Wood MichaelMICHAEL WOOD (Labour—Mt Roskill): Following on from six minutes of Andrew Bayly's best I'm going to give 10 pretty solid minutes I think on this very very important bill and actually add some substance to the matter. This is an important bill the Taxation (Neutralising Base Erosion and Profit Shifting) Bill. Why is it important? Well tax touches a whole lot of things. I'd actually like to start at the very base of this issue. To me this is actually very much a moral issue. It's about the rights and obligations that we have to each other in this country. I think what has concerned a lot of people over recent years not just in New Zealand but around the world has been this notion that very very large very very wealthy very very powerful corporations can utilise aggressive tax planning to avoid the obligations to the society in which they operate.So the reality here in New Zealand is that for the very most part we welcome the operation of multinational companies in our country. They often bring valuable goods and more commonly very valuable services to New Zealand consumers and those are good things which enhance our quality of life. But they do operate within the context of our society. They benefit from the fact that we have an established legal system in this country. They benefit from the rule of law. They benefit from the infrastructure. Be it roads be it public transport or be it telecommunications all of those things the multinational companies who operate in New Zealand benefit from. So the moral argument here is that having benefited from those investments having made profit out of them there is an obligation back to the society in which they operate. Of course the reality is that the person working down at the local factory the person sweeping the streets and the person working in an office just down the road here on Lambton Quay—those folks will generally pay their taxes. The person running a small business a lawn-mowing run—they'll generally pay their taxes to contribute to those things. Yet we have some very very large and powerful corporations who have been avoiding that here in New Zealand and around the world.What was really interesting was the range of submissions that we received in the Finance and Expenditure Committee. The submissions were useful and I thank all of the submitters in fact because we received many many considered submissions. But across the vast majority of them there was a recognition of the problem. I actually want to just read this out from Deloitte which I think was quite representative of the tone of a lot of the submissions. Now they often went on and said We think these things need to change in the bill. We don't think you've got this quite right. Have you thought through that fully? What about this? What about that?" but they all started out with this basic premise—or most of them anyway. This is what Deloitte says: "We agree that [the] Base Erosion and Profit Shifting … by multinational enterprises is a major concern undermining tax authorities and stoking public feelings of unfairness. We appreciate that the Government is committed to taking decisive action to address BEPS issues to maintain the integrity of the New Zealand tax base."I think that's notable because I don't think five years ago we would necessarily have had major corporates coming to a select committee and saying "Yes we think there's something wrong here and the rules need to change." But that's what we had from Deloitte and many many other submitters to the select committee. I think that is a tribute to quite a lot of people in the political world in the third estate and out there in civil society who've been raising these serious issues around multinational tax avoidance for quite a number of years.One of those organisations is Oxfam New Zealand and we had a good submission from them as well. They were encouraging us to go even further with a number of areas. They reminded us that generally very credible estimates estimate that New Zealand's probably losing somewhere between $200 million and $500 million worth of tax revenue because of multinational tax avoidance per year. The Tax Justice Network estimates it could be as high as $1 billion and I think between the previous National Government and this Labour Government we've estimated a range of around about $200 million to $300 million in forgone revenue per year. So that's why we need to address these issues. This is forgone revenue that could be supporting our health system our education system our infrastructure and it's about maintaining the fairness the integrity of the tax system. In fact the Tax Administration Act reminds us that the Inland Revenue Department has a duty to protect the integrity of the system because if people see organisations over here ripping off the system then what's the onus on them to play by the rules? That's important. It's important that we get that right.I do need to acknowledge that this is a complex bill. You get that when you look at the bar 2 version of the bill that's before the House. It's one of the ones that's not stapled; it has to be spiral bound. There have been a lot of changes made at the select committee and can I acknowledge the other members of the select committee for the very positive and constructive work that we were able to engage in with our officials. Can I also acknowledge the independent adviser to the select committee Therese Turner who gave excellent advice to the select committee around this bill.In fact Therese said that in her 30 years of looking at tax legislation this is the most complex tax bill that she has come across. I know that for those of us on the select committee who are not subject matter experts—and that's I think about 12 out of 13 of us—having her advice her really pragmatic advice was incredibly useful. She is the adviser who will say to us "Well OK maybe this is OK for your Apples and your Googles of the world but what about a New Zealand business person who wants to set up a little bit of a chain over in Australia or in the Pacific Islands? How's this going to affect them? Are they going to be able to understand this when they look at it? Is it going to work for them as well?" That's an incredibly invaluable contribution that I would like to acknowledge.The key areas that the bill addresses and these have been touched on in a couple of the previous addresses—we've got the issue of related party debt. This is a really important issue when it comes to base erosion and profit shifting. It's one of the major ways in which multinational organisations can avoid paying a legitimate share of tax. It's sort of the loading up of a subsidiary organisation with a significant amount of debt often at very high interest rates which means that effectively the interest payments mean that no profit is made in the host country. That's a significant issue that the original bill attempts to deal with and I'll touch on some of the changes made at the select committee soon.The issue of hybrid mismatches where we have rules that are slightly different across different tax jurisdictions—people who know what they're doing and are good with their tax planning can take advantage of their tax rules to end up basically paying tax in none of those jurisdictions and obviously that's something that we can't just fix here. We need to work with our partners on this. That's why the Labour Party has always said that yep we need to do our own thing in New Zealand. We need good legislation here. We need to go after the bad guys who aren't doing the right thing in this area but we do need to have a strong regime that is linked up with our partners in the OECD. It's only by working together that we can really work on these issues. Actually this legislation comes out of that work substantially and largely brings us into line with the OECD guidelines.The issue of permanent establishment—this is incredibly important. It's when we have companies—not exclusively but particularly in the tech sector they've often been identified—that kind of create this sort of mirage or fiction that they're not really extant in New Zealand. Even though they might be doing millions of dollars' worth of business and earning millions of dollars of profit here in New Zealand they're able to structure their operations to say that there is no permanent establishment in New Zealand. I'll just note that in terms of the bill we're talking about applying new permanent establishment rules to the big guys—to multinationals that have got a turnover of over €750 million per year which is the benchmark set at the OECD level.If you want to bring it down to a really simple level the bill—and I think it's in one of the schedules at the end—sets out what permanent establishment looks like. It's actually a bit of common sense about looking at whether there is a genuine operation here in New Zealand that is carrying out business interests and earning profit. Is there an office? Is there a factory? Is there a quarry operating? Some of these things are listed in the schedule. You can kind of go from there and you can work out—or the Inland Revenue Department can work out—whether there's a permanent establishment here.And then the issue of transfer pricing: this is where the parent organisation overseas might charge management fees or a royalty or some other such payment which effectively means that revenue is artificially sucked out of the New Zealand operation making it look as though it's not really profitable at all and therefore not liable for taxation. So the bill deals in different ways with all of these matters.I want to touch on a couple of the key changes that the bill did make in the remaining time I have. The two that were of particular interest to me—we had questions and concerns from submitters around the significant powers that the Inland Revenue Department has in these matters. The department does need to be empowered but we as a Parliament also need to make sure that those powers are appropriately tempered and used appropriately.So for the issue of the time bar for transfer pricing issues—this was in the original bill to extend it from four to seven years which I believe would bring us into line with Australia. But there were real concerns that even though these investigations might take a long time and there needs to be a decent amount of time for the IRD to carry them out. If you're an organisation and potentially six years and nine months after an original transaction took place you can suddenly be told that you're in the gun that was pushing the boat out a bit too far. So we said to IRD "OK seven years to complete them but you have to start and notify the organisation within four years." I think that was an important change.The final thing I just want to say is: is it working? I think it's going to work. One of the submissions was from Google and they basically said in their submission that because of the work that's going on because these issues are being taken more seriously particularly around permanent establishment they're starting to change their practices. So I think this is a win for this Parliament. It's been a bipartisan and multipartisan effort around the House."