It is a well written article about offshore companies, etc., and it is well researched. The article states that Edsaco Group was founded in 1980 and has developed into one of the leading trust and international tax advisers in Europe. I presume this Dr. O'Brien is the same person because the similarities between the two articles are strikingly obvious. They both contain the same sentences and phrases.
Dr. O'Brien is an expert on tax law. He relates how this problem arose, illustrates how the UK changed its laws and details the history of Irish and British tax law from the late 1880s. I assume it is from this source that recent articles in Irish national newspapers originated. Dr. O'Brien does not state from where he obtained the figure. He assumes it might be 40,000. In an article in Taxation on 31 August 1995, he referred to the Irish question and stated: “The Irish company has come to dominate in European terms the offshore tax planning field. Whilst numbers are difficult to arrive at, it is undoubtedly true that one is looking at 40,000 plus companies.” He does not state the origin of this figure or how he worked it out. In a further article in Tax Planning International Review in August 1995, Dr. O'Brien stated “Whilst it is difficult to be precise, it is undoubtedly true that there are more than 40,000 such companies.” He uses the same phraseology but does not indicate from where he obtained the figure.
I have come to the conclusion — this has not been contradicted since Committee Stage — that recent reports in Irish newspapers were based on these articles. Both articles were published in August 1995 and it appears Dr. O'Brien obtained fees from different magazines for basically the same article, which is done by journalists and accountants throughout the world and there is nothing wrong with it. I am not questioning Dr. O'Brien's bona fides, I am merely trying to place on record the background to this issue. I am led to believe that Dr. O'Brien's articles formed the basis of the recent article in The Irish Times by Siobhán Creaton which referred to the figure of 40,000 and states “Ireland has become one of the favourite European tax havens for thousands of foreign investors. Up to 40,000 companies are operated here by overseas investors, mainly to hide money from their own tax authorities.” She does not state from where she obtained the figure either. I can only assume that the background to this issue originated from the articles by Michael O'Brien which appeared in the international tax journals to which I referred.
Deputy Rabbitte made the point that this matter may have originated from the review of the top six accounting firms. I am assured by my officials that the Deputy is incorrect. They have no knowledge of the origin of the figure of 40,000. We do not know — I believe no one else does — how this gentleman arrived at that figure. I assume the recent article in The Irish Times came from the same source and I have not been contradicted on that. A belief has arisen that there must be 40,000 companies operated here by overseas investors but I do not know the grounds on which this is based.
The previous Administration introduced its Finance Bill in April 1995 and in fairness to my predecessor, Deputy Quinn, and despite his recent attempts to make political capital in respect of this issue, this matter was addressed in section 58 of that legislation. However, as I pointed out on Committee Stage, in the background note which formed the basis of that amendment it was obvious that its purpose was to act as a deterrent — the loophole could not be closed off — to IRNRs. As I also pointed out, this was clear from the explanatory memorandum that accompanied the Bill which states "The measure is being introduced because certain Irish incorporated non-resident companies have been used for undesirable activities and have brought Irish incorporated companies into disrepute."
Long before the articles appeared in the international journals to which I referred earlier, the Revenue Commissioners and the Department of Finance were concerned about this matter. It was for that reason that section 58 was introduced. In the correspondence between Deputies Quinn and Rabbitte in September 1995, which was recently placed on the record of the House by the Minister for Enterprise, Trade and Employment, Deputy Quinn pointed out that that section 58 would not address the problem and proposed that Deputy Rabbitte might consider amendments to other areas of company law. That is the background to this matter. Unless someone can prove to me from where the figure of 40,000 originated I must conclude that it came from the journal articles to which I referred. Unfortunately, those articles fail to indicate from where the figure originated.
As I indicated to the Select Committee it is unfortunate that once the promoters of undesirable companies obtain a certificate of incorporation, they can use the company for their intended purposes which can be then damaging to Ireland's reputation. It is also a problem that companies can be incorporated in this country without a disclosure of the identities of their owners. We must be conscious that many Irish incorporated companies are used for legitimate purposes and that such use should not be banned. The Government is committed to finding the right solution to this issue. Any exclusion will have to be one which does not adversely impact on Ireland's attractiveness for foreign direct investment.
On Committee Stage I provided an example whereby non-resident companies are used for legitimate purposes by a number of multinationals. Such use is quite complex and difficult, even for tax experts, to understand. However, some major multinational companies use this structure for good reasons and this often leads to reinvestment in Ireland. We do not want to ban such legitimate activities.
Paragraph (a) of Deputy Rabbitte's amendment seeks the automatic furnishing of the information required under section 882 of the Taxes Consolidation Act by an IRNR company within 30 days following incorporation. This seeks to address the fact that under existing law IRNR companies are not obliged to furnish information until they become active or they receive a notice from the Revenue Commissioners. The fact is that the Revenue Commissioners issue notices requiring information to all newly incorporated companies after they are advised of their incorporation by the Companies Office. The main difficulty is how to enforce compliance with this notice by IRNR companies. This is a problem because it is not possible to identify which companies are non-resident from the details furnished to the Companies Office. Even if it was possible to identify them, IRNR companies do not have assets in the State and are difficult to pursue unless someone in Ireland is accountable for non-compliance.
Paragraph (b) of Deputy Rabbitte's amendment attempts to address this aspect by imposing a penalty on the Irish formation agent where a company fails to provide the information. At the Select Committee I questioned whether the formation agent is the appropriate mark in these circumstances and I stated that this matter requires careful consideration. In any event, the Deputy's proposed solution would only be effective in so far as an Irish formation is used. If a foreign agent is used, pursuit of the penalties would be problematic. An alternative approach might be to require a company to have a fiduciary agent in the State as a precondition for registration.
Deputy McDowell's amendment proposes that a company which is incorporated in the State will be resident here for tax purposes, irrespective of the location of its central management and control or its assets. Before that suggested approach could be considered as a solution there is a need to ensure that it would not adversely impact on Ireland's attractiveness for foreign direct investment. On Committee Stage, the Deputy acknowledged that his proposal may be too broad an approach. In addition, consideration would have to be given to the question of enforcement of any tax owed by the companies involved.
I informed the House on a number of occasions that I plan to address this issue in a measured and rational way. The Departments of Enterprise, Trade and Employment and Finance will continue to work towards a practical solution from a company law and tax perspective. I propose to put forward this solution for comment from all concerned before the Government takes a decision. That remains my position. It may be necessary to change the criminal law as well.
Since last week's Committee Stage, Deputy Rabbitte issued a press release in this regard. Deputy Rabbitte has a keen eye to the media, for which I commend him. He usually issues press releases on a Friday evening, and his press officer headlines them very well. I want to deal with some of his comments in last weekend's foray. There have been many comments regarding Revenue's implementation of section 58 both by the media and by certain Members. We discussed this matter in committee. It is not the case, as suggested by Deputy Rabbitte, and in some press reports, that Revenue have not implemented section 58 of the Finance Act, 1995. The chairman of the Revenue Commissioners, in correspondence with Deputy Rabbitte, made it clear that Revenue have implemented the section as far as is practicable. Because it is not possible for the Revenue Commissioners to know the resident status of a newly registered company incorporated within the Companies Office, and because it is likely that less desirable companies will not furnish the information automatically, as they are obliged to do, Revenue issues a formal notice to all newly registered companies requesting them to provide information. This means that all companies, resident or non-resident, are asked to provide information as soon as possible and are notified of their incorporation by the Companies Office.
Where a company indicates that it is not resident in the State and will not have an Irish sourced income and provides the information required under section 58, then it is designated as a non-resident company which does not have liability to Irish tax. Where a company replies that it is non-resident but does not provide the information required under section 58, it is advised it has not fulfilled its obligation under the section and should do so. Where a non-resident company does not respond to a notice requiring information, the only way in which the matter could be pursued is by issuing reminders to all the companies on the Companies register who have not provided the information. This is because it is not possible to identify which of those companies is non-resident. Clearly that position is not satisfactory. The issue is complicated by the fact that the companies on the register which are non-resident have no obligation to furnish information until such time as they commence to carry on a trade or business.
I informed this House recently that since the 1995 legislation was enacted, 2,622 companies identified themselves as non-resident. Deputy Rabbitte related this to the speculative figure of 40,000 companies and, on this basis, issued a press release indicating the low effectiveness rate of section 58. The truth is that we do not know how many IRNR companies there are, and there is no way of knowing that because it is not possible to determine the resident status of a company from the details supplied by the Companies Registration Office. Deputy Rabbitte understood what I said, but the press release does not indicate an understanding of the matter. That is the reason I dealt with the figure of 40,000 which is the denominator for arriving at this percentage — we are not too sure where that figure came from.
The question is also raised as to why we are now being told that section 58 is not effective. Deputy Ruairí Quinn, as Minister, was aware of the foreign direct investment aspect and the need not to adversely affect that aspect in any solution which might be brought forward. It was recognised that the information requirement proposed by the amendment brought forward in 1995 by Deputy Quinn was an interim measure pending agreement on other solutions, and there would be difficulties in making it fully effective. The main purpose of section 58 was to dissuade undesirable companies from incorporating in Ireland in the first place, to stop the marketing of such companies on the basis that there were no disclosure requirements for Irish registered companies, which was the situation until then. Clearly his concern about making it fully effective was well founded. The measure had no teeth in that there was no effective way of dealing with those companies who failed to comply with the information requirements of the section.
Deputy Rabbitte also referred to the background to section 58, and I have dealt with that matter. Deputy Quinn was quite well aware, in bringing forward section 58, what its intention was. It was a dissuading measure. In his correspondence later that year with Deputy Rabbitte, Minister of State with responsibility for Commerce and Technology at the time, he pointed out clearly that he also wanted the other measures put on the table.
Deputy Derek McDowell raised the possibility of handling this by a pre-incorporation process. This matter is being considered by the interdepartmental working group. It has been with the group since 1995 and everybody is trying to find a solution. If it were easy, it would have been solved a long time ago. The difficulty of doing anything on the pre-incorporation side is how one would go about it. Anybody can form a company, and it is not specified whether it is to be a non-resident company. What happens afterwards determines that. For tax purposes the definition of a non-resident company is where it is controlled and managed. If it is controlled and managed outside the State it is non-resident for tax purposes. However, when the company is bought off the shelf with ordinary subscriber shares, usually in the name of the secretary or the typist in the formation agent's office, the shares are subsequently transferred, and there is no way of knowing who then owns them. I do not know how having a pre-incorporation process would solve that angle.
The Deputy's blunt instrument for dealing with this — the Deputy recognises that his amendment is very broad — would cause difficulties because of the tax status of certain companies here. This is quite a complex problem to which I hope we will have a number of solutions later this year. I hope the comprehensive reply I have given at least elucidates some of the problems and in particular gives some background to the figure of 40,000. There is no basis for saying there are 40,000 companies, but when an idea gets into the Irish mind there is great difficulty in getting it out. It is now believed that there are 40,000 companies. I can honestly say that I do not know whether it is 40,000 or 400, and neither does anybody else.
