Dunne Peter: Taxation (International Investment and Remedial Matters) Bill — Second Reading 
Text is incorporated into the Bound Volume 
Dunne Peter: Taxation (International Investment and Remedial Matters) Bill — Second Reading 
[Sitting date: 08 February 2012. Volume:677;Page:247. Text is incorporated into the Bound Volume.] 
Hon PETER DUNNE (Minister of Revenue) 
: 
 I move  
That the Taxation (International Investment and Remedial Matters) Bill be now read a second time 
. The measures that this bill contains continue the reform of New Zealand’s international tax rules that has been under way for some years now to help New Zealand-based businesses compete more effectively overseas by removing undue tax obstacles to their overseas-based operations and by bringing our tax rules into line with those of other countries.  
This bill was introduced late in 2010 and the reforms themselves kicked off in 2009 with the Taxation (International Taxation Life Insurance and Remedial Matters) Act which introduced an active income exemption for foreign companies controlled by New Zealand investors. The term “active income” refers to income from activities such as manufacturing while the term “passive income” refers to income such as interest royalties or rent.  
The reform has been designed to encourage businesses with international operations to remain in New Zealand while enabling them to compete on an equal tax footing with their competitors in foreign markets. Previously a New Zealand company’s active income from its offshore subsidiaries was taxed by New Zealand whereas other countries would not impose such a tax on their companies. So the current bill takes this process one step further ahead by reforming our international tax rules through a number of further measures to remove tax obstacles to business and investment by New Zealanders operating offshore.  
The first of these changes extends the active income exemption to joint ventures into other significant New Zealand shareholdings in foreign companies that are not controlled by New Zealand firms. Under the provisions in the bill New Zealanders with stakes of 10 percent or more in offshore companies will not be subject to New Zealand tax on those interests unless they earn passive income such as interest royalties or rents. To minimise compliance costs for these businesses an active business test will apply and that test will remove the need to calculate and to attribute small amounts of passive income.  
Other changes in the bill further rationalise or extend the earlier international tax reforms. The current exemption for non-portfolio foreign investment funds in the eight so-called “grey list” countries is being replaced with an exemption for non-portfolio foreign investment funds—or FIFs—that are resident and subject to tax in Australia. The “grey list” is probably the final hangover of the tax reforms in the international arena from the 1980s. I well recall at the time when changes were first being mooted the Hon Dr Michael Cullen as the then Minister of Finance making the comment to officials and others that this was an instance in a parody of  
Star Trek 
 where New Zealand had gone where no one had chosen to follow. In many senses what this legislation is doing is carrying through on that change and rationalising the concept of our international tax structure to more accurately reflect where a number of major New Zealand investments occur.  
There is one other area where the bill also makes a significant change with regard to a potential barrier for non-resident investment: the area of New Zealand corporate bonds. In 2009 the Capital Market Development Taskforce recommended that the approved issuer levy—or AIL as it is commonly known—be reduced from 2 percent to nil for corporate debt that is publicly issued. This bill achieves that recommendation by providing a nil rate of approved issuer levy in respect of interest paid on corporate bonds that are widely traded in New Zealand and that meet other criteria.  
The bill does contain some other technical amendments. These are largely remedial in nature aimed at removing certain unintended consequences of following the earlier reforms. On that note I wish to advise the House that I will shortly be releasing a Supplementary Order Paper to correct some minor drafting oversights in both Budget 2010 and Budget 2011 legislation that did not update some numbers and some dates.  
In bringing this bill back before the House for its second reading I am grateful to the previous Finance and Expenditure Committee for the detailed consideration that it gave the bill and for the recommendations that it made at the time for further refining and clarifying its content. In that respect I note particular changes that have been made to the active business test to make it easier to apply by using accounting information.  
The changes in this bill on the whole are very positive news for New Zealand companies with overseas interests and for investors generally and that in turn will help play its part in New Zealand’s overall economic recovery. It is therefore with a great deal of pleasure that I commend the Taxation (International Investment and Remedial Matters) Bill to the House.