Watts Simon; O'Connor GregTAXATION (ANNUAL RATES FOR 2023-24 MULTINATIONAL TAX AND REMEDIAL MATTERS) BILLSecond ReadingHon SIMON WATTS (Minister of Revenue): I present a legislative statement on the Taxation (Annual Rates for 2023-24 Multinational Tax and Remedial Matters) Bill.SPEAKER: That statement is published under the authority of the House and can be found on the Parliament's website.Hon SIMON WATTS: I move That the Taxation (Annual Rates for 2023-24 Multinational Tax and Remedial Matters) Bill be now read a second time. The purpose of this bill is to set the annual rates for income tax for the 2023-24 tax year. The bill also makes proposals to improve the current settings for a broad based - low rate framework. Public consultation is an important part of the tax development process and it is also equally important to the parliamentary process. As reported back from the Finance and Expenditure Committee the bill contains a range of adjustments as a result of public feedback. These adjustments have strengthened the bill and I wish to acknowledge the members of the Finance and Expenditure Committee across the House for their input into this bill.I would like to briefly touch on the more significant changes that have been made to the bill since its introduction. The centrepiece of the bill is a measure aimed at reducing the benefit to multinational corporations of profit shifting. Under the existing setting some countries have attempted to attract economic activity by offering multinationals low effective income tax rates. This is particularly problematic when the income is from cross-border capital investment or the use of intellectual property. It has helped contribute to base erosion and profit shifting where a multinational can achieve low or even no taxation by shifting their profits to low-tax jurisdictions.To tackle profit shifting the OECD has led the development of a global minimum tax the GloBE rules which ensures that large multinationals at least pay 15 percent tax on their mobile income where it is earned. Adoption of the GloBE rules by a critical mass of countries will help reduce the profit-shifting pressures on countries like New Zealand with higher corporate tax rates without preventing the use of tax incentives to attract real investment. Now that it is clear that a critical mass of countries will be adopting these GloBE tax rules we are proposing in this bill to enact dates for its imposition by the New Zealand Government. On 1 January 2025 the income inclusion rule and under-taxed profits rule will be enacted and on 1 January 2026 the domestic income inclusion rule will be enacted.The GloBE rules are extremely complex. Rather than enacting them directly into our legislation we are proposing law that will make sure that these rules are modelled through and developed in effect with the OECD countries along with New Zealand. This is the best approach to ensure that our rules are internationally consistent while keeping the Government's implementation and administration costs low. Crucially future Governments remain free to disapply any future updates to the OCED's commentary or guidance on the GloBE rules which affect their application so there's no loss of sovereignty involved. Another significant measure in the bill is the trustee tax rate proposal. Following consultation and public submissions we have made a number of adjustments to this proposal. While most trusts will be unaffected by the proposals in the bill there did remain a risk of over-taxation of trusts with lower-rate beneficiaries and settlors. That is a crucial point because over-taxation can't be determined by looking at the income earned by the trust but only by reference to the income of settlors and the beneficiaries in the trust. Inland Revenue estimates that there are at least 400000 trusts. In 2022 approximately 76000 trusts paid taxes at the trustee tax rate. To help mitigate the risk of over-taxation we are proposing a $10000 trustee income de minimis. This will mean that a further 27000 trusts will not be affected by the 39c tax rate. Based on this only 12 percent of all trusts would be affected by the 39c tax rate. This reduces the risk of over-taxation while also addressing the vast majority of the under-taxation of trustee income. Trusts in estates with up to $10000 in trustee income in an income year would continue to be subject to the 33 percent tax rate. Trusts with over $10000 in trustee income in an income year would be subject to the 39c tax rate on all income. At the committee's recommendation disabled beneficiary trusts would be taxed at 33 percent instead of a 39 percent personal tax rate. We are also simplifying and expanding the proposals relating to estates. An estate would continue to be taxed at 33c in the dollar for the year of death plus a further three years. We're also making sure that energy consumer trusts and legacy superannuation funds are excluded from the 39c tax rate.The committee also made a number of recommendations to improve the fairness certainty and consistency of tax treatment. For instance to improve the current proposal on the tax treatment of backdated lump-sum payments from ACC and Ministry of Social Development the committee recommended including backdated lump-sum payments for attendant care and related to the Cyclone Gabrielle in North Island flooding event relief measures the committee made a number of recommendations including adding the August 2022 Nelson flood buy-out to the list of events covered by turning off the brightline and other timing tests. The committee was also concerned at the potential for overreach in the proposed charities and the deregistration tax integrity measures. They therefore recommended providing relief when assets are transferred to other New Zealand tax resident exempt entities and deferring the application date. Along with these there are a number of other smaller policy matters which have been suggested by policy officials in response to issues brought to them by third parties. This is good news. It shows that the Inland Revenue is working in collaboration with the private sector and with the wider Public Service in order to improve efficiency. An example is the new proposal relating to the Ministry of Disabled People.District health boards and the Ministry of Health had historically made direct funding for disability support payments to their clients. The Income Tax Act provides an income tax exemption for these payments. However due to an oversight the exemption was not correctly updated to reflect the fact that the newly established ministry was now responsible for administering some of the direct funding disability support payments. This means that those support payments won't technically meet the requirement for the exemption. The remedial amendment makes these payments exempt and has retrospective application to July 2022 as these payments were always intended to be exempt.Similarly Health New Zealand has taken over contact tracing from the Ministry of Health. Inland Revenue shares information with the Ministry of Health to help make more efficient processes and procedures; however that arrangement cannot continue for the purpose of the legislation enabling such sharing of information for Health New Zealand as it was not referred to as a Government agency. For the purposes of information sharing the bill therefore proposes adding Health New Zealand to the definition of a Government agency.Another adjustment to the bill is a proposal to provide more certainty to the early payment discount offered by the IRD. This intends to encourage businesses to pay their taxes in the first year. Inland Revenue applies interest to unpaid tax bills which is known as the use of money interest. That interest charged depends on the economic conditions of the entity. The application rate for this discount has moved more often than was envisaged in recent times and due to economic conditions this has created uncertainty for taxpayers and has undermined the ability of an early payment discount to incentivise voluntary tax payment by businesses in their first year. To maintain this incentive the bill proposes tidying up and ensuring the early payment discount rate for the use of money interest at 31 March of the preceding income year. This would be applied to the 2024-25 and later income years.As you can see this is a comprehensive complex and detailed tax bill. There have been significant changes and modifications as a result of the Finance and Expenditure Committee working across party lines in order to listen to feedback from a large number of people making consultation and inputs into this bill. It is important to note that many of these changes that were made by submitters to the select committee have been very carefully and diligently considered by the select committee and as a result have been reflected in the bill which we are tabling in this House today. That is an appropriate use of parliamentary time. That is an appropriate mechanism and it is a good example of how legislation can and should be improved by a select committee process and again I acknowledge those members of that committee for their contribution. I commend this bill to the House.ASSISTANT SPEAKER (Greg O'Connor): The question is that the motion be agreed to.