Adams AmyHon AMY ADAMS (National—Selwyn): Thank you Mr Chairman. I am looking forward to taking a call this evening on Part 1 of this taxation bill working on the neutralising of base erosion and profit shifting piece of work which as other speakers have acknowledged and the Minister in the chair has acknowledged has been a piece of work that has spanned two Governments. But more importantly than that actually it's a piece of work that has international impetus. It is really New Zealand's response to the OECD piece of work looking at how New Zealand's rules need to be amended and adopted in concert with the rest of the world so that we stop the actions of a number of multinationals who look to gain relative tax jurisdictions for tax advantage. What we see most commonly of course is using inter-party - related transactions offshore to move money effectively to a tax jurisdiction that's more efficient for them to artificially play with where they would otherwise have a place of operation.The work of the Finance and Expenditure Committee on this piece of work has been very good has been very constructive—as you would expect from a bill like this that has cross-party support in its broad parameters. I came into the consideration of the bill part-way through and so it's certainly been very interesting to hear the contributions from my colleagues Paul Goldsmith and Andrew Bayly and David Carter and others who are still to speak.I want to thank the Minister for making genuine attempts to address the questions that are raised—[Interruption]—no no I mean that very genuinely. I wasn't trying to have a dig Mr Nash. It is very helpful when we see a Minister in the chair who is clearly keeping track of the questions that are asked and is trying to address them and I think Mr Nash will take some comfort in the fact that similarly on this side of the House we want to see this legislation simply in as good a shape as it can be. It started as our legislation it's now yours—not yours Mr Chairman of course—but there is a genuine interest in making sure we have it right.The part of the bill that I wanted to focus on in this first call is around another aspect of the transfer pricing rules and Mr Carter obviously has made some comments around the grandparenting arrangements that are part of that and also the operation of the advance pricing arrangements. The piece that I particularly wanted to talk about is the change that the select committee was quite interested in and I personally had quite a lot of interest in which was around the time bar for bringing actions under the transfer pricing mechanisms. For the hundreds of thousands of people who I'm sure are listening away at home what we're talking about here is exactly the situation I described earlier where related parties are using the ability to set the cost of arrangements between them in a way that effectively allows them to move profits offshore. So that might be—obviously it could be a debt instrument which is the most obvious one where interest rates are set. But equally it can be things like management fees between related parties it can be royalties arrangements—there can be any number of ways in which this is done.The IRD of course have a very genuine interest in making sure that there is adequate time for them to understand and drill into what are very complex arrangements between very highly lawyered up—to use a technical term!—firms who have access to a wide range of accountancy advice and legal advice to help them make these transactions look as legitimate as possible. We all acknowledge that there's quite a piece of work in that. No one is by any stretch of the imagination suggesting that that is an easy or a non-complex piece of work and that they are not dealing with some very very able and adept and well-resourced combatants. So there's no question I think between us on the nature of the mischief to be solved.So where we start: transfer pricing arrangements have been in place in New Zealand obviously before this legislation. In this legislation we're making some tweaks around the way they apply to when a number of foreign investors work together as a controlling bloc to control a New Zealand company—all of which is very sensible subject to the comments my colleagues have made. But previously the time bar for the IRD to bring and complete an investigation and issue a notice of a changed tax liability was four years—four years from the end of the tax year in which the alleged behaviour occurred. Under this piece of legislation the IRD wanted of course to extend that out to seven years.Now there was quite a wave of submission opposed to this change from the major taxpayer groups—you know there was Chapman Tripp the Corporate Taxpayers Group EY Russell McVeagh PricewaterhouseCoopers KPMG ASB Powerco. There was quite a long list and so it was an issue that really concerned taxpayers in New Zealand. I don't think any of them certainly disputed the fact that the IRD needed to look into these and have a complex and effective way of going about it and as I say neither did the committee. But we really drilled quite hard with the officials saying Look do you really need seven years? Is there not something in what the submitters said where they're right?"—that actually these are complex detailed transactions. They're not one-off; they're year-on-year transactions and actually taxpayers do need the certainty of knowing what their tax position is.The position that the committee got to was a bit of hybrid. We took the officials at their word that four years wasn't going to be long enough for those taxpayers who are playing a bit of cat and mouse and not being as forthcoming as they could and we certainly don't want people to be able to avoid IRD scrutiny through being non-compliant. In the same way though we also took from the submitters that actually to leave every taxpayer exposed for up to seven years where there could be a review is an extraordinary imposition. It doesn't provide the sort of certainty that taxpayers want and it puts a huge amount of more cost and complexity into both the prosecution of the behaviour but also the defence of it.So where the select committee got to was to say that the IRD should be able to extend to seven years only if they have commenced an investigation during the four years and have notified the taxpayer that it would be seven. You know we can argue whether that was the right balance but that's where the committee got and I'm comfortable with that.Where I'm concerned though Mr Nash is that the way the bill has actually landed in front of the House—and I'll refer you to where clause 36(4) inserting new section GC 13(6) in the Income Tax Act provides the assessment—it doesn't actually do what the select committee thought it was doing and it certainly doesn't do what the select committee commentary says it is doing. The select committee commentary makes it quite clear that the select committee wanted the change to say that the time period could only be extended if an investigation had been commenced and the taxpayers were notified. The change in the bill in clause 36(4) simply requires the IRD to notify that they're extending the time. That's not what the select committee agreed at all. The select committee did not sign up for a situation in which the IRD could potentially under this legislation serve as a matter of course on every taxpayer a notice that they're extending the time period and it would automatically become seven years. We went through this in quite some detail and in a very collegial and bipartisan way to try and get that right balance between fairness to the officials and fairness to the taxpayers. And where we landed—you can check for yourself; the select committee commentary is very clear on this—is that the IRD would be required to have commenced an investigation and to have advised the taxpayer of that.Hon Stuart Nash: That's still the case.Hon AMY ADAMS: The legislation the way it's written—and I can read it out for the Minister who's saying that's still the case. The legislation as it's written makes it very clear that the only thing required for the IRD to extend the time is if at any time during four years "the Commissioner notifies the taxpayer that this subsection applies." That means Mr Nash that in every case potentially the IRD could issue a form letter to every taxpayer saying they were extending it. Now that is not what the select committee said so I really want to hear from the Minister in the chair. He's just indicated verbally that that's still the case. I can utterly assure you on the reading of that legislation it is not the case and if the Minister is not able to point me to the provision in the bill that says the IRD may only extend it where an investigation has been commenced and is under way then we're going to have to come up with a tabled amendment to make sure that the bill as in front of this committee reflects what the select committee instructed to be in the bill and what the select committee said in their report was the intention of the amendments. I can assure you right now that is not what was said and it is very very far from what the committee intended.Look it might seem like a small point. But actually this is a change that is—not only does it speak to whether the bill in front of us reflects the direction that the select committee gave it and the select committee report but it's also a very important point in getting that balance right between the reach and power of the State and the right of taxpayers to have certainty and have some conclusion to their legitimate affairs to know when they can put these issues to bed and when they do come up to have the resources and ability to look into them and defend them and for the IRD simply to address them.So these are important points Mr Nash and I make them very genuinely. I really do think this committee now needs not simply a statement that it's all fine; I think this committee needs quite specific reference to the line item in the bill that makes it clear that there is something required of the IRD beyond simply saying "Well we're extending the time period." because that is not enough."