrite and restructure of the way we do taxation law and that was well beyond the scope of this bill and of the select committee at this stage. 
However some fundamental concepts were considered by the select committee. I will touch on just a few of them because they are important for those who are looking at taxation law in this area going forward. One of them was the active business test for controlled foreign companies commonly known as CFCs. The active business test is an important process in working out whether any income will be attributed to New Zealand residents. 
Hon Maurice Williamson 
: Don’t CFCs make holes in the ozone? 
DAVID BENNETT 
: No they do not make holes in the ozone; they are controlled foreign companies. Another part of that important test is the definition of passive income. For the layperson out there passive income is income like interest and dividends that one does not have to work to earn. 
Hon Member 
: The Labour Party would know about it. 
DAVID BENNETT 
: They know about being passive but they do not know about income. That is probably why they could not understand the legislation. Some of the terminology resonated with them but some of it did not. The definition of passive income for controlled foreign companies is an important concept that was looked at in this legislation. 
Some of the other things in the legislation are interest allocation rules for outbound international investment foreign dividend exemptions for certain companies and other tax measures regarding conduit tax relief in “grey list” countries. David Cunliffe one of the members opposite mentioned the “grey list”. It has been a source of great favour for many law and taxation students for many years and now it does not have the same ability to stress their minds as it had in previous generations. The taxation of life insurance business was another key component of the legislation. It is a very important business and it is very complex because many structures are engaged when it comes to people’s life insurance matters. There was also some subsidiary policy around reallocation payments and payroll giving. 
One of the big things the select committee considered was changes around the definition of associated persons. Associated persons is an aspect where tax lawyers will engage themselves in trying to work out scenarios where they can get through the boundaries that this legislation now presents for them. Some innovative schemes will arise. It is just a matter of time before the Government and the Inland Revenue Department become aware of those schemes and will have to change them again but that is life and taxation.