Nash StuartHon STUART NASH (Minister of Revenue): I move That the Taxation (Neutralising Base Erosion and Profit Shifting) Bill be now read a third time. I'm very pleased to see this bill reach its third reading because it's an important bill for New Zealand. I'm proud that this Government introduced this bill in December last year following on from the work done by the previous Government. To give credit where credit's due the Hon Judith Collins did some good work in this space. It's also very gratifying to see this bill pass its second reading with wide support in the House. It addresses tax avoidance. This bill addresses base erosion and profit shifting or BEPS as it is referred to. It is the problem of companies operating cross-border and using aggressive tax structuring to reduce their tax bill in countries like New Zealand. BEPS distorts investment and threatens the integrity of tax systems all over the world and it also means that Governments lose out on tax revenue. Unlike smaller domestic companies and individuals large companies with cross-border structures can exploit BEPS opportunities to get around tax bills. The goal is to make company taxes more transparent and even in their application. Companies should pay tax somewhere and ideally in the right country and of course if they're operating in New Zealand they should pay tax in New Zealand. It is not in the interests of New Zealand businesses and individual taxpayers if multinational companies can avoid paying taxes in New Zealand or elsewhere so tackling BEPS issues is critical to ensuring the integrity of our own tax system. The OECD and G20 have led the charge on this issue. They developed a 15-point action plan and released final recommendations in 2015 to combat BEPS. The action plan is an upgrade of the international tax framework to account for BEPS strategies that can be used by sophisticated multinational organisations. New Zealand has been part of those discussions at the international level in working out how to ensure that multinationals pay their fair share of tax. In fact David Bradbury the head of the OECD's tax policy and statistics division recently said that he was—and I quote—very pleased with the strong support that New Zealand had provided to the BEPS project". We actually bat way above our average when it comes to work in the OECD and I congratulate our Inland Revenue Department officials for the fantastic work they have done both here and globally. This bill builds on New Zealand's strong international tax framework which includes rules regarding the taxation of New Zealand - controlled foreign companies and the thin capitalisation regime. The result of our strong framework is that New Zealand is already somewhat better placed when weighed up against the OECD-recommended standards. This is not of course any reason to be complacent. Most multinationals operating in New Zealand pay the tax they should and are compliant but there are some that adopt BEPS strategies to undermine their New Zealand tax obligations. So in certain areas there's still clearly work to do in protecting the New Zealand tax base through domestic law.The measures in this bill therefore are aimed at specific BEPS strategies known to be operating in New Zealand while striving to maintain the attractiveness of New Zealand as an investment decision. We canvassed this quite a lot in the committee stage and I think we arrived at a pretty good space cross-party.This BEPS package can be broken down into five key measures. The first one is interest limitation rules. The use of debt is one of the simplest BEPS strategies: multinationals with excessive levels of debt or related party debt with high interest rates have large interest deductions leaving little taxable profit in New Zealand. The bill reduces the ability of multinationals to artificially inflate their interest rate on loans to their New Zealand subsidiaries by adding new rules around credit rating of the New Zealand subsidiary and by ruling out exotic features not typically found in arm's-length borrowing.The second one is the permanent establishment avoidance. The existing international tax framework restricts the ability of a country to tax a business unless that business can be said to have a permanent establishment in the country. I understand this can be a little bit technical but this is the very nature of international tax legislation. But unfortunately this permanent establishment concept can be manipulated by multinational firms. The bill will therefore prevent a multinational from dodging tax on its sales to New Zealand customers in cases where those sales are booked in an offshore company despite being generated by salespeople who work in New Zealand.The third area is transfer pricing rules. Transfer pricing rules guard against multinationals using related party payments in order to shift profits offshore often to low- or no-tax countries. The bill proposes amendments to strengthen the transfer pricing rules so they align with the OECD's transfer pricing guidelines and Australia's transfer pricing rules.The fourth area is hybrid branch mismatch rules. Hybrid and branch mismatches arise from the exploitation of differences in the tax treatment of an entity branch or instrument under the laws of two or more countries. To address this issue the bill contains new OECD-designed rules that prevent this particular type of BEPS strategy by denying tax deductions under the relevant transactions. These hybrid and branch mismatch rules are aligned with already enacted rules in the UK and a recently introduced bill in Australia.Finally administrative powers: we are providing Inland Revenue with additional administrative powers so the new rules can be used effectively. To be more specific the bill will empower the Commissioner of Inland Revenue to investigate a multinational by obtaining relevant information held by an offshore holding company or headquarters. The bill will also facilitate the assessment and collection of tax and penalties in cases where a multinational fails to cooperate with an investigation.These are sound measures that are tailored to the New Zealand context while being largely in line with the OECD G20 BEPS action plan. The measures will ensure that multinationals pay tax based on the actual economic activity they carry out in New Zealand. This will improve the integrity of the tax system considerably. In order to achieve its intent the bill amends the Income Tax Act 2007 and the Tax Administration Act 1994. The Government wants to see progress in this space quickly. The bill's proposals have been well consulted on and will apply from 1 July 2018—a little over two weeks from now.Estimates from Inland Revenue are that the bill will result in an extra $200 million of tax revenue every year once the measures are fully phased in. This means a gain for other Government priorities—areas like health and housing—but ultimately this is a matter of fairness: multinationals paying their fair share of tax in New Zealand.In bringing this bill to its third reading I would like to thank the policy and drafting officials for all their hard work. As mentioned this has been a complex process and is a very very complex piece of legislation. I would also like to pay tribute to the organisations and individuals who submitted on the bill. The submissions made by tax professionals and members of the public on our taxation bills are very useful and welcome and we all get a better tax system as a result.I'd also like to thank my fellow parliamentarians that sit on the Finance and Expenditure Committee for their engagement with what was undoubtedly a complex set of provisions in the bill. The fact that they read all the submissions and their deliberations has meant that we have a better piece of legislation than when it went before the committee.Michael Wood: We enjoyed it.Hon STUART NASH: I'm sure you did enjoy it Mr Wood—I'm sure you did. There's more coming your way.Finally I would like to give a particular thanks to the advisor to the Finance and Expenditure Committee for providing such excellent assistance to the committee members. Therese Turner does an absolutely brilliant job and I think she is a true treasure and we love her dearly. It is therefore with great pleasure that I commend this bill to the House."