Taxation (Annual Rates for 2023-24, Multinational Tax, and Remedial Matters) Bill

Members, we come now to Part 3. This is the debate on clauses 65 to 77C, “Amendments to Tax Administration Act 1994”, and also Part B of new Schedule 1C, as proposed by Amendment Paper No. 20. The question is that Part 3 stand part.

It’s a real shame we weren’t able to address some of the questions that were outstanding in the previous part, but so be it. I want to—

💬 Tom Rutherford: Don’t reflect on the Chair.

💬 James Meager: Off track already.

Take a call, gentlemen—take a call. I want to focus on clause 74. Clause 74 starts to put in some of the penalties around the GLoBE rules—so that’s the global anti-base erosion rules. Those fines start to look quite significant. I’m looking at clause 74; it inserts new section 139AAB. So that’s quite a long way through there. And, in particular, it says that an ultimate owner of a large multinational group who resides in New Zealand is liable to pay a penalty if the country-by-country reporting requirements are not met. And the penalty under this section is the amount specified by the commissioner. So the commissioner can set the amount, but it must not exceed $100,000.

So there’s a number of questions around this. One is that that does seem like a large amount of money. I’d like to understand why we’ve gone for that amount of $100,000. But I also want to understand—so this is in new section 139AAB(3)—the amount specified by the commissioner. So I want to understand the extent of the commissioner’s discretion in that matter—whether she or he can impose different amounts under that, and, if so, how that is going to be judged. I appreciate that the Minister can’t tell the commissioner what to do, but I guess there’s a bit of a worry there around what precedents the commissioner might set.

But the other interesting question around that particular penalty and that figure that has been set is to what extent it is consistent with penalties that are being set in other jurisdictions around these global anti-base erosion rules. Now, obviously, if people don’t comply with New Zealand tax law, we need to find ways to encourage them to do so, and sometimes it takes a penalty to get them there. But, of course, the interesting thing about these GLoBE rules is that they’re not even contained within New Zealand law—all right? So they are contained within OECD rules, and they are brought into the New Zealand law by way of reference.

So we now have a situation where a New Zealand taxpayer could be fined a sum up to $100,000 for not complying with rules that are being set by the OECD. Now, I just want to understand how that compares, really, with the way that penalties are being set in other jurisdictions—whether other jurisdictions are making similar rules to this; whether that amount of $100,000 is consistent with the fines that are being set in other jurisdictions. And I also want to have, I guess, some reassurance around the way that the commissioner is going to exercise her or his discretion with imposing fines that really amount to a considerable sum of money.

I thank the member the Hon Dr Deborah Russell for the questions. Again, the Finance and Expenditure Committee, in its deliberations, did look at this matter as part of their considerations, and the amount of $100,000 has been set in the context of what is applicable to other penalties for other similar sized entities. The reality is that many of these are New Zealand - headquartered aspects of multinationals and, while the amount for those still watching at home may sound a lot, it does need to be sufficient to convey the impact of a penalty on a multinational. So $100,000 is the aspect.

The question also raised in regards to the commissioner’s powers: the commissioner does have the discretion to be able to assess the degree of penalty and the amount that’s applicable, as the commissioner has a wide range of powers in other aspects of tax law as well. And I don’t think that’s inconsistent. But it is important, from an enforcement point of view, that we do have appropriate penalties that send a clear signal for those entities that are not complying with New Zealand tax law—that, in effect, discourage them from undertaking behaviour that’s not aligned with our legislation.

I just want to carry on to another clause, which is to do with penalties as well. So it is in clause 75, and it is the “Penalty”—it was originally “Penalties”; it’s now “Penalty”—“for failing to register or provide information for purposes of applied global anti-base erosion rules”. So the previous penalty we talked about was the one which was to do with the failing to meet the country-by-country reporting rules, and that was assessed at $100,000, applied at the commissioner’s discretion, and so on. And this one sets a similar amount. It’s “the amount specified by the Commissioner, which must not exceed $100,000.” So I’m taking it from what the Minister has just said that that has been set by reference to the size of the entities and by reference to the similar amounts in other jurisdictions. So that all makes a fair amount of sense.

But there is another aspect that’s sitting in this, and it goes into the other clause as well. It sits also in clause 74, new section 139AAB, and that is the due date for payment of the penalty. And it’s the same in both clauses, so the question will apply to—sorry, in both new sections. So the question will apply to both new sections. So “The due date for payment of a penalty imposed under this section is” either “30 days after the date on which the Commissioner issues the notice of assessment for the penalty:”—so that’s a fairly straightforward 30 days—or it is “the date specified by the Commissioner in the notice of assessment as being the due date for payment of the penalty.” So, again, this probably goes to the commissioner’s practice. It says 30 days or it says a date that the commissioner can specify.

Now, we can see that that could be problematic. Having worked with many of the fine officials at Inland Revenue, I doubt that they would issue the assessment one day and expect the penalty to be paid the next. But what I’m seeking from the Minister is some assurance that, in general, the commissioner is aiming for that 30 days. But, in particular, what would be the circumstances in which the commissioner might choose a different date? What might, sort of, push the commissioner to, instead of going for the 30 days, make the commissioner elect, say, 40 days or a particular date? What might push that payment date out? I’m really asking for some assurance that the way that the commissioner is going to apply her or his discretion in that matter is a way—well, I’m not sure that we want to say that it’s taxpayer-friendly, when we’re issuing penalties, but at least doesn’t impose extra burdens on the taxpayer, rather than just the burden of the penalty itself.

Just in answer to the member’s question, the penalties regime and the discretion in terms of the time line afforded—not only in the 30-day aspect but also in the discretion around the commissioner—is also consistent with other penalties that apply to these entities. So it’s not inconsistent. That is how that works. I think it’s important to recognise that we are talking about 20 to 25 entities specifically under the global anti-base erosion rules. These entities generally are highly compliant with New Zealand tax legislation, and that’s because of the factors that we’ve talked about in terms of both in-house and external counsel, and they also have obligations in terms of subsidiaries of multinationals. But, in addition to that, they’re also captured under the significant entities team within IRD. So the case management across that is also another layer of ensuring adequate compliance.

Thank you, Mr Chair. I just want to continue the line of questioning in relation to some of the penalties which are part of the global anti-base erosion rules in Part 3 of this particular bill. The Tax Administration Act, effectively, sets out the different interests and penalties that a taxpayer may be applicable for if they fail to do a particular obligation. It also provides the Tax Administration Act for the disputes rules. So if a taxpayer disputes an assessment that’s been provided by the commissioner, they have an ability to use the different provisions within the Tax Administration Act to issue a notice of proposed adjustment, or perhaps the commissioner themselves will actually provide an assessment and it will force the taxpayer, basically, to take a position to either confirm the commissioner’s position or to actually dispute it.

So my particular question is in relation to clause 72 C, which inserts new sections 94BB to 94BD. I know this is in relation to section 139AAB of the Act, and it’s around the assessment of penalties for large multinational groups failing to meet country-by-country reporting requirements, which the Hon Dr Deborah Russell briefly touched on. In that new section, it talks about “The Commissioner may make an assessment for an ultimate owner of a large multinational group of the amount of a penalty under section 139AAB that, in the Commissioner’s opinion, ought to be imposed, and the ultimate owner is liable to pay the penal penalty assessed.” So my question to the Minister, before I continue going through that particular new section, is: is this what they would say is a disputable decision, that if the commissioner’s opinion is—because the commissioner is making the assessment, and the commissioner is of his opinion that an assessment of penalties ought to be imposed on that particular multinational group.

So, then, despite subsection (1), subsection (2) continues that “this section does not apply in so far as the ultimate owner establishes in proceedings challenging the assessment that the assessment is excessive or that the ultimate owner is not chargeable with the penalty.” So the commissioner makes an assessment for an ultimate owner of a large multinational group of the amount of a penalty under that section 139AAB, and then the commissioner has an opinion that it ought to be opposed, despite that, particularly subsection (1), if the owner, then, establishes in proceedings challenging the assessment that the assessment is excessive—and we have had some commentary around the particular penalties and how much they are—or that the ultimate owner is not chargeable with the penalty, the question for me is: how, then, does that particular ultimate owner, under subsection (2)—what is the procedure for them to be able to dispute that decision made by the commissioner in subsection (1)?

💬 Ryan Hamilton: It’s an 0800 number.

And, again, the member on the other side may mock this particular element of interest and penalties, but we are dealing with large multinational entities who have complex tax affairs, and if the Commissioner of Inland Revenue says to a person, “You owe X amount of tax because it’s my opinion that you have sought this amount.”, we need to be clear that there is a way for those taxpayers to be able to dispute it, because, if not, I don’t think that’s a laughing matter.

So then it goes to new section 94BC, the “Assessment of penalty for member of large multinational group failing to provide information”. Again, the commissioner, then, can “make an assessment for a member of a large multinational group of the amount of a penalty under [that] section 139AB that, in the Commissioner’s opinion, ought to be imposed, and the member is [again] liable to pay the penalty assessed.” But then we have the caveat in new subsection (2) that “this section does not apply in so far as the member establishes in proceedings challenging the assessment that the assessment is excessive or that the member is not chargeable with the penalty.”

So my questions are: procedurally, what is the best way for an ultimate owner to be able to challenge that assessment or opinion that’s been made by the Commissioner of Inland Revenue? My second question is: what is excessive—it might be in the definitions; the Minister may be able to clarify that particular element—and if the member is not chargeable with that penalty?

I thank the member for the question. So the flexibility that the commissioner is afforded in regards to the extension of time—the 30-day period is a minimum period of time. The commissioner can use their powers to impose a penalty, but it has to be at a date that is later or further beyond the 30-day period, so just to cover that aspect.

I think the other component, again, is that these penalties that are being outlined in this part of the legislation are consistent with other penalty regimes that are applied to similar-sized entities in other aspects of the legislation. While the point is made that these global anti-base erosion rules, etc., are what they are, it is consistent in regard to that.

The other aspect to acknowledge is that, actually, these penalties, alongside any other penalties, can be disputed by a taxpayer, like any other assessment of tax. On that basis, we’re comfortable with the amendments.

The time has come for me to leave the Chair. The House is suspended until 9 a.m. tomorrow. Good night, everyone.

Sitting suspended from 9.58 p.m. (Tuesday) to 9 a.m. (Wednesday)