Dunne Peter: Taxation (International Investment and Remedial Matters) Bill — In Committee 
Dunne Peter: Taxation (International Investment and Remedial Matters) Bill — In Committee 
[Volume:677;Page:450] 
Hon PETER DUNNE (Minister of Revenue) 
: 
 I thought it would be helpful for the Committee if I just outlined the process and the history to date of the reform of New Zealand’s international tax regime and also made some comments about the approved issuer levy. The change— 
Hon Shane Jones 
: Tell us about Tony Gibbs. 
Hon PETER DUNNE 
: Well that is actually a different piece of legislation altogether and the reality if the member wants to know is that that legislation has now run its course and Mr Gibbs and his company have accepted the outcome. 
But let me come back to this Taxation (International Investment and Remedial Matters) Bill. We began around 2007 during the term of the previous Labour Government a reform package of New Zealand’s international tax rules. What happened in the 1980s was that New Zealand took the stance of taxing all New Zealand entities on their worldwide income in New Zealand. It was a stance that was not replicated in many other countries and we have begun a process of change which has had many facets to it to try to modernise and bring into line with contemporary practice our international tax rules. Members who have been here a while like my colleague who interjected a moment ago will remember the fair dividend rate debate a few years ago which was again part of this change. This bill takes further the steps that we introduced in the previous international tax bill about bringing in the active/passive distinction for income earned offshore for New Zealand companies which meant that active income earned offshore would not be taxed in New Zealand alongside the country in which it was taxed. That would create a greater incentive for those companies to stay resident in New Zealand. 
The issue of the approved issuer levy similarly has a long history. The Capital Market Development Taskforce which was established in 2008 recommended to the Government in 2009 that the approved issuer levy be reduced from 2 percent to nil for some public issues of debt held by New Zealand residents. And that is what this bill does; it actually reduces the rate from 2 percent to zero. It does not actually get rid of the approved issuer levy per se. The reason for doing this is to boost the development of the bond industry in this country and to make sure that bonds that are traded in this country become a relatively cheaper source of corporate finance which helps to level the playing field so that we no longer have domestic bonds being disadvantaged relative to bank loans in offshore funding. What happens at present is that when a New Zealand resident borrows from a foreign lender for example they become subject to non-resident withholding tax on the interest payment and that can be at 15 percent or 10 percent depending on the nature of the tax treaty that the country of origin of the loan has with New Zealand. But it can be in certain circumstances reduced to zero and in lieu of that the borrower pays the 2 percent approved issuer levy. 
When the approved issuer levy was introduced about 20 years ago the main aim was to reduce the tax that was imposed on loans that were from unrelated parties but since that time concern has been constantly expressed that the existing tax settings really contribute to the shallowness of the bond market in New Zealand and discourage the issuance of bonds to non-residents. So what the bill does is pick up the recommendations of the Capital Market Development Taskforce introduce the zero rate of the approved issuer levy and also ensure that we actually have strict criteria to prevent loans syndicated lending private placements and other forms of closely held or non-traded debt from qualifying for the zero rate. 
This is a very specific measure falling within the overall package of international tax reform. When you take them together aggregate them with the changes that have been made previously they bring New Zealand’s international tax approach into line with what most countries now follow. We were previously the outrider. We were the country that had the “grey list”. We were the country that had a whole range of rather antiquated and unusual provisions. We have now come into the mainstream with this set of measures. It will position New Zealand business well for the future. It also actually helps retain a measure of our own economic sovereignty but ensures that New Zealand becomes a more competitive place and a more attractive place for both offshore investment and also for New Zealanders doing business from here in offshore markets. I think it is no great surprise that this bill is supported widely around the House because it is a positive step forward. It will be eagerly awaited when it takes effect shortly after 1 April this year.