Brownlee Gerry: Taxation (International Investment and Remedial Matters) Bill — Third Reading 
Text is incorporated into the Bound Volume 
Brownlee Gerry: Taxation (International Investment and Remedial Matters) Bill — Third Reading 
[Sitting date: 05 April 2012. Volume:679;Page:1756. Text is incorporated into the Bound Volume.] 
Hon GERRY BROWNLEE (Minister for Canterbury Earthquake Recovery)  
on behalf of the Minister of Revenue: I move  
That the Taxation (International Investment and Remedial Matters) Bill be now read a third time 
. The bill continues the reform of New Zealand’s international tax rules by bringing our tax rules more into line with those of other countries and making it easier for New Zealand - based businesses and investors to compete more effectively in foreign markets. Previously a New Zealand company’s active income from its offshore subsidiaries was taxed by New Zealand. This placed New Zealand companies at a disadvantage in terms of tax costs that similar companies in other countries did not face. To overcome this obstacle foreign companies controlled by New Zealand investors became eligible for a tax exemption on income from active activities such as manufacturing as part of the international tax reform introduced in 2009. 
The main measures in this bill further extend the active income exemption to include joint ventures and other significant New Zealand shareholdings in foreign companies that are not controlled by New Zealand investors. Under the proposals in the bill New Zealanders with stakes of 10 percent or more in offshore companies will not be subject to New Zealand tax on those interests unless they earn passive income such as interest royalties or rents. To further rationalise earlier international tax reforms the current exemption on non-portfolio foreign investment funds in the eight grey list countries will be replaced with an exemption for non-portfolio foreign investment funds that are resident and subject to tax in Australia. 
The bill also introduces a nil rate of approved issuer levy for interest paid on corporate bonds that are widely traded in New Zealand and that meet other criteria. This is a targeted measure to enhance the development of New Zealand’s bond market. A 10 percent rate of non-resident withholding tax will continue to apply to related party loans such as loans from a foreign parent to a New Zealand subsidiary. A 2 percent rate of approved issuer levy will continue to apply to loans from foreign banks and bonds that are issued into foreign capital markets. The change is limited to bonds that are traded on the New Zealand bond market. Currently a 2 percent rate of approved issuer levy applies when these bonds are purchased by non-resident investors. There are concerns that this may limit the size and liquidity of the New Zealand bond market by making it more expensive for New Zealand businesses to issue bonds in New Zealand. The bill addresses these concerns by removing the tax impost on those interest payments. As a result it will become relatively cheaper for New Zealand businesses to issue bonds in New Zealand rather than obtaining a loan from a bank or issuing bonds in offshore bond markets. This very practical measure follows the recommendation of the Capital Market Development Taskforce. 
The remaining changes in the bill are largely technical or remedial in nature to clarify parts of the earlier international tax reforms and to correct minor drafting oversights. 
In bringing this bill to its third reading I wish to acknowledge those who have contributed to its successful passage so far. My thanks go to the policy officials and the drafters for their work on the detail of this very technical tax bill and to those who made submissions to improve the practical application of the measures it contains. I also wish to record my thanks to the Finance and Expenditure Committee for its detailed consideration of the bill and its recommendations for reducing compliance costs for businesses and making the rules proposed in the bill easier to apply. 
The process goes across Governments and by removing a further tax barrier to offshore expansion by New Zealand businesses this bill will make it easier for New Zealand businesses and investors to compete more effectively in foreign markets with resulting benefits to this country in the longer term. I therefore have great pleasure in commending it to the House.