Smith Lockwood: Taxation (International Taxation Life Insurance and Remedial Matters) Bill — First Reading 
Smith Lockwood: Taxation (International Taxation Life Insurance and Remedial Matters) Bill — First Reading 
[Volume:648;Page:17383] 
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
: 
 In—[ 
Interruption 
] What was that comment? I note the arrogance of Dr Cullen who is very happy to let people know that he was a Commonwealth scholar and did a PhD. He should acknowledge that some other people in this House were also Commonwealth scholars. 
In introducing the Taxation (International Taxation Life Insurance and Remedial Matters) Bill to the House just now the Minister of Revenue Peter Dunne commendably emphasised the positive aspects of this bill but he brushed over the aspects that impose very real extra compliance costs on New Zealand businesses. Despite that National will support this legislation going to the select committee. We support it because there are a number of important moves in it that we see as being very positive. For example we support the move to the introduction of an active income exemption in respect of the income tax treatment of controlled foreign companies or corporations. We support the introduction of tax deductibility for regular payroll donations to charity. It makes good sense. We support the increases to tax thresholds such as the provision for once-monthly payments of PAYE instead of twice-monthly for businesses whose annual PAYE deductions are under $250000 rather than $100000. We support those measures because they make good sense just like the increase in the threshold for the filing of GST returns on a 6-monthly basis does. For that process to be available in the future to businesses with an annual turnover of less than half a million dollars rather than a quarter of a million dollars makes good sense because it will reduce compliance costs. 
Those three measures are positive moves but it is so typical of this Labour Government that on the one hand it gives but because it cannot bring itself to let go of any tax revenue on the other hand it must take away. It just cannot help itself. Let me give members an example of what I mean. The Minister mentioned the active income exemption as one of the most important aspects of this legislation. That is a good move. We support it because it makes good sense and it is consistent with the way that most countries treat their controlled foreign companies. But what of the extra compliance costs for business associated with the shrinking of the grey list from eight countries down to one? I am not saying that that should not be done but we should think about the compliance cost implications. What about the competitive disadvantage we face from repealing the conduit rules? Now other countries that have an active income exemption still have rules like the conduit rules. Does that place us at a competitive disadvantage? What about the extra compliance costs associated with the introduction of the interest allocation rules? We know why the Government is moving to introduce those interest allocation rules but what about the compliance costs? It is no good for the Minister to say on the one hand that all these measures reduce compliance costs—for some of the measures do—when on the other hand a whole range of other measures actually significantly increase compliance costs for businesses. 
The point I am making is that members will need to listen carefully to argument at the select committee to make sure that these issues are very carefully considered because they have significant ramifications for the competitiveness of our foreign-owned corporations and for the control of our foreign-owned corporations. I emphasise that it is not a clear-cut situation where all of this is simply reducing compliance costs. There are measures there that are increasing compliance costs and challenging our competitive position and we need to listen to what the arguments are at the select committee. 
If the interest allocation rules are complex—and they are—I invite members to have a look at the taxation of life insurance businesses that this legislation changes. One of the positive measures—and there are positive measures here as well as I have said before—is the extending of the benefits of the portfolio investment entity rules to all savers in life products. That is a positive move. On the one hand we are giving this positive move but on the other hand the Government seeks to take away because the increased tax imposition on underwriting of risk business for example will probably see premiums go up. People will benefit on the one hand from the portfolio investment entity rules being extended but on the other hand they will face higher costs because insurance premiums will probably go up. The legislation will be complex. There will be compliance issues here. If one looks at the way shareholder base income provisions and the policyholder base income provisions are defined in the legislation and look at the way insurance businesses will necessarily require actuarial apportionment of income between those two accounts one will see that there will be significant changes to their accounting and tax systems at a time when insurers are already dealing with portfolio investment entities and KiwiSaver legislation as well as the changes to the financial reporting standards internationally. 
We have a complex set of provisions around the income tax treatment for life insurance businesses. If anyone suggests that it will not be complex I say they should just take a look at the provisions. They should take a look at the allocation of income between those two base accounts—the shareholder base income account and the policyholder base income account—and look at the way money will have to be apportioned between the two actuarially. That will impose compliance costs and again the select committee will need to listen carefully as to how serious these increased compliance costs will be. I notice Michael Cullen the Minister of Finance laughs as if compliance costs are all a joke. I say to the Minister that these compliance costs are real. Business are making it very clear that these costs are real. He risks a very important aspect of New Zealand business activity if he thinks all of this is just a joke. [ 
Interruption 
] It is not a joke. Compliance cost is real. Little Darren Hughes next to the Minister would not have a clue because he has never had a real job in his life and would not have a clue what some of this stuff actually does. We need to listen carefully at the select committee. 
If some of these complex provisions are not enough to fry one’s brain one should have a look at the new base protection provisions around the “associated persons” provision. Apparently the Government is concerned about the land sale tax rules for land dealers developers and builders caught by the old 10-year rule and I suppose the Government is concerned that where one has associated persons it is possible to get soft deals minimising the tax liability that they should face. We have no problems with these issues being addressed but we must make sure that the benefits we get out of them are not less than the additional costs that we impose over these businesses. These associated person provisions are complex. If any member does not think they are he or she should have a look at how they will work and explain to the House how the tripartite tax associated person provision works—it is complex. We will need to look at it very very carefully at the select committee. 
If that is not enough the new tax provisions for the emissions trading units will be interesting. The Government does not have this legislation through the House yet but this bill contains the new tax provisions for those emissions trading units. Again forestry interests will face some complex issues. For some reason or another some of the forestry interests will be under the provisions of the Income Tax Act 2004—not the current Income Tax Act 2007. I would not mind if one of the Government members would explain why we still have to amend the Income Tax Act 1994 the Income Tax Act 2004 as well as the Income Tax Act 2007. I thought we had rewritten all the income tax Acts and brought all the provisions together into the 2007 Act. But no certainly the forestry interests under the emissions trading provisions in this legislation will be operating under the Income Tax Act 2004. That is a complexity and I would like someone to explain why on earth that is necessary. One of the positive things though is that at least the emissions trading units will be zero-rated for GST purposes. 
So we can see that these are very complex issues. There is a balance of positive moves but there are other measures that will impose significantly increased compliance costs. The select committee is in for a lot of work on this bill.