Bayly Andrew; Tolley AnneANDREW BAYLY (National—Hunua): I was enjoying that speech so much; I'm surprised it ended so quickly.Kieran McAnulty: Speak off the cuff mate!ANDREW BAYLY: I am. So it's an absolute pleasure to be talking on this the third reading of the Taxation (Neutralising Base Erosion and Profit Shifting) Bill. Of course as I think many people alluded to this was one of the most complicated tax bills to come before not only the Finance and Expenditure Committee but also this House for quite some period of time. Its genesis had longstanding roots. Going back to the days when National was running the country—well I may say and of course we had an Opposition baying for blood that we weren't doing enough—one of the issues that did come to our attention and was noted in the media was the issue of tax and making sure that everyone was paying their fair share of tax. Of course we all need to pay our fair share of tax.What this bill is is a very good bill promoted initially by the Hon Todd McClay and then by the Hon Judith Collins. So in effect it's a National bill but I do have to acknowledge the Hon Stuart Nash for seeing this through to completion and to seeing it into the House having its third reading tonight. What this is about is actually meeting our OECD requirements around profit shifting. I know there's been a lot of discussion about it but essentially what profit shifting is is multinationals who have operations in New Zealand using means to otherwise reduce their profit. Those means might be that they take on an extraordinary amount of debt more than what would normally be required and consequently they have a high interest cost. Therefore that's why the profit is reduced and that's why the profit in the New Zealand entity and the tax that the New Zealand entity pays are lower than they should be. The other way is around high interest rates and that's another way of reducing the profit and therefore the tax.Another way is transfer pricing. What I mean by that Madam Deputy Speaker because I know you're an expert on this is how international companies with New Zealand subsidiaries use the price transfer rate for the products or services that are transferred between countries. How you price that is a way and can be used as a way to minimise profit and therefore tax. Other ways are around how the multinational might impose a high management fee on their New Zealand operation and again that reduces profit and therefore tax. These are all mechanisms that sophisticated companies use around the world—not just in New Zealand of course—to minimise tax and they take those profits back to low-tax jurisdictions often called tax havens and therefore that's where they account for the profit.Obviously what this bill is about is making sure that New Zealand is not disadvantaged. Now the whole process to get to the point today followed an OECD process which set about working with a whole lot of countries around the world—principally the OECD but it's not limited to that—to come up with a group of policies and rules to make sure that multinationals couldn't shift their profits around and therefore artificially lower their tax requirement. New Zealand played quite a role in leading those discussions and this is what has come about over I would think probably a three-year process now maybe even longer to get to this point. Of course there were a lot of people saying Come on hurry up! Do it. You need to do something." And of course we were keen to do something but the result of this bill is more than just New Zealand meeting its requirements; it is actually New Zealand meeting its requirements in the context of everyone in the major international community also meeting theirs and putting in similar rules because only when you have a web of countries putting in these rules will they have the effect that we need to make sure comes to pass.So there was a lot of discussion around this bill. We made a lot of changes and I think one of the things—I'll just summarise: the bill really deals with high artificial interest rates and debt levels which I've talked about. Also it deals with the issue of what's a permanent establishment in New Zealand. Of course Government members might be asking themselves "What does that mean?" So what that means just to help some of the members in the House is that in terms of how a multinational may operate in New Zealand it has various options that it can use. It can form a subsidiary company; it might set up a branch structure; it might have a sales representative office; or it might even use some other non-corporate - type structures like partnership arrangements. Depending on how they are deemed—whether they are a permanent establishment or not—it makes it difficult in terms of assessment of profit. Part of the changes we were clear about in the bill was: what is the definition of a permanent establishment? In some cases multinationals achieve a lot of profits in New Zealand just by having a sales office. So one of the rules for instance is that if a multinational has sales of more than €750 million and they have a sales office in New Zealand that is deemed a permanent establishment and therefore is caught by the taxation rules around this.Also as I talked about there is inappropriate transfer of pricing arrangements and using what's called hybrid and brand mismatches to exploit tax situations. Again mismatching or use of hybrid instruments—I see you're looking at me Madam Deputy Speaker so I thought I'd just clarify that small aspect for you. So what that might mean is there is a big difference between using terms or instruments such as a debt instrument—a loan or a debt instrument of some sort—or an equity instrument such as buying some shares. In between you have what are called hybrid instruments. They might be for instance redeemable cumulative preference shares which means that the dividend is cumulative. There is a dividend but it may be redeemable for a debt instrument. There are a whole lot of permutations.I could keep going on about a whole lot of hybrid instruments but what those are what they mean is that in some countries what you might do is make sure that the instrument looks like it's a debt instrument and therefore the interest cost is deductible in New Zealand but when you take the other side of the ledger because accounting always has debits and credits as we all know—Rudyard Kipling—on the other side it might be a multinational with its head office or its regional office in Australia. In that jurisdiction it is treated as an equity instrument and therefore you have a mismatch between the two countries of where the tax is paid and where it's deducted. Those are hybrid instruments and that's where you have the mismatch. This—the bill—seeks to clarify some of those mismatch arrangements.I think the big change we made was the one on the rights of the IRD to be able to go to multinationals—and it might be a smaller sales office as I said—and say "We want all your information and we need you to present it to us." We made a change around those rules. Previously the initial draft was that it was very Draconian. We said "No there needs to be some more rules around that to make sure the IRD has appropriate powers to request that information." But you couldn't necessarily sue a salesman in New Zealand both from a civil and a criminal perspective for failing to provide some of that information; so we limited it just to civil.The other one was the rights of IRD to actually challenge a multinational's tax position in New Zealand. Initially they asked for seven years. We believe that was too long. At the moment their rights are not that and so what we did is we put in place an arrangement for the IRD so that they would have to notify the multinational within four years that they were going to make a claim or dispute a tax calculation and then at the end of the four-year period they could have that notification of dispute and then they'd have a further three years to take the action and clarify it.So part of it was making sure that the IRD has the right powers to go and enforce and get the tax revenue that New Zealand is justifiably entitled to and on the other side to make sure that the powers of the IRD are appropriate and warranted and I think we ended up with a great bill. I'd like to acknowledge the officials I'd like to acknowledge all the submitters and I support the bill.DEPUTY SPEAKER: The next call is a split call. I call Michael Wood."