(Limerick East): I welcome this measure and I do not think we need delay the House in debating it. So far as I can see, it simply applies to air transport and the only effect it will have is in connection with air transport arrangements between Ireland and the USSR, particularly Aeroflot undertakings in Shannon.
I do not know if the Minister intends replying but I have a few questions which perhaps he might answer. This measure provides that tax will not be charged on any profits, income or capital gains which accrue to one country from its operation in the other country. It also provides that salaries, wages and other remuneration earned by a citizen of the USSR in respect of services rendered to a Soviet air transport undertaking as an officer or employee posted to Ireland shall be exempt from tax in Ireland. It also provides for reciprocal relief by the USSR in the case of an Irish citizen posted to the USSR as an employee of an Irish air transport undertaking. I understand the agreement will remain in effect indefinitely but that it can be terminated after 1990. Termination will be effective, according to the agreement, from 1 January 1992, or any subsequent 1 January following notice of termination given by either country. Is there any significance in that date? Is there an implication that activity in Shannon will not continue after 1990? Is there also an implication that new arrangements will be put in place for the Aeroflot operation in Shannon subsequent to 1990?
Double taxation on the income from the business of air transport is avoided in cases of agreements with other countries by the inclusion of an article on shipping and air transport in the comprehensive double taxation agreements with these countries. As the Minister said, it follows the relevant article in the OECD model on double taxation and provides that the profits of an enterprise carried on by a resident of one contracting State from the operation of an aircraft in international traffic is to be taxable only in the contracting State. That is the model on which this is based although this measure seems to be wider as Article 2 of the agreement is more comprehensive.
The OECD article exempts profits from the operation of aircraft in international traffic. Article 2 of the Ireland-USSR agreement exempts profits of the air transport undertaking from the provisions and sale of air transport and from associated activities. Air transport undertakings and associated activities are not defined. The exemption from tax, however, is obviously more broadly based than that provided for in the OECD article. I should like the Minister to comment on its significance. Why is the phrase "associated activities" included here? Does it apply to the importation of Russian oil into Shannon airport for refuelling activities of aircraft? Does it go wider than simply the air transport activities of Aeroflot? Does it apply to ancillary activities in the airport with the Russian input? In particular, does it apply to the oil farm on the airport which is used, as the Minister knows, for the sale of fuel to many other airlines apart from Aeroflot?
All income and capital gains derived by an air transport undertaking of one contracting State from the provision and sale of air transport and from associated activities are to be exempt from all taxes of the other contracting State on income and capital gains. The relevant OECD article permits the country in which the income is earned to levy tax on that income where the right or property in respect of which the income is paid is effectively connected with a permanent establishment situated in that country.
There is a similar and corresponding provision in respect of capital gains. In the case of the Ireland-USSR agreement, therefore, there is a much broader basis for exemption from tax in Ireland in the case of a USSR air transport undertaking and vice versa. It also applies to citizens and employees of Aeroflot resident in this country. I presume that there is a desire that they would be exempt from tax here. In the case of citizens of one contracting State posted to the other contracting State the exemption from taxation in that other State is more comprehensive than the exemption provided for in the corresponding OECD article. That article permits the country in which the employment is exercised to levy tax on remuneration in certain circumstances, that is to the extent that the remuneration is derived from the employment so exercised, unless the employee fulfils certain conditions such as not being present in that country for more than 183 days in any 12 month period.
Article 3 of the Ireland-USSR agreement provides for a blanket exemption from income tax in the case of a USSR citizen posted to Ireland in his capacity as officer or employee of the air transport undertaking and vice versa for Irish citizens. Why is this wider than the OECD model and why is it wider than the exemptions provided in other double taxation agreements? Why is there a departure from the 183 days clause in any 12 months? It is reasonable to suppose that the effect of any double taxation agreement will give the balance of advantage to one country when all the relevant factors are weighed. Thus, any exemption provided by a treaty provision will inevitably result in one country foregoing a greater amount of taxation than the other contracting country. Where the scale of relevant activities envisaged is small and narrowly drawn, the balance in favour of one of the countries may be quite apparent. Consequently, in the case of this draft agreement between Ireland and the USSR, the extent to which one of the contracting countries is to forego taxation may be readily compared to the extent to which the other country is to forego corresponding taxation.
The significance of the agreement needs to be viewed in a broader context. Assuming there is not an Irish air transport undertaking operating in the USSR and the effect of the agreement is that Ireland has to forego taxation in the respective Aeroflot activity in this country, we need to look at that in a wider context and view it against the perspective of other factors. I do not know whether it is the intention of Aer Lingus to get involved in any capacity in the USSR, but if they do I presume this agreement will cover it. I would like the Minister to provide us with any information he may have on the nature of the USSR system of taxation on profits on income and on capital gains.
