Nash Stuart: Taxation (Annual Rates for 2015-16 Research and Development and Remedial Matters) Bill — In CommitteeText is incorporated into the Bound VolumeNash Stuart: Taxation (Annual Rates for 2015-16 Research and Development and Remedial Matters) Bill — In Committee[Sitting date: 01 December 2015. Volume:710;Page:8448. Text is incorporated into the Bound Volume.]STUART NASH (Labour—Napier): That was a rousing speech from Mr Cosgrove. In fact he is right on this and it is a shame that the Government actually does not put up its hand and take on board what he is communicating.There are a couple of things—not large things—I would like to talk about on this bill. It will not be a long call but I would like to talk about clause 230 inserting new section 70C. We heard a lot in the Finance and Expenditure Committee about how the Inland Revenue Department (IRD) wants to move to an electronic way of doing business. That is admirable; there is no doubt about that. But it is quite interesting that in statements in return to research and development tax loss credits it says: “A person must file by electronic means”. I guess we can assume that if someone is picking up research and development tax credits then they are going to be au fait with the way of the world in the 21st century—i.e. fully electronic—but I wonder whether at this point in time what we do is we do not deem that they must file by electronic means. Maybe we just give them a touch up and say they “may” or they “should” because when we have legislation I always look at words like “must” “may” “should” etc. and they give me an indication of what the legislative intent is. Often if it says “may” then it gives guidance. If it says “must” then obviously it prescribes it—this is how it has to be done.I just wonder whether at this point in time we do not say “must” and we should say “may” to give the person an option. It is making an assumption that the person who is pulling down research and development credits is not necessarily dealing with computer software or something high tech. They may still be dealing in the backyard putting together a really innovative idea for the 22nd century but they are still on a paper-based system. In this case they must deal with research and development tax credits through an electronic scheme.What I would really like to talk about and something that did take a little bit of the select committee’s time is clause 232B. What this is talking about is officers maintaining secrecy. If we look at clause 232B what it basically says is that nothing shall prohibit the Commissioner of Inland Revenue to communicate with an officer employee or agent of the Callaghan Innovation fund for the purpose of administering subpart MX of the Income Tax Act 2007. The reason this took up a bit of our time is that when we were talking about research and development tax credits we were not too sure about what was defined by research and development and what was not. So the IRD came up with the view that Callaghan Innovation was in fact the organisation that would be the main arbiter on whether or not something constituted research and development. The problem we had with that was that what often happens or usually happens—in fact the vast majority of the time—in these cases is that an organisation comes up with research and development and they are very protective of this. They come up with some new proprietary technology for doing whatever or they come up with a new patent and they require the research and development funding to actually commercialise it. But there does exist in New Zealand—and I have seen this happen a number of times and one particular company in Napier comes to mind—an element of distrust with the Government. Let us be open and honest about this. This is not in any way shape or form—in any way shape or form—to impinge on the integrity of those with the Callaghan Innovation fund. I do need to make that clear.Hon Damien O’Connor: They are the puppets.STUART NASH: Well they do some really good stuff. They are designed to implement the vision of Professor Callaghan and Professor Callaghan had a vision for how New Zealand should be. He was a very decent bloke.The other thing also is it does say in clause 232B(2) that nothing shall prohibit the commission from “(w) communicating to an officer employee or agent of the department that is with the authority of the Prime Minister for the time being responsible for the administration of the Research Science and Technology Act 2010”. Again I have concerns because I suspect that what will happen is that a number of New Zealand companies that would be eligible for research and development tax credits and eligible for Callaghan Innovation funding will have a very robust discussion around the board table and they will make a decision that they will not approach the Government because the element of trust that the intellectual property will be protected just does not exist. When we say here that nothing shall prohibit the Commissioner of Inland Revenue from talking to officers of the Callaghan Innovation fund I think that we open ourselves up again to unintended consequences.Obviously what we do not want to do is to create an environment where people do not trust the Callaghan Innovation fund or they do not seek funding but also we do not want to create a system where people avoid tax by going to the Callaghan Innovation fund. So I think that what we should have done and I take some responsibility because I think I was on the select committee for this—I am not too sure. In fact I do not know whether I was or not; we get a whole lot of these tax bills coming through. I think we actually should have set up a system where it was a lot easier for companies to claim their research and development tax credits and not worry about tax implications but also to allay their concerns around their intellectual property. Secrecy is maintained by an Act of Parliament of course. What happens if someone from the Callaghan Innovation fund or the commissioner or anyone breaches the secrecy? They are in very deep trouble. But what we do need to do as a Parliament I believe is create a much higher culture of trust in the Government and I know at this point in time—as mentioned talking to one particular company—that does not exist.I will leave it at that at this point but there are some other contributions coming. Thank you very much.