Other Questions

Tax Yield

Thomas Pringle

Question:

6. Deputy Thomas Pringle asked the Minister for Finance if he will comment on reports that companies (details supplied) based in Shannon, County Clare, are paying very low effective rates of corporation tax; and if he will make a statement on the matter. [42286/12]

The Deputy refers to companies based in Shannon. There is no preferential tax rate for companies operating out of the Shannon region. All companies based in Ireland are subject to the same rate of tax on their trading income, which is 12.5%. The 10% corporation tax regime for companies based in Shannon Airport ceased in 2005. I am aware of recent media reports that refer to the ways that some companies structure their international tax affairs to minimise their tax costs, and the fact that some of these reports make reference to Irish companies being part of these structures. I understand some of these reports have suggested that some companies in multinational groups pay Irish corporation tax at rates that are significantly lower than 12.5%. Such companies are not paying a low rate of Irish tax; all companies in Ireland pay at the standard rate of 12.5% on their profits which are generated in Ireland. The reports concerned appear to have incorrectly attributed to Ireland profits that represent the return due to assets in other jurisdictions, which assets are owned by group companies that are not resident in Ireland.

It is incorrect to relate the 12.5% corporation tax rate to both the profits of the Irish-resident group companies and the profits of foreign-resident group companies, which are not profits chargeable to Irish corporation tax. By mixing up the Irish profits and the foreign profits of multinational groups like this, these reports can suggest an average tax rate for the companies concerned that is lower than 12.5%, and make an incorrect inference that the full Irish profits are not being charged.

Multinational groups with subsidiaries in other countries in addition to Ireland incur other bona fide expenditure. Licence payments, which are paid to group companies in foreign jurisdictions for the use of intellectual property rights, are properly deductible in computing Irish profits. If these licence payments are untaxed in the foreign jurisdiction, it will reduce the average rate of tax for the total profits of the Irish and the foreign-resident subsidiaries when these are taken together. Nevertheless, the full Irish measure of profits is being taxed and the rate of tax actually paid on the profits of the Irish-resident subsidiaries is 12.5%.

The ability of entities to lower their effective rate of tax using international structures reflects the global context in which Ireland and indeed all countries operate. The tax system in Ireland has a positive international reputation based on transparency and the fact that it is applied equally and openly to all corporate taxpayers. That Ireland has an extensive tax treaty network confirms our international standing. The January 2011 Global Forum peer review report on Ireland's legal and regulatory framework for transparency and exchange of information found Ireland has an effective system for the exchange of information in tax matters and is fully compliant with OECD standards.

Additional information not given on the floor of the House

Our job in government is to bring investment and jobs to Ireland and we have used the tax code and, in particular, our competitive corporation tax system to do so for over 50 years. What companies do outside of Ireland is beyond the scope of the Irish tax system. We cannot conclusively determine the effective rate of tax paid under international tax structures by reference to taxation in Ireland alone but we continue to work with international bodies to ensure fair play. Ireland is bound by the same rules on state aid, the code of conduct on business taxation, and rulings of the European Court of Justice as all EU member states. Ireland does not support harmful tax competition. Ireland continues to participate fully in the EU code of conduct group, which addresses harmful tax competition, and in the OECD forum on harmful tax practices.

When some of us on this side of the House rail against the austerity the Minister is imposing on working people and the vulnerable, he always asks us for an alternative, implying there is none. I almost felt sorry for him earlier when he said we are never helpful. Let me be helpful by offering him some alternatives. The case of just one company based in Shannon, one of the most profitable companies operating in the State, points to the alternative. GE Capital Aviation Funding, based in Shannon, earned €606 million in profit last year and paid but €379,000 in tax. This represents an effective tax rate of 0.5%. If the company had paid at a rate of 12.5%, it would have paid €95 million in tax. This would cover almost all the savage cuts that the Minister for Health, Deputy James Reilly, imposed over recent weeks on home help and mental health services, and which he attempted to impose on the disabled. I refer to just one company that is paying tax at such a negligible level, and which is not even paying at the standard corporation tax rate of 12.5%. How much more revenue will be available if we force the corporations in the State to pay at a rate of 12.5%, which they are not paying at present?

Last week, I asked the Minister a parliamentary question on the effective tax rate being paid by companies in the State but I did not receive a proper answer. I was told the amount was difficult to calculate. Dr. Jim Stewart of the school of business studies in Trinity College estimates that companies in Ireland are paying corporation tax on profits at a rate of between 4% and 7%. Therefore, will the Minister ensure that all companies pay at the effective rate of 12.5%? If they did so, it would generate, by any estimate, several billion euro in extra revenue for the State, thereby eliminating the need to impose brutal, austere cuts on low and middle-income earners, families on social welfare and the vulnerable.

I cannot comment on the tax affairs of an individual or individual company. Their relationships with the Revenue Commissioners are confidential and I do not have access to the relevant information. I cannot comment on individual cases raised by Deputy Boyd Barrett but can assure him that the low rate of taxation that applied to the Shannon Airport region ended in 2005. As with everywhere else, the region's companies' profits are taxable at a rate of 12.5%. That is the tax rate. While companies may be treated differently abroad, they pay at a rate of 12.5% on profits in Ireland.

Either the Minister is not examining the issue seriously or he is being disingenuous. I cited an example of one of the country's most profitable companies paying a corporation tax rate of 0.5%. It was well publicised. Is it not of concern that the tax forgone to the State is approximately €90 million at a time when Ministers are considering imposing further brutal attacks on people in the coming budget?

Another set of figures show that total profits in Ireland amounted to €51 billion in 2008, but that the effective tax rate across all corporations was 10%. If the Government increased that rate to 12.5%, an extra €1.25 billion would accrue to the State. Is this not a problem that the Minister should examine? Does it not concern him that multinational corporations are getting away with murder and not even paying the derisory 12.5% corporate tax rate at a time when cruel austerity is being imposed on people who cannot afford it?

I will allow Deputy Pearse Doherty to ask a brief question, as we have gone over time.

Without going into the details of any company, the Minister is well aware that the "double Irish" practice exists. Companies set up secondary Irish companies, register in tax havens, base their intellectual rights there and pay a dividend from the Irish resident company to the tax haven resident company. It is not that they are paying less than 12.5%, but the companies' overall profits are being siphoned off to secondary companies that do not pay tax. They do not do this to avoid paying tax in Ireland, but to avoid paying tax in America, as the interaction between the two companies are not taxed when the profits are repatriated. The Minister, President Obama and the American Administration are well aware of this and we need to be careful so that profitable companies cannot avail of tax loopholes of which the Department is well aware and to which it has turned a blind eye. What contact has the Minister had with the American Administration? Prior to the last presidential election, there was discussion of clamping down on this practice. Changing the American tax code would make attracting American multinationals to Ireland difficult. The Minister needs to tread carefully. While it may be the case that companies are paying tax of 12.5% on the profits registered in Ireland, the Irish tax code allows the "double Irish" practice to exist.

My understanding of what Deputy Boyd Barrett describe as the "double Irish" is that while it exists, it cannot be remediated by changes in Irish tax law. Our law applies a rate of 12.5% to the profits of corporations in Ireland. If the situation is to be changed, it is other countries' tax laws that need to be amended, in particular American laws, but it is not within my remit to do so.

What about raising the effective tax rate?

The Deputy is on his own. All of the other parties in the House agree on the 12.5% rate.

Tax Code

Mick Wallace

Question:

7. Deputy Mick Wallace asked the Minister for Finance his views on a memorandum prepared for the US Senate Permanent Subcommittee on Investigations which states that Microsoft used Irish subsidiaries to reduce its US tax bill by $2.43 billion in 2011; and if he will make a statement on the matter. [42321/12]

I am precluded from discussing the tax affairs of any particular individual or company, nor can I discuss the tax administration regimes established in other jurisdictions. However, I advise the Deputy in general terms that a recently published report of the United States Senate Permanent Subcommittee on Investigations of its hearings on offshore profit shifting and the US tax code gave prominence to the tax arrangements of two US multinational corporations, both of which have operations in Ireland. The report finds that US multinational corporations are able to reduce their tax liabilities significantly by legal international tax planning arrangements - there was no allegation of fraud or evasion - and makes recommendations on how US tax law could be improved.

Ireland is rightly not mentioned as a tax haven in the report. The international community does not regard Ireland as a tax haven. Ireland has a comprehensive taxation system covering income, capital and indirect taxes. Tax treaties with the United States and many other countries confirm our international standing. The January 2011 global forum peer review report on Ireland's legal and regulatory framework for transparency and exchange of information found that Ireland had an effective system for the exchange of information in tax matters and was fully compliant with OECD standards.

Ireland is bound by the same rules on state aid, the code of conduct on business taxation and rulings of the European Court of Justice as all EU member states. Ireland does not support harmful tax competition. Ireland continues to participate fully in the EU code of conduct group, which addresses harmful tax competition, and in the OECD forum on harmful tax practices.

This is almost the same subject matter as that of the last question. The Minister is probably familiar with research conducted by Mr. Colm Keena. In The Irish Times last week, he showed that Microsoft reduced its US tax bill by more than €1.8 billion in 2011 by using Irish subsidiaries. The company has two branches in this country. Microsoft Ireland Operations Limited, which employs 650 people, showed a profit of $2.2 billion and paid an effective tax rate of 7.3%, amounting to $3.3 million per employee. Microsoft Ireland Research, which has 390 employees in Ireland, had a profit of $4.3 billion on which it paid an effective tax rate of 7.2%, amounting to $11 million per employee. According to Dr. Sheila Killian of Limerick, "[I]t is tempting for multinational firms which have a subsidiary there, and another in a high-tax country to use aggressive transfer pricing practices to shift income into Ireland, where it will face a lower rate of tax". This makes Ireland a tax haven.

Problems are coming down the tracks. I do not know whether the Minister has time for bedtime reading, but a new book, entitled The Betrayal of the American Dream, makes for powerful reading. The situation will not stay the same. America is running into serious problems because of its tax laws. The Minister is correct, in that America will need to change its laws to stop significant tax avoidance. He pointed out that much of what is involved is lawful. I will quote from the book-----

No, we cannot allow quotes. I will revert to the Deputy.

This is undoubtedly an interesting topic, but both questions are based on a US report on US tax law. It is not a report on Irish tax law. The report notes that there is nothing illegal about this tax planning arrangement and does not identify any failing in Ireland's tax code. This kind of taxation arrangement is run from the US code, not the Irish code, and it is not for us to remediate. We cannot. It is America's tax code that allows for this tax planning.

It is a complicated practice, as everyone knows. For example, the transfer pricing rules of America's Internal Revenue Service, IRS, as well as the rules preventing the deferral of US tax and royalty payments and certain other incomes are relevant to non-US subsidiaries of US multinationals undertaking to share the cost of US research and development. This ensures that highly valuable intangible property is partly owned outside the US. Cost saving arrangements in respect of the development of new products typically enable non-US subsidiaries to sell the new products in non-US markets without triggering immediate charges to US tax. US tax on profits of foreign subsidiaries with such arrangements is deferred indefinitely until the profits are repatriated by dividends or otherwise to the US parent company. That is a US arrangement, not an Irish one.

Our arrangement is transparent. We have a low corporation tax rate to which Fianna Fáil, Fine Gael, Sinn Féin and the Labour Party subscribe. The 12.5% rate is an incentive to attract inward investment. It works. However, we are not operating a tax haven. No one has ever suggested that we are.

We are a respectable, tax compliant country with a transparent arrangement. It is a part of public policy to have a low rate.

Deputy Wallace is next, although I nearly called him "Minister".

The book to which I referred reads: "... the ruling class is defined by its ability to move money beyond the reach of government supervision. This has been accomplished in various ways, but the most important is arguably the establishment of a belief that government has no business in business". We need to change how the world works. The Minister believes that, as with the financial transaction tax, we cannot make a change unless the British do so as well.

The manner in which this world operates must and will change because the current process is not sustainable.

In 1945, the corporate tax take in America was 7.2% of GDP and it is now 1% of GDP. That country is falling apart so it will change the rules in a process that will have an impact on us. We must start preparing for that now by focusing more on the creation of indigenous industry. We are very reliant on the multinationals which will not stay here forever and we must start working towards the day when we can be a bit more independent of that income. The Americans will change the rules or their country will implode.

This issue always arises in the run-in to American presidential elections, with both parties taking up positions on what might be done by them if their candidate is elected. Our embassy in Washington DC and the presence of the IDA in North America monitors these issues very closely and reports back the emerging position. One can take it that people here are aware of the current position, as it is watched very carefully. So far I have not come across any proposals along the line suggested by the Deputy, which would be immediately injurious to Ireland's 12.5% corporation tax rate.

The Minister should read The Betrayal of the American Dream. It is very good.

There are books about everything.

I will allow brief questions from Deputies Doherty, Mathews and Boyd Barrett.

The Minister has indicated that this has nothing to do with Irish tax law and American tax law is involved. Nevertheless, Irish tax law is at the centre of the issue. I indicated I would not mention a company but 1% of Google's sales were recorded in tax in Ireland in 2008. Where did the rest of it go? Some €5.4 billion of its profits were transferred to a Dutch holding company, and Irish tax law means that royalties paid from Google to the holding company in the Netherlands are exempt from tax. That is where Irish tax law fails. Some 98% of the royalties received by the Dutch company go to Bermuda, which is a tax haven. Irish tax law can deal with this by tackling the exemption that operates between Irish and European companies, which is what some of the big multinationals are using. They are transferring profits to other European countries and in turn to tax havens in Bermuda. It is well known and we can do something about it.

I raised the question with the Department of Finance of the effect of an increase in corporation tax from 12.5% to 15% in a year. The answer was complicated but the figure given was approaching €700 million. I believe, and I hope the Minister agrees, that we should start considering this. International tax planning is a separate consideration but there is a corporation profit space in this country that must be addressed. Perhaps the rate could run for ten years. I remember when the corporation tax rate was 35% and there was export sales relief for companies with exports. A rate of 15%, if it could raise €700 million, is worthy of consideration and we should look into it.

I strongly disagree with the Minister. Ireland has become Europe's version of the Cayman Islands. It is part of an international architecture for tax avoidance in multinationals. This system of tax avoidance, of which we form a critical part in Europe, is destabilising the global economy. As multinationals are increasingly not paying tax across the world - an act we facilitate - there is a destabilising effect on the world economy, meaning there is no money available to invest in social goods in the real economy or sustainable industry and enterprise.

We cannot just throw up our hands and indicate, as we seem to do with everything, that we are powerless to act on this. We should act because there will be a correction with this issue, as there was with other bubbles, and we should get in ahead of the game. To make low corporate tax rates the cornerstone of industrial policy, as this and previous Governments have done, is to make ourselves a hostage to fortune. Unless we prepare for what will happen, we will live to rue the day. Will the Minister consider the question of at least raising the effective tax rate to 12.5% in an effort to deal with our budgetary crisis?

The Government is committed to the 12.5% corporate tax rate.

What about the effective rate?

We will maintain the 12.5% corporate tax rate during the life of this Government. If we come back to government, we will continue to maintain it. I understand the Fianna Fáil, Labour and Sinn Féin parties have a similar position. Some time ago Sinn Féin had a policy document arguing that the corporation tax rate should be increased to 15% but that has been dropped and the party is committed to the 12.5% rate. Last year was a record year for inward investment and this year will be another record. It is a big driver of high-level employment and we will not put that at risk by tinkering with corporation tax.

We are not seeing much of an effect.

Written Answers follow Adjournment.
The Dáil adjourned at 5.46 p.m. until 10.30 a.m. on Friday, 5 October 2012.