Bennett David: Taxation (International Investment and Remedial Matters) Bill — First Reading 
Bennett David: Taxation (International Investment and Remedial Matters) Bill — First Reading 
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DAVID BENNETT (National—Hamilton East) 
: 
 I rise to take a short call on the Taxation (International Investment and Remedial Matters) Bill. 
H V Ross Robertson 
: Sure you’ve got the right bill David? 
DAVID BENNETT 
: I am sure I have the right bill and members on the other side of the House should take note of this bill. It shows that the Government is working effectively to provide the economic base that will deliver this country the brighter future it was promised. 
H V Ross Robertson 
: Tell that to Jonathan Coleman. He needs to know. 
DAVID BENNETT 
: Members of the Labour Party get a bit interested when they hear those words about a brighter future as those words put them in their place in this Parliament. 
This bill is an important taxation bill. It extends the active income exemption introduced in 2009 to offshore subsidiaries. Essentially controlled foreign companies or CFCs as they are known in taxation terminology are the subject of this bill. The other name that is used is foreign investment funds which also are part of this bill. It applies to joint ventures and other significant shareholdings in foreign companies that are not controlled by New Zealanders—non-portfolio foreign investment funds. Effectively this means that the active income exemption is now being extended to joint ventures and other significant shareholdings. That is in contrast to the other form of income known as passive income which is typically interest royalties and such like. Under the rules only passive income derived by New Zealand shareholders in offshore companies will be subject to New Zealand tax. 
For those looking at the bill for the first time I say that the point of difference with this bill is the active income and passive income distinction. Active income would be a company that is earning money from producing a product—for example manufacturing it overseas—and passive income means income that one receives without actually having to do anything to get the money except to have it invested through something like interest royalties or rents. That is the important first distinction the bill applies to. The second part of it is the nature of the ownership and the taxation of that ownership. Essentially for active income the point of taxation will be in the country where that active income is earned rather than being treated as taxable in New Zealand but passive income will be taxed in New Zealand. That is the general thrust of what this bill is about. 
The reason it is being done in that way is that passive income is typically seen as investment income so New Zealanders would be taxed on it. That is a choice that investors have when making those investment decisions. Active income is seen as probably needing to be on a more level playing field taxation-wise in the countries in which one is earning that active income because one has effectively got a manufacturing or other kind of service site there. With the measures in this bill we are giving a stronger and more sustainable tax system to New Zealand and we are providing an impetus for growth. We are putting New Zealand taxpayers on a level playing field with their international competitors. It is important for the economic growth element of a better future for New Zealanders that we make these changes. 
There are some other changes in the bill as well. The bill extends and rationalises the 2007 international tax reforms so that there is consistency between types of foreign investments. There is a percentage that is used as a threshold to determine the 5 or 10 percent thresholds for taxation whether the bill will apply to the form of income or not. Another big part of the bill is the exemption for Australia. Previously we used to have a foreign investment fund that had a “grey list” of countries. Typically the eight “grey list” countries were ones that were typical New Zealand trading partners. This bill is taking that down to just Australia as the exemption. That is in line with modern practice within this country. There are also some rules on capitalisation to avoid the incentive for people to stack debt against New Zealand operations overseas. That is part of stopping any taxation or tax planning where people try to avoid taxation by taking advantage of these rules. There are a few other minor amendments in the bill as well. 
Essentially this bill will create a level playing field for a taxation base—and active-passive income is a huge part of that—and to make sure that controlled foreign companies and foreign investment funds are treated in a manner that enables New Zealand investors and businesses to grow. Thank you.