Cunliffe David: Taxation (International Taxation Life Insurance and Remedial Matters) Bill — In Committee Third Reading 
Cunliffe David: Taxation (International Taxation Life Insurance and Remedial Matters) Bill — In Committee Third Reading 
[Volume:657;Page:6638] 
Hon DAVID CUNLIFFE (Labour—New Lynn) 
: 
 It is a pleasure to take a call in the resumed Committee stage of the Taxation (International Taxation Life Insurance and Remedial Matters) Bill. The Labour Opposition concurs with the Government’s motion to have the remaining parts taken as one question in order to facilitate a more coherent and general discussion. It is also perhaps appropriate to note that in contrast with some of the other legislation that has been debated in the last few days this bill genuinely needs urgency for the sake of clarity to taxpayers and proper tax planning. 
This bill makes some important changes to taxation law but in doing so has represented very poor legislative process. It provides for the reform of international tax rules with the intention of making New Zealand residents with active businesses in overseas markets compete on an equal footing with their competitors. It aligns life insurance taxation rules closer to the accounting treatment of life insurance profits and at the same time it extends portfolio investment entity rules to life insurers’ savings products. The bill provides for payroll giving to enable the establishment of a flexible system and manageable compliance costs. The taxation of emissions units is provided for—we might say thankfully in the light of recent decisions given the loss of the cap from the “cap and trade” system. 
The definition of “associated persons” is reformed. Tax thresholds are raised to reduce compliance costs for small and medium sized businesses. That was a particular priority of the outgoing Labour Government which put this bill in place. The tax treatment of relocation claimants and overtime meal allowances for employees is clarified. The bill includes changes to the income tax rules for petroleum mining—a matter much discussed earlier in the Committee stage. It provides for the new film grant the Screen Production Incentive Fund and it makes a number of other changes. 
This bill is being debated under urgency again today. Labour supports the bill but it is very concerned about the rushed process for the bill. The major Supplementary Order Papers were delivered late without sufficient time to properly consider them. It is a huge and complex bill; I am advised it is the largest tax bill ever outside the rewrite legislation. The deadlines were rushed denying members proper and sufficient time to consider its provisions and there was a general lack of sufficient time to fully consider the immense levels of detail in the bill. For that reason the Finance and Expenditure Committee was very reliant on professional tax advice. 
The process was imperfect because of the breadth and depth of the provisions in the omnibus bill and the select committee therefore had the following to say in its report: “The size of the bill and the depth and breadth of the material it covers have made our consideration more difficult than it might have been otherwise. In trying to meet the report due date for the bill we and our committee consideration processes have been put under considerable pressure. We do not consider it desirable to put a number of very distinct and significant proposals into one bill simply because they relate to one area of law.” That is reasonably strong language in the formal context particularly in the context of the Finance and Expenditure Committee’s commentary on tax legislation which is a matter normally reserved for the driest of the dry as the Minister in the chair Peter Dunne will no doubt attest. 
There are several very important substantive areas in the bill. The first that I will mention in summary today is the definition of “associated persons”. There was extensive discussion of these provisions and right around the select committee there was an agreement that we had a common aim: to ensure that genuinely associated persons were covered so that they could not evade tax and that the rules be tightened to avoid unintended consequences for those whom the association was tenuous or who could not have been expected to know about a particular investment or tax liability of a person deemed to be associated. We appreciate the Minister of Revenue’s willingness to discuss those changes through his officials with the committee. I think and all members of the committee think that good work was done in that area and we thank officials for working in detail through those provisions with us all. 
The main bulk of the bill is associated with the international tax rules. It is an incredibly important and complex area particularly as the world is globalising. As we all know the factors of production and therefore much of our tax base is becoming more mobile and effectively harder to tax. It is for that reason amongst many others that we await with interest the outcome of the Government’s Tax Working Group as we look forward to an ongoing discussion about the optimal balance between different forms of taxation in that regard. This tax legislation modernises the international tax rules particularly in respect of controlled foreign companies—for example to “ensure that key provisions relating to CFC rules … were set out clearly in one place in the legislation.” The select committee recommended “technical amendments to the accounting-based active business test for CFCs … to reduce the cost of applying the test.” It also recommended that “for the purpose of the tax-based active business test consolidation be permitted only when the taxpayer has an income interest of more than 50 percent in each of the CFCs to be consolidated.” The amendments will “allow an active CFC to pay royalties interest and rent to an associated CFC … without the associated CFC having to recognise any passive income only if the CFC and the associated CFC were liable for tax in the same jurisdiction.” So there is some tightening there. There are a number of like rules around controlled foreign companies which were important for the committee to get its head around and are important to modernise because they reflect the changing nature of business practice in this incredibly globalised environment. 
There was discussion of the taxation of life insurance businesses and the select committee recommended a number of amendments to make the proposed provisions clearer and more flexible. For example “all direct and indirect expenditure incurred by a life insurer would be deductible in the shareholder base.” and “in relation to non-life insurance policies life insurers are able to claim a deduction for movements in the outstanding claims reserve.” The amendments ensure that “where a life insurer has overpaid tax on the life office base under the existing rules the overpayments would be carried into the new rules and could be used to satisfy tax liabilities arising on both”. It is fair to say that the committee in closed session also considered in some detail some particular aspects of the rules that applied to particular aspects of the sector. I will not go into the details of that for obvious reasons but I simply note that the committee spent considerable time with officials clarifying a matter that was of some interest to some in the industry. 
There was an extended discussion both in the select committee and on the floor of the Chamber of the tax treatment of petroleum mining. Several members have raised this issue in terms of a taxpayer-specific matter so I will not repeat the taxpayer-specific element. I will say that the committee wrestled with the need to avoid multinational oil companies ripping New Zealand’s tax base off by literally hundreds of millions of dollars by for example attributing to its New Zealand profits the cost of debt incurred in foreign jurisdictions. The Labour Party wants to go on record as supporting to the nth degree the Government’s moves to track this practice down and stop it. Not only is it totally unjustifiable but it is literally robbing the New Zealand taxpayer and beneficiaries of much-needed revenue. We certainly encourage the Government to pursue the transfer pricing and transfer attribution of cost by multinationals in this regard. 
A particular case of the reverse could potentially have been caught inadvertently: a New Zealand company that was investing offshore may have been caught by an unintended potentially retrospective element if indeed it had entered into a contract before the effective date of the announcement of this provision. We are taking the Minister and officials at their word that we will be able to work through in good faith with that taxpayer on the basis of the common law a position that reflects the common view of the committee that this was not the primary issue that the provision was designed to solve and that we were wary as is longstanding parliamentary practice of any retrospective element that operated to the detriment of New Zealand business. 
There are many many pages of detail that I could go through. I have touched upon the main areas of work. There are many others that other members will want to touch on. I will however refer to the fact that we got quite a lot of last-minute Supplementary Order Papers. Perhaps because I am a former Minister I always take a very dim view of officials not providing to the Minister in sufficient time material that then ends up having to come through the Minister to the floor of the Chamber as a Supplementary Order Paper.