Cunliffe David: Taxation (International Taxation Life Insurance and Remedial Matters) Bill — Second Reading 
Cunliffe David: Taxation (International Taxation Life Insurance and Remedial Matters) Bill — Second Reading 
[Volume:656;Page:5421] 
Hon DAVID CUNLIFFE (Labour—New Lynn) 
: 
 We have just heard from the Minister of Revenue who gets a lifetime achievement award for bringing the Taxation (International Taxation Life Insurance and Remedial Matters) Bill to the House in his capacity as Minister of Revenue—indeed the same capacity in which he launched the bill in the previous Government. That is extraordinary. We have the same Minister despite a change of Government giving birth as it were to the bill and seeing it now through the legislative process. Perhaps it should be called the “Charles Chauvel Lifetime Achievement Award” because he is here to ensure that this is probably the last time the Minister has this august opportunity. 
I would like to echo the Minister’s words thanking the officials who have worked tirelessly on this bill. It is a huge bill—the second-largest tax bill that I have seen in my time in this House. It would not have been possible without the dedication and the deep and broad expertise of a very expert team of officials from the Inland Revenue Department’s policy team some of whom are represented in the Chamber. I acknowledge also the good work of the Finance and Expenditure Committee chairman Craig Foss and the other members of the committee who did a good job of bringing together a range of expert advice on some 60 very complex submissions on this bill. 
But there the compliments for the moment shall cease because it remains a fact that this was a very imperfect legislative process as we went down to the wire to report back on this bill. It was imperfect because of the breadth and depth of the provisions of this omnibus bill some of which we will mention shortly. The pressure of time on the select committee meant that in my heart of hearts I questioned whether the members were able to fully discharge their duty to this House and to the public as they worked their way through the detail of the bill. As a consequence they became reliant to a high degree on the esteemed professional advice from our independent tax and drafting advisers and from officials. It was not an improper process but it was a process under the pressure of time which I would not want to see repeated any time soon. 
This bill makes important changes to taxation law. It provides for the fundamental reform of one of the most complex areas of tax law the international tax regime. For years now we have had a “grey list” of countries that have a broad range of exemptions from the controlled foreign company rules. That area has been substantially reformed in this bill as we move to a more systematic set of rules which provide for a range of exemptions so that New Zealand is not an uncompetitive domicile for capital that is internationally mobile. We will talk some more about that. 
This bill aligns life insurance taxation rules. The accounting treatment of life insurance profits will follow more closely the life insurers’ savings products. The bill provides for payroll giving which is of course a boon to our charitable sector at a particularly important time of pressure on that sector. We around the House commend that change. It provides for the taxation of emissions units both Kyoto and non-Kyoto units. That distinction remains important although both will be treated the same. It relaxes somewhat the definition of associated persons a matter that the select committee spent considerable time on. Topically today of all days the tax treatment of relocation payments has changed. I see some raised eyebrows on the Government benches when I mention relocation payments; perhaps relocating from Southland to Wellington might come to mind? 
Hon Dr Jonathan Coleman 
: What about Ponsonby to New Lynn? 
Hon DAVID CUNLIFFE 
: That is absolutely fine I say to Mr Coleman. The tax treatment of relocation payments is covered in this bill and so are the rules around petroleum mining. The bill includes changes to the Screen Production Incentive Fund and a number of other changes. 
This bill focuses on several of the reforms to reduce tax costs that were brought in by the previous Labour Government. The bill as we mentioned transcended the change of Government. It was brought to this House by the incoming Government because the content is largely apolitical; it is either technical or taxpayer-friendly. It is designed to update our tax law for a more modern environment. But in some regards where the bill raises certain tax thresholds it is not immune from controversy. Although the particular tax thresholds have been deleted from the bill now as they were rendered redundant by the passage of the Taxation (Business Tax Measures) Bill it is also true that that bill ensured that 3 percent of taxpayers benefited from a third of the tax cuts and that 71 percent of taxpayers missed out because one had to be earning over $40000 to qualify. That is nobody’s definition of either good equity or indeed good stimulus at a time when both are sorely needed in our economy. 
With that nod to another debate I will return to the substance of what is in this bill. Let me say again that in respect of associated persons there was considerable soul-searching by the committee. All members got their heads around the detail of it. I commend officials for showing us various charts of various tax structures which helped us understand what was at issue. The amendments were designed to avoid the unintended consequence that relatives or other formally defined associated persons are penalised for their association with others the contents of whose tax affairs they could not possibly or need not possibly know. The bill avoids those unintended consequences by reducing the stringency of the tripartite test. The select committee wrestled with an equal and opposite risk: that in relaxing those rules it was possible to become too relaxed and thus not catch people who should be caught by an associated persons rule. We all acknowledge that the implementation of this provision will be very important and that the ongoing supervision and monitoring by our officials will be important. We will need in future to get further reports on how the provision is travelling. 
Let me return to the other area that the committee spent the most time on the international tax rules. Those really are key provisions related to controlled foreign companies. They are set out in one place in the legislation to make them more accessible—this of course being a question of degree. The select committee recommended some technical amendments to the accounting-based active business test for controlled foreign companies to reduce the cost of applying the test. It talked about currency conversion rates; royalty payments as active incomes; and allowing an active controlled foreign company to pay royalties interest and rent to an associated controlled foreign company without the associated controlled foreign company having to recognise any passive income. The bill allows a full deduction for interest paid by a controlled foreign company for a loan that is on-lent to associated controlled foreign companies. 
We quite quickly get to layers of complexity that reflect the ongoing game of poacher and gamekeeper. Many private entities of course hire the very very best tax advisers to ensure that their tax is minimised and their so-called tax efficiency is maximised. The Crown’s officials are required to stay one jump ahead. This bill strikes a reasonable balance between the need to remain internationally competitive and the need to provide clear rules that will allow the tax base to be preserved. 
As we mentioned the bill talks about life insurance business general insurance and risk margins. It covers matters such as the tax treatment of petroleum mining and tax pooling rules which further facilitate the efficiency enhancing measure. It covers the GST treatment of transactions relating to emissions units. The bill covers both Kyoto-based and non - Kyoto-based units. Both units for reasons of simplicity and coverage are the subject of the provisions of this bill. But it is important to note that not all emissions units are created equal. We do not want the public in the future to be in any doubt that the select committee had its head round the idea that there are different levels of risk attached to different layers of emissions units. But we did not on balance believe that was such as to require a difference of tax treatment in that regard. 
To sum up this bill is large and hideously complex. It has had a long gestation. The Minister has brought it to the House after having been present when it was first launched. We owe a great deal of debt to our officials and our advisers but we do not want a repeat of the time pressure of the process that the legislative process was put through to have this bill reported back to the House today.