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

Good morning, members. Last evening, when we were considering the Taxation (Annual Rates for 2023-24, Multinational Tax, and Remedial Matters) Bill, we were debating Part 3, 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, again, is that Part 3 stand part.

Thank you, Mr Chair. I admire the enthusiasm from the Government members, and I’m hoping they’re going to offer some calls on this rather important part of the bill.

Just to remind everyone to where we’d gotten to. We’d traversed Part 2, which had a whole lot of significant changes to the main body of the income tax rules. We’ve now moved on to the Tax Administration Act, which is not the content of the tax law, but how we administer the tax law. Now, one of the issues we traversed in Part 2—if you’ll indulge me for a moment, I will get to the relevant part within about 30 seconds—was the GloBE rules: the global anti-base erosion rules. One of the issues there was that the GloBE rules were being incorporated in our law by reference to the OECD rules, so not directly incorporated into our law but, actually, our law is going to direct multinational enterprises, and the like, to go to the OECD website in order to work out how the law applies. And that was explained to us by the Minister of Revenue, why we were doing it that way.

But then, looking at Part 3, which deals with the administration of tax, I want to direct the Minister’s attention to clause 69, inserting new sections 78H to 78J into the Tax Administration Act, and that’s on pages 76 through 79 of this rather dense and long bill that is in front of us. There’s a whole lot of stuff there that isn’t done by reference to the OECD rules. So, on the one hand, in Part 2, multinational enterprises are directed to the OECD rules as to how they should do their tax, and, on the other hand, in Part 3, multinational enterprises are directed to our own law, to describe how they should comply with the law as it is administered in this country.

Now, I don’t think that’s an inherent contradiction or anything like that; there’ll be a reason for it. But what I would like the Minister to do is to give some explanation as to why, in Part 2, it’s by reference to the OECD, and, in Part 3, it is by putting the rules directly in our own legislation. Now, this is the Tax Administration Act rather than the Income Tax Act, but it is a particular set of rules there. I do want to come back on the content of some of those rules, but, in the meantime, if the Minister could just give some direction or some explanation as to why we’ve got this difference between Part 2 and Part 3 and whether we refer to the OECD rules or whether we go directly to our own tax legislation. Thank you.

Thank you, Mr Chair. In relation to the Tax Administration Act, as I covered in the House previously, it covers interest and penalties in relation to tax obligations, and one thing that wasn’t able to be covered extensively yesterday was around the taxation of backdated lump-sum payments. Now, the reason why the clauses don’t—aren’t actually in Part 3, but my question is really to the Minister, and while the Minister seeks some advice if he needs to, it’s just whether: are interest and penalties, which are normally provisions that would fall under this part, Part 3, which haven’t been included, would interest and penalties apply for some of these backdated lump-sum payments?

So, for example, the commissioner has made a person that receives a Ministry of Social Development (MSD) or an ACC backdated lump-sum payment—the bill looks to provide an alternative tax treatment for those two types of backdated lump-sum payments. So, basically, what it says is it looks over the past four years, if for any reason, the commissioner, at a later date, so once the assessment is made—basically, the tax treatment’s been applied but for any reason that the tax assessment needs to be reopened at a future date, would interest and penalties apply for that new opinion or for that new assessment by the commissioner looking forward? I’m not too sure whether there needed to be any provisions to, basically, either ensure that they’re not subject to interest and penalties, which would be covered in Part 3 of this particular bill. But if the Minister can provide any advice as to whether they would apply in the future if the commissioner decides to reopen an assessment.

And if I look at the particular features of those two—of what’s actually in the bill in relation to the backdating—it says that for ACC, “the lump-sum payment would be taxed at the recipient’s average tax rate for the four years prior”. And then for MSD, “the tax deducted by MSD would be assumed as the final amount of tax owed”, which is why my question is: what happens, though, even though it’s a full and final—well, it says a final amount of tax owed for the MSD payment, what happens in the future of the ACC payment? Why is the ACC payment not full and final and, therefore, not subject to interest and penalties? Does that apply for the purposes of the Tax Administration Act? For, even though that’s covered in Part 2, there is nothing in clause 3 which would either give some guidance as to whether it would or it wouldn’t, because it is quite clear that backdated MSD entitlements are full and final, but for ACC, it looks over the four years.

So if the Minister can provide any clarification whether it would apply for the Tax Administration Act, I think it’s just important that for taxpayers who may be in this position—and, again, we’ve covered, basically, through the select committee process, that they are quite vulnerable people for the most part. We’ve had a number of submissions where people have been saying that that they’ve been waiting for these payments, they’ve suffered an injury, or for whatever reason their entitlements had been cut back, but, actually, MSD and ACC have come to a position where, actually, “Yes, you are entitled to this; we are looking backwards; you’re going to get a lump sum.” So I just want to make sure that this is not a decision that if the commissioner cannot reopen, and, if so, that interest and penalties for the purposes of the Tax Administration Act wouldn’t apply.

I am looking forward to hearing the Minister of Revenue’s answers on some of these questions. We’ve raised two questions so far in which, hopefully, we’ll be getting an answer from the Minister.

There’s another section on which I would like to get some guidance from the Minister as to what is going on here. I want to direct the Minister’s attention to Part 3—it’s clause 72 that I want to have a look at, which the Minister will find on page 80. It inserts new section 92BA of the Income Tax Act. What it does here—just looking at this new section—is it talks about taxpayers being required to provide a multinational top-up tax return for a fiscal year. So, just to remind people what’s going on here, under the global anti-base erosion rules, is that in countries which are brought into these rules—and there’s quite a few of them—multinational enterprises are required to pay a minimum level of tax, and that’s assessed in a couple of ways. If they don’t pay that minimum level of tax, they have to pay a top-up tax—in this case, to Inland Revenue in New Zealand, for multinational enterprises that are a part of this in New Zealand. The taxpayers are required to provide a multinational top-up tax return—so an ordinary old tax return like most of us have to do; instead, it’ll be rather more complicated for a multinational enterprise.

But, first of all, they must make an assessment of the amount payable. So the taxpayer themselves—the multinational enterprise themselves—has to make an assessment of the tax payable. In other words, the multinational enterprise has to assess their own tax themselves. I’m just curious about that, because we heard from the Minister yesterday, in Part 2, that these multinational enterprises also have case managers at the Inland Revenue Department. Those case managers, obviously, see what the multinational—in fact, the Minister was telling us that the fact they had case managers was going to make it easier for the multinational enterprises to comply with the law, because the case managers would be able to ensure that the multinational enterprise knew where they could find the rules and so on. But that is interesting, because that, to me, was the case manager getting involved in the assessment of tax, but here, in this clause, we have the taxpayer being required to make an assessment themselves of the amount of tax that they ought to pay. So there’s a little bit of a tension there, I suppose, as to what’s going on. I want to understand what’s going on there with the multinational enterprises, as to why they are assessing the taxes themselves.

So they provide the return, and then the assessment is dated at the date that the return is received at the office of the department. So, basically, the multinational enterprise assesses their own tax and puts it in a return—so there’s some process going on there whereby they assess their own tax—but then the date at which the assessment is made, now this is in 92BA(2), is the date on which the return is received. Now, that’s a little bit confusing, and I’d like the Minister to explain just exactly how that works. First of all, they are assessing their own tax, but then the assessment is made when the tax is received at the department. On the face of it, that looks confusing. It looks a little bit odd, and I would like the Minister to explain exactly what is going on in that process, just so we can be sure that these global anti-base erosion rules are going to work fairly for everyone. Thank you.

Thank you, Mr Chair. It’s good to be back this morning. The question from the Hon Barbara Edmonds in regard to backdated lump-sum payment changes is not in scope of Part 3 of the bill that we’re referring to at the moment.

The questions in regard to reassessment and the implications around penalties that could or may apply—well, obviously, in circumstances where a reassessment is undertaken, there is scope for the application of penalties if that reassessment derives a point of difference in which those penalties would be subject. So I don’t think that aspect is surprising.

We covered penalties extensively last evening as well, but I’m happy to provide a little bit more context for the Hon Dr Deborah Russell in regard to the questions. I think it was in regard to clause 69, which is primarily around what that allows us in terms of the registration of those 20 to 25 entities. It ensures that they provide the appropriate level of reporting that allows the assessment of the tax. It also ensures that the appropriate information flows come from those entities to Inland Revenue in order to determine their taxable status. Overall, the purposes of that—again, consistent with other aspects of tax legislation—ensure that IRD can actually operationalise the implications of this legislation.

I move, That debate on this question now close.

Mr Chair, please bear with me because I wasn’t on the Finance and Expenditure Committee, but I did indicate last night that I was going to be asking a question about gift-exempt bodies, which is clause 66(4). And the proposed amendment would extend the definition of a gift-exempt body to include all charities registered under the Charities Act.

When I look at the bill, it looks like there has been a whole subsection, in section 3 of the Tax Administration Act, that has been thrown out, and that was based on the fact that there were submissions made in the select committee about gift exemptions and saying that monitoring and compliance of the regime was problematic and unfair. And I’m interested to know why—it feels like, perhaps, the baby has been thrown out with the bath water—the Minister of Revenue and the select committee would throw the whole part out and say that, in the meantime, they’re going to take advice: “Let’s just get rid of that whole subsection.” What do charities do in the meantime? Charities that have relied on that gift-exemption clause in 66, what are they going to do? What are the time frames involved for this to be relooked at? And is the Minister going to follow the recommendations from some of the submitters that has, basically, led to this being kind of put on an indefinite pause?

I would have thought that a better way of making law would be to, perhaps, have held this over, to keep the section as it is, to take some further advice, to have a look at the submissions in the select committee, and then to delete out that section, rather than just kind of having this legal gap where those who are influenced by that subsection, who’ve relied on it previously, can no longer do so. So I’m very keen to get the Minister’s views on that.

Thank you very much, Mr Chair. To the member’s question, look, I acknowledge that the member is not sitting on the Finance and Expenditure Committee, but members within that member’s party do, and this aspect was heavily canvased as part of that select committee process. The select committee unanimously got to a position around that, and I don’t think there’s much more value for me to cover other aspects in that regard.

I move, That debate on this question now close.

The question is that the Minister’s amendments to Part 3 set out on Amendment Paper 20 be agreed to.