Cunliffe David: Taxation (International Taxation Life Insurance and Remedial Matters) Bill — In Committee 
Cunliffe David: Taxation (International Taxation Life Insurance and Remedial Matters) Bill — In Committee 
[Volume:656;Page:5996] 
Hon DAVID CUNLIFFE (Labour—New Lynn) 
: 
 In taking another call on the Taxation (International Taxation Life Insurance and Remedial Matters) Bill I will firstly recap on two matters discussed earlier. The first is that I was at pains to stress the rushed nature of the process—and those comments still stand—but I omitted to acknowledge which I should have done the extensive and dedicated work of the officials the cooperation across the Finance and Expenditure Committee the excellent job the chair did under trying circumstances and the sterling work of the independent tax adviser Therese Turner and the drafting adviser David McLay both of whom did a very very good job for us in difficult circumstances. I would like to get that on the record. 
The second thing I will recap on briefly is the debate we have had about petroleum mining. I echo the statement made by my colleague Mr Burns that the Chamber is not the place for discussing the affairs of individual taxpayers and that the Labour Party like several other parties has refrained from doing so. However I also reiterate what we think are important principles that we hope following the comments made by the Minister of Revenue officials will take into account when considering the affairs of any taxpayer caught by this transitional provision. 
A long-held principle that is particularly important with regard to tax legislation is that we do not have non-taxpayer-friendly retrospective effects. There is a clear agreement that the effect of the rules as with all of the bill goes back to 4 March 2008. It is therefore a common law question for resolution if necessary about whether any particular taxpayer had a contractual situation that predated that point. If that situation can be established then my Labour colleagues and I take it—and I understand that this is the view of the Minister and I see officials nodding—that therefore the presumption at least is that it follows that any company in that situation would not be caught by the provisions that follow. That is a good starting point. I think we have an effective consensus at the level of principle that is independent of any particular taxpayer and that is all I will say on the matter in the Chamber. 
So many aspects of the bill merit consideration by the Committee that I hope it will entertain further discussion on them. I mentioned in my earlier brief contribution the “grey list” rules and the foreign tax review. That is a particularly important area for New Zealand when our current account deficit is climbing as steeply as it is and much of that deficit is made up of a financial deficit of about $8 billion out of $12 billion. It is therefore essential that we understand the impact of tax law on those financial flows. 
With regard to the substance of Part 1 the bill provides an active business test for controlled foreign companies. Controlled foreign companies that pass the test will not be required to attribute any income to New Zealand residents. Controlled foreign companies pass the test if less than 5 percent of their gross income is deemed to be passive income. The bill defines passive income. In the legislation it is referred to as the attributable controlled foreign company amount and it is central to the new controlled foreign company rules. 
The definition may apply in the first instance if the active business test is to decide whether a controlled foreign company is active or passive and thus whether it should be exempt from attribution. It is primarily used when the controlled foreign company fails the active business test and if that occurs then the controlled foreign company has to attribute its passive income as defined in the legislation unless the controlled foreign company is resident in Australia. It is an important principle underlying the redesigning of the rules that we need to reflect the special economic relationship with Australia and that harmonisation where practicable and in New Zealand’s national interest is desirable. 
I come now to the interest allocation rules for outbound international investment. Amendments are made to Subpart FE of the Income Act 2007 that extend the existing interest allocation rules to New Zealand residents. Interest allocation rules that have an income interest in a controlled foreign company have been extended unless the company has 90 percent or more of its assets in New Zealand or less than $250000 of interest deductions—that is in clauses 154 to 174 and clause 408. 
There is a foreign dividend exemption for companies. The bill provides in general an exemption from tax when most foreign dividends are received from companies and there are extensive clauses on that matter ranging from clause 5 in Part 1 through to clause 515 of Part 1.