Taxation (Neutralising Base Erosion and Profit Shifting) Bill

Thank you, Madam Chair. Thank you for the chance to speak on this bill. I’d just like to reflect on the previous sitting of the Parliament and just to echo the words, I think Willie Jackson probably made his finest speech in this Parliament with his contribution to that last bill, and I agree wholeheartedly with him. I think that for the newer members of Parliament—you’ve just witnessed one of the special times that you see in this Parliament, where you actually see some redress being done. It may not be full redress, but at least partial redress is done in this Parliament, and that is a good thing for members of the House. I’d just like to congratulate the many people that have travelled here today and wish them all the best.

I realise that we’re getting on to the bill, Minister Nash, but, actually, taxation could not be far from the thoughts of the very people that have received a Treaty settlement, because through having a lower tax rate they will no doubt be able to get more income and build their equity and their base. One thing that we should always aim to in our country is for lower taxes, and that would make us a much stronger country. Madam Chair is looking at me wondering where this is going to, but we have an amendment that’s in the name of the member for Hunua, Mr Bayly, and that amendment seeks to have in Part 3 a review of the base erosion rules.

Now, basically, the base erosion and profit shifting rules that we’re looking at here today are to ensure that people pay their tax in New Zealand and don’t try and shift their tax obligation overseas through transfer of funds, through dividends, and through interest and suchlike.

That really becomes so important in the corporate tax - paying world, where you see the environment that we’re going into. The amendment seeks to have a review, and, essentially, the really important part of that is in clause 55(2)(b), where it says that “relevant changes in taxation policy in relevant OECD countries;” are important and it would continue to consider those other countries as part of the review. That is so crucial for New Zealand and for the iwi that have just been in the gallery, because if we look at what’s happening around the world, in the OECD, there is a major transition to lower company tax rates: France are moving to 25 percent—even with a left-wing Government, they’re still moving to a 25 percent tax rate; the US, the biggest drop of all, are moving from 35 percent to 21 percent—

💬 Simeon Brown: Forward-thinking!

Forward-thinking it is. Australia are taking their company tax rate down to 25 percent, whereas in New Zealand we’re stuck at 28 percent and there’s no hope that that’s going to go down. If anything, we will be going to the polls at the next election with a proposal from that Government to increase the tax rate.

The review is important, Minister, because that review says that it would compare New Zealand tax rates against other tax rates. The reason that’s important for base erosion is that if there is a much higher tax rate in New Zealand, the incentive would be for companies to transfer and to look at ways of base erosion in New Zealand to take advantage of lower tax rates overseas.

One of the important things in the New Zealand economy that we need to make sure of is that our rules are consistent with overseas rules, so that we’re not encouraging behaviour that would actually mean that the New Zealand Government misses out in total. The way we’re going with tax rates in the corporate world in New Zealand is that we are creating a difference between what a company would pay in New Zealand tax rates—that is significant—and what a company would pay in another country, and that will be the incentive for base erosion. So this review is really important, because that will identify any points in which the New Zealand tax rates are out of kilter and, therefore, would encourage base erosion.

So Mr Bayly has done an excellent job in putting this forward, and I just want to remind people again of that US tax rate: 21 percent; Australia, 25 percent; France, 25 percent; the UK, about 20 percent, 19 percent; and New Zealand 28 percent.

In my experience in the House, normally the first call on an amendment tends to be quite relevant to the amendment, but that’s OK. I mean, that’s fine.

As Mr Bennett will know, as the honourable member will know, this is actually a tabled amendment by Mr Bayly to add another part to the bill. What Mr Bayly is suggesting this is about is that after five years we review the whole piece of legislation on base erosion and profit shifting (BEPS) to see what’s happened with the OECD, to see how the world has changed, and to see if we’re still relevant. Now, there are two things I would say to this. The first thing I would say is that the Finance and Expenditure Committee only received one submission on a review of the bill, and that submission was on a three-year review, and it was specifically to do with the permanent establishment rules. That is all. It wasn’t to do with the whole legislation whatsoever. So there was no widespread call for this at all. In fact, you could say there’s almost no interest in this whatsoever.

But the most important thing, I would say, and the reason why we can’t back this and why I can’t back this as a Minister, is because of something that the Hon David Bennett will be well aware of as a previous chair of the Finance and Expenditure Committee, which is that tax legislation is always under review—it’s always under review. In fact, there are normally about two omnibus tax bills before the House every single year, tidying up or changing or amending or deleting pieces of tax legislation. So what the IRD does is just business as usual. It just goes through legislation and it amends it appropriately depending on what circumstances are current and what aren’t. So the US tax rate has nothing to do with this whatsoever. But what the IRD will do, and what the IRD will continue to do—and keep it in mind that we have experts in this area, and I’ve spoken about this three or four times in the chair. We have Carmel Peters, for example, who is a world expert in base erosion and profit shifting.

Please don’t think that as soon as this bill passes through the House, then that’s the end—we up sticks and we don’t do another thing on BEPS ever again. Anyone in this House who has had anything to do with tax knows, whether it’s on select committee, whether it’s speaking on a bill—and you will be speaking on another omnibus bill soon—or whether it’s even as a Minister of Revenue or having sat on the Finance and Expenditure Committee, that tax law, by its very nature, has to keep up with the changing world. It has to keep up with the changing world.

My concern is that if we actually passed a piece of legislation like this—this tabled amendment: new Part 3 of Mr Bayly’s—then it might send the impression that, “You know what? We’re not going to do anything for five years. We’re going to sit back and we’re going to let the rest of the world do whatever they do. The world’s going to move on, and we’re going to do nothing until the review comes up.” And the review of a piece of legislation like this would take about a year; it would come through the House—so, all up, let’s say 12 to 24 months. Well, that is totally unrealistic. What I would say is that IRD will not wait for five years to review this piece of legislation. They’ll not stop looking at what’s happening globally. They won’t stop amending the legislation to make sure it is absolutely relevant and world class and maintains the integrity of the tax system, because the integrity of the tax system is the utmost consideration of the Inland Revenue Department.

So what Mr Bayly is proposing is something that is done anyway. What Mr Bayly is proposing may, in fact, send the very wrong message—that being that we’re not going to do anything for five years. So what I can promise Mr Bayly, and the previous speaker David Bennett, and this committee, is that Inland Revenue will not stop in ensuring that our base erosion and profit shifting legislation is, in fact, world leading and meets all the requirements of the OECD, and continues to keep pace with the changing global market place. So that is why I, simply, can’t support this tabled amendment. Thank you very much.

Thank you, Madam Chair. I’d like to respectfully disagree with Minister Nash and his comments on the Taxation (Neutralising Base Erosion and Profit Shifting) Bill. He was quite confused, I think, because on the one hand he said that we’re always reviewing tax law, but then he doesn’t want to review this more formally—I acknowledge that. My point here is that this is a very complicated, large piece of work—new work, pioneering work, leading-edge work. We have one of the world’s experts in the field, and I acknowledge that, but then surely, for that reason alone, the fact that we are leading the world in this legislation and practice—surely that is a very good reason to make sure that we are checking ourselves more formally than just a business-as-usual review.

The comments the Minister said—that business as usual was about reviewing stuff, but then he didn’t actually want to do a full-blown review, a proper review, because it took from one year to 24 months, to use his words—far too long, far too time-consuming, too many resources applied to review this particular piece of legislation, but then he’s happy for the guys in the back office of IRD somewhere, to review it anyway as business as usual. So it seems to me that those guys doing business as usual will not give enough attention, will not give enough focus on the review of this leading legislation.

So I do support the review of the legislation, and I’m going to obviously support the amendment, which talks about five years—the Minister has mentioned three, a submitter has mentioned three years as an appropriate time. Maybe three years is an appropriate time, but I think that there’s always a danger in leading something and not sort of looking around from time to time, because when you’re at the front of a race, you don’t necessarily go in the right direction. When you’re leading something, you may go down a path that is actually the wrong path. I’ve done it—orienteering and cross-country running. It’s much easier to be running, following in second or third place with an eye to the leader, with an eye to the frontrunners, and then when it’s appropriate to move from fifth place to fourth place to a bronze medal, silver medal, and potentially lead at a later date.

There are a whole lot of risks associated with leading the pack. I can’t remember the term, but a “fast follower” is always my preferred position, if you like, with any—whether it’s a business or whether it’s legislation; particularly relevant in this case where we’re talking about legislation. So I would really encourage the Minister to rethink his view, given that it is leading, given that it is led by one of the world’s experts, given that it is new, and because of those things it is high-risk by its very nature; plus, all the complications that we all acknowledge—it’s the most complicated, complex tax legislation that Ms Turner, the adviser to the committee, had seen in 30 years.

So, surely we can’t just say, “Oh well, that’s pretty well done and dusted. Let’s just review it as business as usual.” I think we really need to take a good, hard look at this just to see where the other countries are, to look to our left and look to our right and just make sure that the guys in the other countries are following our practice—make sure that they’re not going off down a different road, and we find ourselves isolated with a piece of outdated legislation that will cost us a lot more in the long run if we do not review it. So there’s the challenge: without review, will this potentially cost the country more than we possibly could anticipate?

So I encourage the Minister to rethink and, perhaps, make a few comments on the issues that I’ve raised in my contribution. Thank you.

Thank you, Madam Chair. I appreciate the chance to speak to this intended insertion of Part 3 proposed by Andrew Bayly’s tabled amendment, following various colleagues who have done so. I also acknowledge the Minister in the chair, Stuart Nash, for his comments in relation to some points made so far. I think his remarks have been made in good faith—intelligible and intelligent, but none the less not perhaps picking up on the very specific purpose of this particular amendment.

The Minister commented that tax law has to keep up with the changing world, and of course that is perfectly true, so far as it goes. The point of the amendment, however, is to require not only that the usual practice of New Zealand in relation to tax law is followed but, in fact, that will be our policy—so not merely something that is customary but is in fact required moving forward.

The Minister has commented in relation to that that it might well be that reviews of our taxation legislation in general might well take place more regularly than every five years. However, this is encapsulated well—contemplated, even—in the wording of the amendment, such that proposed new clause 55, named “Review”, specifies that the review would need to take place—and I quote—“no later than five years after this Act receives Royal Assent.” The point of me emphasising that is that the review might well take place before the five years are up. That means that we would have a situation whereby we don’t duplicate existing review-type focus, such as the Minister has highlighted, but, at the same time, we will meet the legislative intent, should the amendment pass, that a review will take place at least within the five years.

Further to that, adding to the strength and the weight and, hence, the necessity of this provision, the language is very clear that the Minister responsible must commission a review. So the mandatory language is really important; this is not merely, as I say, a matter of custom or, perhaps, something that is a “nice to have”. It will be a “need to have”, captured in our statute book as such.

Another aspect of this mandatory review provision, on a quinquennial basis, is that it will be the Minister responsible for the Inland Revenue Department that will be commissioning the review. The wording of the provision makes it clear that the administration of the review would be by his department, but it’s significant that it will be the Minister himself—or herself; obviously “himself” in current terms—who will be commissioning the review. This means that there is an element of responsibility in the sense of ministerial responsibility, Cabinet responsibility, and, therefore, accountability in the way that Ministers are kept accountable and are responsible to the Parliament from which they have been elected. So while it might well be the case that the Inland Revenue Department would, of its own volition, undertake a review if we did not have the specific requirement to do so, the fact that it is a requirement, or at least will be a requirement if we pass it, and the fact that the Minister himself or herself, as the case may be at the time, would be held accountable for a failure to instigate such a review is constitutionally significant.

The nature of the review is something that, perhaps, other colleagues might have more to say on, but if I could emphasise before completing this contribution the point about the requirement to be up to date really tying in with our desire to be at exactly the right pace in terms of international practices. The point was well-made by my colleague Alastair Scott that we do not wish to be either behind or, indeed, too far ahead. The point about that, if I might take the liberty of adding to my colleague’s comments, is that if we are out of sync, out of whack, with other comparable jurisdictions, then we will create a situation in which it may be desirable for international entities of which there is a New Zealand operation to be more or less involved in this country in terms of the operation of their businesses than they would otherwise have been. Thus we would have created an artificial situation that we are trying to avoid by the passage of this legislation in the first place.

Thank you, Madam Chair, for this opportunity to speak in this. I have to say, it’s a very well-mannered, professional, and intelligent debate from all around the Chamber.

I’d like to congratulate, in particular, Andrew Bayly, my colleague, for his incredibly good amendment suggesting that this Parliament require that there be a review in no later than five years of these provisions. I’d like to thank the Minister in the chair, the Hon Stuart Nash, for taking a very intelligent look at this—and good-natured, although he’d be even more intelligent and good-natured if he agreed with us, in my humble opinion. And everyone knows how humble I am in my opinions.

As the former Minister who started this whole process, I think this is a very good idea from Andrew Bayly, and I say this not just because he’s my colleague and friend but because, actually, the law needs to be able to be reviewed and changed, because not just are we dealing with big multinationals and, obviously, business but it’s the fact that the nature of business, the nature of communication, the nature of how things evolve is changing so rapidly. I think that what we need to do is, if we look at—not saying this is a criminal area—for instance, and consider the way in which quite a lot of crime has moved into the cyberspace these days, whether it’s around child protection, whether it’s around other criminal activity, quite a lot of it is around the cyber area now.

Five years ago, six years ago, 10 years ago, this Parliament would not have thought that was as important as we do now. So I think this is a very good opportunity to require that this review take place. I know that the Minister has said, well, look, there’s nothing wrong with Inland Revenue undertaking their own review. The fact is, they won’t. They won’t unless they have to, because Inland Revenue will be very busy with any new Government’s or any Minister’s views and looking to see what policies they should be doing. They will already be undertaking their own work on other areas. They’re not going to naturally be looking back to four, three, or five years before to say, well, is that working now? Their general view—and certainly in my experience as a Minister—is that it’s very hard to get departments to want to look backwards and then say “How could we have done it better or should we look at it?” unless a Minister is driving that. That is really important, I think, that we think about the fact that for Inland Revenue it will not necessarily be top of their mind to think, “Is this Act”—it will then be an Act—“actually now fit for purpose?”

Inland Revenue is going to be very busy with its own work. It’s got its whole technology programmes. It’s got everything it’s trying to do around making sure that it is more fit for purpose in its own practices. This is going to be way down the agenda. This is not being driven by Inland Revenue; it’s being driven by the OECD, and Inland Revenue is an active party in all of that and part of those considerations, and they are obviously deeply involved in it and very well respected. But the problem is, they’re not the ones driving it. And I think it is really important that we as a Parliament understand that this bill is a big change in terms of our international tax structure and how we work with other jurisdictions overseas. So it is important that we keep this in the forefront of our minds.

We talk about multinationals. We forget that we do have some multinationals active in New Zealand who are, by the way, New Zealand companies—or we would see them as New Zealand companies. I think that we need to be aware whether or not any of the provisions of what we are going to pass today or sometime this year are going to in any way badly affect their business and, therefore, the shareholders in New Zealand and New Zealand’s best interests. So I think a review would be very helpful to the Minister in the chair. We would think it was a great step up for the Minister to accept this and I’d fully recommend that Andrew Bayly’s amendment be supported by this House.

The question was put that the following amendment in the name of Andrew Bayly be agreed to:

After clause 53B, insert new Part 3

Part 3 - Parameters of Review

54 Purpose

To provide for a review of taxation practices in New Zealand compared to relevant international taxation schemes to ensure New Zealand taxation practices remain fit for purpose in protecting against base erosion and profit shifting.

55 Review

The Minister responsible for the Inland Revenue Department Revenue must commission a review into the functions and practices of this Act no later than five years after this Act receives Royal Assent.

(1) The review must be administered by the Inland Revenue Department and;

(2) Must include a review into the nature of base erosion and profit shifting behaviour

a. The provisions of this Act;

b. Relevant changes in taxation policy in relevant OECD countries;

c. Relevant reports by the OECD on tax base erosion and profit shifting;

d. Any other matter deemed important by the Inland Revenue Department.