Vol. 478 No. 6
2 Mr. McCreevy asked the Minister for Finance the plans, if any, he has for a new tax incentive strategy aimed at addressing the concerns of investors taking advantage of either the 10 per cent manufacturing rate or the 10 per cent rate for companies based in the Irish Financial Services Centre; and if he will make a statement on the matter. [11851/97]
3 Mr. M. McDowell asked the Minister for Finance if his attention has been drawn to media reports (details supplied) regarding the future of corporation tax; if his attention has further been drawn to emerging proposals at EU level to harmonise income and corporation tax; and if he will make a statement on the matter. [11854/97]
I propose to take Questions Nos. 2 and 3 together. The Government is currently examining the most appropriate corporation tax structure for the long-term having regard to the central importance of the 10 per cent rate for inward investment and employment creation. As Deputies will be aware, the 10 per cent rate for manufacturing industry and certain internationally traded services is due to continue to end-2010 while the 10 per cent rate for the IFSC and the Shannon Zone is due to continue to end-2005. While the deadlines are still a considerable time away, the Government recognises the need to clarify the position as soon as possible to facilitate new investment by overseas firms wishing to locate in Ireland and by firms already established here. I expect that the examination which is currently under way will be completed at an early date and that it will be possible for the Government to make an announcement in the near future.
On the question of tax harmonisation, I am not aware of any plans at EU level for a general harmonisation of income tax or corporation tax. There is, however, broad acceptance among EU Finance Ministers of the need to achieve greater co-ordination of taxation policies between member states to ensure that these are consistent with European Union objectives in respect of economic and monetary union and the Single Market. A high-level policy group under the chairmanship of Commissioner Monti has been set up to examine these issues and report to the Council in due course on what initiatives might be considered in this area.
I tabled this question on a previous occasion. During the past number of months, the Minister indicated that the Government will be introducing its strategy in the near future. Recent newspaper reports indicate that the Government is about to make an announcement in that regard. When will that announcement be made? The international companies involved would like a decision in the near future. Will the announcement be made within the next week or so? I am sure the Minister read the recent reports to which I referred.
I announced in the budget on 22 January that we would be addressing this issue. Like the two Deputies opposite, who are their respective parties' spokespersons on Finance, we met different groups which expressed concern, particularly in respect of companies that are already established here and contemplating substantial capital investment programmes — notably in the pharmaceuticals area — and said they would like an indication of what the rate might be after 2010. We recognise their concern and are working towards clarifying the situation. However, a number of issues and factors must be taken into account. The more this matter has been discussed, the more relevant these issues have become in terms of resolving or addressing the consequences of either putting in place a single rate or a range of rates.
In addition, the non-10 per cent rate has been decreased. The relevant rates are now 36 per cent and 28 per cent, respectively. The direction of the non-10 per cent rate is converging towards what might be regarded as a probable or possible single rate. However, this matter involves many complex issues and we are trying to resolve as many as possible before a final decision is made. I am not in a position to inform the Deputy when that decision will be made. The newspaper reports to which he referred reflect the impact of our ongoing work.
Will it be announced within the next month?
I do not know.
I would be remiss if I did not remark on the Minister's socialist sartorial appearance. He is wearing a red tie and a red rose and I do not doubt that he is looking forward to an evening celebration.
There is one taking place at the Lansdowne Rugby Club to which the Deputy is invited.
In the spirit of the day, I must express my delight that a Government committed to low tax rates, further privatisation and proper control of public spending will be elected in England today. I hope the same thing happens here.
I hope there will be no references to Thomas Dewey during the celebrations.
When I saw the rose and tie worn by the Minister, I could not help but remark upon his appearance.
Is the Minister not aware of the considerable media coverage of an EU Commission agenda to investigate the harmonisation of corporation tax and income tax rates? Articles about this matter have appeared in various journals and some leading financial institutions in this country have informed me they apprehend that such an agenda is afoot.
With regard to the manufacturing and the IFSC rates, does the Minister agree that there is cross-party consensus that a rate of between 10 per cent to 13 per cent is required in respect of all services? Is there substance in the suggestion that, in approaching a low standard rate for manufacturing and services, the Department is examining the introduction of a different rate in respect of passive income such as rentals, investments, etc., rather than core manufacturing, services and production activities?
With regard to the harmonisation of income tax and corporation tax, various proposals have been put forward by those countries in the European Union with relatively high corporation tax rates. However, these countries do not want to see the introduction of high excise duties on alcohol. They are attempting to reduce what they regard as a competitive disadvantage without seeing the other side of the coin. Under the European Union Treaties, the question of taxation for individual member states is governed by unanimity and there are no proposals to change that. The principle of subsidiarity must allow and enable individual member states to adopt a tax regime they are prepared to take on to maximise the potential for economic activity within their own jurisdictions.
The Deputy will be familiar with the situation in the United States where different corporate tax structures prevail side by side. I visited the offices of Merrill Lynch which are situated in Wall Street on the island of Manhattan and I was shown the company's corporate support offices across the Hudson River in New Jersey. I was informed that the support offices are situated in New Jersey because the tax rate in that state is considerably less than the combined tax rates in New York City and New York State.
I do not believe the European Union can proceed to establish a standard rate of income tax and corporation tax. I know of no federal, federalist or post-federal country where such a regime exists. A regime of that type would not be in the interests of the Union or of the member states. Therefore, I do not expect that one will be introduced.
The Deputy's second question referred to differentials between traded income — if one wants to use that phrase — and passive income. That issue must be addressed because the movement down from, say, 36 per cent or 28 per cent to a low rate of the order the Deputy suggested, without anything else happening, could bestow an extraordinary windfall advantage on people, with no material benefit from the point of view of the economy and without creating any extra employment or wealth. It is the very complexity of those issues that necessitates our examining very carefully how we should address people's very real desire for some degree of certainty post-2010.
As a country, one of the great advantages we have had is that, for some considerable time, we have provided tax certainty in respect of both domestic and foreign direct investment on which we have had all party support; it has not become a domestic political football as has been the case in other jurisdictions. I welcome that and supported it when in Opposition. Indeed it has been one of our key strengths and will be the factor which will influence my considerations in all of this.
We went over this ground on the last occasion on which the Minister answered questions here. As he correctly points out, we have all been lobbied by IBEC and its subsidiary groups in this respect. The Minister announced at budget time that a decision on this matter was imminent. Over recent weeks it appeared that that decision would be taken. The Minister could be more forthcoming and state whether it is intended to strike a rate, indicate the range of rates and whether it will discriminate between passive and traded income? Although this occurs in the case of all Governments, press officers of Departments are now more in tune with informing their friends in the media than Members of this House. It is legitimate that Members should know first-hand as it was obvious over the past ten days or so that a decision on this matter was imminent. The Minister should be more forthcoming in informing us of the announcement we can expect within the next two weeks or so, if not before. At the very least, can the Minister say whether this decision will be taken within the next fortnight and, if so, what it is likely to be?
I respect Members of this House and, in the course of replies I have been as direct, honest and frank as possible. No decision has been taken; the matter is under active consideration. We are also aware of the increasing demand for clarity on this and of the general desire that such decision be taken sooner rather than later. We have not clarified the issues; we have had some discussion on some of them. Since the benefit of all of this is to provide certainty in the marketplace and to would-be investors, a decision that would not constitute an answer to supplementary questions and leave much ambiguity hanging over it, would not be helpful to anybody.
There was a very detailed report in the newspapers.
A lot of detailed work is being done.
By journalists.
Both Deputies McCreevy and Michael McDowell are very knowledgeable in these areas. Deputy McDowell referred to some issues warranting consideration.
There is also the overall question of the impact on tax revenue in ensuing years and the transitional arrangements might be entered into, all of which are being examined. As soon as we are in a position to take a decision I can assure Members they will be informed and I will do so with the utmost courtesy.
In the month of May?
I honestly do not know. Were I in a position to say what will happen within the next few weeks I would give such an indication. A decision will be announced when we are in a position to do so. I would be misleading the House were I to say it might occur within the next couple of weeks and then, for whatever reason, it did not occur.
I welcome what the Minister said about tax harmonisation. Indeed the message should emanate from this House that the overall objective of a harmonised income and corporation tax regime in Europe is anathema to this country and we do not want to go down that road. Will the Minister confirm that it will be made very clear at the next ECOFIN Ministerial Council meeting or whatever — if this is part of the European Union Commission's medium to long-term agenda — we want to have no hand, act or part in it?
On tax harmonisation, does the Minister agree that in some areas of so-called passive income one would need a scalpel to divide what is passive from what is active income? I have in mind in particular our banking institutions because some contend that a section 84 loan was the nearest thing to passive income there ever was. Does the Minister agree it would be very difficult to divorce what is happening within the International Financial Services Centre from ordinary banking activities? Will he say to his European colleagues, with his hand on his heart, he is not engaging in an aid to geographical distortion?
If the Minister is going to draw a distinction between passive and traded income, does he agree that that will have to be very clearly and concisely signalled to the market so that people, when making plans, will know, roughly speaking, which side of a difference between 12 per cent or 10 per cent and, say, 25 per cent or 30 per cent, their industrial or market activities will fall?
By his question Deputy McDowell is illuminating the reasons we are taking time to examine all of these issues. On the timeframe of 2010, were we in a totally open position, we would not be proposing to change it. The expectation is that we will be required to change it in some form or other and it is for that reason we are addressing that issue. The complexities of tax harmonisation are ones I support. I can confirm that we have adopted a position, with regard to the Intergovernmental Conference, that unanimity of voting in ECOFIN on taxation issues will remain, so that we retain our independence to determine tax rates within the broad parameters of what does and does not constitute State aids.
