Robertson Grant: Taxation (Residential Land Withholding Tax GST on Online Services and Student Loans) Bill — In CommitteeText is incorporated into the Bound VolumeRobertson Grant: Taxation (Residential Land Withholding Tax GST on Online Services and Student Loans) Bill — In Committee[Sitting date: 12 April 2016. Volume:713;Page:10401. Text is incorporated into the Bound Volume.]GRANT ROBERTSON (Labour—Wellington Central): I think my colleague Phil Twyford was making some very good points there. The Finance and Expenditure Committee was told when considering the bill that the quantum that the Inland Revenue Department thought it would be able to gain from the brightline test had not changed from what we had initially been told which was the whopping sum of $5 million a year. It also concluded in its assessment to us that it was going to cost about $2 million to set the whole thing up so things are not looking good in terms of the scale of income from such a weak instrument as this.I want to return to the definitional issues around “offshore person”—or in fact an offshore residential land withholding tax person or “offshore RLWT person”—as is now included in clause 45(8). There are two reasons why I want to do that. The first of those is that I am not sure that everybody listening to this debate will fully understand the definition and who is captured by this. Then once we have clarified what that definition is I want to raise a couple of questions for the Minister in the chair the Hon Michael Woodhouse around who is considered a person in terms of a trust.The definition in clause 45(8) would tell you that for the purposes of this bill a residential land withholding tax offshore person is a person who “is a New Zealand citizen who is outside New Zealand and they have not been in New Zealand within the last 3 years:” or “the person holds a residence class visa … and they are outside New Zealand and have not been in New Zealand within the last 12 months”. That is actually a very important point in the context of who is considered by the Inland Revenue Department at any given moment not to be a New Zealander for tax purposes—to be an “offshore person” for tax purposes. The idea that those who hold residence visas—and there are many New Zealanders who have lived here for a very long time but do not have citizenship—you have to have not been here for only 12 months. It is actually a very tight provision. I wonder whether the Minister wants to let us know whether that reflects other parts of tax law in terms of that. Then you have 3 years for a citizen and the third class is a person who is obviously not a New Zealand citizen and does not have a residence class visa.So we have set up there who the offshore person is—and as I say I think a lot of New Zealanders would perhaps be surprised to learn that if they have a residence class visa but they have been away for 12 months they are no longer considered to be this and they then fall under the provisions within the bill here. But then if we go further into the definition we see that “a person that is a trustee of a trust if—(i) more than 25% of the trustees of the trust are offshore RLWT persons:”—and then—“(ii) more than 25% of the people that have the power to appoint or remove a trustee of the trust or to amend the trust deed are offshore RLWT persons:”.Here we get into the inconsistencies that are now emerging in our income tax law about exactly what is considered here to be an offshore trust. When we have got under the foreign trust rules that you can establish yourself and claim to be an offshore person or be an offshore person and simply have a trustee who is set up to run the trust for you as a means of avoiding tax—Mr Bennett is poised because he wants to get up and talk about people who avoid tax—that is the danger in having a range of definitions about who an offshore person is across different parts of our legislation and that is now effectively created here in the definition in clause 45(8).But then we move further down in clause 45(8) and we get into what I think is perhaps an even murkier area and one that the Minister in the chair might want to take a call on. We see that we are talking now about people who are offshore residential land withholding tax or RLWT persons. The select committee has inserted the words “the person is a partner in a limited partnership or an owner of an effective look-through interest in a look-through company (LTC) and more than 25% of the partnership’s partnership shares”are effectively held by offshore residential land withholding tax persons.The rules around look-through companies were changed in this House in 2011. They were changed by the Government in such a way that those look-through companies could be zero-rated for tax purposes. That is the heart of the concern that a lot of New Zealanders now have about the massive growth in foreign trusts because those look-through companies sitting alongside foreign trusts are part of the combo pack that Mossack Fonseca has been selling to its investors.David Bennett: He’s not even on the bill.GRANT ROBERTSON: It is the great combo pack where you can get away without paying any tax whatsoever and one of those parts Mr Bennett I say for your benefit is a look-through company that is now zero-rated for tax purposes. In this clause if more than 25 percent of the people who have an interest in one of those look-through companies is an offshore person for residential land withholding tax purposes then that look-through company is considered to be a person under this bill. That is setting up yet another situation in which look-through companies could potentially be exploited.Given what has been happening in terms of the release of the Panama Papers and given what has been happening here I think the Minister in the chair might want to get up and tell us whether he is confident that we have the arrangements around look-through companies and that he is confident in terms of putting them within this definition of who an offshore residential land withholding tax person is.We did not discuss I have to say in the committee whether or not that was a sufficiently tight definition or whether there are sufficient safeguards when it comes to look-through companies but I do know that that change has been critical in the growth of foreign trusts that are being used for tax evasion purposes in New Zealand. There is absolutely no doubt because when you put foreign trusts alongside look-through companies which can be zero-rated in New Zealand for tax purposes that we—I am sure Mr Chair the frown on your face might indicate that there is a point at which I am going a little beyond the bill here but I think it is a relevant consideration because the rules around look-through companies are now the subject of international attention and here we are making a change to how they will be used in terms of defining offshore persons for residential land withholding tax. I think it is a legitimate question to be asked. Clearly the fact that property is owned in New Zealand by one of these look-through companies may mean that that is less of an issue but that is something that the Minister might choose to have something to say about in a moment.As I still have the call the other point that I will make at the moment is around the question of the information requirements. This is clauses 44 and 45 again. It is important to note that when we considered these matters in the select committee there was a belief that the information requirements for New Zealand taxpayers were clearly stated and understood but not necessarily by those who were offshore persons. A series of changes has now been made to ensure that we do have that level of information.Again this is an issue of consistency for the Government—consistency around whether or not information requirements across the Income Tax Act and the Tax Administration Act for offshore persons are consistent. It is quite clear to me that because the Government has relooked at these particular provisions around residential land withholding tax it has created a series of information requirements in terms of what information must be provided to the Commissioner of Inland Revenue. There is now new section 54C in the Tax Administration Act inserted by clause 72 and subsection (4) will require vendors to provide at the very least their full name address and IRD number and to state whether or not they are an offshore person. If they are an offshore person the vendor must also state whether they are associated with the purchaser and whether the disposal of the residential land is or would be considered income under the brightline test—ignoring the brightline test’s home exemption.There again you have now a series of things that an offshore person must do under this piece of legislation that we are passing right now tonight. But those offshore persons have a completely different set of requirements and disclosures under other parts of our tax law particularly those around foreign trusts. So once again although this might be the right thing to do to enable the implementation of this residential land withholding tax it sets up in my mind a series of inconsistencies in the law about disclosure and information that I think New Zealanders would want to see ironed out. As other colleagues have stated the heart of our tax system is that it is fair that it is easy and simple to understand and that people are treated fairly. I think we run the risk with clauses like this that we highlight a particular type of offshore person—