Yule LawrenceLAWRENCE YULE (National—Tukituki): It gives me pleasure in this last part of this process to speak on the Taxation (Neutralising Base Erosion and Profit Shifting) Bill and to reaffirm obviously this party's support for this legislation. It seeks to make an amendment to the Income Tax Act 2007 and the Tax Administration Act 1994.I think as I'm the last speaker I do want to pay tribute to the people that have got us to this point: the Hon Judith Collins who actually in the last Government went to OECD meetings brought this issue back to New Zealand and set up a process and my Hawke's Bay colleague the Hon Stuart Nash who's guided it through this part of the process and who I might add in the committee stage gave one of the best set of representations from that side of the House in answering questions. I think we appreciate it on this side.This is all around fairness and equity. It's a global issue it's been identified and we are seeking to align it with the OECD and it's taken us a while to get there. This coalition Government is really following work led and started by the National Government. That's why we support it.Most multinational companies actually follow the law but there are some that don't. There are some that have been in our face flouting the law and most New Zealanders do not like it. This piece of legislation and this change on the National Party's prediction was expected to bring $100 million worth of new revenue annually. Under the Labour Party projections it's more likely to be $200 million. That is a significant amount of money to come to make this tax system in New Zealand more fair and equitable.I go back to its genesis though and it's pretty high level and this signifies how big this was globally. This was put on the G20 agenda in 2013. It wasn't some sort of little idea of New Zealand; it is a global problem and there was a 15-point action plan put out by the OECD in that year.Simon O'Connor: How many?LAWRENCE YULE: 15-point.Simon O'Connor: Oh it's 15 points.LAWRENCE YULE: Yes. And in terms of recognising the vulnerability of not just New Zealand but other countries New Zealand agreed to participate up to 2015 and in 2016—in June of 2016—we released our response. Really what we're doing tonight in this House is completing that process in multi-party agreement to actually align ourselves with the OECD. On 1 July 2018—which was really the start of this legislation—we actually brought it first to this House.So the combination of measures will do a number of things: stop foreign parents charging their New Zealand subsidiaries high interest rates to reduce their taxable profits in New Zealand stop multinationals using artificial arrangements to avoid having a taxable presence in New Zealand ensure that multinationals are taxed in accordance with the economic substance of their activities in New Zealand counter strategies that multinationals have used to exploit gaps and mismatches in different countries' domestic tax rules to avoid paying tax anywhere in the world and make it easier importantly for the Inland Revenue Department to investigate uncooperative multinational companies.The OECD multinational instrument seeks to implement tax treaty - related measures to prevent base erosion and profit shifting (BEPS) and also allows several thousands of global treaties around the world to be quickly aligned in one. We've heard at the committee stage and previous readings of this bill that there are over 2000 country-to-country treaties. In one fell swoop this seeks to align most of them under the OECD treaties.Simon O'Connor: How many treaties?LAWRENCE YULE: Over 2000. The multinational instrument is a new major weapon to fight against base erosion and profit shifting because tax treaty abuse is often the basis for such techniques.There were some significant changes made to the bill in the Finance and Expenditure Committee and I want to congratulate members of that select committee and the bipartisan approach which this committee took to resolve these issues. I'll give you some examples. First of all the removal of the interest-to-income test for New Zealand borrowers for foreign lenders: the original bill actually stipulated that a New Zealand borrower who borrowed funds from a non-resident lender had to pass three tests to prove it was a high BEPS risk. If it could not pass these three tests then its credit rating could be capped at one notch below the worldwide group's credit ratings. This revised version of the bill removes one of these tests—one of these three tests—meaning the New Zealand borrower from overseas lender will only have to pass two tests to prove it is not a high BEPS risk. The test that has been removed is the income-interest ratio which was roughly whether the New Zealand borrower has an earnings before interest tax depreciation and amortisation data at least three times the interest expense.Now these are significant and complex issues and for me as a new member of the Finance and Expenditure Committee it took me a while to get my head around. But actually where we've ended up is largely endorsing and supporting the submissions that were made to the select committee by technical evidence and by the staff at the Inland Revenue Department. There was actually not a lot of contention in this space and the test was removed as it unfairly targeted companies making a loss who are new traders. The purpose of the test to identify companies with a high relative debt is captured by the debt percentage test which is one of the following remaining tests. We also made changes in relaxing the credit rating restriction. The original bill stipulated that where a borrower failed one of three tests for being a high BEPS risk it would be restricted to a credit rating one notch below that worldwide group. We made changes to this as I've just alluded to and the purpose of this change is to address concern that that one-notch spread was too light and would increase the risk of double taxation so we actually changed it to a two-notch test.The last thing I wish to comment on is the third-party debt. The revised bill extends the third-party exclusion to a credit rating to include those companies that are classified as high BEPS risks. The logic here is that if an unrelated lender is willing to lend significant debt at a particularly implied interest rate then this is objective and independent evidence of a credit rating of the New Zealand borrower and removes the need for an arbitrary credit rating based on the parent company. We've tidied this up and I think we've made a fundamental difference.We also had a lot of conversation—and it was raised at the committee stage—about the extension of the IRD's time limit to investigate breaches of these various rules. The original bill had the time bar. It had to amend the tax position of a taxpayer from four to seven years if any amendment was related to transfer pricing. We had conversations in this Chamber and the Hon Stuart Nash explained to us that as long as the initial investigation had begun within the four years then it could carry on into seven years but if it hadn't begun in the four years it could not carry on. I think reluctantly we accepted that provision. What we on this side of the House were worried about was long drawn-out proceedings that the actual company did not estimate at the time were going to be carried out and to have something done on you after seven years we thought was too long. So I think the compromise provision is accepted and supported.During the last two years particularly there have been a lot of conversations in the media and in New Zealand about companies' rightful share of taxation particularly corporates like Amazon Google Facebook—you name them—as to whether in fact they are paying their fair share of duty and taxes in New Zealand. This is an international phenomenon and I think most New Zealanders accept—and I certainly believe—that companies like that should pay their fair share and should not use discrepancies in international tax law to crawl around the world trying to find a country where they can get a better tax deal and I think this Parliament has responsibly answered that call. We've done it in consultation with the OECD. It's taken us nearly four years to get to this point but in the way in which we went through the select committee process the time we took and the submissions we received there were actually very few things that this committee disagreed with.In closing I commend this bill to the House and I commend the work that was done between the parties to get it to this point. It'll make the New Zealand tax system a fairer system. Thank you.