Bayly AndrewANDREW BAYLY (National—Hunua): Thank you Mr Chair. First of all I just want to acknowledge Minister Nash. This is how good laws are made—when we have an interactive situation in committee of the whole House where we have a Minister who's engaged knows his topic and actually wants to respond. So I do want to commend him.One of the issues we haven't discussed tonight—we've been talking a lot about interest rates a lot about interest rates and of course by lowering interest rates or making them high that's how you can reduce tax that a New Zealand subsidiary branch associate or whatever will pay to its foreign parent. The other side of the coin is around thin capitalisation rules. I'm sure that Mr Chair is an expert in this topic. But I just thought I would just highlight some of the issues around that.Before I do that I think it's useful just to explain to some of us—perhaps for people listening—what we mean about thin capitalisation". In essence if you have a company you might have a very low ownership share—or what's called equity—and shove in a whole lot of debt. So your debt to equity ratio is very high. That's obviously a way to reduce the tax burden because if you've got a high amount of debt and charge interest on it then as my colleague the Hon Paul Goldsmith said you can reduce the profits of the company and that's what we're trying to stop with this base erosion and profit shifting (BEPS) bill tonight. Normally it's expressed as debt to equity or debt to assets.So just to put it another way if we have a debt to equity ratio of 1.5 to 1 that means we've got debt of 1.5 to 1 of equity or basically for every $3 of debt we've got $2 of equity. Or turning it around another way that's 67 percent gearing. Of course in this bill the maximum permitted debt is set at least than 40 percent as my good colleagues over here know very clearly. In Australia as I said before it's set at 60 percent and we've already got that inconsistency.So there are five things I want to say about thin capitalisation. The first one is something that was raised by Chapman Tripp and Chartered Accountants Australia and New Zealand and that is the issue around the subtraction of value of non-debt liabilities from a firm's asset base for the purposes of determining thin capitalisation rules. Of course their view was that this actually shouldn't occur under the BEPS rule as it does not currently result in taxpayers exceeding commercial levels of debt. The officials' response to this actually was that the submitters are correct and that this proposition is not part of the OECD's BEPS recommendation. However the officials added that ever since the inception of Australia's thin capitalisation rules those rules have subtracted non-debt liabilities in the same way that is being proposed in this bill.I just think we've talked earlier about principles about making sure that we have the same sort of approach as all the other countries that are going to adopt the BEPS arrangement around the world because that is the strongest way of making it happen. The most important trading partner of course is Australia and already we've got a little bit of difference showing up in that. So I would appreciate some views from the Minister around the issue of non-debt liabilities being subtracted.The second issue is how they're treated and PricewaterhouseCoopers submitted that the treatment of non-debt liability proposals should better reflect how the company uses them. So for some companies they will have a different approach than others. If you're a trading company the way you approach your assets will be different from a mining company. I'll tell you what it's very interesting looking at the mining arrangements which is that the lenders may want to take into account the deferred tax liabilities—or DTLs as they're referred to—or perhaps remediation provisions. So if you're doing mining activities—let's say oil—Alastair Scott: Oil and gas.ANDREW BAYLY: —oh!—in those extractive industries there is always a requirement that at the end of the working period of that mine you actually pick up the liability for what goes on—[Time expired]"