WTO agreement to eliminate agricultural export subsidies

A World Trade Organisation conference in Kenya has agreed to eliminate the ability of WTO members to subsidise their agricultural exports.

This will benefit New Zealand as we are one of the few major agriculture traders who don’t use subsidies.

NZ Herald reports in Export deal will boost dairy prices, Fonterra says.

Fonterra chairman John Wilson said the historic breakthrough would be good news for dairy farmers.

“For years the use – or even the threat – of export subsidies have resulted in world dairy prices below their true level, reducing returns to dairy farmers,” Wilson said.

It should also help with our meat, wool and other agricultural exports.

A World Trade Organisation ministerial conference held in Kenya and attended by New Zealand Trade Minister Todd McClay has agreed on the WTO Nairobi package, which will eliminate the ability of WTO members to subsidise their agricultural exports.

That is an outcome successive New Zealand governments have sought for decades, with trade envoys identifying agricultural subsidies, along with tariffs, as one of the biggest obstacles to free trade.

McClay said it had been illegal to subsidise the exports of industrial goods for more than half a century, and it was a major achievement to have that extended to agriculture.

“This outcome directly benefits New Zealand agricultural exporters who have to compete in some markets with subsidised goods.”

New Zealand has led the way in free trade and has become competitive in an uneven playing field. As the rest of the world moves in the same direction our trade will benefit more.

A survey by the Worldwatch Institute last year showed New Zealand’s largely subsidy-free status was not the norm – and that the top 21 food-producing countries paid out an estimated US$486 billion ($722 billion) in farming subsidies in 2012.

China paid US$165 billion in 2012, mostly to support rice and wheat farmers, with Japan paying US$65 billion, the European Union more than US$100 billion and the United States $30 billion.

That’s huge subsidies that will have distorted pricing.

Federated Farmers National President William Rolleston said it was a positive and potentially significant deal. “Given the scale and significance of New Zealand’s agricultural export earnings, the removal of any instrument that can distort market forces and disadvantage our exporters is an important step forward,” he said.

“Achievements at a WTO level also remove the need to develop bilateral solutions with individual trading partners, so we hope there are more deals of this nature to come from the WTO.”

The deal completed a year of important international wins in what have been difficult market conditions for much of New Zealand’s farming sector, he said.

Agricultural production and markets will always have ups and downs, but this should reduce the impact of the downs and boost the returns from the ups.

McLay has learnt the correct answer

In Question Time in Tuesday Todd McLay, speaking for the Minsiter of Trade, four times avoided answering a reopeated question from Russel orman on the TPP. See  Todd McClay: arrogant stonewalling.

He was prepared for a repeat of Norman’s line of questioning yesterday and had answers ready.

7. Dr RUSSEL NORMAN (Green) to the Minister of Trade : Will the New Zealand Parliament be able to modify the text of the Trans-Pacific Partnership Agreement if the Government signs the TPPA; and is it Parliament or Cabinet that ratifies the TPPA?

Hon TODD McCLAY (Acting Minister of Trade): I welcome the question from the member. The Cabinet Manual and the Standing Orders set out the procedure for Parliament’s examination of international treaties, and, as with all international treaties, Parliament is not able to amend parts of a treaty. However, Parliament has significant involvement prior to ratification of an agreement. Although it is the executive that ratifies treaties, Parliament has an important role to play in the treaty examination process. The executive will only ratify a free-trade agreement after Parliament’s completion of treaty examinations.

Dr Russel Norman : So would a correct summary of the Minister’s answer be that the New Zealand Parliament is not able to modify the text of the Trans-Pacific Partnership agreement once the Government has signed it, and that it is Cabinet, not Parliament, that ratifies the treaty?

Hon TODD McCLAY : As with my first answer, the rules around this, in so far as the Cabinet Manual and the Standing Orders are concerned, are clear. But it is correct to say that no one single country can amend an agreement unilaterally and therefore not one of the 12 countries can amend the agreement, should agreement on the Trans-Pacific Partnership be reached. This is the same with agreements that we sign up to under the World Trade Organization and the UN. It is also important, I think, to note that for New Zealand the reason this is something that is in place is so that any hard-fought gains that we receive through that negotiation cannot be changed following agreement.

Dr Russel Norman : Does it strike him as a particularly democratic process when the elected members of the House of Representatives have no ability to influence the negotiation because it is done in secret, elected MPs cannot modify the agreement once it has been signed in secret by the Government, and nor does Parliament have any decisive say over whether New Zealand ratifies the agreement?

Hon TODD McCLAY : It strikes me that this is the same procedure that has been followed for a number of agreements that have gone through this Parliament—indeed, it is the same procedure that took place in the China free-trade agreement, the Hong Kong agreement, and, most recently, the Korean agreement. But I would say, as has been publicly stated, that if the Trans-Pacific Partnership is agreed, we are likely to see a different procedure in the way that it is followed through in this Parliament than was the case with China. It will be close to the Korean agreement, where the agreement was available prior to signing. Certainly, the parliamentary process must be finished before ratification will take place.

Dr Russel Norman : Has he seen the statement by the Ministry of Foreign Affairs and Trade’s lead negotiator on the Trans-Pacific Partnership agreement, which said that all explanatory material from the Trans-Pacific Partnership negotiations, such as briefings to Ministers, would be kept secret for 4 years after the Trans-Pacific Partnership agreement comes into force; and will not keeping that material secret make it very difficult for ordinary New Zealanders to get their heads around the detail of the treaty, which is the size of a book and is written in—

Mr SPEAKER : Order! The Hon Todd McClay—either of those two supplementary questions.

Hon TODD McCLAY : The procedure that will be followed here is that the agreement will be available for the honourable member, others in this Parliament, and the public to see prior to signature. We will need to follow the same procedure that has been in place in this Parliament for all other agreements through the treaty examination procedures before ratification takes place. Our Minister of Trade is negotiating the very best deal possible for New Zealand. The Government has said that it will sign up to the Trans-Pacific Partnership agreement only if it is in the best interests of New Zealand. I think the public will have plenty of time to go over the very detailed text of this agreement before that member gets to cast further doubt upon it.

Dr Russel Norman : I raise a point of order, Mr Speaker. My question was specifically about the explanatory material—

Mr SPEAKER : Order! No, I listened very carefully to the question. It was not specific enough; in fact, there were at least two questions in the question. I cannot help the member if he does not ask a concise question to get the answer that might be more satisfactory to him.

Even Danyl Mclauchlan sees the problem with Norman’s approach.

Danyl Mclauchlan ‏@danylmc

If Parliament could modify a trade agreement wouldn’t all the signatories do that and trade agreements be completely pointless?

Yes. The Green approach to trade deals – have all negotiating positions publicised, then when reaching an agreement putting the treaty back to the New Zealand Parliament to discuss, then the Greens can discuss it internally, then Greens can organise protest marches and petitions against it, then if Parliament agrees to ratify the agreement Greens can organise a ‘Citizen’ initiated referendum and insist that if the public are against the treaty we should withdraw, then the Greens still only get about 11% in the next election.

Graeme Edgeler ‏@GraemeEdgeler
It’s why the US negotiators needed fast track authority 🙂

Rob Hosking ‏@robhosking
@danylmc Yeah. This is godawfully silly stuff. Student Union politics of the worst kind.

Norman is showing the lack of experience Greens have of being in Government – it’s fine to have democratic ideals, but the reality of running a country means that the Green way isn’t necessarily the best way, nor a way that would work.

Norman must know that the Green way would make it virtualy impossible to reach any meaningful trade agreements.

Good to see that McLay learnt from his poor responses the previous day.

Todd McClay: arrogant stonewalling

Question Time is an important part of our democratioc and parliamentary process. There is a requiremet for Ministers to answer questions put to them by the Opposition.

The Opposition often complain about inadequate answers or avoiding answering. Yesterday Todd McClay, speaking on behalf of the Minister of Trade, avoided answering when Russle Norman asked the same question four times.

The initial question:

25.08.15 – Question 9 – Dr Russel Norman to the Minister of Trade

Which stakeholder groups have been briefed as to the draft content of the Trans-Pacific Partnership Agreement since the completion of the last round of negotiations in July; and which groups have been briefed as to the process going forward for the agreement?

After another question:

Dr Russel Norman : Will Parliament be able to modify the text of the Trans-Pacific Partnership agreement after the Government has signed it?

Hon TODD McCLAY : The member needs to be careful not to get ahead of himself. There is still a negotiation under way, and the Government has been clear that we will sign the Trans-Pacific Partnership agreement only if it is for the overall good of New Zealand and the New Zealand economy. What I can confirm is that should we be successful in negotiating a high-quality agreement that is good for New Zealand, it will follow the same parliamentary process as other similar agreements.

Dr Russel Norman : I raise a point of order, Mr Speaker. It is a very simple—

Mr SPEAKER : Order! I can anticipate the point of order. I am going to invite the member to ask that question again.

Dr Russel Norman : Thank you. Will Parliament be able to modify the text of the Trans-Pacific Partnership agreement after the Government has signed the agreement?

Hon TODD McCLAY : The member needs to be careful not to get ahead of himself. There is no agreement under the Trans-Pacific Partnership yet. Should there be an agreement it would have to be in the overall best interests of New Zealand for the Government to sign it, and the process will be the same as every other trade agreement that is put before Parliament.

Mr SPEAKER : I will allow the member an additional supplementary question.

Dr Russel Norman : Will Parliament be able to modify the text of the Trans-Pacific Partnership agreement after the Government signs it?

Hon TODD McCLAY : The process that will be followed for the Trans-Pacific Partnership, should it be successfully negotiated and concluded, will include a national-interest assessment, followed by enacting legislation. That is the normal process that we follow in this House with all agreements, including the New Zealand – Korea free-trade agreement, the New Zealand – China free-trade agreement, and all other agreements that have been negotiated successfully in the interests of New Zealand.

Dr Russel Norman : I raise a point of order, Mr Speaker. It was a very simple question. The Minister is not answering a very simple question.

Mr SPEAKER : Order! It is a very simple question that has now been repeated twice. I see little point in repeating the question a third time, but the member certainly has an additional supplementary question, if he wants to use it.

Dr Russel Norman : Will Parliament be able to modify the text of the Trans-Pacific Partnership agreement after the Government signs it—yes or no?

Hon TODD McCLAY : I refer the member to my previous answer. This agreement, should it be concluded, will follow all other agreements that have come through this House. The agreement will go before the Foreign Affairs, Defence and Trade Committee, which will be able to put a report back to Parliament.

Dr Russel Norman : I raise a point of order, Mr Speaker. I seek your clarification and direction. What can the Opposition do when a Minister simply refuses to answer a question?

Mr SPEAKER : The Minister did not refuse; he gave an answer that did not answer the question—I agree with that. There is nothing I can do. It is the responsibility of the Minister to answer questions in this House. I judge whether the question has been answered. On either occasion, I did not think it had been satisfactorily addressed, so I gave the member additional questions to use. It will be now for the public and this House to judge the quality of the answer that has been given by the Minister.

McClay spoke, but effectively refused to answer the question four times.

I judge the quality of the answers as very poor. Avoiding answering the question once was poor form. Four times is disgraceful. It looks like arrogant Government stonewalling.

I’m not judging the merits of Norman’s question, just the abysmal quality of ther responses.

From Speaker’s rullings:

Accountability to the House

4 Ministers have a responsibility to the House, and through the House to the country, to account for the public offices they hold. Question time is an important element of this accountability. Ministers should therefore take questions seriously and endeavour to give informative replies to the questions that they are asked.

5 Questions are an important means by which Ministers are accountable to the House. For a Minister to respond in an irrelevant manner is to act contrary to the spirit of the question process. It is incumbent on Ministers to treat questions in a manner that is consistent with their constitutional responsibilities.

I think McClay failed in his responsibilities.

McClay is MP for Rotorua, and is:

  • Minister of Revenue
  • Minister of State Owned Enterprises
  • Associate Minister of Trade
  • Associate Minister of Foreign Affairs

NZ First MP claims Psychoactive Substances Act has failed

Asenati Lole-Taylor (NZ First list MP) has called on ministers to resign because they are “responsible for the weak and ineffective Psychoactive Substances Act”.

Pacific Guardians report STEP DOWN: National & United Future MPs for failed ‘Legal High’ law

Heads should roll as a result of the National government’s irresponsible handling of legal high drugs according to NZ First MP Le’au Asenati Lole-Taylor.

“The two ministers, Todd McClay and Peter Dunne, responsible for the weak and ineffective Psychoactive Substances Act should do the right thing and resign from parliament,” she told Pacific Guardians in an exclusive interview. “They are one of the reasons why New Zealanders from Whangarei to Invercargill are marching today [Saturday, 5 April] because those two had the chance to ban these drugs in 2013 but they didn’t.”

She made the comment while walking amongst hundreds of people last Saturday calling for a blanket ban on legal highs.

“The law that was passed in 2013 has failed New Zealand miserably. Proof of that are these marches showcasing the grave concerns of the New Zealand public that the law and parliamentarians are failing them and it must be addressed urgently.”

Failure of the law, she points out lies squarely on the shoulders of the National government and the two ministers responsible.

Lole-Taylor and all her NZ First colleagues voted for the bill last year, which passed 119 votes to 1.

“They failed because they had the opportunity since 2011 to make a law that will control or ban the drugs – but because of they subscribe to the cavalier, hand-off-the-wheel attitude this government takes to governing New Zealand, they have failed the people of this country once again.”

Lole-Taylor and all her NZ First colleagues voted for the bill last year, which passed 119 votes to 1.

She repeated her call for Mr McClay and Mr Dunne to step down.

“The two men must be held accountable for their lack of action in this case. Families have lost loved ones, a growing number of young people’s lives are wrecked by addiction, their jobs as well as businesses are suffering, all those things could have been avoided if Peter Dunne and Todd McClay as law makers did their job.”

She said their performances “are well below par of what’s expected from members of this country’s executive. They should stand down and remove themselves from running in the September election.”

But before that time, “they should pay a visit to every individual family that has suffered a tragedy from legal highs, and then make a national apology to all New Zealanders for having let them down miserably,” she said.

“Their performance in this debacle whether it is through lack of courage to push through what is right against opposition from their caucus; or perhaps, I suspect, they just don’t have what it takes.”

Lole-Taylor and all her NZ First colleagues voted for the bill last year, which passed 119 votes to 1.

In the meantime Peter Dunne blogged about the Act yesterday in Dunne Speaks:

A year ago the country was up in arms about the sale of synthetic cannabis in corner stores, dairies, groceries and convenience stores around the country. There were no restrictions on who could purchase these substances, and there was a cumbersome procedure in place which allowed me as Associate Minister of Health to temporarily ban products shown to be harmful. Since 2011, I had banned just over 50 different products under that regime.

But it was clearly not enough. Every time a product was banned, the chemical combinations were manipulated and a new product emerged, often within days of the first ban being applied. It was a never ending game of catch-up which no-one found satisfactory. It was time to turn the situation on its head to ensure that only those products proven to be low risk through a testing process equivalent to that for registering new medicines, could be sold, and even then in restricted circumstances. And so, the Psychoactive Substances Act was conceived.

Since its passage in July last year its impact has been dramatic. The number of outlets selling these drugs has been reduced from around 4,000 to just over 150; the number of products being sold has fallen from about 300 to 41 and is likely to continue falling; and, sales have been restricted to persons aged 18 and over, with no advertising or promotion permitted. The Police and hospital emergency rooms confirm the availability of these products and the number of cases of people presenting with problems associated with their use have fallen sharply. Yet still there are people up in arms.

How can this be? After all, the market has shrunk; the number of products is down over two-thirds and retail outlets numbers have fallen over 95%. The present situation is far more tightly controlled than ever before, even at the time we were banning psychoactive substances. And I have already foreshadowed more regulations are coming in the next couple of months.

So he claims that the Act is working as intended, to an extent. He  highlights what he thinks is holding the Act back.

Sadly, one of the major reasons has been the inexplicable tardiness of local authorities in implementing their local plans to regulate the sale of psychoactive substances. And some Mayors have shown an ignorance of the issues that borders on breathtaking stupidity.

The facts are these: as the Act was being developed various local authorities and Mayors pleaded with the government to give them local powers, similar to those they already have to regulate the sale of alcohol in their areas, to control the sale of psychoactive substances. Parliament listened to their pleas, and by a vote of 119 to 1 gave them the powers they were seeking.

But – and here is the rub – despite the grandstanding and tub-thumping of the Mayors (just before last year’s local elections significantly) nine months later only 5 of 71 Councils have implemented the local plans the Mayors said they needed so desperately. That delay is unacceptable. It is time for them to stop bleating, and start using the tools they implored Parliament to give them.

Drug use and abuse is a major problem but there are no simple solutions. Blanket bans don’t work, as ongoing problems with other drugs proves. Per capita New Zealand is one of the highest users of cannabis in the world.

Attacking ministers who are trying to take practical steps to address legal high issues is not going to achieve anything except perhaps pander to uninformed voters.

Labour’s targeting of multinational tax avoidance

Labour are continuing their targeting of multinational companies and their “aggressive tax avoidance”, mainly legally through what is called base erosion and profit shifting.

Base erosion and profit shifting (BEPS) refers to tax planning strategies that exploit gaps and mismatches in tax rules to make profits ‘disappear’ for tax purposes or to shift profits to locations where there is little or no real activity but the taxes are low resulting in little or no overall corporate tax being paid. (OECD)

That refers to mismatches between countries and can’t be resolved by one country.

Unilateral and uncoordinated actions by governments responding in isolation could result in double – and possibly multiple – taxation for business. This would have a negative impact on investment, growth and employment globally.

NZ Herald reports in Foreign firms face tax clash.

Labour says it will tackle “aggressive tax avoidance” by multinationals such as Facebook and Google which it says is costing the taxman hundreds of millions of dollars each year.

It isn’t costing us if the tax avoidance is legal, which it seems to be.OECD doesn’t know how much tax is being avoided:

Existing studies provide abundant circumstantial evidence that BEPS is widespread. Several studies and data show that profits are reported for tax purposes in locations different from where the actual business activities and investment takes place.

But the existing data and studies do not provide enough information to reach solid conclusions about how much BEPS actually occurs…

Labour aren’t accusing multinationals of illegal tax evasion, if that’s what it was they would be addressing it differently. NZ Herald:

Digital giants such as Google, Apple and Facebook have borne the brunt of international criticism of the way many multinational companies structure their affairs to legally minimise their tax bills.

Local concerns were fuelled last year when iPhone and iPad maker and iTunes owner Apple reported paying just $2.5 million on $571 million worth of New Zealand sales in 2012. Google and Amazon’s tax bills were also tiny in comparison with their reported sales here.

Tax is calculated on profits, not on sales, so this is misleading. Last year Labour confused sales with profits when they attacked multinationals.

The main problem is how multinational companies manipulate their profits across different countries, taking advantage of different tax rules and tax rates, to minimise their taxable profit in New Zealand.

Labour revenue spokesman David Clark yesterday said: “We certainly think there’s a lot of aggressive avoidance going on.”

He said the party was continuing a major research project on the issue and would be more proactive than the Government in addressing it through policies likely to be released before the election.

Labour can’t be more proactive than the Government (whatever that means)- the Government is already trying to address the issue.

But while Revenue Minister Todd McClay says rules for foreign firms are being tightened, New Zealand should take the lead from the international community on the matter.

Mr McClay acknowledged the disadvantage suffered by local firms competing with overseas rivals who paid little or no tax here was “the crux of where the real challenge is” in terms of taxing multinationals. Some local tax laws were already being tightened up in line with OECD recommendations last year on base erosion and profit shifting.

Problems around taxing multinationals would be top of the agenda at November’s G20 meeting in Brisbane. While Mr McClay said he wasn’t particularly optimistic about an outcome from that meeting, “ultimately a number of countries are going to have to come together and consider the best way forward”.

This highlights the main problem. Any solutions require co-operation with many countries.

Presumably through their research Labour will be aware that they can’t do a quick fix on this, it requires international co-operation in a very complex business and tax world.

More from OECD on BEPS – Frequently Asked Questions.

What is BEPS?

Base erosion and profit shifting (BEPS) refers to tax planning strategies that exploit gaps and mismatches in tax rules to make profits ‘disappear’ for tax purposes or to shift profits to locations where there is little or no real activity but the taxes are low resulting in little or no overall corporate tax being paid.

Are BEPS strategies illegal?

In most cases they are not.  Largely they just take advantage of current rules that are still grounded in a bricks and mortar economic environment rather than today’s environment of global players which is characterised by the increasing importance of intangibles and risk management. That said, some of the schemes used are illegal and tax administrations are fighting them.

Why is this relevant if it is all legal?

It is relevant for a number of reasons. First, because it distorts competition: businesses that operate cross-border may profit from BEPS opportunities, giving them a competitive advantage over enterprises that operate at the domestic level.  Second, it may lead to inefficient allocation of resources by distorting investment decisions towards activities that have lower pre-tax rates of return, but higher after-tax returns.  Finally, it is an issue of fairness: when taxpayers (including ordinary individuals) see multinational corporations legally avoiding income tax, it undermines voluntary compliance by all taxpayers.

Why worry about BEPS now? Is public outcry about the tax affairs of corporate giants the driving force behind the OECD’s work on BEPS?

The OECD has been providing solutions to tackle aggressive tax planning for years. The debate over BEPS has now reached the highest political levels in many OECD and non-OECD countries. The OECD does not see BEPS as a problem created by one or more specific companies. Apart from some cases of egregious abuses, the issue lies with the tax rules themselves. Business cannot be faulted for using the rules that governments have put in place. It is therefore governments’ responsibility to revise the rules or introduce new rules.

What is the cause of BEPS?

BEPS strategies take advantage of a combination of features of home and host countries’ tax systems. Corporation tax is levied at a domestic level. The interaction of domestic tax systems means that an item of income can be taxed by more than one jurisdiction, thus resulting in double taxation. The interaction can also leave gaps, which result in income not being taxed anywhere. Corporations have urged bilateral and multilateral co-operation among countries to address differences in tax rules that result in double taxation but at the same time have exploited them so that income goes untaxed everywhere. The report, Addressing Base Erosion and Profit Shifting, identifies a number of circumstances that, combined in different forms, give rise to opportunities for BEPS.

What is the OECD’s role in addressing BEPS?

Many BEPS strategies take advantage of the interaction between the tax rules of different countries, making it difficult for any single country, acting alone, to fully address the issue. There is thus a need to provide an internationally coordinated approach which will facilitate and reinforce domestic actions to protect tax bases and provide comprehensive international solutions to respond to the issue. Unilateral and uncoordinated actions by governments responding in isolation could result in double – and possibly multiple – taxation for business. This would have a negative impact on investment, growth and employment globally.  The BEPS Action Plan provides a consensus-based plan to address these issues and is part of the OECD’s on-going efforts to ensure that the global tax architecture is equitable and fair.

What does the BEPS Action Plan say?

It sets forth 15 actions to address BEPS in a comprehensive and coordinated way.  These actions will result in fundamental changes to the international tax standards and are based on three core principles: coherence, substance, and transparency. The Action Plan also calls for further work to address the challenges posed by the digital economy. Looking toward innovative approaches to deliver change quickly, the Action Plan calls for a multilateral instrument that countries can use to implement the measures developed in the course of the work. While the OECD steps up its efforts to address double non-taxation, it will also continue work to eliminate double taxation, including through increased efficiency of mutual agreement procedures and arbitration provisions.

What actions will be carried out in the context of BEPS?

Domestic tax systems are coherent – tax deductible payments by one person results in income inclusions by the recipient. We need international coherence in corporate income taxation to complement the standards that prevent double taxation with a new set of standards designed to avoid double non-taxation. Four actions in the BEPS Action Plan (Actions 2, 3, 4, and 5) focus on establishing this coherence.

Current rules work well in many cases, but must be modified to prevent instances of BEPS. The involvement of third countries in the bilateral framework established by treaty partners puts a strain on the existing rules, in particular when done via shell companies that have little or no economic substance:  e.g. office space, tangible assets and employees. In the area of transfer pricing, rather than replacing the current system, the best course is to fix the flaws in it, in particular with respect to returns related to over-capitalisation, risk and intangible assets. Nevertheless, special rules, either within or beyond the arm’s length principle, may be required with respect to these flaws.  Five actions in the BEPS Action Plan focus on aligning taxing rights with substance (Actions 6, 7, 8, 9, and 10).

Because preventing BEPS requires greater transparency at many levels, the Action Plan calls for: improved data collection and analysis regarding the impact of BEPS; taxpayers’ disclosure about their tax planning strategies; and less burdensome and more targeted transfer pricing documentation.  Four actions in the BEPS Action Plan focus on improving transparency (actions 11, 12, 13, and 14).

Can BEPS be tackled without replacing the arm’s length principle with formulary apportionment?

The current transfer pricing rules do not always properly address the way modern businesses operate in a globalised environment, and taxpayers have thus been able to use/misuse the rules to artificially shift profits. In particular, the arm’s length principle faces challenges in addressing transfers of intangibles, risks, and capital, and other high-risk transactions. The Action plan includes three major actions to address these cases, which may include special measures either within or beyond the arm’s length principle. The Action Plan has been developed to fix the current system quickly and efficiently, without preconceptions regarding the precise nature of the changes that may be required to address these critical transfer pricing issues.  However, adoption of alternative transfer pricing methods like formulary apportionment would require development of a consensus on a number of key issues (which countries do not believe to be attainable in the short or medium term) and could also raise systemic problems which could result in even more damaging problems for countries’ revenues. Accordingly, it is believed that it will be most productive to focus on addressing specific issues arising under the current arm’s length system at the present time.

How will the actions be implemented? How long will it take?

The BEPS Action Plan calls for the development of tools that countries can use to shape fair, effective and efficient tax systems. Because BEPS strategies often rely on the interaction of countries’ different systems, these tools will have to address the gaps and frictions that arise from the interface of these systems.  Some actions, for example work on the OECD Transfer Pricing Guidelines and the Commentary to the OECD Model Tax Convention, will result in changes that are directly effective.  Others will be implemented by countries through their domestic law, bilateral treaties, or a multilateral instrument.

Addressing BEPS is critical for most countries and must be done in a timely manner so that concrete actions can be delivered quickly before the existing consensus-based framework unravels. . At the same time, governments need time to complete the necessary technical work and achieve widespread consensus. Against this background, it is expected that the Action Plan will largely be completed in 2 years.

How will G20 countries that are not members of the OECD be involved?

The work on BEPS, launched by the OECD, is now strongly supported by the G20 where it is a key item on the Finance Ministers’ and of the Leaders’ agenda. Non-OECD G20 countries were involved in the work and all (Argentina, Brazil, China, India, Indonesia, Russia, Saudi Arabia and South Africa) participated in the meeting of the Committee on Fiscal Affairs where the Action Plan was adopted. The continued participation and endorsement of all G20 countries will be critical to guarantee a level playing field and prevent inconsistent standards. To this end, and in order to facilitate greater involvement of major non-OECD economies, the “BEPS Project” has been launched, and interested G20 countries that are not OECD Members will participate in the project on an equal footing. Other non-members could be invited to participate on an ad hoc basis.

Will developing countries be involved? How will their concerns be addressed?

Developing countries also face issues related to BEPS and the work will take into account the specificities of their national legal and administrative frameworks. In this respect, the Global Fora on Tax Treaties, on Transfer Pricing, on VAT and on Transparency and Exchange of Information for Tax Purposes will be useful platforms for developing countries to provide relevant input as will the Task Force on Tax and Development.  In addition, the CFA will benefit from the input of the UN, which has been an observer to the CFA since January 2012.

What are the next steps?

Work on the 15 actions outlined in the Plan has already started and will continue the technical work to develop concrete measures that countries can put in place to end double non-taxation and the artificial shifting of profits.

Will the BEPS Action Plan put an end to offshore tax evasion?

The work on BEPS focusses largely on legal tax planning techniques rather than offshore tax evasion, which is illegal. However, other work being carried out by the OECD and the OECD Global Forum on Transparency and the Exchange of Information is focused on combatting offshore tax evasion.

Based on this work, many jurisdictions have taken concrete actions to improve their legal framework and practices to ensure transparency and effective exchange of information to combat offshore tax evasion. Though there is still room for improvement, the current results are impressive.

How will the BEPS Action Plan affect “tax havens”?

The BEPS Action Plan aims to end the use of shell companies used to stash profits offshore or unduly claim tax treaty protection and neutralise all schemes that artificially shift profits offshore. Though the BEPS Action Plan is not about dictating whether countries should have a specific corporate income tax rate, it will have an impact on regimes that seek to attract foreign investors without requiring any economic substance.

Is the OECD against tax competition?

The OECD is against harmful tax competition. Countries have long recognised that a “race to the bottom” would ultimately drive applicable tax rates on certain sources of income to zero for all countries, harming nations and their citizens.   Agreeing to a set of common rules will help countries make their sovereign tax policy choices.

Is the BEPS project against business?

No, it is not. In most cases, business is just using the rules that governments themselves have put in place. It is therefore governments’ responsibility to revise the rules or introduce new ones. To ensure the fairness of the corporate tax system, the BEPS project will provide a co-ordinated, comprehensive approach that prevents double taxation and double non-taxation, creating a level playing field for all taxpayers.

How much tax revenue is lost to BEPS?

Existing studies provide abundant circumstantial evidence that BEPS is widespread. Several studies and data show that profits are reported for tax purposes in locations different from where the actual business activities and investment takes place.

But the existing data and studies do not provide enough information to reach solid conclusions about how much BEPS actually occurs…

What is the appropriate level of corporate income tax?

Every jurisdiction is free to set up its own corporate tax system as it chooses. States have the sovereignty to implement tax measures that raise revenues to pay for the expenditures they deem necessary. No or low taxation is not per se a cause of concern unless it is associated with practices that artificially segregate taxable income from the activities that generate it. In other words, tax policy concerns arise when there are gaps in the interaction of different tax systems or when, the application of bilateral tax treaties allows income from cross-border activities to go untaxed.

Peter Dunne praised in Parliament

Praise in Parliament for Peter Dunne has been in short supply lately, but he was speaking positively and being spoken of positively yesterday during the second reading of the Psychoactive Substances Bill.

It’s been a rough few weeks in Parliament for Peter Dunne, but suggestions (and hopes of some) that he’s down and out are premature.

And Dunne was praised by other speakers for his efforts in initiating and progressing the bill (a notable exception being John Banks who called Dunne a puppy hater).

Hon TODD McCLAY (Associate Minister of Health):

I would like to take a moment to acknowledge the considerable amount of work by the Hon Peter Dunne in getting this bill to this stage. The Hon Peter Dunne has been a driving force behind this world-first legislation, and we need to recognise the great work that has been put in place by Mr Dunne in this area.


I also ought to recognise the Hon Peter Dunne, who is the architect of this legislation, who steered it through its first stages in the House, and who steered it from its genesis as a set of recommendations out of the Law Commission report to becoming legislation. It is good to see Peter Dunne in the House this evening.

…we simply needed to get this legislation to the House much sooner than we did. In fact, because the Law Commission reported its recommendations over 2 years ago, there has been plenty of time for the Government to make this a priority. This is no reflection in any way whatsoever on Peter Dunne.

Dunne corrected Lees-Galloway on the genesis of the bill – see Psychoactive Substances Bill.

LOUISA WALL (Labour—Manurewa):

I want to acknowledge the Hon Peter Dunne and the leadership that he has shown in bringing this piece of legislation to the House, and to also thank him for tabling a petition on behalf of 3,533 members of the Manurewa community.

Dr PAUL HUTCHISON (National—Hunua):

Thank you for the opportunity to speak on this very innovative Psychoactive Substances Bill. I would like to acknowledge and thank, first of all, the Hon Peter Dunne, who has pressed on with this bill. I was under the impression that it was initially the Law Commission, but he has told us this afternoon that it was through a United Nations committee.

Dunne tripped himself up over the GCSB and the Kitteridge report which led to him resigning as Associate Minister of Health (and Minister of Revenue) but he is still well respected and continues to make a positive contribution in Parliament.

And the Psychoactive Substances Bill will be a notable Dunne legacy.

In The House video of the Psychoactive Substances Bill – Second Reading speeches:

Ground breaking Psychoactive Substances Bill progresses

The Psychoactive Substances Bill was back from the Health Committe in the House for it’s second reading yesterday. It is now the responsibility of new Associate Health Minister Todd McClay, but Peter Dunne has driven this bill from the start.

The bill is seen as ground breaking and world leading.

A very commendable cross party approach has been taken to the bill by the Health Committee, as McClay says:

 I want to thank the Health Committee for its thoughtful consideration of this bill, and also to the many people who made submissions on this important piece of legislation. I appreciate your broad support for, and the helpful comments on, the detail of the bill.

Because of the overwhelming wish of New Zealanders for the Government to act on the sale and use of psychoactive substances, so-called legal highs, the committee has had a shorter period than usual to consider this bill. I greatly appreciate the cross-party support that has enabled Parliament to expeditiously deal with this issue.

The desire to see the bill progress, the hard work and co-operation amongst MPs and parties were evident through most of the speeches.

Peter Dunne’s speech covered the history and the intent of  the bill. There were a number of interjections from John Banks, who looks like being the only MP to oppose the bill

Edited draft transcript (I’ll post separately on most of the exchange with John Banks).

Hon PETER DUNNE: I am delighted to speak on the second reading of the Psychoactive Substances Bill . I must confess that the debate this afternoon is taking place in slightly different circumstances from those I had originally imagined would occur when we talked about this bill proceeding at this time. None the less I am very pleased with the work that the Health Committee has done in terms of its consideration of the legislation and the bill that has emerged and looks like enjoying the unanimous support of this House.

Hon John Banks: No, no, no.

Hon PETER DUNNE: I am sorry. I should have known better perhaps than to presume that the ACT Party would be in line with public opinion.

The reason I sought to table this petition, very simply, is it is indicative of the wide range of community concern up and down New Zealand about the impact of psychoactive substances being sold through dairies and various other outlets with impunity by some very irresponsible retailers.

The Manurewa example was one, and I know the member for Manurewa and Dr Calder had been very vigorous in their local efforts, and I was pleased to receive this petition. I want to correct a myth that has been circulating about this bill. It did not actually arise as a result of the Law Commission’s recommendations.

In fact, the genesis of this bill came at the UN convention on narcotic drugs meeting in Vienna in early 2011. It became clear to me in discussions at that meeting that the British Government at that stage was seeking to move down this path. I thought that was a particularly good idea and as we were developing our interim regime I tasked officials in the Ministry of Health with finding out all we could about what the British were proposing and then developing a regime that met our needs.

Along the way, the Law Commission made its recommendations.

The irony is that when I went back to Vienna in March this year for the follow-up discussions, the British were curious to know where we were, because they were actually stalled in their efforts. In other words, we picked up their idea from 2 years ago, had the legislation almost before Parliament at that stage, and they were still working through their internal bureaucracy to get to that point and were asking us with some envy what progress we were making and how this would occur.

I acknowledge the comments by both the Associate Minister of Health and the previous speaker, Iain Lees-Galloway, about my own role, and I thank them for that. It is no secret that I was frustrated at the time that it was taking to get this legislation into the House, and I am delighted now that we are through the process and the bill looks like passing fairly quickly.

This is world-breaking legislation. The reason is it tackles the problem in quite a lateral way. It simply says to the manufacturers and suppliers of these pernicious substances: “You prove they are low risk, and if you can, we will let you sell them.” It is a very simple proposition.

Other countries—the Australians, the Irish, the French, the Americans, the Russians, the British, many of the European nations with whom I have spoken—have all been playing the same game of trying to define what a psychoactive substance is and how you ban it.

There have been many variations on that theme. All have come to the point of saying it is too difficult and asking what a way through is. New Zealand is being looked on as world-leading in this regard.

If this legislation is, as I believe it will be, successful, then we can expect to see that model picked up and implemented right around the world, because this issue is not just one for this country; it is one that is affecting every jurisdiction. When you look at the debates that are going on in those countries and you follow the tenor of the argument, it is exactly the same as we have had here over the last couple of years or so.

One of the great frustrations that I also experienced during my time as the Associate Minister of Health was the anger of communities who wanted to see action, and the sense that they had was often reflected in the comments that I would get asking why I did not just simply ban these things. Well, for various reasons that is not possible.

Their chemical composition is such that these things are almost indefinable. You ban one substance, and one element is changed and the same substance reappears.

In my time as Associate Minister, we banned 30-odd different substances, over 50-odd products, and we were vigorous in doing so. But you can go only so far down that path. That is why this legislation becomes vital and necessary.

I make no apology for the fact that we will set a deliberately high bar. I make no apology for the fact that those who want to go through the process will pay an exorbitant fee to get there. There are huge proceeds involved from this trade, and I think it is only fair and reasonable to expose those people to a very rigorous standard of testing and a very rigorous process before we even get to the point where they get on to the market.

Let me deal with one of the great red herrings of this debate, the animal testing issue. There was never any intention ever to embark upon a programme of animal testing associated with these products—never ever any intent. What happened was simply this—what happened—

Late last year an Official Information Act request was lodged with the Ministry of Health for a whole range of papers relating to this new regime. One of the papers was a paper prepared by Dr Leo Schep of the National Poisons Centre in Dunedin.

Dr Schep has done a huge amount of work in this area, but is at one end of the spectrum in terms of the debate. He is a purist. I acknowledge that. He is an exceptional toxicologist, but he is a purist. He produced a paper that was headed “Report to the New Zealand Government on Animal Testing”. It was his initiative.

Unfortunately, when we sought to release that batch of papers I did not check the title page. What appeared in the Sunday Star-Times was “Here is an official report to the New Zealand Government recommending animal testing.” It was an unsolicited piece of advice. That was why I ruled out—very immediately—the LD50 test. That was why I worked with the Health Committee through the expert advisory committee to make sure that the instances where animal testing might be even a possibility were minimised and reduced.

But I say to the House it was never the intention embark upon any form of animal testing. The expert advisory committee has given very clear advice to the select committee. The reality is that a lot of the stuff—and I am still getting emails today in Cyrillic script, in various different languages, from around the world from people saying “Don’t test psychoactive substances on dogs.” That was never the intention.

The bulk of New Zealanders want to see this legislation pass immediately. It will be, and I acknowledge the support of the Government. I acknowledge the support of other parties who take an approach in this particular legislation that is beneficial. This is the opportunity to make huge progress.

The world is watching us.

I think this Parliament will not only do the people of New Zealand and the young people of New Zealand a huge service in passing this legislation but set a standard that other nations will follow. Hopefully, working collectively at an international level, we can start to turn back the clock on this particular issue.

In The House: Psychoactive Substances Bill – Second Reading – Part 3 (Peter Dunne)

Hansard: Draft transcript – Thursday, 27 June 2013 

The Second Reading debate was interrupted when the House rose for the week and will be continued next week.


Questions on Game Animal Council

The establishment of a Game Animal Council started under Labour in 2005 and is now into it’s third term.

From Question Time yesterday:

10. TODD McCLAY (National—Rotorua) to the Associate Minister of Conservation: What benefits will the Game Animal Council Bill bring for recreational hunters?

Hon PETER DUNNE (Associate Minister of Conservation): The Game Animal Council Bill will bring two main benefits for recreational hunters. Firstly, the establishment of the council will improve the management of game animals—namely, deer, tahr, chamois, and wild pigs—and will include improvements in hunting opportunities and the quality of the game trophy resource. The second main benefit will be to provide an independent hunting-focused advice stream to the Minister of Conservation on issues that affect that sector.

Todd McClay: What feedback has he seen regarding the introduction and first reading of the Game Animal Council Bill?

Hon PETER DUNNE: The feedback has been extremely positive, including support from the New Zealand Deerstalkers Association, the Game and Forest Foundation, the Fiordland Wapiti Foundation, the Game Council New South Wales, hunting guides, the hunting media, many nonaffiliated hunters, and even non-sector interests such as Fish and Game New Zealand and people in the recreational fishing sector, as well. In fact, many people have told me that this council is the thing they have been waiting 60 years to see established.

Kevin Hague: Can the Minister confirm that all of the advice received from the Department of Conservation has been that the proposed Game Animal Council is likely to be harmful to conservation and to our native plants and animals?

Hon PETER DUNNE: No, I cannot confirm that. But what I can tell the member is that the bill was developed out of a long period of consultation. It began during the term of the previous Labour Government, it actually had over 4,000 public submissions presented to the game animal panel, and the result of that was that panel’s recommendation that a big-game hunting council be established, which is given effect in this legislation.

Todd McClay: I am interested to know: what is the background to the Game Animal Council Bill and how did it reach this stage?

Hon PETER DUNNE: This bill is the culmination of work that began as part of United Future’s 2005 confidence and supply agreement with the Labour-led Government to develop a national pest management strategy. That saw the establishment of a game animal panel chaired by the Hon Margaret Austin, and 4,000 submissions to it. Its recommendation was that a big-game hunting council be established. During the last term of Parliament under the current Government we have been able to bring that to the point where the bill was introduced last week. So there is widespread support on both sides of the House for this development.