Russell DeborahDr DEBORAH RUSSELL (Labour—New Lynn): Thank you Mr Chair. This is a fascinating and an interesting bill. It has been a very complex bill to get to grips with I think as we've seen from some of the speeches this evening.I want to start by thinking about the nature of tax avoidance in general because this is an anti-avoidance bill. You might think we already had enough anti-avoidance measures in our legislation already. To start off with I want to go back to a very very famous judgment in tax law it's the Commissioners of Inland Revenue v Duke of Westminster in the UK. It's a 1936 judgment: Every man is entitled if he can to order his affairs so as that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure this result then however unappreciative the Commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity he cannot be compelled to pay an increased tax." It's a very very famous judgment. What it is saying is that if anyone can order—in this case—his affairs so that they pay less tax and it's all done perfectly within the letter of the law then actually you're entitled to do that because that's what the law says you'll do. So it's very broad. It gives people a huge permission to structure their affairs in order to pay less tax.Actually if you look at tax legislation over the years what you'll see is that legislators have successively cut away at that principle. In fact we've got a general anti-avoidance provision sitting in our own tax legislation already. It's section BG 1 and what it says is—paraphrasing just a little—"A tax avoidance arrangement is void … for income tax purposes." What that means is that the commissioner can set that arrangement aside and assess the tax as though the arrangement had not been in place. But of course in order to do that you need to know what a tax avoidance arrangement is. What it is is an arrangement that directly or indirectly has tax avoidance as its purpose or effect or as one of its purposes or effects. So then you get down to what tax avoidance is. Well it's directly or indirectly altering the incidence of the income tax. What's fascinating about this particular bill that's in front of us is that it's all about companies—multinational companies—that are trying to directly or indirectly alter the incidence of any income tax.So in a sense this is a belt and braces bill. All right the belt is already there with section BG 1 and by the time you follow it through the definitions it's already there. But as we know corporate lawyers are very very clever. Tax legislation is very complex and clever clever tax lawyers take every advantage of it they can. So what this legislation does is it bolsters section BG 1 with respect to multinationals. It says yes we've got this general anti-avoidance provision but we're bolstering it. We're giving it more strength by having these very specific rules for multinationals. And they are indeed very specific—you know they actually only apply to a small number of companies.Just for the reassurance of Mr Alastair Scott there is some reason for that 40 percent rule. Look that 40 percent rule comes in where we're trying to identify which companies in New Zealand we think are base erosion and profit shifting (BEPS) risks which companies we think or the Inland Revenue thinks it ought to be investigating. There are a couple of tests that have to be fulfilled. Now the legislation as drafted had three tests in it. One of them was an EBITDA rule. Very roughly if your interest was about a third I think of your EBITDA then you were considered to be at risk. Now for people who don't know what EBITDA is—Hon Gerry Brownlee: Seek an extension of time.Dr DEBORAH RUSSELL: —it's an accounting measure called earnings before interest taxation depreciation and amortisation. I do know my tax rules Mr Brownlee. When it comes to EBITDA—so that particular rule was found to be too harsh. Submitters said "No that rule is too harsh." and they asked us if we could in fact take it out so we've done that.Then there are two other bits—and I just want to answer this Mr Chair—[Bell rung]—to carry on to answer Mr Scott. I just do want to answer Mr Scott here. There are two tests left there and you have to fulfil both of them. Now so whatever our dairy companies do or our dairy farms do it doesn't really matter Mr Scott. What matters is what multinationals do OK? If a New Zealand company has a high debt-equity ratio and that's 40 percent—now we think that's pretty high in New Zealand—Alastair Scott: No it's not.Dr DEBORAH RUSSELL: —and if it is also borrowing from a parent in a low tax—but it is for multinationals and let's just distinguish them from farming companies. So if it's fulfilling both those then IRD considers them a BEPS risk but it's still only a risk. It's not saying they're doing it; they are a BEPS risk and they might consider doing an investigation. And there's a de minimis there—all right—a level of protection there so that if there is $10 million or less of borrowing then they're not going to be investigated as a BEPS risk. So there's quite a stringent set of criteria in there and I hope that reassures you Mr Scott as to what might be going on with dairy companies.So I think what you'll find with this legislation—that was worked on very very hard by many people in this House both in the previous Government and this current Government; the people who've sat on this select committee right throughout and the people who have joined the select committee recently—is that we've worked really hard to get this right. It is complicated it is difficult it is hard to understand it is highly technical and we are very very grateful to our excellent officials and to our excellent official adviser Therese Turner for the work they have done to help us to understand what's going on and to help us to really think through the implications.I think we'll need to keep on working at this. I think we will find perhaps some things that could be done a little bit better. That's the nature of ground-breaking legislation. But I think we've made a jolly good fist at getting this legislation right and that is why I recommend this legislation to the committee."