Finance Bill 2016: Report Stage (Resumed) and Final Stage

Debate resumed on amendment No. 25:
In page 27, between lines 24 and 25, to insert the following:
"14. The Minister for Finance is to order a study to be carried out on the operation of Relevant Contracts Tax, particularly in relation to rise in self-employment in the construction industry, and is to report to the Dáil within six months of the enactment of this Act on the findings of the study.".
- (Deputy Boyd Barrett)

Deputy Richard Boyd Barrett has a final contribution on amendment No. 25.

I intend to press this to a vote. I want to respond to some of the responses the Minister gave me this afternoon on the issue of bogus self-employment. His answers on the number of people categorised as self-employed in the construction industry were disingenuous and bordering on misleading the Dáil. I have been trying to establish the precise facts on how many are in the RCT system. The Minister effectively misled the Dáil on the related question on the amount of revenue coming back in under the self-employment tax heading of RCT.

Let me correct the record on the assertions the Minister made, starting with the numbers and letters. I checked the letters the Minister sent me and I have also checked others that were sent to him from Ms Patricia King of the Irish Congress of Trade Unions. I cross-checked the information with answers the Department has given to Deputies who have asked similar questions. On 19 July 2016, in response to parliamentary questions tabled by Deputy Ruth Coppinger, Nos. 168 and 169, on the numbers registered on the RCT, e-RCT and C45 tax systems working in construction from 2002 to 2015, the Minister indicated in a table that there were 74,795 under the heading "RTC registrations/active contractors (principals & sub-contractors)". In the Minister's response to me earlier, he suggested he had been accurate in giving an answer that suggested there were 35,000. He said the higher figure, of 74,795, or nearly 75,000, relates to people whom those subcontractors had employed. That is misleading. The question asked by Deputy Coppinger, which the Minister answered, was very simple and straightforward. The answer he gave for 2015 was 74,795.

To further confuse the pitch, Deputy Michael McGrath's office, which has been also asking questions, was informed at one point that the number was in excess of 90,000. I am not quite sure where that figure came from but I take it in good faith that Deputy McGrath's office got it from the Minister in some shape or form. Therefore, there is a serious mystery here. In the letter to which the Minister referred, from July 2016, he referred to the 35,000 as subcontractors. However, in the answer to Deputy Coppinger, given a few weeks later, he said there were 74,000 principal contractors and subcontractors. The point is that there are 74,000, not 34,000, working in the RCT system. They are not principal contractors. In so far as they could be defined as such, the term "principal contractor" loses all meaning. In reality, we are talking about relatively small subcontractors who, in turn, have ten, 15 or 20 tradesmen, bricklayers or others working for them, all of whom are in the RTC system and defined as self-employed for revenue purposes. They number 74,000 and whether they call themselves "subcontractors" or "principal contractors" is totally irrelevant. The point is that 74,000 are classified as self-employed out of a total construction workforce of 130,000. More than half of the construction workforce comprises supposedly self-employed entrepreneurs. That is nonsense and it is misleading for the Minister to suggest I somehow did not understand the figures or misquoted them. It is the Minister who is misleading us as to the reality of this. We keep getting different answers and definitions in letters.

Ms Patricia King also suggested the Minister is misrepresenting the figures on the issue. Following my engagement with him in the Dáil on this issue, which prompted him to ask the Revenue Commissioners to write to me, on 29 July 2016, Patricia King wrote to the Minister and said, among other things, that he misrepresented the position of Congress. She said it was misleading of the Minister to convey any impression that Congress is in any way satisfied with the performance of Revenue relating to the bogus self-employment system in this sector. It was stated the Minister is misleading the House, not us. We cannot get to the bottom of this and we keep getting different figures and definitions and so on. Essentially, this is to cover up what I and, more important, people working in the industry believe to be a massive scandal.

Next is the issue of the revenue. The Minister quoted figures today suggesting €132 million came in under the RCT heading in 2013, that the figure for 2014 was €172 million and that the figure for 2015 was €174 million. He did not acknowledge these are the gross figures, not the net figures. Even the gross figures do not tally with figures the Minister's Department has given to other Deputies in this House on that issue. In response to a parliamentary question asked by Deputies Tommy Broughan and Ruth Coppinger, if I remember correctly, the Department stated the gross figure for 2013 was €157 million. The Minister said today it was €132 million although he told Members in response to a parliamentary question that it was €157 million. There is a huge discrepancy in that regard, amounting to approximately €30 million, a significant amount. It is taxpayers' money so we need to know the truth. Which figure is correct? Is it €132 million or €157 million? The difference, approximately €30 million, is a lot of money. The Minister also misleads us regarding the net figure. The net figure, after repayments, deductions, etc., is only €12.3 million. This is a very far cry from €132 million or €157 million, whichever it happens to be. Similarly, the Minister said the figure for 2014 was €172 million. Figures I have garnered from other data I got from the Minister suggest the gross figure was €201 million, not the €172 million he mentioned today, and that the net figure is €31 million, which is much less. Different figures come from the Minister on different days. It seems to depend on the day.

The Minister mentioned a figure of €174 million for 2015, but what was the net figure? That is the one that counts. How much does the Exchequer end up with after repayments? It is much less every other year than the unreliable figures the Minister mentioned.

A further piece of evidence is worth mentioning. I do not understand it fully, but it seems to be related to the major problems encountered in this regard. Recently I asked the Minister's Department "what exactly the Revenue Commissioners mean when they refer to the estimated value of contract and to the degree this should be accurate as to the actual amount earned by the person to whom that contract refers." Today the Minister and Deputy Peter Burke called RCT a good system that gave information on the locations and values of contracts. However, my contacts in the industry tell me that these contract confirmations, as they are called, are not worth the paper on which they are written and that the value of the contract given by the contractor never tallies with the actual amount paid. It is virtually a fictional figure. There is a significant discrepancy between the value of the contract and the actual payments made. This seems to have been borne out by the Minister's answer to me, in that there were 319,114 contracts in the construction sector in 2014 with a value of €28.7 billion, yet the 804,165 payments made only amounted to €10.1 billion. This seems to confirm what my source told me. He has and is willing to provide for the Department contracts the value of each of which is a multiple of what has actually been paid to the supposedly self-employed person whose name is attached to the contract. He cited as an example a contract confirmation in which the value was listed as €25,000 but the worker named only earned €4,800. That is a major discrepancy at a micro level. The contract confirmation provided by the principal contractor for Revenue bears no relationship to the reality on the ground in terms of what the contractor is paying. This forms part of an elaborate tax fraud by such contractors to avoid paying people properly. Revenue, the Minister and his Department do not seem to want to chase down this problem.

This is a significant scandal and tax fraud that we are failing to take seriously. We cannot even get accurate figures. In and of itself, the fact that there is a discrepancy from month to month in the figures we get from the Minister justifies the holding of a serious investigation. We need to get to the bottom of this matter for the sake of the tax revenue being lost to the public and the State and in the light of the abuse and exploitation of tens of thousands of construction workers who are being forced into being misclassified as self-employed when they are really employees of these dodgy subcontractors or, in many instances, large contractors.

That is my case. We may have to argue about it, but we must at the very least get to the bottom of this issue, have it investigated and have the investigation reported on to the Dáil within a minimum of six months, as set down in the amendment.

I will put the question.

No. That was the final contribution.

The man made many allegations.

Was that the first round?

They were not true.

Will the Minister be able to address them in his next contribution?

I am sure I can, if the Chair allows me to be out of order.

Deputy Richard Boyd Barrett is learning from the Minister in getting the last bite. The Minister always comes in with something.

Amendment put:
The Dáil divided: Tá, 47; Staon, 35; Níl, 60.

  • Adams, Gerry.
  • Barry, Mick.
  • Boyd Barrett, Richard.
  • Brady, John.
  • Broughan, Thomas P.
  • Buckley, Pat.
  • Burton, Joan.
  • Collins, Joan.
  • Connolly, Catherine.
  • Coppinger, Ruth.
  • Crowe, Seán.
  • Cullinane, David.
  • Daly, Clare.
  • Doherty, Pearse.
  • Donnelly, Stephen S.
  • Ellis, Dessie.
  • Ferris, Martin.
  • Fitzmaurice, Michael.
  • Funchion, Kathleen.
  • Healy, Seamus.
  • Howlin, Brendan.
  • Kelly, Alan.
  • Kenny, Gino.
  • Kenny, Martin.
  • McDonald, Mary Lou.
  • Martin, Catherine.
  • Mitchell, Denise.
  • Munster, Imelda.
  • Murphy, Catherine.
  • Murphy, Paul.
  • Nolan, Carol.
  • Ó Broin, Eoin.
  • Ó Caoláin, Caoimhghín.
  • Ó Laoghaire, Donnchadh.
  • Ó Snodaigh, Aengus.
  • O'Brien, Jonathan.
  • O'Reilly, Louise.
  • O'Sullivan, Jan.
  • O'Sullivan, Maureen.
  • Pringle, Thomas.
  • Ryan, Brendan.
  • Ryan, Eamon.
  • Sherlock, Sean.
  • Shortall, Róisín.
  • Smith, Bríd.
  • Stanley, Brian.
  • Wallace, Mick.

Níl

  • Bailey, Maria.
  • Barrett, Seán.
  • Breen, Pat.
  • Brophy, Colm.
  • Bruton, Richard.
  • Burke, Peter.
  • Byrne, Catherine.
  • Canney, Seán.
  • Cannon, Ciarán.
  • Carey, Joe.
  • Collins, Michael.
  • Corcoran Kennedy, Marcella.
  • Coveney, Simon.
  • Creed, Michael.
  • Daly, Jim.
  • D'Arcy, Michael.
  • Deasy, John.
  • Deering, Pat.
  • Doherty, Regina.
  • Donohoe, Paschal.
  • Durkan, Bernard J.
  • English, Damien.
  • Farrell, Alan.
  • Fitzgerald, Frances.
  • Fitzpatrick, Peter.
  • Flanagan, Charles.
  • Griffin, Brendan.
  • Halligan, John.
  • Harris, Simon.
  • Harty, Michael.
  • Healy-Rae, Danny.
  • Heydon, Martin.
  • Humphreys, Heather.
  • Kehoe, Paul.
  • Kenny, Enda.
  • Kyne, Seán.
  • Lowry, Michael.
  • McEntee, Helen.
  • McGrath, Finian.
  • McGrath, Mattie.
  • McHugh, Joe.
  • Madigan, Josepha.
  • McLoughlin, Tony.
  • Mitchell O'Connor, Mary.
  • Moran, Kevin Boxer.
  • Murphy, Dara.
  • Murphy, Eoghan.
  • Naughten, Denis.
  • Naughton, Hildegarde.
  • Neville, Tom.
  • Noonan, Michael.
  • O'Connell, Kate.
  • O'Donovan, Patrick.
  • O'Dowd, Fergus.
  • Phelan, John Paul.
  • Ring, Michael.
  • Ross, Shane.
  • Stanton, David.
  • Varadkar, Leo.
  • Zappone, Katherine.

Staon

  • Aylward, Bobby.
  • Brassil, John.
  • Breathnach, Declan.
  • Browne, James.
  • Butler, Mary.
  • Cahill, Jackie.
  • Calleary, Dara.
  • Casey, Pat.
  • Chambers, Jack.
  • Chambers, Lisa.
  • Collins, Niall.
  • Cowen, Barry.
  • Curran, John.
  • Dooley, Timmy.
  • Fleming, Sean.
  • Haughey, Seán.
  • Kelleher, Billy.
  • Lahart, John.
  • Lawless, James.
  • McConalogue, Charlie.
  • McGrath, Michael.
  • McGuinness, John.
  • MacSharry, Marc.
  • Moynihan, Aindrias.
  • Moynihan, Michael.
  • Murphy O'Mahony, Margaret.
  • Murphy, Eugene.
  • Ó Cuív, Éamon.
  • O'Brien, Darragh.
  • O'Dea, Willie.
  • O'Keeffe, Kevin.
  • O'Rourke, Frank.
  • Rabbitte, Anne.
  • Scanlon, Eamon.
  • Troy, Robert.
Tellers: Tá, Deputies Richard Boyd Barrett and Paul Murphy; Níl, Deputies Regina Doherty and Tony McLoughlin.
Amendment declared lost.

We are moving on to amendment No. 26 in the name of Deputy Pearse Doherty. Amendments Nos. 26 and 86 are related and will be discussed together.

As Deputy Pearse Doherty is unavailable, with the permission of the House, I seek leave to move amendment No. 26.

I move amendment No. 26:

In page 27, between lines 24 and 25, to insert the following:

"14. The Minister shall, within six months from the passing of this Act, prepare and lay before Dáil Éireann a report on options available to restrict banks from carrying forward losses against taxable profits of the banks, which could result in many institutions paying no tax for the foreseeable future.".

I understand Deputy Pearse Doherty hopes to return and speak on his amendment. This issue concerns accumulated tax losses that have built up in the tax system as a consequence of the crash, particularly in respect of banking and financial organisations and the construction industry. During the work of the Committee on Budgetary Oversight, I raised this issue with the Revenue Commissioners. They came up with figures relating to accumulated tax losses. We discussed this on Committee Stage and the Minister said tax losses were a feature of all tax systems. According to the reply I received from the Revenue Commissioners, the losses being carried forward in respect of construction for 2014 are €10.4 billion. I am not sure if the accumulated figures for 2015 are available yet. If they are available now, they are only just available. I would welcome it if the Revenue Commissioners made the 2015 figures available. In respect of finance and insurance activities, the losses carried forward and remaining at the end of 2014 are €119.3 billion. As one would expect, the losses in the banking and financial sector are significantly greater than those in construction because of the size of the crash. In further information I received from the Revenue Commissioners, they indicated that the losses used forward that included the current year were €9.480 billion for financial services, €412 million for construction and €15,330 million for all sectors. Tax forgone in financial services was €1,185 million, tax forgone in construction was €52 million and tax forgone in all sectors was €1,916 million. In the second list of tables provided by the Revenue Commissioners, tax forgone on further losses built up of €11.7 million, €95 million and €0.9 million. The figures involved are very significant.

We are allowing a build up in our system consequent on the crash - we understand the reasons for it - of very large levels of losses. We have all had a significant amount of discussion on the need to get building and construction, particularly in respect of houses, going again. Many banks and financial institutions are returning to profitability. We need investment, particularly in the housing sector with which the construction and banking sectors are hugely concerned. It seems very odd that instead of having a structure in respect of people at the upper end of income earning involving minimum effective tax rates, we are allowing all the losses carried forward to be utilised against all of the profits generated. That means that in respect of these sectors, there will be very little in terms of tax take into corporate and other relevant taxes as a consequence of the extraordinary losses carried forward. It would be fair to say that because of the level of financial and banking sector losses carried forward - the €119.3 billion - they may not pay tax for a very long time. This seems wrong because in respect of very high-income individuals during the tenure of the Fianna Fáil-Green Party Government, I persuaded at different stages both Brian Cowen and Brian Lenihan of the merit of limiting the use of losses. They can still be carried forward but carried forward over a much longer period of time and tax is paid at a minimum effective rate.

This also reflects some of the debate on our corporation taxes.

The Minister correctly said that all tax systems have losses built up. People are most familiar with businesses starting up where we allow them a relatively soft three years to get on their feet and if in those years they make losses, obviously those losses are carried forward. However, the banking collapse and the construction collapse was not a case of ordinary losses; these were gigantic losses. In many cases the companies remaining are probably more valuable from a tax-loss point of view than from the likelihood of ever recommencing trading again, but those losses can be utilised.

The taxpayers and people at work took the burden following the crash. As a result we changed the tax system in order that everyone - people at work, people in different lines of business, people making capital gains - contributed more, yet we have this outlier of an enormous volume of losses. If we do not act to curtail the time over which the losses can be taken and potentially use the availability of those losses to change the behaviour of the companies, to encourage them in particular to build social and affordable housing, we will be choosing to continue to give them an extraordinary level of support at a time when they are returning to profitability and should be making a contribution in corporation and other taxes to the Exchequer. That is basically the argument.

I have no dispute with the Minister over the concept of losses. Did the losses happen? Of course they did. We all know that; we all paid for them. However, should they now be utilised to effectively wipe out for the foreseeable future the payment and contribution to tax in terms of corporation and other related taxes of the sectors I have mentioned in particular?

The present value of gaining corporation taxes from those sectors in the context of our need to invest in affordable homes and social housing is such that it is wrong for the Minister to say to the banks and construction companies, "You have these enormous losses, just go and use them." Whenever they make profits, they just use the past losses to write off all taxable profits and can hold on for many decades without ever making a contribution to the Exchequer in corporation tax and other taxes for which they may fall liable.

The purpose of my amendment is to address that issue, to review what has been happening in this area and to submit a report to the Oireachtas.

My amendment No. 26 is similar to Deputy Joan Burton's amendment but it is focused on restricting banks and financial institutions. We dealt with it on Committee Stage and I do not intend to go over it again because I assume we will be here till the very early hours of the morning at this rate.

Given that on the current figures we will have less than €600 million available for budget 2018, we will face many challenges. As the Minister mentioned to me previously, one of the ways of increasing fiscal space is by raising taxation. The measure in the National Asset Management Agency Act 2009, which was taken out of the Taxes Consolidation Act - I think in the Finance Act 2013 - was a prudent measure at its time and I believe it is still prudent today. While I disagreed at the time, it may have been right for the Government to remove it at the time because the Minister has made the argument that without removing it, the State would have to provide further capital to some of the financial institutions and I do not think anybody in this House - definitely not anyone from Sinn Féin - would stand over such a scenario.

The late Brian Lenihan put into the original legislation a provision allowing banks to offset only 50% of their trading income with losses being carried forward because he wanted to ensure that as soon as there would be a taxable profit, the State could start getting tax back from these banks when they were profitable. In fairness to the late Minister, that showed vision and foresight at a time when we were talking about massive losses, but he was able to see down the road that it would not always be that way. NAMA was going to buy the stressed debt from the banks. There was going to be a time when he envisaged - we all envisaged - the banks being profitable again. He therefore wanted to ensure that what is practice for every company operating in Ireland to carry forward losses indefinitely would not apply to the financial institutions and the losses could apply to only 50% of their traded income. I want the Government to look at that issue now.

If the report finds that if we did that it would mean certain financial institutions would fall below the capital ratios and they would have to either raise money in additional capital themselves or it would require the State to intervene, then at least we would have that information. However, there is no suggestion that is the case at this point in time. I appeal to the Minister to consider reintroducing this measure. Many of these banks are profitable but they are not paying the appropriate taxes as a result of being able to carry forward losses. This will continue for many years.

The argument has been made that we will get the money anyway. There is truth to that and nobody is denying it. However, it is a case of timing. If we get the money in 20 years' time as opposed to a bit now, a bit next year and a bit the year after, of course it is important to us because in the here and now we have existing pressures. We are all aware of the existing pressures in public pay. The Dublin Homeless Executive today referred to the scale of homelessness, which has increased by fivefold in the past two years. The numbers in this city are staggering and it is not confined just to this city unfortunately. We also have pressures in terms of services, capital infrastructure and so forth.

Doing this will not limit the value of the banks or limit the value of the shareholding because they are due to pay this anyway; it is a timing issue at a certain point in time. I appeal to the Government to consider the approach I have proposed, which is to go back to where we were in 2009 and reinsert the section 396C in the Taxes Consolidation Act to limit to 50% the amount of trading income a participating institution and all other participating institutions in the same group could have losses carried forward offset in any accounting period. That is a prudent approach.

I hope the Department of Finance issues a report and if that report finds that provision would have knock-on effects of which I am not aware, I am big enough to say that might not be right thing to do. However, this is one of the options we should consider for next year's Finance Bill.

The massive extent of losses being carried forward by banks and other big enterprises to write down their taxable income and consequently reduce their tax liability is an unbelievable scandal.

There are many other mechanisms and loopholes through which the corporate sector can write down its tax liability. The scale of it is truly staggering and points again and again to the need to impose, as a minimum, the 12.5% tax rate on gross profits and which we have urged the Minister for Finance to do for the past five years. I note that Deputy Joan Burton and the Labour Party have recently converted to this view.

No, I invented it. The Deputy would not be familiar with it.

I do not believe it is the Deputy's time to speak. Is it? I do not think so.

The Deputy would not be familiar with it.

It is strange that for the past five years we have been raising this issue and when the Deputy was in government, strangely enough, she did not implement it.

The Deputy will speak through the Chair.

I am. They did not implement an effective rate of 12.5% but now they are apparently the ones who invented the proposal. I am glad that they have had a bit of a conversion on that issue because it is an absolute scandal. From figures just pulled from the Revenue website today, the full figure for losses brought forward in 2014 is extraordinary. It is over €215 billion. It is incredible. This is a big part of it, but not the only part. There is a whole series of other loopholes which allowed in 2014 - it really is extraordinary - gross trade profits, declared at €95 billion plus other income and capital gains of €8 billion, giving a total of €103 billion. After all these deductions are brought in for losses brought forward and other deductions, €103 billion in gross profits becomes only €50 billion in taxable profits, which is more than halved. It is absolutely extraordinary. Consequently, because of the failure to impose a minimum effective rate, the loss is in the order of €4 billion per year. A minimum effective rate has been proposed in our budget submissions for the past five years.

I have not seen them.

The Deputy should read them. They were not included in any of her Government's budgets.

That must have been a few years back.

They were not addressed in any of your budgets.

Deputy Richard Boyd Barrett will address the Chair, please, not the Deputy.

Yes. I just cannot resist it really. When people tell porkies like that it is just too difficult to not respond. It is extraordinary that €103 billion in gross profits results in total tax paid of €4.9 billion. That is not 12.5%. The figure of €4.9 billion tax on €103 billion is 4.75% on gross profits and other earnings. That is the real effective corporate tax rate and a very significant component of this is the losses brought forward by the banks that the people bailed out. This allows them to avoid paying tax for years to come. It is shocking and it is money that is desperately and urgently needed. I hear the Government state it does not have money for this, that and the other and only has a €600 million fiscal space. I just feel like screaming as I look at the allowances and deductions given to the corporate vampires. These are the banks that brought the State to its knees and which we bailed out. We are now giving massive tax breaks to them. It is shocking. The problem with a lot of this stuff is that some of it is so technical I am not sure of the extent to which the public understands the scale. I certainly intend to make it my mission, as we have tried in the past five years, to explain the rip off to people. It is one of many rip offs and we will discuss more of them as we debate further this evening.

Through massive bailouts and huge austerity measures we have nursed these banks back to health and profitability and now they are paying virtually no tax and the Government is probably going to sell them off. It has already sold off most of Bank of Ireland and at some point, it intends to sell off the rest of the banks. When the banks finally start to make money, the State will get nothing or very little back from them. It is one of many tax scandals in this State but the very least we could do is what is being asked for in this motion.

I want to speak specifically to the amendment and not get back into the debate about whether the banks should be allowed to bring forward their tax losses as tax credits. The Minister's counter argument on Committee Stage was that it was a difficult thing to do. The Minister was concerned about changing normal business practice and he argued that his normal way of doing it was to bring in the levy. The Minister felt it was a quid pro quo. Regardless of whether the losses should be brought forward or how many it is reasonable to bring forward, it is definitely an issue the public would have a view on. It is complicated and technical, as evidenced by the debate on Committee Stage. As Deputy Joan Burton pointed out, because the public bailed these banks out, simply saying this is normal business practice and these are normal trading businesses, therefore, they should enjoy this but that we have applied a levy to at least address it a little is not sufficient for the public. I believe that a report, which is accessible to people who might not have the time to spend on the issue, or who do not have accounting and finance backgrounds, would be a reasonable one for the public to get. Being specific to the amendment, and without prejudice to what is the right answer - there are different views in the House as to what the right answer is - a well-written report could lay out the options, including the Minister for Finance's rationale, to explain that bringing the losses forward means the banks do not pay X amount of millions in a given year, how the banking levy goes 20%, 75% or 100% of the way there and showing the two or three options. The bank bailouts have been such a defining part of what has happened over the past number of years, and because every man, woman and child in the State is directly affected, I believe that the amendment is reasonable on the basis that the public has a right to know. This debate probably, and properly, belongs as a wider House debate, which would be greatly facilitated by the report. I ask the Minister for Finance to consider, without prejudice to what the answer might be, that it is reasonable for him, as a member of the Executive, to provide to the House and the public, a report that lays out the options, his rationale and the other positions that have been tabled in the House. For that reason, I urge the Minister for Finance to accept the amendment tonight and to allow the report to be compiled. It is a real issue and while there are politics at play, the amounts of money are big enough and the substantive issue is big enough that it merits expert neutral investigation in a report back to the House.

I agree with much of what Deputy Donnelly said. This is an important public policy issue and it is true to say it is a long-established practice within the corporation tax code that losses can be carried forward and offset against future profits. That is well established in the tax code, about which there is no question.

To say the least, the NAMA transfers constituted an exceptional event, in that enormous losses crystalised on the financial statements of the participating financial institutions. The late former Minister, Brian Lenihan, put in a restriction on the capacity of the banks to carry forward those losses and offset them against future profits.

What would be the implications of restricting the limitless carry forward, which is the position at present? For example, by how much would this carry forward have to be restricted for it to trigger actual corporation tax liabilities from the banks in the short term? What would be the consequences of this for the broader Exchequer, in terms of tax receipts, the implications for the banks and the value of shares? We all table amendments seeking reports, and the central purpose generally is to get a debate on an issue, and get a report in many instances. The Minister should share with the House the Department of Finance's assessment of the issue because there are a number of important factors that need to be taken into account and they were discussed during the Committee Stage debate. It is about weighing up the issues. I would like to see an assessment done. It does not have to be provided for by way of the Finance Bill, but the Department of Finance should carry out an assessment of all those issues and all the consequences, and it should be shared with the House and publicly.

I thank colleagues for their contributions. As many colleagues have said, loss relief is a standard feature of corporation tax regimes worldwide. Under the Irish corporate tax regime, losses incurred in the course of a business are allowed to be taken into account in calculating the appropriate tax due by companies. Loss relief recognises the fact that business cycles run over a longer period than just a single year, and that it would be inequitable to tax profits in one year and not allow loss relief in the next.

Under existing loss relief provisions in the Tax Acts, any unrelieved trading losses of a company for an accounting period may be carried forward for offset against trading income of the same trade in future accounting periods. Alternatively, a company may claim to have the loss set off against profits of any description for the same accounting period in which the loss was incurred or of an immediately preceding accounting period of the same length. The provision of relief for such losses is a standard feature of our tax code and of all other OECD countries.

In regard to the more specific matter of bank losses, under the NAMA Act 2009, a new section, section 396C, was inserted into the Taxes Consolidation Act 1997. Section 396C was a provision which limited the amount of trading losses incurred by a NAMA participating bank that could be set off against future trading profits. The set-off was limited to 50% of the profit of the year. It did not disallow any tax losses from being utilised but instead lengthened the period over which they could be used.

It is important to highlight that the provision to allow the carry-forward of tax losses for set-off against future trading profits is available not only for banks but for all Irish corporates. Accordingly, the removal of section 396C put the covered banks in the same position as other corporates, including other banks operating in Ireland. It was, in effect, a levelling of the playing field. Section 396C was as a form of claw-back for the taxpayer. It was put in place at a time, however, when State involvement in the sector was far more limited and, critically, before equity stakes were acquired in AIB and Bank of Ireland.

In the lead up to the introduction of the new capital rules on 1 January 2014 under the EU Capital Requirements Directive, CRD IV, and at a time when the State owned 99.8% of AIB and 14% of Bank of Ireland, section 396C no longer served its original purpose and, indeed, worked against the taxpayer. Accordingly, in the Finance Act 2014, I deemed it appropriate to remove the provision. To reintroduce a restriction on the banks' use of their losses would impact the capital requirements of the banks and the overall valuation of the banks.

In regard to the capital requirements, under the new capital rules of CRD IV, which were introduced in January 2014, deferred tax assets must now be deducted for the purposes of calculating a bank's regulatory capital ratios. Given the significant deferred tax assets at the Irish banks, the sooner these assets are fully utilised the better, as this would improve the quality of capital at the bank by eliminating the deferred tax deduction. This holds not only for ongoing reporting to the regulator and updates to the market, but also as part of any stress tests conducted by the regulatory authorities.

In regard to the valuation aspect, given the size of the deferred tax assets in the Irish banks, market analysts and investors, in valuing one of these banks, would typically allocate a discrete valuation to a deferred tax asset. Notwithstanding the removal of section 396C of the NAMA Act and the fact the three Irish banks have now returned to profitability, it is expected that deferred tax assets at the banks will take a considerable number of years to be utilised. If the section 396C restriction was still in place, the period of utilisation would be extended over a considerably longer timeframe, increasing the risk that a bank's auditors would put pressure on the bank to write down the deferred tax asset thereby generating an accounting loss. Even absent such a write-down, investors using valuation models would be likely to increase the discount rate applied due to the increased risk to the deferred tax asset being fully utilised. This would significantly reduce the discounted cashflow of the deferred tax asset, likely to be in the hundreds of millions of euros, with a euro for euro impact on the valuation of the banks. However, to recognise the part the banks played in the financial crisis, in 2013 the Government also decided the banking sector should make an annual contribution of approximately €150 million to the Exchequer for the period from 2014 to 2016. The payment of this levy is now being extended until 2021. It is expected to raise €750 million in the next five years.

Although significant trading losses forward are reported on the corporation tax returns submitted by covered banks, the timing of when these losses will be utilised will be determined by future profitability. To restrict the use of the losses would have a significant negative impact on the capital requirements of the banks and on their valuations. Therefore, I do not accept the proposed amendments.

The Minister's reply is a good argument for why we need the report. I do not intend to go in to all detail. This is complex, but it is not black or white. It is not an either-or and there can be an in between. I do not suggest we get rid of all carry forward of the losses, although that would be desirable because the State would be in a better position if we did not have to recapitalise them because it would mean the profits would be taxable sooner for ourselves. There is a need for a report. The Minister stated as soon as these deferred taxes are used at that stage it will put the banks in a more healthy position. At this point in time it does not make a difference. The question a report should answer is if the measure Brian Lenihan introduced in the NAMA Act 2009 were to be introduced what would be the consequences. Perhaps 50% is not the appropriate measure. Perhaps it is 25% or 75%. A report should weigh up all the impacts in terms of the value of the banks. Perhaps auditors would possibly ask them to write down deferred tax assets at a later stage. To tell the truth, if this were done ten years out from now it would be a win-win for the people. It would be good for us in ten years time because it is unlikely, given the state of political or policy intention of the Government, that we will have shares in those banks at that point in time. I do not want to press this to a vote. Our time is quite precious as we have a lot to get through and it must be concluded tonight.

We are just asking for it to be set down on paper. If we do not get it, we will continue to have these debates. The Minister has tonight given us more information than we received when we raised the matter previously. Are we going to go through this cycle continually or is there any substance to the idea of new politics? I do not have the resources or the expertise on which the Minister can call in the shape of the Department of Finance and even if I did have such expertise, it would not be independent. We are asking for the information that is available to be put together and presented in a report to be furnished to the Committee on Budgetary Oversight in order that it could look at these issues in the context of the next finance Bill. It would deal with an issue for which we have limited resources to deal with.

Reports with a completion date should never be part of a finance Bill, but the only way we can avoid pushing this issue is by the Government giving us a commitment that such a report will be commissioned.

The Minister's answer makes the perfect case for commissioning a report. It contains a lot of information that has not been put into the public domain before. I am aware of the fact that, in response to discussions on this issue, the Minister introduced a levy. The intentions of Deputy Richard Boyd Barrett are good, but I can explain something to him. We could not possibly have brought this forward at a time when the banks and the construction industry were incurring mega losses in the process of collapsing and possibly about to disappear down the Swanee. It is only possible to do so as the banks return to profitability. I introduced this argument in 2006 when, on foot of requests for reports from the Revenue Commissioners to be laid before the Dáil, I asked how many people in the tax system with an annual income in excess of €1 million paid no income tax. The answer which is in the report to be found in the Oireachtas Library was that there were quite a lot of such individuals. It gave rise to the introduction of a minimum effective tax rate, based on models in the United States. I do not suggest this concept is perfect, but it is a device to get people to bring forward, on a current cash basis, payments of tax which, if they were allowed to accumulate, would lead to no tax being paid and no cash flow for the State.

The Deputy has exceeded her time.

I will finish on this point. We need capital investment now. If we can have a better cash flow and profits from the banks, we can build more houses and invest more capital in infrastructure.

I accept Deputy Joan Burton's point about minimum effective rates of income tax, but the argument we were making which was not supported by the Government in which she was involved in the previous five years was in favour of having a minimum effective rate of corporation tax. She was in government but did not implement such a measure. I am glad that she is now echoing the point. This mechanism, whereby profitable enterprises such as banks which account for a huge proportion of these activities write down their taxable income, points to the need for us to impose a minimum effective rate of 12.5%. I agree with her amendment and with that of Deputy Pearse Doherty. I also agree with Deputy Donnelly's point that the very least the Minister could do is accept it in order that we could get the facts and the public would have something to enable them to understand what was going on. There are huge amounts of money involved and the public deserves to know and make informed decisions on what they want to do with the rate of corporation tax.

As colleagues have remarked, the speaking note I read was extensive and contained a lot of information. I can get my Department to amplify on it and give Members a full written explanation of the points made. I do not want to give a commitment to commission too many reports because my Department would do nothing but produce reports for the next six months if I was to accede to every request. I agree with the Deputies, however, that this is a very important issue. We have most of the information they consider necessary, but I will provide them with a full explanatory note. The best way to do this is to forward it to the finance committee.

Or the Committee on Budgetary Oversight.

The Committee on Budgetary Oversight would be the appropriate committee, but that is neither here nor there. In the spirit of the Minister's reply and accepting that his officials will provide us with something comprehensive, not just a speaking note with an extra wee paragraph added to the end, I will withdraw the amendment.

Amendment, by leave, withdrawn.

Amendments Nos. 27 to 30, inclusive, have been ruled out of order as they give rise to a potential charge on the Exchequer.

Amendments Nos. 27 to 30, inclusive, not moved.

I move amendment No. 31:

In page 38, between lines 2 and 3, to insert the following:

“(3) The Minister shall, within three months of the passing of this Act, prepare and lay before the Oireachtas a report on the breaking of the link between the rate of DIRT and the rate of exit tax from life assurance policies, including the impact of this on life assurance savers.”.

I very much welcomed the reduction in DIRT tax announced in the budget and which is being legislated for in this instance. I know that there is not a consensus in the House on the issue and that some parties and individuals disagree with it. Many ordinary people, however, especially older people, rely on the interest income they earn from their savings and investments.

The link which has been in place for many years between the rate of tax on savings and the exit tax that applies to other investment products such as life insurance products has been broken. The 2% reduction in DIRT tax will not be applied to the exit tax applied to all such investment products. There has been a significant increase in the yield to the Exchequer from the exit tax on these products in recent years. In 2012 the yield was €43 million, but in 2015 it had risen to €247 million; therefore, the breaking of the link has been significant in a number of ways. If the Minister intends to continue to reduce DIRT tax to 33% in the next four years and the exit tax remains at 41%, there will be a significant difference between the various products. The exit tax applies to a lot of longer-term products and many people formed the view, after seeking independent financial advice, that they needed to take a degree of risk to obtain a higher return.

That is what they do and they will now be paying a much higher rate of tax. They are also paying a 1% tax on the amount put into the fund or product. The purpose in tabling the amendment was to establish if it was a question of arithmetic, if it simply would cost too much to apply the DIRT reduction to the exit tax applied to other products, or is it a new policy and is the Minister breaking the link for a particular reason? I know that there is real money involved. The full year cost of the DIRT reduction is €14 million and I established on Committee Stage that the cost of extending the reduction to the exit tax would be a further €11 million. I would like to know if it was a question of arithmetic, or is it a new policy and a new policy direction that the Government intends to take in separating the exit tax rate from the DIRT tax?

The Deputy is familiar with the DIRT tax regime and also with what we intend to do on foot of the Finance Bill. It is not a policy decision; it is one that stems from a lack of resources to extend it fully. What the Minister of State, Deputy Eoghan Murphy, committed to on Committee Stage was referring the issue to the tax strategy group in mid-summer to get its advice on how we should remove an emerging anomaly and what would be the best way to approach it. If the Deputy agrees, we will proceed on that basis.

I will agree on the basis that the tax strategy group will be asked specifically to examine this issue. What the Minister is indicating is that there has not been a policy decision for DIRT tax to fall to 33%, while the exit tax would remain at 41%. The first point I want to establish is that this is not Government policy as that would be a retrograde step. Many people rely on the products which are subject to the exit tax. There is also the additional 1% tax to be paid. Having spoken to many financial advisers and brokers about the issue, they make the point that many people, especially older people, rely on life assurance policies. Having a higher rate of tax for no particular reason is not the way to go. The measure will be implemented, but I would like it to be reviewed. I welcome the commitment the Minister has given and also the acknowledgment that this will not be a permanent feature, given the differential emerging between the exit tax and DIRT tax rates.

Amendment, by leave, withdrawn.

Amendments Nos. 32 and 33 have been ruled out of order as they involve a potential charge on the Exchequer. Amendment No. 34 has also been ruled out of order.

Amendments Nos. 32 to 34, inclusive, not moved.

Amendments Nos. 35 to 37, inclusive, will be discussed together.

I move amendment No. 35:

In page 40, between lines 24 and 25, to insert the following:

“other than a loan or a specified agreement which derives its value or the greater part of its value from a CLO transaction, a CMBS/RMBS transaction, a loan origination business or a sub-participation transaction,”.

Proposals for an amendment to section 110 of the Taxes Consolidation Act 1997 were initially published by the Department of Finance on 6 September to facilitate consultation on this complex and important issue. Since that date, a number of amendments have been made; however, the original policy intent of ensuring the tax base is appropriately protected in relation to Irish property transactions remains the same.

Amendment No. 35 is a technical amendment. It clarifies that a specified mortgage will not include a loan or a specified agreement which is part of a CLO transaction, a CMBS or RMBS transaction, a loan origination business or a sub-participation transaction. The origination of such loans was already excluded from the definition of loan origination; however, there was some uncertainty in the drafting which is clarified by the amendment which excludes these transactions from the definition of specified mortgage.

Amendments Nos. 36 and 37 provide that sub-participation structures will not be affected by the amendment to section 110 of the Taxes Consolidation Act 1997 brought forward by section 21 of the Bill. A sub-participation arrangement, sometimes called syndication, synthetic loan origination or synthetic securitisation, is required where, for example, a bank’s customer wants to borrow more than that bank can lend, usually for capital adequacy reasons. The bank will advance the money and then on-sell slices of the risk associated with the loan to other lenders. The customer continues to deal with its normal bank which is still the lender of record. The ability to ring-fence the slices of debt, through the use of a section 110 company, reduces the cost of such structures without causing any tax leakage to the Exchequer. Such transactions are an essential part of a fully functioning domestic financial services market. I, therefore, commend the amendments to the House.

The Minister was absent on Committee Stage. I reiterate that there is recognition of what has been achieved. Huge progress has been made and I thank the Minister and his officials for the time spent on this issue. The original draft proposal was leaky, but it seemed to have been tightened considerably and was tightened again between Committee and Report Stages. I acknowledge what is very good and important work.

The Minister of State, Deputy Eoghan Murphy, stood in for the Minister on Committee Stage. He spoke about the quantum of money involved. The figure of €50 million is widely accepted to be a placeholder in the budget document, but the Minister of State provided some useful information on how Revenue had reached the figure of €50 million. It took a sample of loans, estimated what would be received in tax on them if the loopholes for vulture funds were closed and scaled upwards to a base of €20 billion of loans. I want to go through it quickly to get the Minister's thoughts on it. If €50 million was to be the amount received in tax receipts on loans of €20 billion - we know from the companies involved that they are making a figure of approximately 9% or 10% a year - it would give annual profits of €2 billion. If we were to get €50 million in tax on that €2 billion, the tax rate would be 2.5%.

The section 110 tax rate is 25%. I believe the Minister of State said it was the intention of the amendment to section 110 that all trading profits and all capital gains would be fully taxed at the rate of 25%. If we move from a tax rate of 2.5% to 25%, we should move from the figure of €50 million to €500 million. At €40 billion, the data suggest the asset base is twice the figure of €20 billion used by the Revenue Commissioners. On the €50 million placeholder, if we really do tax the vulture funds, as I believe the Minister has said we will and as I believe we should, the figure of €50 million would actually grow to €1 billion a year. Inevitably, there would be some leakage, but on a €40 billion asset base and given that we know they are making a figure of about 9% a year, that gives them trading profits of about €3.6 billion a year. If we were to tax that €3.6 billion at the section 110 rate of 25% which I believe is the objective, it would bring in about €900 million a year in tax. On top of this, there would be taxes on capital gains which would also be levied at the section 110 rate of 25%. Therefore, if we were to do this properly, we should be looking at taxes to the State in the next ten years of €10 billion to €20 billion.

I appreciate that the Minister has very little time in which to reply to everybody, but the first question I have for him is whether that calculation seems reasonable. If the figure of €50 million represents a tax rate of about 2.5%, does he agree that we should be looking to tax full trading profits and capital gains at the section 110 tax rate of 25%, in which case the figure would not be €50 million but €500 million a year?

I raised the following on Committee Stage and it refers specifically to one of the Minister's amendments. The tax experts were suggesting that this ability of vulture funds to securitise their loans was a way out. The amendment to section 110 states it will no longer be possible to use PPNs to offshore profits any longer. However, exempt from that are securitised loans. Therefore, the tax advisers are saying this is fine and a way out and that the funds can securitise their loans which takes about two weeks. It is asserted that they will no longer be constrained and can continue to offshore profits. The Minister of State, Deputy Eoghan Murphy, stated that the vulture funds would not be able to securitise their loans and that they were explicitly prohibited from doing it. He said the only group that could securitise the loans and thereby continue to offshore profits were loan originators. Will the Minister confirm to the House that it is his understanding that vulture funds will not be able to securitise their loans and thereby get around clampdown here?

I have covered some of the following in the numbers I have just gone through, but is the following the Minister's intention for all these vulture funds? They are making a lot of money, as is absolutely their right, from trading income and, as is absolutely their right, from capital gains. Will the full amount of those profits now be taxed at the 25% under section 110? That is the second question I have for the Minister.

My third question is around the idea of internal loans. Obviously, how the vulture funds have been operating to date has been to set up a loan from a fund they own in the Cayman Islands which has a variable interest rate. The interest rate rises and, therefore, all the profits get paid out to the Cayman Islands. We spoke at some length on Committee Stage about the rate at which the vulture funds will continue to be allowed to pay interest. The amendment states they will only be allowed to do so at a reasonable commercial return. The Minister of State, Deputy Eoghan Murphy, and I went through this in some detail and I am personally very worried about it. I believe they will be able to get portfolios of evidence to bring to Revenue which show that a reasonable commercial return in this situation is 18%. If they achieve that, it will continue. The rate that is being used at the moment that pretty much offshores all the profits is 18% to 20%. There is a great deal of evidence around that could be compiled by the large bona fide accounting firms to show that a mezzanine rate of 18% or 19% is still reasonable.

I have a concern about that issue. The Minister of State assured the select committee that Revenue would not tolerate that sort of rate and, at this point, we have to take it on faith. However, I ask the Minister if he is absolutely confident that, regardless of what the rate is, there will be no ability to do these internal loans any more. Obviously, they can structure a fund in the Cayman Islands, lend the money into a Luxembourg company which lends it on to another Luxembourg company and eventually it is lent into the vulture funds here. Therefore, while it might look like a vulture fund is getting a loan from a completely independent fund in Luxembourg, if one follows the international breadcrumbs, it turns out that the same parent company owns them both. They are very good at this because the IRS in the USA has very serious rules around internal loans. Therefore, my third question is whether the Minister is absolutely confident that the amendment is sufficiently robust that they are not going to be able to use international structures to hide the fact that they are still lending money to each other.

I appreciate that the Minister is not going to be able to answer all this in two minutes, but my final question is around allowing domestic assets into the section 110 companies at all. The Minister's stated policy position is that assets which generate economic returns in Ireland should be taxed in Ireland. The amendment, therefore, represents a game of chess. It states that if a company tries to do X, we will stop it here; that there is anti-avoidance there, that a company cannot do Y anymore, that there must be reasonable commercial returns and that they cannot securitise and get it that way. It goes on and on and it is a game of chess. If it were simply stated that domestic assets were not allowed in a section 110 company, the game of chess would be over. It is check mate. If a vulture fund had loans on Irish homes or businesses or unsecured debt like credit cards or car loans, as long as they resided in the State, it could not bring them into a section 110 company. The game of chess is then not required.

Inevitably, if a game of chess is played by very sophisticated corporates and the State, the State will win some days and the corporates will win the others. Rather than construct very complicated rules and anti-avoidance mechanisms, why not just state that domestic assets cannot be used in section 110 companies? We have looked at various tax jurisdictions around the world and have not been able to find any country which is not a tax haven that allows a box to operate in its economy which is a tax-free box that allows domestic assets in there. I understand fully why they are there for global securitisation. The profits are not derived here so we do not tax those profits. Having spent a great deal of time on this over the last few months, I still do not understand why we do not say that loans on mortgages, hotels and credit cards that are in Ireland are just not allowed in. It would shut the whole thing down and force the vulture funds to operate, and be taxed, like normal companies. I will finish with that and reiterate that very significant work and progress has been made here, which is very welcome.

Our amendment proposing that the section 110 tax break be done away with, full stop, was ruled out of order. I would like a simple answer from the Minister as to why that should not be the case. It is very technical and one's head would be fried, frankly, with this stuff, which, I suppose, is half the point. These flipping tax lawyers are so far ahead of us, the Government and Revenue in finding and exploiting these loopholes that one would have to spend one's whole life chasing them round the new corners and loopholes they create. I was just reading something from Matheson, which is one of the crowd of tax advisers. It relates to the Irish aviation sector. I presume the clampdown the Minister is talking about to somewhat address the abuse we saw in section 110 is limited to the area of property. Aviation is an area to which it should be extended or, if not, one has to ask why we have section 110 at all. What is going on with this tax break? Matheson states on aircraft leasing and section 110:

It is critical to ensure that aircraft finance can be raised in a tax efficient way [I love these euphemisms]. In structured finance and securitisation transactions, an Irish section 110 company is commonly used to raise that debt financing to acquire assets on a tax neutral basis.

In effect, one acquires a load of assets and does not pay any tax. This is the advice. Matheson states an Irish section 110 company is a standard Irish special purpose company that satisfies the conditions of section 110 of the Taxes Consolidation Act.

An Irish section 110 company is generally entitled to claim a tax deduction on all of its financing expenses, including, subject to some conditions, its profit linked financing expenses. Therefore, it is generally possible to ensure an Irish section 110 company can acquire assets using debt financing on a tax neutral basis by ensuring it pays all of its return on those assets as tax deductible interest payments to lenders and investors. In other words, Matheson is explaining how one can get away with paying no tax in the case of people who want to avoid paying tax and make a lot of money in the area of aircraft leasing. It is telling companies to come into the sector because under section 110 in the area of aircraft leasing one can make a fortune and pay no tax. It is a major sector; I understand Ireland has the largest aircraft leasing sector for commercial airlines in the world. There is tax abuse. To be honest, I do not fully understand it, but I fully understand Matheson is telling investors that section 110 can be used to make enormous profits for people who want to invest in the area and avoid paying tax. To me, that begs the question as to why section 110 is in place. It is not just about withholding tax on property.

I do not know if I can return to an issue I raised on Committee Stage. I refer to companies rolling up profits and using the money to acquire more assets. If that is done for a long enough period - I understand for five or seven years - they will not pay any tax on the capital gains. This stinks to high heaven, but perhaps the Minister might enlighten me as to why we should allow this to happen. I ask him to explain why instead of putting a little sticking plaster on a particular area, we do not close this tax loophole.

It is very hard to say anything credible in two minutes. If I take Deputy Richard Boyd Barrett's question-----

If it is a final response, the Minister can speak for longer.

Deputy Richard Boyd Barrett asked why we had this provision in place. Some 38,000 people are employed in the financial services industry in Ireland. It is a sector that is expanding and we think it will expand rapidly in the short to medium term because of the relocation of activity from the City of London as a consequence of Brexit. Section 110 of the Taxes Consolidation Act 1997 is intended to create a tax-neutral regime for bona fide securitisation and structured finance purposes. This is regarded as an essential component of a modern financial services industry. It was introduced to match what was happening in other jurisdictions such as Luxembourg and other financial services locations such as the City of London in order that we could build a financial services industry in Ireland and provide good employment for a cohort of people with suitable business qualifications.

The securitisation mentioned which allows banks to raise capital and share risk by providing a re-packaging and resale market for corporate debt lowers the cost of debt financing. That is how it works in practice within the financial services industry. As I said, Ireland is not unique in having a special securitisation tax regime. Other EU countries such as the United Kingdom and Luxembourg also have special securitisation tax regimes which allow for tax neutral structures. It is accepted that having the option to have more diversified sources of financing is good for investment and business. It is also important for financial stability in the economy. It was introduced to provide the kind of levers of policy that other financial services industries in other jurisdictions across Europe had in order that we could build up that sector of the economy which was very weak in the early 1990s.

When it was originally introduced, section 110 was intended solely for use in the way I have described, namely, for the securitisation of financial services. It was never intended that it would cross over into facilitating a reduction in tax due on property transactions. We are trying to exclude the unintended uses of section 110, while maintaining it as a very important lever of policy for the financial services industry. It is within that space that the difficulties arise because we want to take out what we consider to be an unintended consequence used for tax avoidance purposes, while maintaining the section to pursue its original intention.

Revenue disagrees with the calculations of Deputy Stephen S. Donnelly. I have a note that I can read or give to him. Revenue argues that he is basing his figures on a sum of €40 billion, but that figure is grossly over-inflated. By the end of 2015 NAMA had overseen loan sales with a nominal value of just €20 billion. It is also stated the Deputy is assuming a higher interest rate than would be customary and that it is highly unlikely that companies are earning greater than a 10% yield. In its calculations Revenue would have allowed for standard trading deductions, including an interest deduction based on a reasonable commercial return. The Deputy does not seem to be allowing for the normal deductions. Revenue has given a list of possible deductions it would allow. I have no expertise in this matter; I am simply passing on information provided by Revenue. I hope the Deputy is right as I could do with an extra €900 million next year as the demands are opening up.

We can give Deputies notes on all of the answers, but given the time restrictions, I cannot give them to them across the floor of the House. I understand Deputy Donnelly received reasonably good answers from the Minister of State, Deputy Eoghan Murphy. He can engage privately with the officials.

I thank the Minister. If possible, I would like to receive written responses to my outstanding queries.

If gaps emerge in the course of 2017, I will come back to close them because I know what the policy intent is. It is as I stated to Deputy Boyd Barrett.

Ultimately, it is about getting proper taxes. The fact that companies have made significant amounts of money means that they had smart business people. To be honest, I do not think people have got their heads around exactly how much profit is being made. It is off the scale. Companies are turning investments of €80 million into profits of €400 million, for example. What is being done is extraordinary and I am concerned about taxing it. Revenue has stated the figure of €40 billion is grossly overstated.

Yes. It states the figure is €20 billion.

The figure of €20 billion refers to NAMA transactions, but when one includes transactions in IBRC, HBOS, Deutsche Bank, etc. one reaches a figure of €40 billion very quickly.

Revenue states the yield figure I used was too high at 9%. The yield I used was taken from the filed accounts of vulture funds and was net of normal interest deductions, business costs, operating costs and everything else. The only thing not included is the placing offshore of profits via PPNs. Revenue is grossly understating the scale of the money involved. If it is admitting that NAMA on its own had a figure of €20 billion, that is great, but it was not the only seller to vulture funds. They bought from many other people.

Accounting firms have listed all of this information. When taken as a whole, the figure reaches €40 billion. The net yield figure of 9% is from the vulture funds. The Minister did not respond explicitly, but I take it that his intent is that the 25% profit tax rate will be applied.

In that case and if there is no further leakage, we may not see a figure €900 million, but we should be seeing a figure of many hundreds of millions next year.

These Government amendments relate to section 21 of the Bill and deal with section 110 companies. The work of Revenue and Department of Finance officials in the past 12 months on this issue must be acknowledged. There has been a lot of analysis. The amendments primarily seek to ensure there will be no unintended contamination of what is a legitimate aspect of the financial services industry, specifically, securitisation. There is a need to shore up that aspect to ensure there will be no unintended contamination. Section 22 is even more complex and perhaps more controversial.

Overall, I welcome what is contained in section 21 and the amendments tabled by the Minister. There will always be a game of cat and mouse between the most intelligent and well remunerated tax practitioners advising funds and the bright people in Revenue and the Department of Finance. The Minister has made a commitment to close gaps that may emerge and loopholes that may be identified. It could be along the lines of the way in which section 110 and profit participating notes were used to effectively sweep all of the profits out of the section 110 companies. That is not the way section 110 was intended to be used when it was first introduced for use in the financial services industry. Section 22 is even more substantive. These are positive changes which I welcome.

To be honest, I do not fully understand it, but I am not satisfied that the Minister has made a case for section 110 in general. His main argument seems to be that there are 38,000 jobs in the IFSC and that, therefore, we should not worry about people such as those in Matheson telling investors to get into the area of aircraft leasing and use section 110 to ensure they will pay no tax. To me, that is a big problem, but the Minister justifies it on the basis of some jobs being created.

To help us to judge these matters properly, we need to know exactly how many people were employed, for example, in aircraft leasing companies in each of the years since this provision was introduced, how much profit was generated in the area in each of those years and how much tax was forgone as a result of the use of section 110. Then we will be able to judge whether it is a beneficial tax break in the sector or the others to which section 110 applies or just another way for the super rich to make a lot of money and use the IFSC and the tax code as a tax haven. We need that information to make judgments on these matters. I would like to see that information. I know that the Minister does not have the answers in front of him, but I would like to see the facts in order that we can break this down, understand it and see if there really is any benefit or whether it is just another big tax scam. However, to me, it stinks to high heaven.

I join Deputy Michael McGrath in his remarks on the work being done on this issue by those involved in Revenue and the Department of Finance. I do not necessarily need the answer right now, but, on a technical issue, I would like to know what specific anti-avoidance mechanisms have been developed to provide for constant reviews and address the possibilities raised legitimately by Deputy Stephen S. Donnelly. Obviously, we will not know until we are further into the financial year or years.

Charities have been used as part of the vehicle for the schemes being addressed. Is the Minister reasonably confident that the reputational damage done to charities in Ireland by their association, in almost all cases unwittingly, with these schemes has been addressed? Are we satisfied that they can no longer be utilised in the fashion they had been utilised? This issue has been discussed for a couple of years. Charities are important to the social and economic fabric, as well as to other elements of Irish life. It is wrong that they were utilised for a purpose which was far from the purpose of a charity in the ordinary meaning of the word.

At the end of the day, of course, there are very rich people - billionaires and multi-billionaires - who are investing in these vehicles, but there are also many ordinary people around the world, in Ireland and elsewhere, whose pensions are invested in some of these vehicles. If we want someone who has worked for 40 years to have a pension, having a properly functioning financial sector is appropriate. Most people cannot provide individually for a pension. They have to do so collectively using a savings vehicle. It is important to acknowledge that this is the kind of vehicle on which the social systems in so many countries are built. Workers put money aside from their current earnings to have it invested. Often it is a long-term capital investment. It is a good social model, provided that it is not abused through the exploitation of loopholes.

I do not need the answer right now, but I would like to know what anti-avoidance mechanisms are in place and if the Minister is satisfied that charities are now out of the game and that they can continue to operate in Ireland for proper charitable purposes. The other thing is that, with this type of investment vehicle, much of the decision-making on investing is made by algorithms. I do not know how well up Revenue and other countries are on algorithms, but Facebook uses them in a lot of political coverage and we have had a big debate about made news. The same is true of investment models in terms of the way IT structures are being developed and we should be aware of this. It means that Revenue needs resources to keep ahead of the game.

I will deal with the question on charities. In certain financial transactions it is common practice for the shares in a special purpose vehicle, SPV, to be owned by a charitable trust. In Ireland the only type of purpose trust is a charitable trust. This ensures, first, that the SPV is not consolidated into the accounts of the originator, thereby ensuring the originator is in a position to make further loans and, second, that the originator can achieve bankruptcy remoteness in respect of the assets transferred to the SPV. The use of a purpose trust for these purposes is a common occurrence internationally in certain financial transactions and a charitable trust is the only purpose trust under Irish trust law.

As a general rule, Irish bankruptcy remote vehicles are established as orphan companies. A typical structure for an orphan company consists of an Irish private limited company, the SPV, the entire issued share capital of which is held on trust for charitable purposes. The shareholders can be individuals or nominee shareholder companies, all of whom hold their shareholding under declaration of trust executed in favour of the Irish charities. It is important to note that the charity is a shareholder in the company and does not hold assets or liabilities. All assets and liabilities are held by the special purpose vehicle. The business is carried on by the company, not the charity.

The charitable status does not confer any tax benefit on the SPV, that is, the section 110 company. The use of a charitable trust is a technique used internationally to achieve the aforementioned objectives. Any residual profit left in the SPV is then paid by way of dividend to the charitable trust. The charities regulator is reviewing this issue. I can give the Deputy a copy of the speaking note.

The emphasis is on the words "any residual profits".

Yes. The charity issue was exaggerated in the coverage of the section 110 issue. It is an accident of Irish law that they are the only trusts available but it was as described in the speaking note. As I stated, this is extremely complicated and we will provide the Deputy with answers to her questions.

While I had not planned to speak until I introduced my next amendment, I will do so in light of the focus on charities, which is an issue I raised some time ago. I welcome the Minister's statement because I never claimed that the charitable status of section 110 companies was in any way used to reduce their tax liability. As the record will show, I made it clear that the reasons for seeking this status were to ensure these companies were not part of the accounting process of their parent companies and to deal with the issue of bankruptcy. At the time, I wrote to the charities regulator providing information on the conflict of interest in respect of the legal firms that have set up the charities and section 110 companies. In my view, this is the aspect of the matter that is being investigated and, in fairness, it has been highlighted by the Department and Revenue or questioned by individuals within both entities. It is important to make that point.

An issue arises from the fact that the only vehicle that can be used for this purpose is a charitable vehicle. Members of the public find it extremely distasteful that vulture funds are using charitable vehicles. While it should be made clear that these companies do not obtain tax relief and do not enjoy tax benefits as a result of this status, in the Irish psyche the term "charitable" is associated with helping someone else, whereas many people take the view that vulture funds do the opposite. While this approach is part of an international trend, the position elsewhere is not identical to the position here. It may be necessary to examine whether a vehicle other than charities is available that could satisfy this type of purpose and activity. It is wrong that Matheson has set up a charity that is being used by vulture funds.

The Minister has clarified that these companies are not benefiting from a tax perspective and that it is the structure of the section 110 company, originally provided for in the 1997 Act, which allowed them to pay as little tax as they have been paying in recent years .

Amendment agreed to.

I move amendment No. 36:

In page 40, to delete lines 34 and 35 and substitute the following:

"(c) a loan origination business,

(d) a sub-participation transaction, or

(e) activities which are preparatory to the transactions or business mentioned in paragraphs (a) to (d),".

Amendment agreed to.

I move amendment No. 37:

In page 41, to delete line 1 and substitute the following:

"distribution payable thereon;

'sub-participation transaction' means a transaction which involves the acquisition of an economic interest in a loan by the qualifying company in the ordinary course of a bona fide syndication of such loan to one or more lenders where the originator of the loan—

(a) is a financial institution (within the meaning of CRR) or credit institution (within the meaning of CRR)—

(i) regulated by a competent authority in a relevant Member State or the State, or

(ii) authorised by a third country authority, recognised by the European Commission as having supervisory and regulatory arrangements at least equivalent to those applied in a relevant Member State or the State, to carry out similar activities,

(b) remains a lender of record, and

(c) retains a material net economic interest in the credit risk of the loan of not less than 5 per cent.”.

Amendment agreed to.

Amendment No. 38 is out of order.

Amendment No. 38 not moved.

I move amendment No. 39:

In page 43, between lines 3 and 4, to insert the following:

"(iv) for which there may be no shared ownership, or control, in the State or internationally, between the qualifying company and the recipient of any interest or other distribution payable.".

This amendment is linked to the charity issue. As the Minister stated, the rationale for charitable trust ownership is to obtain protection from bankruptcy. While I cannot remember all of the details, it did not feel right when I looked into this issue. I agree with the Minister that this practice is used internationally. However, the vulture funds in Ireland have set up their ownership in charitable trusts for two reasons, namely, to shield themselves from bankruptcy because Irish charities cannot be bankrupted and to shield themselves from the Inland Revenue Service, IRS, in the United States. This brings us to the nub of the amendment. It is my understanding that the IRS could tell the vulture funds that, on the basis that they are US companies operating but not paying any tax in Ireland and taking profits out of this country, they must pay corporation tax of 35% in the United States. For this reason, they choose to check a box that indicates that what is happening in Ireland has nothing to do with them. They can say that the loan comes from the Cayman Islands or perhaps a Luxembourg company and that ownership is held by a charity in Ireland, which makes it a fully Irish-owned operation. As the entity is being lent money from some other fund somewhere in the world, the US vulture fund has nothing to do with it and does not really own it. One of the reasons for keeping it in charitable ownership is that this status protects the entity from US tax laws. While I agree with Deputy Pearse Doherty that the purpose of charitable ownership is not to avoid Irish tax, I am told that it is to avoid US tax and is part of a tax avoidance mechanism.

As it happens, this issue arose on the national broadcaster earlier when there was a discussion on the Matheson Foundation. The latter is wholly owned by Matheson, one of the law companies of choice for many of the vulture funds and one which has helped these funds set up the structures I have described. Matheson set up a charitable trust that owns many of the vulture funds. What the Minister described was a legal and financial practice that is common around the world, whereby funds are owned by trusts that are not linked in any way to charity. However, in this case, Matheson set up a real children's charity. The last time I checked, the website of the charity in question featured a photograph of the Minister for Social Protection, Deputy Varadkar, giving awards to high-performing children at Dublin City University. Also in the photograph is the chief executive of the children's charity, who is also one of the partners in Matheson.

I take the MInister's point that, under Irish law, we do not have trusts other than charitable trusts that can be used for the purposes we are discussing. However, one would not expect charitable trusts established for these purposes to be operated as children's charities. If, under law, the trust must be a charitable trust, one would expect the vulture funds to park their trust, as it were, in a place where everyone would recognise it. However, in this case, that is not what Matheson has done. Instead, it has set up a children's charity. I have not looked into whether there are other such cases. Several months ago, I referred in the Chamber to the children's charity established by Matheson. The front page of the charity's website lists a series of groups that it funds, including the Children's University Hospital, Temple Street. I referred to this issue some months ago on Leaders' Questions. In an interview on radio today, a spokesperson for Children's University Hospital, Temple Street, stated that the hospital had never heard of the Matheson Foundation, does not receive money from it and has no idea why the foundation listed the hospital on its website as one of its charitable causes.

It would be bad enough if vulture funds were using legal boxes to create entities that happened to be called charitable trusts for the purposes of tax avoidance and to protect themselves from bankruptcy. It is worse than that because, in this case at least, a real children's charity has been created and ownership of the vulture funds has been vested in it. This charity is owned by the same legal firm that creates some of the tax avoidance. It is worse again that the children's charity that owns God only knows how many vulture funds in this country - God only knows how many funds are evicting children from their homes - is stating that Children's University Hospital, Temple Street, is one of its charitable causes, yet a spokesperson for the hospital stated on radio today that it is not one of the charity's causes and had never heard of these guys. That takes the biscuit and must be looked at.

It is not just a technical issue of other countries having trusts while in Ireland we only have charitable trusts, meaning blind trusts are used. This has gone way beyond that. I have met with the charities regulator and, like Deputy Pearse Doherty, brought it to his attention. The regulator is looking at it. The level of what is going on, however, is so distasteful that a look from the Department of Finance and others, as well as the children's charity, would be welcome.

The amendment specifically aims to break any potential ownership between the vulture fund in Ireland and the loan it is getting. As we know, internal loans are used to offshore the profits. My concern is that, if we do not explicitly state that there can be no connection between the loans one is getting at this reasonable commercial return and the vulture fund, they will find ways of creating what looked like independent loans but are in fact internal loans as they are all owned by the same parent company. Then they walk in with the big portfolio that says 12%, 15% or 18% is perfectly reasonable.

The reason I tabled this amendment is because I believe it is an extra safeguard. As I said earlier this evening, they are not allowed used the profit participation notes anymore. However, it is for this reasonable commercial rate to be argued very hard. For example, they say 25% while Revenue says 10% and they end up with 12%. At least half of the profits will still be offshored. This is a safeguard that says there can be no link. Therefore, it makes it much harder for a vulture fund to say we have this fund sitting in Portugal, Tokyo or the Cayman Islands. If it genuinely has nothing to do with it and it would be considered tax evasion if any link could be found, then it would be a further sensible safeguard to stop gaming of the reasonable commercial return.

People's ordinary concept of a charity involves an organisation or society designed to give support or relief of distress or, for instance, to provide services for a hospice, a hospital, schools, for people here in Ireland, refugees or for people in the developing world. We all know what is the ordinary concept of charity. We are not asking the Minister to have an exact answer now. Words have meaning. This is a vehicle. It must be remembered in the United States that one has the common practice of wealthy people turning over vast amounts of their funds to their charity. In many cases, they do vast work. In other cases, the American tax revenue services would be deeply unhappy with them because they are avoidance and mitigation vehicles used against paying tax.

We are part of the OECD process. As a Minister, I supported that strongly. In a globalised world, one has to have structures which are responsive and able to deal with the globalised situation. That is why I have worked with the OECD, as has the Minister for Finance. It may be appropriate to bring in somebody like Pascal Saint-Amans from the OECD to have a look at this from a globalised point of view.

It is important for our society that we maintain the integrity of charitable status. We have had a situation in recent years where there have been various scandals in different charities around how resources were used. We would lose something valuable as a society if we were to let go of the idea of a charity being what is the ordinary Irish meaning of charity. We all know there can be rogue developments or people who do not live up to the standards of integrity required. The majority of charities in Ireland, however, do a vast amount of good.

People pay large fees to the partners in large law and accounting firms who provide this kind of avoidance and mitigation advice. They probably command between €600 and €2,500 an hour. It is big business. We have to find a way of separating the two.

Those who do charity work for Temple Street Children's Hospital and Crumlin Children's Hospital. They are out in the rain and so forth doing fund-raising activities. Both are hospitals with which many of us have been associated all our lives, whether as patients or parents. It is a good example that it should not be possible to use it for another purpose so that the status of the charities is brought down, trivialised or reputationally damaged in society.

On the substance of the amendment, we seem to have gone off course a bit. There is an investigation by the charities regulator. However, there is also a need for a Government commitment to this issue, not from a taxation point of view but from a broader sense of justice point of view. Deputy Stephen Donnelly described how these are real charities which give some money to funds, although they claim they are giving to others but are not. The moneys are quite small in the context of the amount of money flowing through the vulture funds. In June 2008, the then Fianna Fáil Government decided to exempt these charities from the provisions of the Charities Bill. That was wrong. It is decisions like this that we need to examine again.

The regulations which apply to other charities do not apply to the charities in question. They are still charities and have to provide money, regardless of how much it is, to charitable causes. This is done for facilitating a structure for section 110 companies. There is a need for a Government response along with that of the charities regulator which, hopefully, will be joined up.

When the decision was taken to exempt them back in June 2008, there was not as much focus on section 110. Obviously, they were not involved in buying distressed assets at that time either. However, remaining outside certain provisions of the Charities Act is questionable. There were arguments for it at the time. Did one want the charities regulator clogged up by all these charities, which really are not charities as we understand them but have been set up to facilitate a financial structure in terms of securitisation? We need to re-examine that area. While it might be beyond the Minister's competence, given the roles they have as section 110 companies, there is a need for the Government to look at this in the round and in light of whatever the charities regulator will find in his examination of the issue.

The tax code taxes persons on the profits which they earn. Profits are calculated after taking account of deductions incurred wholly and exclusively in the course of the business from which the profits arise.

The Irish tax code does not generally disallow a transaction between connected persons where that transaction is carried out on the same terms as a transaction with an unconnected person, simply because it is with a connected person. A marked example of where the tax code does distinguish such transactions is section 817C, a specific anti-avoidance provision whose avoidance can trigger the 30% tax avoidance surcharge I introduced in the Finance Act 2014.

Interest paid to a connected person is deductible only in calculating the profits of the trade where, on receipt, that interest would be part of the taxable profits of the trade of the connected person. The issue of interest deductibility is currently under review internationally, for example, with the recent EU anti-tax avoidance directive. The anti-tax avoidance directive was agreed by member states following ECOFIN on 17 June 2016. The directive contains five significant corporate tax anti-avoidance measures, one of which relates to interest deductibility.

Broadly, the interest limitation rule proposes that the tax deductions for interest which a company can claim are limited to 30% of a company’s earnings, subject to certain exceptions. The interest limitation rules must be implemented by member states by 1 January 2019. However, the provisions may be deferred until 2024 for countries that already have strong targeted interest rules. Therefore, I cannot commend the Deputy’s amendment to the House.

On the issues raised by Deputies Doherty and Burton, I agree with Deputy Doherty that we should see what the report of the charities regulator contains and determine how we move forward from there. I do not believe the report will be to the Department of Finance in the first instance, but we will see where it goes.

It is a lot to try to process across the floor given the various rules and treaties. My understanding of what the Minister said was that the new rule that a maximum of 30% of earnings could be deducted as interest payments will probably be introduced here in 2024. Ireland is probably one of those countries deemed to have the laws in place. I imagine that is not very useful in terms of taxation of the vulture funds. Will it be allowable for the vulture funds to take internal loans at a reasonable commercial rate? That is the core of this. Notwithstanding the technicalities, is the Minister's policy position that loans to vulture funds will have to be from genuine third parties? Alternatively, will he be allowing in certain instances internal loans to the vulture funds from a different fund, usually located abroad but which might still be under the control of the parent company? What is the policy position?

Loans by connected persons to other connected persons will be allowed in general. We would not make an exception in this case provided everything is kosher in the arrangements between them.

An internal loan would be allowed.

Yes. An internal loan is allowed as long as the rate is the same as a commercial third party loan.

I thank the Minister.

Amendment put and declared lost.

I move amendment No. 40:

In page 43, between lines 12 and 13, to insert the following:

“22. The Minister shall, as soon as the appropriate data becomes available but not more than within eighteen months of the passing of this Act and every twelve months thereafter, prepare and lay before Dáil Éireann a report on the effectiveness of the provisions in this Act which are intended to restrict the use of profit participating loans where they were used to finance business of section 110 companies related to Irish property transactions.”.

We discussed this on Committee Stage. I have taken on board the comments made by the Minister on when data would become available and when an assessment would be carried out. I am not sure the Minister of State, Deputy Eoghan Murphy, was in the Chamber when the Minister made a clear and welcome statement that if there were gaps, he would shut them down based on the policy objective. He said he would not be found wanting. He has made that clear. That is exactly what we want to hear.

The proposal here is that as soon as the appropriate data become available, but not more than within 18 months, a report should be laid before the House. If it is available within six, 12 or 15 months, we would have a report laid before the Dáil on the effectiveness of the provisions of the Act that are intended to restrict the use of profit participating loans where they are used to finance the business of section 110 companies related to Irish property transactions. We all know this is technical and that there have been amendments coming from the Department via the Minister on Committee and Report Stages. There is no doubt about it. I held back until I got to this point to welcome the work being done by the officials on what many of us on this side of the House were seeking for quite a while. We raised this issue consistently for quite a while. We have had engagement with the officials in which they explained the steps they are taking, and they allowed us to explain our concerns about possible loopholes or gaps throughout this process.

As we get to the point of closing down some of the abuses, regardless of what one thinks of section 110, we should note this proposal is better than what is in the existing legislation. It will close down loopholes and bring in a certain amount of tax to the State. The amount is yet to be determined.

Tax planners were mentioned. They will already have been working on this to determine whether there is another way and to examine how other jurisdictions integrate. They will be trying to figure out whether there is a way of avoiding paying the tax or structuring payments in a certain way. As soon as the data are available, let us have a report, but not later than within a year and a half. The report might state everything we intended to do under this section is being done, that no loopholes have been identified and that there is no restructuring to avoid tax. It might state the anti-avoidance measures we have built in are working. Alternatively, it might state something different and, therefore, allow us to proceed accordingly and inform us. It is in the context of the fact that we have the budgetary oversight committee. There is not a majority in government. The current Government might still be in office this time next year. It is about providing that information to the House in order we can best take it to the next step, if there is one required on the basis of what the report shows up.

Considerations like these should not necessarily be built into a finance Bill but there always needs to be a review. Where there is mobility and a capacity to employ some of the best tax consultants to get around the legislation, we definitely have to review it. This is important. I am sure the Department and the Revenue Commissioners will keep an eye on this but it is important that Members of the House have access to the information in a way that is appropriate. The Minister might state it is not appropriate that we lay it before the House because it could pre-empt what we would do. I am not sure about that. We are open to this. I am looking for a commitment that we will have a document put together at the earliest opportunity, but no later than within a year and a half. That document could be very small, stating the measures are working effectively. If they are not, I want commitments that there will be something presented to us that will identify possible problems such that we can work together on addressing them. We have done so effectively in respect of this section so far to try to ensure the State does not lose the revenue it has been losing over recent years.

I thank the Deputy for acknowledging the work of the officials. On the Department's side, we find those engagements helpful because we are all trying to work in the same direction.

In so far as the amendment is concerned, I am advised by the Revenue Commissioners that a change in law such as this may trigger behavioural changes, meaning that section 110 companies might simply stop acquiring specified mortgages. It is possible that the acquisition and management of distressed Irish debt may in future be carried on within the normal Irish corporation tax regime. Therefore, while the Revenue Commissioners will be in a position to monitor the amount of the profit participating loans restricted pursuant to this amendment, they will not be in a position to say how many of these structures have simply moved into the standard corporation tax regime.

Furthermore, and as the Deputy is aware, there are time delays between the end of a company's accounting period and the filing of its accounts and tax returns with the Revenue Commissioners. Therefore, getting complete data from the Revenue Commissioners may take longer than the timeframe suggested by the Deputy.

Given these constraints, it would not be appropriate to put the preparation of the requested report into legislation. However, the Minister is in agreement with the principle suggested by the Deputy. Analysis will be performed when an adequate amount of appropriate data is available. Furthermore, and on an ongoing basis, officials from the Department of Finance will continue to work with the Revenue Commissioners to analyse the use of the section 110 regime to minimise tax avoidance opportunities. I cannot, therefore, accept the proposed amendment.

I welcome the Minister of State's comments. The only commitment that I will seek is for that analysis to be shared with others when it becomes available, as that is necessary. That would fulfil the spirit of the amendment.

It is worrying to hear that the Government does not believe that it will be able to provide an informed view within 18 months. Large amounts of tax are at stake and there is an agreed policy position across the House that this needs to be shut down and these companies need to pay their taxes. They can pay their taxes as 25% section 110 tax, as 12.5% corporation tax plus 33% capital gains tax plus 20% withholding tax or whatever, but they must pay their legitimate taxes.

In fairness to the amendment, 18 months is a long time. We were able to raise this matter approximately six months ago based on filed 2014 accounts because they were publicly available. The State, including Revenue, will have that information much sooner. I would be concerned with a position taken by the State that it would not report on this matter until it had all of the information. We do not need all of the information. From a small number of filed accounts by the vulture funds, we were able to identify that there was something odd happening in terms of large-scale tax avoidance in a way that was never intended.

It worries me to hear the State say that, while it must keep an eye on this matter, it could not revert to the Dáil within 18 months because it does not believe that it will have the information. I am less generous than Deputy Pearse Doherty on his own amendment, but a response that claims that the State could not possibly have an informed position within 18 months is ridiculous. The Minister and the Minister of State should push back on it. If it takes more than 18 months for the State to get an informed opinion on massive tax avoidance that was never intended and in respect of which there is an agreed cross-party policy decision that it needs to be shut down, it worries me.

Will the Minister of State consult the Minister? To reiterate Deputy Pearse Doherty's comments, the analysis has to be shared. The Minister of State might confirm to the House that it will be. It has to be external. It is reasonable to expect something within 18 months. This is particularly so because the only reason that the vulture fund issue came to light was that section 110 companies had to file publicly accessible accounts with the Companies Registration Office, CRO.

It is possible that we are going to see some behavioural changes. I will be surprised if companies stay as section 110s and start paying 25% tax. I imagine that we will see transfers of assets to other fund types, but the problem with that is that most of those fund types do not file publicly accessible accounts. Whatever parliamentary, media and public oversight of section 110s has been possible, if they move their assets into qualified investment funds, Irish collective asset management vehicles or a range of special purpose vehicles, they will become invisible and we will be completely reliant on Revenue telling us what is happening.

The Minister of State's response suggested that a report would be difficult to arrange because we would see behavioural change. Of course it is not just a case of examining the same section 110s to determine whether they start paying their taxes. There is no doubt but that assets will be transferred, sold and restructured. Section 110s might try to securitise their assets. All sorts of things will happen, but the State must be capable of tracking the situation. Will the Minister of State represent back to whoever will be conducting the analysis, be it Revenue, the Department of Finance or external experts, that it must be within the competence of the State to have an informed approximation of the yield on these assets? We know what the assets are. We sold them to the companies. We owned them. Let us not fall into the trap of saying that, because the assets have moved or been securitised or restructured, it is no longer possible to estimate what level of tax yield we are getting from it. We need to know that the €40 billion or so asset base that was sold by NAMA, IBRC, HBOS, Deutsche Bank and so on and is yielding approximately €3.5 billion in profits per year is being properly and fully taxed in this country.

I agree with the amendment and endorse Deputy Donnelly's comments, but I will go further on a point that is not covered by the amendment but is connected to it. It relates to section 110 generally. I do not fully understand the mechanism through which these companies have avoided significant amounts of tax or even how much they have avoided, but we need to know the details. What else is happening in the wider section 110?

I will cite the Matheson document regarding something that I will have to pursue at other times in the Chamber, namely, aircraft leasing and how companies can still benefit from section 110. The attempt to clamp down on a particular area of property is not applied to other areas. The size of it is staggering. I did not know about this stuff; I am reading from Matheson's document. It reads:

Over EUR 83 billion of aircraft assets are under management in Ireland.

7 out of top 10 aircraft lessors have operations in Ireland.

Half of the world's leased fleet of commercial aircraft are leased or managed through Ireland.

That is enormous. The front of the document reads:

Attractive tax environment

Ireland offers a very attractive tax environment in which to carry on aviation leasing and financing business:

Access to a wide double tax treaty network (over 69 signed treaties)

A standard corporation tax rate of 12.5%

No withholding tax on lease rental payments

Straight-line tax depreciation of 12.5% over eight years

0% VAT on international aviation leasing

No stamp duty or transfer taxes on the transfer of aircraft or aircraft parts

Wide exemptions from withholding tax on interest and dividends

Availability of flexible securitisation regime for holding aircraft and receivables

This is like a menu of tax avoidance that is possible in a massive sector based in Ireland. A significant part of it turns on section 110. I want to know more about this issue and the public is entitled to know more, given the fact that we are discussing €83 billion in assets and a large industry, about how much profit is being generated, how much tax is being forgone as a result of the use of section 110 and what actual employment benefit we are getting in that specific sector.

We need to have facts on this and on the effectiveness or otherwise of the effort the Minister has made to close down one aspect of this tax loophole. We need proper, easily understandable and digestible, straightforward information in order to be able to assess whether, as I suspect is the case, this is an enormous tax loophole whereby billions are being siphoned out of the tax system by the people investing in these areas and using these mechanisms.

I hope Deputy Donnelly is not misrepresenting my reply, because I did not say that we would not be able to have any data within 18 months. What I did say, on the advice of the Revenue Commissioners, is that to get complete data may take longer than the timeframe suggested. Therefore, given those constraints and others, it would not be appropriate to put the preparation of the requested report into legislation. However, the Minister, Deputy Noonan, is in agreement with Deputy Pearse Doherty on this, and he would like to assure him that any analysis that can be done will be performed when there is an adequate amount of appropriate data available. Furthermore, there is ongoing work between officials in the Department of Finance and the Revenue Commissioners on the analysis of the section 110 regime to minimise tax avoidance opportunities. When an adequate amount of appropriate data is available, it will be shared. We share the same intention when it comes to the insertion of this amendment into the tax Acts, in so far as the operation of section 110 companies is concerned in relation to transactions which have Irish property at their base.

Amendment, by leave, withdrawn.

Could I just point out before we continue to amendment No. 41 that we have 70 listed remaining amendments and it is now almost 9.15 p.m.? I am quite happy to be here until 4 a.m. or 5 a.m. but I do not know whether everyone else is.

Therefore, if we are to deal with the remaining amendments expeditiously we might try to eliminate repetition and be as concise as possible.

I move amendment No. 41:

In page 43, to delete lines 13 to 40, to delete pages 44 to 62, and in page 63, to delete line 1.

The amendment relates to the Irish real estate funds. We had this discussion on Committee Stage. We tabled a few amendments on the issue, most of which have been ruled out of order, in particular, amendment No. 46. Amendment No. 41 deletes the sections that we were trying to delete in amendment No. 46, and more besides. I do not quite understand how amendment No. 41 is in order, which deletes everything that No. 46 proposed to delete, and more, and No. 46 is out of order.

I could call the Minister of State to give his reply.

The Government has tabled an amendment, which slightly amends what was agreed on Committee Stage. What I am trying to get out of the amendment is that, essentially, there should be no such thing as the exclusion of profits from Irish real estate funds. The Government amendment slightly varies what it had earlier but it still allows significant profits to be excluded. I do not see the justification or rationale for any profits from the real estate investment funds being excluded and not taxable. If I understand the very complicated discussion we had on Committee Stage, the funds will be taxed if the profits or dividends are distributed, but if the fund holds on to the property assets beyond five years, they will not be subject to capital gains tax. As I suggested on Committee Stage, that seems to mean that with the rental revenue the funds are accumulating from very high rents from the real estate they have bought, they can roll up the revenue and profits and, if they do not distribute them, they could just use the money to buy more and more property assets and get a massive capital gain. As long as they hold onto it for a certain period, however, they pay no tax whatsoever on it. As we know, the value of property has gone through the roof. We know the funds are making enormous money on rents, which have gone through the roof, in large part thanks to the profiteering of those entities, and as long as they do not distribute the profit but can use it to just buy up more property, they will pay no tax.

We could get clarity from the Minister of State for the Deputy and then he will be able to come back in to speak.

Yes, but it is important to get across what I am trying to ask.

Deputy Boyd Barrett has made the point very clearly.

I do not see why any of these profits should be excluded. It just seems to me that the Minister is allowing a massive tax loophole to continue for the benefit of property speculators.

This section is very important to me as I put a considerable amount of work into it and proposed the 20% dividend withholding tax. I understand Deputy Boyd Barrett’s concerns and I share some of them in terms of capital gains tax and the exemptions, but it is important to state that the effect of the suggested deletion would mean that the funds would pay no tax, as is currently the case. This section, for the first time, will now force them to pay tax through the 20% dividend withholding tax. If the amendment was agreed, it would leave them paying no tax. I know that is not the intention of Deputy Boyd Barrett.

I am concerned about aspects of this section, including the capital gains tax exemption, but I recognise that it is an improvement on the current situation. We will continue to try to convince the Government about the CGT exemption but I welcome the fact that for the first time the Government has tackled the fund industry and the situation whereby non-resident investors did not pay tax. I also welcome a provision which we will come to later concerning amendment No. 47 and the fact that one of the areas I had raised on Committee Stage is being addressed.

Deputy Pearse Doherty is correct. The effect of the amendment is the preservation of the status quo and so the withholding tax of 20% would not apply.

Deputy Boyd Barrett has raised one particular aspect of the Bill, the provisions around the charitable gain, and there are later amendments to which that debate is more relevant. The proposal to delete the entire section would bring us back to the status quo and we would not get any of the gains that are being set out by way of introducing the IREF regime. We can move on fairly quickly.

I understand the motives Deputy Boyd Barrett has expressed but I fear the impact of his amendment would be to potentially undo significant amounts of what people have agreed on a cross-party basis, which is a positive achievement. It would also help matters if the Minister of State would read a collection of notes on a number of the points because we are trying to deal with little bits where in fact there is a structure, and we need to get a bigger picture of what the total structure is in order to be able to reach a reasonable conclusion. With respect to Deputy Boyd Barrett, to take what has been amended and debated, I do not think anybody, including the Revenue Commissioners, are confident that it is all watertight because we are in territory in which I am not sure many of us have competence.

This is why I referenced the OECD and people with a global competence regarding some of these vehicles who are interested in tax reform. All these assets, vehicles or structures are moveable. If the Minister of State could set out the considerations, architecture and pillars of what the Government is trying to do in the Bill, it would be helpful. I asked Revenue earlier about when we will get figures for 2014 and 2015. Will it be after the end of November? We are moving from a market that was a disaster to one that is in recovery and in which a lot of profit is being made. If we knew when the next round of figures is going to be available and if we get those figures, we would then have a much clearer picture in respect of what is happening.

We must be really careful with the logic which states that this section, which deals with Irish real estate funds, makes things better from a tax perspective and, therefore, that we should support it because one cannot just take a one-year view. The view expressed on Committee Stage was very clear, namely, it is currently the case that property businesses in this country do not pay corporation tax and capital gains tax and that most of them are avoiding withholding tax. The IREF section tightens up the position regarding withholding tax for some of those. Let us be very careful about this. We should not go back one year, we should go back five years. If one owned a hotel five years ago-----

The Deputy might have misunderstood. I am simply saying-----

-----that at the end of November, there is another-----

Allow Deputy Donnelly to speak.

I understood. My comments are to the Minister of State. I am not responding to Deputy Burton's comment at all. I am responding to the Minister of State, to the amendment and to what Deputy Boyd Barrett said. There is a danger that we take the baseline as today and say that the IREF section brings in some welcome anti-avoidance measures and some new withholding tax provisions and that, therefore, it should be welcomed. If one ran a hotel five years ago, one paid corporation tax and capital gains tax first like every other company. Then profits were disbursed to shareholders and 20% dividend withholding tax is applied. The shareholders then paid income tax and capital gains tax in the country in which they were domiciled in respect of any gains from their shareholdings. That is how a hotel, office block, factory and nursing home worked in this country five years ago. That is how business in this country worked. In 2012, the qualified investment fund legislation was radically changed and ICAVs were introduced. Suddenly, if one ran a property business in this country, one did not pay corporation tax or capital gains tax, there were ten ways around paying withholding tax, one pretended one lived in Portugal for income tax purposes and Ireland essentially became a tax haven for property investment. No tax was being paid anywhere.

What this amendment does is copperfasten the fact that property businesses will no longer be property businesses, they will be funds. In such circumstances, no corporation tax or capital gains tax will be paid and, in the vast majority of situations for professional investors, no withholding tax will be paid because the companies that invest in property in this country are exempt from withholding tax. If one considers the IREF section in conjunction with what has happened in the past four years - which is what one must do - it means that property businesses in this country will essentially be tax free from now on. The shareholder abroad may pay income tax in his or her country and may pay capital gains tax on his or her shares but there will be no taxes collected in Ireland. We are moving what is probably the largest asset base in this country out of the tax net except in a few limited cases, If one is a domestic investor, there are new anti-avoidance rules which say that one will pay withholding tax. However, one will not pay corporation tax or capital gains tax.

An error is being made here, which is that making businesses pay corporation and capital gains tax and then making them pay withholding tax is double taxation. This is not double taxation. That is how every business in the country is taxed. If a person owns a hotel, an apartment block, a number of apartments, a nursing home or a primary care centre, it is possible to say that he or she no longer owns a hotel company, that he or she is involved in a fund and that funds do not pay corporation tax or capital gains tax. If we take the basic case as of today, yes, the IREF section makes it not as bad but it copperfastens the fact that taxes will not be paid on property.

At the heart of this is a misunderstanding of what double taxation means. When it comes to funds, double taxation means that if a fund in the US owns shares in CRH in Ireland, CRH pays corporation tax and capital gains tax, the share disbursement is then made and withholding taxes are applied. Were the shareholders in the US to be hit for corporation tax and capital gains tax on what was going on inside the company, that would be double taxation because the trading income would be taxed twice. That is not what this does. This says that it is double taxation if corporation tax and capital gains tax are applied to a company - to a building such as a hotel - and withholding tax is then applied. I have the Minister's response to the question I asked on whether IREFs pay corporation tax on trading profits. He said that, as is standard practice for funds, IREFs are exempt from tax at fund level. He said that when payments are made from the fund to the shareholders, they are then subject to withholding tax. He said that this exemption at fund level removes the double layer of tax. There is no double layer of tax. Businesses pay corporation tax and capital gains tax and then pay withholding tax. That is how it works.

We will move on to the Minister of State because the Deputy has made the point abundantly clear.

They are important issues.

Vitally important.

I accept Deputy Burton's point about this being a technical matter that the Revenue Commissioners, the Department and the committee are working to address. Much work has gone into drafting, improving and informing this section, which amends the Taxes Consolidation Act. I do not propose to go over ground that has been covered in detail on previous Stages as we have dealt with this matter. I will speak to the intention of the section in terms of why we are putting this in and what we hope to achieve.

Section 22 provides for the introduction of a tax regime for IREFs by inserting a new Chapter 1B into Part 27 and a new Schedule 2C into the Taxes Consolidation Act 1997. The objective in this regard is to provide for the introduction of a taxation regime for investment undertakings where 25% of the value of an undertaking is made up of Irish real estate assets. The IREF must deduct a 20% withholding tax on certain property distributions. The amendment addresses the issue of non-resident investors who have been investing in Irish property through fund structures thus avoiding a charge to Irish tax on profits arising from Irish real estate. The 20% withholding tax will not apply to certain specific categories of investors who provide appropriate declarations, including pension funds, life assurance companies, other collective investment undertakings, charities and credit unions. I should emphasise that the provisions do not in any way reduce the tax payable by investors and that any exemptions provided for in this provision are merely a restatement of existing exemptions.

Deputy Donnelly anticipates behavioural change that may not take place.

They say that we are moving a tax base out of Ireland, when the effect of the amendment to delete section 22 does the opposite. It is now about catching non-resident investors who have been investing in Irish property. That is what we are working towards in this section. To delete the section as the amendment proposes would mean that the proposed withholding tax would not take effect. This would ultimately result in a non-resident still being able to invest in Irish property through funds and pay no Irish tax on the Irish property transactions. Therefore, it is not proposed to accept the amendment.

Is the amendment being pressed? Does Deputy Boyd Barrett wish to speak again?

Briefly. I will come back in when we come to the Government amendment. I tabled the amendment, but the real target is the target set out in amendment No. 46 which, unfortunately, has been ruled out of order. Deputy Donnelly's point underlines why we are concerned about this section, which is that we are allowing the continuation of a special tax status, or non-tax status, for people speculating in property. They are investing in property and making a hell of a lot of money from rents and then from very significant property capital gains with the appreciation of the property value.

The Minister is applying a little sticking plaster, which is better than nothing, while allowing the fundamental tax loophole to remain, which is that those investing in property, by declaring themselves as funds, get exemption from normal taxation, both on the massive rental income generated given that rents have gone through the roof and are generating a housing and homelessness crisis, and massive profit on the inflation we have seen in property prices. They are going to walk away tax-free from all of that. They will even essentially be able to avoid the proposed withholding tax if they roll up the profits and buy even more property.

Is the Deputy pressing the amendment?

A Cheann Comhairle-----

Sorry. Deputy Pearse Doherty wants to come in.

I agree with what Deputy Boyd Barrett said about the flaws that remain in terms of how far this should go. I believe Deputy Donnelly is in the same space. However, there is a huge misunderstanding of what we are trying to do here. The amendment here is to delete the section dealing with the fund industry which has been buying up property not just in recent months but for some years. They have bought the country; they have bought Dublin. What has happened over the past four years is amazing. I have given the statistics indicating that 66% of commercial property that is bought is bought by foreign money through funds. They are not Irish residents. Funds are not structured for Irish residents, but for non-Irish residents because an Irish resident would pay all the tax - they do not pay the corporation tax, but they pay the full tax in terms of dividend pay-outs. So they are structured for non-resident investors.

They have been doing it to beat the band. An Austrian guy has been buying up hotels left, right and centre across the country, structured in one of these funds which is very tax efficient for him. Despite all its flaws, for the first time ever this provision captures these individuals and the funds industry. There has been a lot of discussion and good work done on section 110 in terms of the purchase of debt. The purchase of assets in this country is being done through qualified investor funds as we know. The purchase of the Central Bank property and other properties is done through these funds and is being done completely tax-free.

While I am not happy with a policy decision to have a 25% limit, for which there is no reason, and while I am not happy that there is an exemption from CGT in terms of the uplift after holding the property for five years, I acknowledge the work done by the officials. I also acknowledge that the Minister has accepted this and that there is a dividend withholding tax. Those areas should be addressed in the future and there is also scope for the withholding tax at 20% to be increased to a higher level as is the case in many of our neighbouring jurisdictions.

If the point of this section is to tax foreign investors, then the section fails because while I agree with Deputy Pearse Doherty that foreign landlords are buying large swathes of the country - or at least the capital - it is institutional landlords that are making the purchases. Yes, there are exceptions, but institutional landlords in this section remain completely exempt from withholding tax. Investment undertakings within the European area remain exempt from withholding tax.

While the section may successfully target a few high net worth individuals buying some things, the section locks in no corporation tax and no capital gains tax. I have not been able to find any other country that does not charge capital gains tax and corporation tax on normal trading profits in the property sector. Exempting the entire investment-property asset base from corporation tax and capital gains tax is not a normal thing to do. Dublin now has a property bubble that is bigger than it was in 2007 because they are all coming in here tax-free. For foreign institutional investors buying property, Ireland is a tax haven; they will never pay any tax. Other countries do not do this.

In accepting the section we are saying, "Well, virtually nobody is paying any tax, so let's get a few high-net-worth individuals to pay tax." No one is paying corporation tax; no one is paying capital gains tax. Most of the people who buy the assets are also exempt from the withholding tax. It is madness.

Amendment put and declared lost.

Amendments Nos. 42, 50, 51, 54 and 55 will be considered together.

I move amendment No. 42:

In page 43, line 27, to delete "the IREF profits" and substitute "the IREF profits, including any retained IREF profits,".

The amendments relate to the Irish real estate funds, IREFs. In particular they relate to the calculation of the IREF taxable amount. The amendments are largely technical in nature, in that they correct the drafting to ensure that the formula for calculating the amount on which the 20% IREF withholding tax applies, operates correctly. These amendments ensure that the profits earned before this section takes effect are included correctly in the formula.

I commend the amendments to the House

Are the amendments agreed?

Sorry. Which amendments are we dealing with?

We are dealing with amendments Nos. 42, 50, 51, 54 and 55.

I ask the Minister of State to quantify the likely taxation impact - whether a loss to the State or gain to the State or a mixture of both.

Does anybody else wish to speak on the grouping? No.

I ask the Minister of State to quantify.

I ask the Deputy to repeat the question.

I ask the Minister of State to quantify the likely gain or loss or the mixture of gains and losses that may result to the State and the net position as a consequence of the amendments.

I call Deputy Donnelly followed by Deputy Michael McGrath.

Amendment No. 47 substitutes in new wording-----

Amendment No. 47 is not in the grouping.

I wish to make a general point. The issue is complex enough as it is. The Finance Bill was published with sections 21 and 22. The Government amendment on Committee Stage was so extensive that it replaced the entire section. Now on Report Stage we again have pages and pages of amendments to section 22, which had already been replaced in its entirety since the initial publication of the Finance Bill subsequent to the budget.

I make this as a general point with regard to our capacity to process all the complex issues to gain a proper understanding of them. The Minister's officials have been excellent in providing their time and expertise to all of us and the people who work with us to develop that understanding. I make the point in terms of parliamentary procedures that for something as complex to change entirely on Committee Stage and then for there to be pages and pages of further amendments on Report Stage is far from ideal.

I agree with Deputy McGrath that it is not ideal from our point of view. We are relying on the advice from the Department and the Minister when he put it on the record that the amendments are technical in nature and not substantive. I know there are a number of substantive amendments to come on this section but, in fairness, this was flagged up as likely to be amended on Report Stage and I am glad it is happening this year instead of holding back until next year. The points made by Deputy McGrath are solid. Deputy Burton referred to the cost of the amendments. I am not sure whether there is a cost associated with the amendments given their technicality, but that could be clarified. I would like to expand that question. Will the Minister of State inform the House how much Revenue is expected to take in as a result of the amendments that apply in this section? There has been a round figure-----

Yes, or lose, although it is identified as a net benefit. A figure was provided of €50 million for sections 21 and 22. It is not acceptable that two sections are put together in this regard. There is a calculation to be made. We do not hold the Minister of State to it as we know it is the best estimate. The view, however, is that section 21 will take in €50 million and the funds will take in zero. What is the figure on what we are looking at?

I had said on Committee Stage that we would be bringing forward further technical amendments on Report Stage. They are technical amendments. I appreciate that Deputies take it in good faith that this particular amendment being brought forward by the Government makes technical changes. In so far as quantifying the amount we hope the changes might bring in for the State and the taxpayer next year is concerned, the amount of €50 million was discussed on Committee Stage regarding the work the Revenue Commissioners did in trying to calculate and quantify the amount. We said it was an estimate and that we hoped it was a conservative one. The Minister spoke earlier about the total effect of the section 110 companies, the Irish real estate funds, IREFs, and the amount that might be brought in based on the different calculations that have been shared. The estimate of €50 million is the figure that has been put into the budget figures for next year and which is the figure we hope to take from these combined changes, which I believe are positive measures for generating new taxation, and from the changes we intend to make through the section.

This is like saying that an increase in capital gains tax and USC will bring in a certain amount. These are two very separate issues. The section 110 companies are connected only around the edge with the IREFs. There is a calculation that arrived at the figure of €50 million. Will the Minister provide details on this split in terms of how much of the €50 million is likely to apply to the section 110 companies and how much will apply to the IREF industry? This is important.

The Finance Bill has to do with the flow of revenue into the State as a consequence of the legislation that is enacted. I couch my question in the simplest possible terms. As a consequence of the group of amendments, what are the likely gains in tax flows, what are the likely losses in tax flows and what is the net overall position? It is a very simple, totally reasonable question and it was my understanding that calculations were done in all of these areas. On a previous occasion the Minister explained a kind of guesstimating process in arriving at the figure of €50 million. I have to say that, with great due respect, I do not even remotely believe it. It is just putting a finger up in the air and deciding €50 million. I have no concept of whether the €50 million is true, false, near or far and it does not sound as though anyone else does. There must have been some calculations done around advantages as a consequence of making these elaborate arrangements. That is all I am asking. On the social protection side where I was involved in budgets over a very long time, we had to go to enormous lengths to identify pretty much every single, solitary figure. I am just asking for something like the same level of information.

I have one question on the issue of the likely yield. The Minister of State has said it is an estimate. I would take a fairly broad interpretation of that. I am not sure there is a detailed breakdown of how he arrived at that figure but my question is whether the yield from these combined measures will be measurable. With regard to the additional tax that comes in, will the Department be able to say to us in a number of months' time that certain revenue can be traced back to these measures? I would imagine that in terms of the withholding tax provisions on the IREFs, that is very identifiable and that it should be possible to identify the additional income generated by that. Is any additional income from the section 110 changes going to come into the basket of corporation tax receipts and not be traceable back to these measures? An estimate of €50 million has been made, but when we all ask parliamentary questions about it in a number of months, is the reply going to be that we do not know as we cannot trace the additional yield back to the measures set out in the Finance Bill?

I thank the Deputies for their questions. On Deputy Burton's comments, we did speak about this on Committee Stage and about the work put in by the Revenue Commissioners in trying to calculate the yield in extra revenue to the State from these two changes. The figure of €50 million is based on the potential profits made on the sample of mortgages that were valued at approximately €1 billion and held by a number of section 110 companies that were examined. The results of the examination were then extrapolated to a potential mortgage population of €20 billion. The key assumptions underlying the figures were that only normal trading deductions were allowable and that interest was charged at the normal third party market rates in calculating the taxable profits, that is, no deduction for pop-up participating notes would be availed of. On Committee Stage we also discussed the possibility of a split of the €50 million figure between the funds and the section 110 companies. This was requested and I asked officials to look into this, but difficulties arise in splitting the figure with regard to the interaction between the two types of structures. There is a potential interaction between section 110 companies and these new structures in IREFs but there is an interaction currently between section 110 companies and other fund structures. Deputy McGrath referred to coming back with definite figures in the future as a result of these taxation changes. There will be a difficulty around that because some of these receipts could come into the general basket of corporation taxation receipts. The Revenue Commissioners will endeavour to provide what figures they can, but they have indicated a difficulty in this regard.

Amendment put and agreed to.

Amendments Nos. 43, 44 and 46 have been ruled out of order and cannot be moved.

Amendments Nos. 43 and 44 not moved.

Amendments Nos. 45, 53, 58 to 64, inclusive, 67 and 69 to 76, inclusive, are technical drafting amendments and may be considered together.

I move amendment No. 45:

In page 44, line 30, to delete “loan origination business of the IREF;” and substitute the following:

“loan origination business of the IREF, and any necessary amendments to the definition of ‘loan origination’ shall be made so that it applies to a business carried on by an IREF rather than a qualifying company;”.

I propose to discuss amendments Nos: 45, 53, 58 to 64, inclusive, 67 and 69 to 76 inclusive, together. These are minor amendments that bring clarification to the drafting of the section and provide for greater clarity of the intent of the legislation. They do not make any substantive change. For example, amendment No. 61 makes the necessary minor amendment to ensure that where tax is withheld incorrectly, a claim for repayment of tax based on the making of an error or mistake can be made. I commend these amendments to the House.

Amendment agreed to.
Amendment No. 46 not moved.

I move amendment No: 47:

In page 44, to delete line 40, and in page 45, to delete lines 1 to 20 and substitute the following:

“(a) in relation to a unit holder in respect of which an IREF is not a personal portfolio IREF having regard to the IREF assets concerned (other than those referred in paragraphs (b) to (e) of the definition of ‘IREF assets’)—

(i) any profits or gains as shown in the income statement of the IREF in relation to the disposal of those assets where—

(I) such asset was held by the IREF, or an investment undertaking of which the IREF is a sub-fund, for a period of at least 5 years from the date on which it was acquired, and

(II) the disposal of such asset would be a disposal of a chargeable asset for the purposes of capital gains tax or corporation tax on chargeable gains and would otherwise form part of relevant profits of the IREF which are not chargeable to tax under section 739C,

and

(ii) any unrealised profits or gains as shown in the income statement of the IREF in relation to those assets where the disposal of such asset would be a disposal of a chargeable asset for the purposes of capital gains tax or corporation tax on chargeable gains and would otherwise form part of relevant profits of the IREF which are not chargeable to tax under section 739C,

and where such asset was acquired through a transaction in respect of which relief was availed of under section 615 or 617, excluded profits shall be calculated with reference to the market value of the asset on its acquisition,”.

As currently legislated, where an IREF holds an asset for more than five years there will be an exemption from the capital gains tax element of any distributions made to non-residents. The rationale for this is to encourage long term sustainable investment in the Irish property market. This amendment removes from section 22 the ability of an investor who has influence or control over the IREF to receive a distribution of capital gains without the operation of the new 20% withholding tax.

The purpose of the amendment is to ensure the IREFs cannot be used for tax planning and to ensure the protection of the Irish tax base. Where the distribution is made to a person who does not have influence or control over the IREF, gains on land held for more than five years can be distributed without the 20% withholding tax operating.

The proposal has been drafted in a balanced way to ensure the Irish tax base is protected where Irish property transactions are taking place within collective investment vehicles while not damaging the commercial property market in the long term. I commend the amendment to the House.

I welcome amendment No. 47. I had tabled amendment No. 77, which tried to do something similar in terms of looking through the structure if there was a minimum number of investors. Obviously, funds are supposed to be for multiple investors in a personal portfolio. As we have heard in terms of cases in the past, these structures have been used in aggressive tax planning. This would deal with that to a certain degree. It is to be welcomed and I state this to the Minister of State and the officials.

I face a dilemma in dealing with this section because our amendment, which was more targeted, was ruled out of order. I take the point about the withholding tax, and this is something of an improvement on what we had before us on Committee Stage, but we are disallowed from doing what we really want to do, which is what we tried to do in amendment No. 46. The whole thing is unacceptable.

I did not get an answer on Committee Stage, and before this goes through it must be said, that I do not understand why the Minister is allowing tax breaks for property speculators to continue. This withholding tax is a sticking plaster that will affect some foreign investors, but the Minister is allowing the continuation, and copperfastening, of a special tax status for property speculators who, as has been very well described, are buying up Dublin. They are making incredible profits from jacking up rents and as long as they do not sell within a five-year period the property assets they buy, and as long as they hold onto them for longer than five years, they will walk away without paying any capital gains tax, and they are making massive capital gains. Property prices are going through the roof. We are allowing this and I do not understand why the Minister is doing this.

Will we ask the Minister to tell us?

I am allowed to speak.

Yes, of course.

I asked on Committee Stage and I did not get an answer. The only answer I can surmise from this is that back in 2011, 2012 or whenever, the Government decided it wanted to get these big property investors into the Irish property market to inflate the value of property for NAMA to make a profit. The consequence of this for the Government was it would be able to say NAMA had done its job, it had made a profit and the NAMA strategy had been a success. However, the consequence for Irish society has been a massive rental crisis where rents have gone through the roof, property prices are going through the roof and we have an increasing concentration of control over residential property in the hands of a tiny number of these property speculators. It is a deliberate policy, incentivised through this type of measure. I am amazed the Government would want to continue this. Whatever arguments it may feel it had in 2011 or 2012, and I did not agree with it then and I argued against it at the time, why it would consider it acceptable to continue this now is absolutely beyond me. We can see the devastating impact it is having and the totally distorted dysfunctional property sector and rental sector we have in the country. I would love to hear an answer to this. It is an unbelievable scandal when what we should have done is kept these property assets in public ownership, used them for social housing and used the rental revenues to come back to the State to build more social and affordable housing, instead of handing over all of this to flipping property speculators and allowing them massive tax breaks on the rental revenue they get and on the capital gains they will get.

Amendment No. 47 speaks to one of the core parts of the IREF, which is if a property is held for five years no capital gains tax is paid. The argument we heard put forward on Committee Stage was this was the introduction of capital gains tax. The argument was no capital gains tax is paid on property now, but because of amendment No. 47 if a property is held for less than five years, capital gains tax will be paid. This is being presented to the House as an increase in the tax base, but it is not, because until four or five years ago capital gains tax was paid on property gains, just as it is paid on everything else.

I do not mean to call it a sleight of hand because I am not implying deception, but there is a misunderstanding because this is a marginal benefit in terms of tax if we look at today. Actually what amendment No. 47 does is state to all of those people who invested in property in recent years during a fire sale, that on all of the capital gains they will make, which is a very large number, for some reason they will not pay any capital gains tax. Someone who buys an apartment, sells it and makes €1,000 on the sale will pay capital gains tax. Someone selling shares which increase in value will pay capital gains tax. Someone selling a field which increases in value will pay capital gains tax. Someone selling anything that has gone up in value will pay capital gains tax in this country.

Not necessarily.

Well, people are meant to.

They generally do not.

Perhaps land was a bad example, but for virtually everything else people pay capital gains tax.

The international investors who came in here and bought great bargains will be able to walk out of the country without paying any capital gains tax and it is wrong. Other countries do not do this. It has led to a property bubble. I agree with Deputy Boyd Barrett. The opportunity was to move things in the other direction and state we needed a lot of foreign money to come in here, we basically turned Ireland into a tax-free environment for them and now we have a property bubble and we need to pull back on this, but this is not what the amendment does. It copperfastens it and it should be resisted.

I have a specific question on capital gains tax. Let us say a company makes €100 million in capital gains. Normally it would be taxed somewhere between 25% and 33% on this. Now it will be taxed nothing on it. Will those gains at least carry forward for consideration in the withholding tax? Previously, if a company made €100 million it paid, let us say, €30 million in capital gains tax and the €70 million left would have withholding tax applied to it. This is how it is meant to work and we have just taken out the first step. While I was sitting in the Chamber I was sent two legal opinions from two different law firms which have fundamentally different views on this. Lawyers today have different views on how this will work. I ask for clarity on this. If something is sold and someone derives capital gains from it, we know the person will not pay capital gains tax, but when the new IREF withholding tax is paid will the 20% apply just to the trading profits or will it also apply to capital gains profits?

Section 22 introduces a new withholding tax on non-resident investors investing in property in the State. It will mean more money coming into the Exchequer by capturing an activity where we have taxing rights. Amendment No. 47 removes from section 22 the ability of an investor who has influence or control over an IREF to receive a distribution of capital gains without the operation of the new 20% withholding tax. The purpose of this amendment is to ensure that the IREF cannot be used for tax planning and is designed to protect the Irish tax base. This is a further improvement on the previous section, as was drafted and debated in committee with Deputy Doherty and others, so that we achieve what we intend to achieve with this section, namely, a new source of taxation for the Exchequer.

In answer to Deputy Donnelly's points, funds do not pay capital gains tax. IREFs will apply withholding tax on the gains distributed within five years and to the personal portfolio where it has been operated in the IREF.

Is it agreed that the amendment be made?

Can I come back in?

I may not have caught the answer. Will the withholding tax apply to profits from capital gains? If an apartment company makes €10 million by selling apartments, will that be captured? No capital gains tax will be applied to it but will the gain be captured by the withholding tax? The Minister said the Government retains taxing rights in Irish property but it has given them all away. It is saying that we retain taxing rights but we are not going to apply corporation tax or capital gains tax. We have given these rights away over the past five years.

The Minister of State said that funds did not pay capital gains tax but companies do. These are not really funds. A fund does not pay capital gains tax because the fund owns shares and the company has paid capital gains tax on the profits derived to the fund from those shares. That is not what this is. In this case, the funds directly own the properties and the incomes are coming directly to the funds. That is the misunderstanding on which the suggestion is made that we are removing double taxation or that the charging of capital gains tax or corporation tax to a hotel would be double taxation. It is not. Calling them funds does not mean their income is based on shares, like many funds. This is mixing up the taxation of shares with taxation and profits from assets. Can the Minister confirm whether the withholding tax will apply to capital gains profits within the funds?

The Minister of State did not answer my question. I asked it on Committee Stage and I asked it again but he did not answer it. He told me what he thought this was doing and that it is a marginal improvement in that it tries to impose some sort of withholding tax, but it retains the fundamental tax break, or tax status, for these funds that are speculating in property. Can the Minister of State explain how it is legitimate or justified for these property-speculating funds to have this special status where they will not pay any capital gains tax on massive gains on property as long as they hold on to it for five years?

I asked another question on Committee Stage, to which I sort of got an answer but one which was not confirmed. Is it true that, as long as they do not distribute the rental income they earn as dividends, they will not pay any tax on it? If they roll up that rental income to buy even more assets and make a capital gain then, as long as they hold onto them from five years, do they pay no capital gains? It is win, win, win for these guys as they speculate in a property bubble while we get nothing back for it. Why is the Government doing this? Please explain to me what the benefit is for this country of retaining this real estate fund special tax status, tax break, loophole or whatever one wants to call it? I do not understand it, and the Minister of State has not given any rationale. All he has done is tell us of the merits of the little change he is making, which is something of an improvement. Nevertheless he is retaining the fundamental tax break.

I agree with Deputy Boyd Barrett on the rationale for facilitating this a number of years back. I am on record in this House and on a national broadcaster in expressing that view. This was a conscious decision to allow our country to be sold, particularly in the case of commercial real estate, and to be sold tax free. It is to do with NAMA, with the banks and with pushing up commercial property prices. Now, however, everybody including those responsible for the Government's own tax strategy papers is talking about overheating. The IMF and rating agencies are similarly talking about commercial property and we are all familiar with the statistics showing how far it has risen. It is because of the funds industry. An interesting comment was on the question of a sudden withdrawal and that may be behind the Government's intention. In such a scenario there could be a collapse in commercial property prices that would have consequences for NAMA and the banks because so much of this property is in the hands of these fund structures.

It is clear that this House will be taking far more interest in section 110 companies and the fund industry because in Finance Bill after Finance Bill these issues have crept in without proper scrutiny by ourselves or knowledge on the part of the Government. It adds to the argument for providing support for Deputies to deal with these issues. I acknowledge that the Department has been far more supportive this year than in previous years, particularly on this issue.

It is a pity that the core of amendment No. 47, which is about limiting individuals for personal portfolios, is wrapped up in the exemption of CGT if they hold the property for five years. This should not be the case but I welcome the fact that a developer cannot purchase these properties, put them in an ICAV and be exempt from capital gains tax. While the fund industry does not have tax within the fund, a policy decision has been taken by the Government to exempt these individuals from capital gains tax if they hold onto the assets for more than five years and that is completely and utterly wrong. I completely agree with Deputy Boyd Barrett that there is evidence that we should not be doing this. We should learn the lessons on commercial property and such people should be subject to capital gains tax. There is no reason whatsoever not to be and the fact that if they sell within five years they are subject to capital gains tax shows that this is a political decision by Government with no rationale underpinning it. Even at this late stage I appeal to Government, in light of all the evidence of what is happening with commercial property, to apply capital gains tax for all classes of investors.

I will speak to Deputy Boyd Barrett's point initially. I appreciate the difficulty when there is a large change such as this but we debated this at length on Committee Stage. We debated the operation of funds and the benefits of funds as collective asset investment vehicles in which people could make investments where they could previously not do so and thus take advantage of the larger purchasing and investment power one gets through a fund, or the expertise that might exist within the fund. One can look at the benefits we have achieved as a State through fund investment in this country, such as the investment there has been in infrastructure and our economy. It has been very important to us in taking us out of the recession we were in.

The Deputy approaches this with a particular ideology which does not favour investment in property or profits being made on investments. He talked about the public ownership of most State assets. There is a fundamental difference in terms of how we approach the operation of the economy. It is very difficult to try to get to a similar basis when it comes to issues like these around the funds when we have that basic disagreement. We discussed this at length on Committee Stage in so far as why we have a funds industry, the importance it plays not only in terms of investments into the Irish economy but for the international financial services sector where high-end jobs are being created - which are taxed at a high level bringing money into the Exchequer - in the managing and administering of those funds through this country into other parts of the world. It is a very important part of what we have in terms of our offering in international financial services and it is also an important part in terms of what our strategy is in a post-Brexit environment. We spoke at length about the operation of funds in general.

What section 22 attempts to do, and again we spoke about this at length on Committee Stage, and I appreciate the difficulty around this because it is a technical area and we are adjusting to that with amendments and bringing in new areas-----

What is the benefit in the area of property?

The benefit here is a new level of taxation on non-resident investors that did not currently exist through the withholding tax. That is the benefit. It was not taxed previously, but it is taxed now.

(Interruptions).

Deputy Boyd Barrett, we cannot get into an argy-bargy on this now.

The benefit of this section, in the context of the debate we had with Deputy Pearse Doherty on Committee Stage, is to capture a particular type of tax planning that was not captured in the previous version of the amendment, but which is captured now. That is the benefit of this section and that is what we are debating now.

To speak to Deputy Donnelly's questions on the distribution of gains, IREFs will apply withholding tax on gains distributed within five years but where an IREF is in the control of a particular investor, as per the discussion we had around Deputy Doherty's amendment, in so far as the 10% threshold is concerned and in terms of having a controlling interest in the fund, that is where the withholding tax will apply on gains, as per the amendment to the section.

(Interruptions).

No, Deputy Donnelly. The time has elapsed on this matter.

Amendment agreed to.

Amendments Nos. 48 and 49 have been ruled out of order.

Amendments Nos. 48 and 49 not moved.

I move amendment No. 50:

In page 46, line 16, to delete “the IREF profits” and substitute “the IREF profits, including any retained IREF profits,”.

Does the Minister of State wish to outline the detail of the amendment?

This amendment tightens the drafting around specified persons to confirm that the NTMA and exempt unit trusts will not be subject to this 20% withholding tax, if they hold units in an IREF. This is on the basis that both the NTMA and exempt unit trusts are exempt from tax generally.

The amendment also provides that no IREF withholding tax will apply to payments to investment limited partnerships. This is largely a technical amendment which simply prevents a theoretical withholding obligation on a transparent entity. Whether the withholding tax should arise is dependent upon each partner, rather than the partnership itself. I commend this amendment to the House.

Does any Member wish to contribute on this amendment?

Amendment agreed to.

I move amendment No. 51:

In page 46, between lines 23 and 24, to insert the following:

“ ‘retained IREF profits’ means the portion of the retained profits of the investment undertaking attributable to the IREF profits, and where those profits arose in an accounting period which commenced prior to 1 January 2017 or 20 October 2016, as the case may be, those profits shall be the profits which would be IREF profits if they arose in an accounting period which commenced on or after that date;”.

Amendment agreed to.

I move amendment No. 52:

In page 46, line 26, to delete “subsection (6), (7)” and substitute “subsection (6) (other than paragraphs (cc), (e), and (kb)), (7)”.

Amendment agreed to.

I move amendment No. 53:

In page 46, line 29, to delete “subject to 739M” and substitute “subject to section 739M”.

Amendment agreed to.

I move amendment No. 54:

In page 47, to delete lines 35 to 37 and substitute “B is the retained IREF profits,”.

Amendment agreed to.

I move amendment No. 55:

In page 47, lines 38 and 39, to delete all words from and including “excluding” in line 38 down to and including line 39.

Amendment agreed to.

Amendments Nos. 56 and 57 are related and may be discussed together.

I move amendment No. 56:

In page 48, lines 38 and 39, to delete “the IREF is a personal portfolio IREF in respect of any of the unit holders” and substitute “subject to section 739N, the IREF is a personal portfolio IREF in respect of the unit holder".

I propose to take amendments Nos. 56 and 57 together. Amendment No. 56 does two things. First, it deletes section 739N as published. As the ability of closely held funds to distribute capital gains without withholding tax has been removed by amendment No. 47, it is no longer necessary to have the associated anti-avoidance provision.

The second amendment is the anti-avoidance measure which involved the concept of a personal portfolio IREF. It has been identified that the definition, as currently drafted, would include structures that it was not intended to include. Three such structures were identified.

First, where a pension scheme invests in Irish property through an IREF, which it controls, the IREF withholding tax would have applied on distributions from the IREF to the pension fund. While this is appropriate if that pension fund itself is closely held, it is not appropriate if the pension fund itself is not under the control of any of its unit holders. Therefore, I am providing that the IREF withholding tax will not apply in these circumstances.

Second, widely held funds may have changed their legal form. The way in which a change in legal form is technically done is through the contribution of the assets of the old fund into the new fund. As the anti-avoidance provision is currently drafted, the contribution of those assets in specie into the new fund causes the new fund to be caught. Therefore, I am providing that if an in specie contribution is the only reason that the anti-avoidance rules are triggered in an otherwise widely held fund, the IREF withholding tax will not apply.

The third and final amendment is required to deal with larger corporate groups where sister companies may be pension fund managers, investment fund managers and life assurance companies. As drafted, if a widely held pension fund invested in a widely held investment undertaking where the investment manager was part of the same corporate group, then the anti-avoidance rules would have been triggered. That is because the unit holder - the pension fund - and the investment manager are technically connected even though in law the investment manager cannot show any preference to the pension fund over the other unit holders. Therefore, I am providing that where there is a technical connection, but where that connection cannot be used to the benefit of the unit holder, the anti-avoidance rules will not apply.

I commend these amendments to the House.

Are there any Members offering on these matters?

I thank the Minister of State for that outline. The investment undertaking is one that I have been trying to get my head around for some time. The Minister of State referred to that in his amendment. The list of groups that are exempt from the withholding tax includes investment undertakings but it is the Government's position that Irish collective asset management vehicles, ICAVs, qualifying investment funds, QIFs, and others will not be exempt from the withholding tax. Can the Minister of State square this circle for me? We have a list of exempted investor types, which he has run through - the pension funds, life assurance funds, unit trusts, credit unions and so forth and included in that are investment undertakings. On a first reading, it suggests investment undertakings will not pay the withholding tax. I sought clarification on this and the advice I have, if I understand it correctly, is that QIFs and ICAVs, both resident and non-resident, will have the withholding tax applied but QIFs and ICAVs can be owned by investment undertakings. The standard tax avoidance practice is that one would set up an investment undertaking in Luxembourg, and there are various reasons one would set up two of them and transfer money back and forth before one would send it out to the Caymans. Can the Minister of State clarify whether investment undertakings are exempt and, if they are, are ICAVs and QIFs exempt if they are owned by an investment undertaking? It may be relevant as to whether the investment undertaking is inside or outside the EU as there may be treaty laws that mean we do not apply here and they do not apply there. Are investment undertakings exempt from the withholding tax? Are QIFs and ICAVs exempt from the withholding tax? My understanding is they are not, but are they exempt if they are owned by an investment undertaking?

The purpose of the amendment in one respect, and the Minister referred to it, is to ensure that pension funds are not snared by the effect of the new regime regarding IREFs. It is the case that pension funds very often invest in Irish property through an Irish regulated fund, often because banks prefer, for example, to lend to a regulated fund rather than to pension funds directly. Ensuring that there is not any unintended cross-over here is important. The fundamental pillar of taxation's interface with pension funds is that they are taxed at the point of exit, and pension funds are in enough difficulty, as we all read on a regular basis, in particular defined benefit schemes, without imposing a taxation burden on them, which would only have the direct consequence of reducing the benefits ultimately paid out to pensioners.

On Committee Stage, I raised a general query on ICAVs in respect of a number of reports in the case of the notorious sale of Clerys department store, where an ICAV was used by one of the key parties to the transaction and subsequently the company structure was divided and one of the entities that employed the workers was liquidated and that had no assets.

As such, the workers' entitlements to redundancy payments had to be paid out of the social insurance insolvency fund at a cost of between €1.5 million and €2 million. I raised a query in respect of whether the ICAV structure had been utilised in this case.

It was widely reported that there was a single property transaction in relation to a property in the vicinity of St. Stephen's Green owned by a very prominent person in Irish business life. That has been referred to on and off in the newspapers. Did the Minister or his officials have an opportunity to follow up on my query? In the first episode, people who had worked in a company for 44 years were thrown out on the street and stripped of all the entitlements for which they had contributed. In fact, they had to throw themselves on the mercy of the State's insolvency fund which, of course, the State facilitated. I ensured they got those entitlements as quickly as possible. I am concerned at what was paid out in a property transaction that was widely reported and not disputed to have yielded a profit for those involved, which was not huge, but was €20 million to €30 million. In terms of some of the figures which had been talked about earlier, it was relatively modest.

What happened in Dublin city caused a scandal to a lot of people as they could see the impact of it. I asked about it on Committee Stage. Can we get a comment? If it is possible to use an ICAV structure in this particular way, we must get some reassurance that the issue of what happened there can be addressed. There have been other reports in the media about one particular prominent property transaction where, again, there was a use of certain devices and vehicles. I must acknowledge that for decades in the Irish tax system, there has been a significant and large capacity to avoid taxes by using one device or another and by using different mechanisms by which disposals are made or a disposal is apparently made and then rested so that ultimately no disposal takes place although control and use of an asset may well pass. There are myriad devices which the people texting Deputy Stephen Donnelly tonight are very well up on. I would really like to know whether the Minister has a comment on Clerys because this sort of thing offends common decency. It is like the abuse of charities where Temple Street Hospital, for example, has to say it does not benefit from a particular charitable trust notwithstanding that it had been mentioned presumably as a possible beneficiary of a structure that in essence involves a particular company. I would really like to know what the answer to that is.

If the Minister of State is not able to give us an answer now, will he provide one at some stage and tell us about it? It is a good example of how on the one hand people are compliant with their obligations on PAYE and PRSI, as was the employer and owner of that business over generations, and then along comes a new structure that upends that and taxpayers generally pay insolvency of €1.5 million to €2 million. While it is small in the scale of what we have been talking about, the owners who flipped the asset and sold it on ended up with a relatively modest €20 million or so and were able to walk away. That is what offends people. I asked about it on Committee Stage and I would like to see if there is an answer at this point.

Amendment No. 57 deletes section 739N and replaces it with a new section. It is a continuation of section 739M. Can the Minister clarify that the new section being introduced does not have an effect on the existing section 739M, which would have dealt with the anti-avoidance measure in terms of multiple funds where a fund purchased an ICAV in another jurisdiction for the purposes of tax avoidance? A version of that was referred to in Deputy Donnelly's question. Does that stay as robust as it was in terms of multiple funds being utilised for the purposes of tax evasion? Will it still be deemed as a specified person so that, therefore, the dividend withholding tax would apply?

In reply to Deputy Donnelly, the last-man-standing rule will apply if it comes to people trying to make those distributions between funds. In trying to avoid withholding tax by simply placing an exempt fund above or below the existing fund, one would be caught by the anti-avoidance measures in that instance. The QIAIF or the ICAV will not be exempt if it is held by another fund in that instance.

In reply to Deputy Burton's question on the Clerys case, I said on Committee Stage I could not speak to that particular issue because legal proceedings were ongoing. If one looks back at amendment No. 47, it deals with the issue of a person controlling an ICAV to avoid CGT. As a result of the amendment, the person will now be subject to the IREF withholding tax.

In reply to Deputy Doherty, it will not interfere with 739M as drafted.

Coming back to the ownership of QIAIFs and ICAVs, my understanding of the last-man-standing rule is that the tax liability passes to wherever the profits are realised and fully dispersed. Specifically, if there is an ICAV or QIAIF here which owns office blocks, hotels, apartment blocks or factories and that ICAV or QIAIF is in turn owned by an investment undertaking outside Ireland, will the withholding tax be paid to the Irish Exchequer or transfer under treaty on the assumption that it will be paid in the jurisdiction where the money stops moving? Luxembourg is usually the jurisdiction of choice because one can get one's profits out of there quite easily.

I am informed that if it is a widely-held fund, the withholding tax will not apply if the fund is distributing between Ireland and Luxembourg.

If the person who owns the ICAV which sells an office block for €80 million is an Irish individual who is not tax resident onshore in Ireland but is tax resident in Malta, what will happen to his or her potential tax liability? It is a case that is in most of the media recently.

I could not quite hear the Minister of State so I ask him to repeat it. Did I hear correctly that if an ICAV or QIAIF is owned by an investment undertaking abroad, IREF withholding tax will not be applied?

If it is widely held.

That is the opposite of what we were doing within Deputy Doherty's amendment in terms of the control of the fund.

It is where the investment undertaking is owned by a number of people.

Amendment No. 47 will capture where the control of the fund is.

It speaks also to Deputy Burton's point. Amendment No. 47 captures it.

Withholding tax will not be applied to an ICAV or QIAIF owned from abroad once that ownership is widely held. Is that correct?

That is correct. In so far as Deputy Burton is concerned, amendment No. 47 captures the hypothetical case she set out.

Amendment put and agreed to.

I move amendment No. 57:

In page 49, to delete lines 8 to 24 and substitute the following:

“Anti-avoidance: multiple funds further measures

739N.

(1) Where—

(a) an IREF would otherwise be a personal portfolio IREF in accordance with section 739M(3)(a), and

(b) the scheme, undertaking or company, as the case may be, in respect of which it is a personal portfolio IREF would not be a personal portfolio IREF under section 739M(3)(b)(i),

then the IREF shall not be considered to be a personal portfolio IREF in respect of the unit holder concerned.

(2) Where an IREF would only be a personal portfolio IREF of a unit holder in accordance with section 739M(3)(a) because of a scheme of amalgamation to which section 739D(8C) applied, the IREF shall not be considered to be a personal portfolio IREF in respect of the unit holder concerned.

(3) Where an IREF would be a personal portfolio IREF of a unit holder in accordance with section 739M(3)(a) solely because a person connected with the unit holder may select or influence the IREF assets or IREF business where that connected person can not —

(a) be influenced by that unit holder in the exercise of their duties, or

(b) show any preference, or give any consideration, to that unit holder over and above any other unit holder,

then that IREF shall not be considered to be a personal portfolio IREF in respect of the unit holder concerned.”.

We discussed the amendment with amendment No. 57.

I want to speak to the section.

We discussed the amendment with amendment No. 57.

I want to speak to the section.

I want to speak to the section. I refer to people who are non-resident for tax purposes and are owners or controllers-----

Deputy, you have a lot of experience. We are on amendment No. 57.

Amendment put and agreed to.

I move amendment No. 58:

In page 50, line 5, to delete “this Chapter” and substitute “paragraph (b)”.

Amendment put and agreed to.

I move amendment No. 59:

In page 51, line 21, to delete “otherwise”.

Amendment put and agreed to.

I move amendment No. 60:

In page 51, line 29, to delete “, repayment of IREF withholding tax” and substitute “and subject to section 739T, repayment of withholding tax”.

Amendment put and agreed to.

I move amendment No. 61:

In page 52, lines 2 and 3, to delete “shall be entitled to make a claim” and substitute the following:

“shall be entitled to a refund of withholding tax as if the units concerned were directly held and to make a claim”.

Amendment put and agreed to.

I move amendment No. 62:

In page 52, between lines 6 and 7, to insert the following:

“(4) For the purposes of section 865(2) the return made by the IREF under section 739R shall be deemed to be a return made by the unit holder for the purposes of an assessment to tax.”.

Amendment put and agreed to.

I move amendment No. 63:

In page 53, lines 10 and 11, to delete “, in respect of a specified person”.

Amendment put and agreed to.

I move amendment No. 64:

In page 56, to delete lines 1 and 2 and substitute the following:

“(ii) all of the shares issued are ordinary shares with equal rights, and”.

Amendment put and agreed to.

Amendments Nos. 65 and 66 are related and may be discussed together.

I move amendment No. 65:

In page 56, to delete lines 17 to 21 and substitute the following:

“(a) the investment undertaking shall be deemed to have disposed of all assets in use for the purposes of the transferred business for the value at which they are carried in the accounts,”.

Amendments Nos. 65 and 66 are technical amendments to correct a drafting error in the original Bill. The current provisions which set out the taxation implications of transferring the IREF business into a normal company would, in some circumstances, attribute a triple charge to tax on the same event at the layer of the company and the investor. These amendments ensure that the profits earned and booked in the accounts of the IREF are subject to IREF withholding tax. Any profits arising after the transfer to the company are taxed in the same manner as any other profits in a company. I commend the amendments to the House.

Amendment put and agreed to.

I move amendment No. 66:

In page 56, to delete lines 39 to 41, and in page 57, to delete lines 1 to 5 and substitute the following:

“(ii) for the purpose of the Capital Gains Tax Acts shall be treated as if any assets included in the transfer were acquired by the specified company on the date of transfer for consideration equal to the value of the assets in the accounts of the investment undertaking,”.

Amendment put and agreed to.

I move amendment No. 67:

In page 57, to delete lines 28 to 31 and substitute the following:

“(5) Any instrument giving effect to a transfer to which this section applies shall not be chargeable to stamp duty under the Stamp Duties Consolidation Act 1999.”.

Amendment put and agreed to.

I move amendment No. 68:

In page 57, to delete lines 32 to 34 and substitute the following:

“Transfer of IREF business to a REIT

739W. (1) In this section—

‘property rental business’ has the meaning assigned to it by Part 25A;

‘qualifying REIT’ means a company which was not a REIT prior to giving the notice referred to in subsection (2)(a);

‘REIT’ has the meaning assigned to it in Part 25A;

‘transferred business’ means the IREF business, the IREF assets and any assets ancillary to the IREF business referred to in subsection (2) (b).

(2) This section applies—

(a) where notice is given to the Revenue Commissioners under section 705E specifying a date not later than 31 December 2017 in respect of a company which is to carry on the property rental business previously carried on as part of the IREF property business of an IREF,

(b) where that IREF transfers the whole of its property rental business to the qualifying REIT referred to in paragraph (a),

(c) (i) where ordinary shares in the qualifying REIT are issued to the unit holders in the IREF in respect of and in proportion to (or as nearly as may be in proportion to) their unit holdings in the IREF, and

(ii) where the IREF receives no part of the consideration for the transfer referred to in paragraph (b) (otherwise than by the qualifying REIT taking over the whole or part of the liabilities of the property rental business transferred),

(d) where the shares concerned are issued on or before 31 December 2017, and

(e) where the IREF does not carry on any business similar to the transferred business after the date of transfer referred to in paragraph (b).

(3) In respect of a transfer to which this section applies, for the purpose of the Capital Gains Tax Acts the unit holder shall not be treated as having disposed of the units or as having acquired the shares or any part of them, but the units (taken as a single asset) and the shares (taken as a single asset) shall be treated as the same asset acquired as the units were acquired.

(4) For the purposes of Part 25A and Chapters 1A and 1B of Part 27—

(a) the IREF shall be treated as having disposed of, and

(b) the qualifying REIT shall, notwithstanding section 705L(1), be treated as having acquired, all assets and liabilities of the transferred business for consideration equal to the value of those assets and liabilities in the accounts of the investment undertaking.

(5) For the purposes of this Chapter, the transfer referred to in subsection (2) shall constitute an IREF taxable event but the IREF, the unit holder and the qualifying REIT may jointly elect that the tax due under sections 739O and 739P becomes due and payable on the earlier of —

(a) a date not later than 60 days after the disposal of the shares in the qualifying REIT,

(b) the tenth anniversary of the date of the transfer,

(c) the appointment of a liquidator to the qualifying REIT, or

(d) the company ceasing to be a REIT, and the qualifying REIT shall, not later than 21 days after the date of the end of each of the calendar years which follow the year in which the transfer occurs, deliver a statement to the Revenue Commissioners, in the prescribed form, providing such information as may be required for the purposes of this subsection.

(6) Any instrument giving effect to a transfer to which this section applies shall not be chargeable to stamp duty under the Stamp Duties Consolidation Act 1999.”.

In 2013, the Minister brought forward the real estate investment trust, REIT, legislation. It is a regime designed specifically for ensuring that where a property rental business is carried on collectively, there is still only a single layer of taxation. This amendment provides for the transfer of property business from an IREF into a REIT as many property funds may be better able to market themselves as a REIT, an internationally recognised structure, than an IREF.

As it takes time to establish a REIT, which must be listed on an EEA stock exchange, I am providing that the conversion must take place before 31 December 2017. Any profits earned within the IREF structure will be subject to the IREF withholding tax and any profits earned after the conversion into a REIT will be subject to the REIT property income dividend regime. I commend the amendment to the House.

Amendment put and agreed to.

I move amendment No. 69:

In page 58, to delete line 22 and substitute “Declaration of pension schemes”.

Amendment put and agreed to.

I move amendment No. 70:

In page 59, line 7, to delete “ceases to be a” and substitute “becomes a”.

Amendment put and agreed to.

I move amendment No. 71:

In page 59, line 40, to delete “ceases to be a” and substitute “becomes a”.

Amendment put and agreed to.

I move amendment No. 72:

In page 60, to delete line 4 and substitute “Declaration of investment undertaking”.

Amendment put and agreed to.

I move amendment No. 73:

In page 60, line 26, to delete “ceases to be a” and substitute “becomes a”.

Amendment put and agreed to.

I move amendment No. 74:

In page 61, line 11, to delete “ceases to be a” and substitute “becomes a”.

Amendment put and agreed to.

I move amendment No. 75:

In page 62, to delete line 10 and substitute “Declaration of Credit Unions”.

Amendment put and agreed to.

I move amendment No. 76:

In page 62, to delete line 26 and substitute “Declaration of qualifying company”.

Amendment put and agreed to.

Amendment No. 77 has been ruled out of order as it involves a potential charge.

Amendment No. 77 not moved.

I move amendment No. 78:

In page 63, between lines 1 and 2, to insert the following:

23. The Minister for Finance is to order a study to be carried out on introducing a Financial Transactions Tax and is to report to the Dáil within six months of the enactment of this Act on the findings of the study”.

I will be brief to save us all the Chinese torture we are now undergoing. It is more for the record.

In every debate on every Finance Bill since we have come into the Dáil we have said that we should consider a financial transaction tax. I understand about €2 trillion worth flows through the Irish Financial Services Centre on an annual basis. There is a very minimal proposal from Europe for a financial transaction tax of 0.01% on financial transactions, net of the stamp duty we already have and to which the Minister always refers. It is estimated that if we imposed a financial transaction tax, we would generate €320 million net a year, but the figure would probably be much higher.

It is a negligible tax to impose on the financial services industry. It would barely feel it. I do not buy the argument that companies would all migrate somewhere else if a tax of 0.01% was imposed on them, and €320 million or more would be of significant benefit to the people of this country. It would be preferable to water charges or property taxes which hurt families and would cover the cost of abolishing one or other of those taxes. However, the Minister resisted and Ireland, along with our friends in Britain, is at the forefront of resisting this tiny taxation measure on financial speculators.

I do not know why the Minister would not introduce the tax. I have heard him say that he is afraid that things would migrate to the City of London. He has never produced any evidence for that assertion, and frankly I do not buy it. These guys are making an absolute killing. Large amounts of money are moving through the IFSC and businesses could well afford to pay a tiny tax. It is disgraceful that the Irish Government stands out in Europe in resisting this very small measure.

The Minister and I have discussed this matter on a number of occasions. His objection has been on the basis that not every country in the European Union was agreeable to this measure and, in particular, that the United Kingdom was opposed to it. In the context of Brexit and the fact that other countries in the European Union have moved towards the development of a financial transaction tax - some countries have agreement in principle on it - could the Minister update us on current status of the proposals?

A couple of countries in the European Union have unilaterally introduced a form of transaction tax but have had to withdraw it. Can the Minister comment on what would happen if countries were to act in concert, in particular given the likely departure of the UK from the European Union over the next two to four years? There were general discussions at ECOFIN about more co-operation in regard to these kinds of taxes in order to try to offer some level of stability in the financial markets.

Will the Minister of State say if any progress has been achieved? Has he, in the context of Brexit, given any further consideration to the developments within the European Union, of which I think we all propose to stay a member?

On carrying out a study on introducing a financial transactions tax, FTT, I would refer to the joint Central Bank of Ireland-ESRI report published in April 2012 which considered the possible economic impact of the application of an FTT. The report analyses the potential economic impact on the financial industry at that stage based on the Commission’s 2011 FTT proposal.

While I appreciate that the study may be somewhat dated at this point, the report’s conclusions are a useful indicator of the possible impact of introducing an FTT in Ireland. Given that it is Government policy not to introduce an FTT, I do not consider it prudent to allocate resources to further studies or exercises in this regard at this time.

The joint Central Bank-ESRI report recognises that assessing the likely impact on employment and tax yields due to migration of activity is difficult. This continues to be the case as it is difficult to assess behaviour arising from the introduction of such a tax and second round impacts on investment and employment.

In 2012 the financial sector’s share of overall economic output in Ireland was around twice as large as that of many other European countries, and in 2016 it remains a significant element within the economy in terms of employment and gross value added. There is significant employment in the sector, with around 38,000 individuals employed in international financial services, almost one third of whom are employed outside of Dublin.

The Central Bank-ESRI report sought to identify financial services sectors which could be impacted by an FTT. It suggested that insurance, banking and financial intermediation, and fund management and security brokering were potentially vulnerable to an FTT. Fund management in particular has been one of the growth areas of the financial services sector in Ireland, with some large employers and a total estimated 13,000 employed in the sector. The UK intention to commence the process of leaving the European Union increases the difficulties of introducing such a tax given the potential for the UK to compete more strongly using different domestic measures for such financial services activities outside of the European Union.

The international financial services sector in Ireland is now a truly national industry, extending far-beyond the original IFSC in Dublin’s docklands. The sector generates direct employment for approximately 38,000 people across more than 400 companies, with an estimated one third of these jobs located outside of Dublin. An estimated 200 of these companies are indigenous companies.

The report concludes that the firms with the highest propensity to migrate following the introduction of an FTT are likely to be in the non-banking sectors which account for the smallest share of gross value added. Nevertheless, it indicates that the relocation of even a small number of large IFSC banks or fund administration firms would result in a loss of income tax revenue and corporation tax revenue as well as an increase in unemployment. This would likely still be the impact now of introducing an FTT.

As I have stated on many occasions, Ireland already has a tax on financial transactions in the form of a stamp duty on transfers of shares in Irish incorporated companies which currently stands at 1%. The yield from this charge in 2015 was €424 million and I understand receipts to the end of October 2016 were more than €316 million. If Ireland were to participate in an FTT, it would require us to abolish this stamp duty.

On Deputy Burton's point on discussions at EU level, the position taken by this Government and consistently by the previous Government is that a financial transaction tax would be best applied on a wide international basis to include the major financial centres. This would prevent the danger of activities gravitating to jurisdictions where taxes are not levied on financial transactions with a likely loss of employment and tax revenue. Notwithstanding this, the previous Government was not prepared to stand in the way of EU member states that wished to work together to implement a financial transactions tax and, in this regard, adoption of a decision formally authorising enhanced co-operation took place during the Irish Presidency of the European Union in January 2013.

In any event, despite significant engagement by the relevant member states, there has been no agreement on the introduction of an FTT and it is not clear whether agreement will be achieved in the near future.

Amendment put and declared lost.

Amendments Nos. 79 and 81 are related and may be discussed together.

I move amendment No. 79:

In page 63, between lines 1 and 2, to insert the following:

“23. The Minister for Finance is to order a study to be carried out on methods of closing remaining loopholes and abolishing tax breaks currently availed of by equity funds, investment funds, financial vehicles and Real Estate Investment Trusts and is to report to the Dáil within six months of the enactment of this Act on the findings of the study, including an estimation of how much could be raised from this for the Exchequer.”.

This amendment, tabled by Anti-Austerity Alliance-People Before Profit, calls on the Minister for Finance to order a study to be carried out on methods of closing remaining loopholes and abolishing tax breaks currently availed of by equity funds, investment funds, financial vehicles and real estate investment trusts, REITs, and to report to the Dáil within six months of the enactment of this Act.

This is an element of what has been discussed already during the debate on other amendments. What emerges from the discussion is that significant tax breaks exist via these mechanisms which enable the very wealthy and vulture funds to get away with using massive tax loopholes. This relates to the broad point about the context in which this debate takes place, namely, the strategy, which the Government continues to deny but which both Fianna Fáil and Fine Gael engage in, of being a corporate tax haven. I note that a survey was carried out at the Web Summit in Portugal last week and the majority of those surveyed said they thought Ireland was a tax haven. They are the people to whom it matters to signal to them that it is a tax haven.

We tried asking for other things but were not allowed to ask for them. However, what we are asking for here is simply a study to be carried out on the closing of all of these loopholes. These loopholes are the mechanism by which tax is avoided legally by a variety of institutions. We should examine the loopholes and the Government should report back, including an estimate of how much could be raised for the Exchequer from a shutting down of these loopholes and this tax avoidance.

I will not repeat myself, but a report would be useful. Ireland is currently caught between a protectionist UK and a soon to be protectionist US. Our Exchequer returns will get hit on the SME side by Brexit and it is highly likely that our multinational corporations, MNC, Exchequer returns could be hit substantially by a protectionist America. We are taking one of the biggest asset bases in the country pretty much completely out of the tax base.

My fear about the qualifying investor alternative investment funds, QIAIFs, and Irish collective asset management vehicles, ICAVs, being fully tax free has been confirmed tonight. I have learned two additional things tonight that I had not been clear on. The first is that not only will capital gains not be taxed at the capital gains tax level but that capital gains will not even be applied to the withholding tax. It is a more extreme level of Government-sponsored tax avoidance than I had thought. Widely owned funds - these ICAVs and QIAIFs - are not subject to corporation tax and capital gains tax. How this is being sold is that they were not paying those anyway but that they will now pay withholding tax. The second thing we have just found out tonight is that they will not pay withholding tax because they will set up their ownership outside the country. We are losing all of the taxes. Yes, there will be a few Irish rich people who buy and sell buildings and we will probably get a few quid out of them, but other than that, this is taking a big asset base out of the tax base. I cannot get my head around why we are essentially making property investment in Ireland tax free. We are giving up three levels of taxes: corporation tax, capital gains tax and withholding taxes.

I know that the tabled amendment probably will not be accepted, but we need to take a serious look at the impact of what we are doing, not just on this section but on what has happened over the past four or five years. It has almost certainly massively eroded the tax base. Critically, based on the amount of property bought since the crash and the multiple billions in capital gains that the sale of those assets will realise, how many billions of euro is this Government and the previous Government throwing away in capital gains tax by saying we are just not going to tax property any more?

I highly recommend that a report which begins to lay out just how big a deal this is be presented to the House.

I support amendment No. 79, which addresses many of the issues Deputy Boyd Barrett raised regarding the structure. While acknowledging that the Bill is an improvement on past legislation, the problem is that the previous provisions were rotten to the core and major issues arise regarding how the tax code incentivises property speculation and whether this is appropriate. A report is definitely required. Such a report would capture these issues.

During this debate and on Committee Stage, we have teased out the matter of the dividend withholding tax and to whom it would or would not apply. I have provided examples of what would happen. I seek clarification on this issue because I do not agree with Deputy Donnelly's characterisation that, basically, this will all be tax free. It is my understanding that if an existing ICAV is rearranged whereby it will in future be owned by an ICAV in Luxembourg, the anti-avoidance measures would automatically kick in immediately. As a result, the existing ICAVs cannot reorganise in such a way as to avoid tax. If an ICAV is currently owned by a wide structure in Luxembourg or in any other country in the European Union, this does not apply. The rights and wrongs in this regard are seriously questionable. However, from my point of view, I do not agree that it will be a free for all or that no tax will be paid as a result of this provision.

In the context of US-owned firms - for example, Kennedy-Wilson - the dividend withholding tax would apply because they are located outside the European Economic Area, EEA. Will the Minister confirm my view on this matter? As Deputy Donnelly stated, we are learning as we go along as a result of the fact that some of the provisions are highly technical. Will the Minister confirm that the anti-avoidance measures - particularly the general anti-avoidance measures which are written into the tax code and which are quite strong - will kick in? Will he conform that if, for example, a new or existing entity were to establish an ICAV in Luxembourg for the purpose of holding an ICAV in Ireland, the general anti-avoidance measure would kick in because the purpose of the structure in question would be to avoid paying the tax that would be due in this country? Even if the latter proves to be the case, there are many smart people who will tease through all of this in order to try to find ways around it.

This is why it is crucial that we have reports on everything involved, including why the hell we have facilitated - in such a generous way - the purchase of property in the State. It is wrong to say it but successive Governments have had a love affair with property. I do not want to go off the subject, but today we received figures on the dramatic increase in homelessness. We have a huge issue in terms of housing, and a commercial property bubble because it was incentivised through this fund structure. There is nothing new in this. It was incentivised ten years ago through a different type of structure by a different Government making different decisions. We need to break from the love affair we have with property, manage it normally and stop incentivising the purchase of property.

This is what is happening in terms of the fund structures, despite the advances in the Finance Bill and REITs, on which I want to focus regarding amendment No. 79. We have a very generous tax efficient structure which now holds billions of Irish assets. IRES REIT has emerged as the country's largest non-Government landlord. It has a portfolio of 2,377 apartments throughout Dublin, with annual rental income of more than €40 million. This has actually increased, because just last week it bought in excess of another 100 apartments. We are providing a very tax efficient structure for it. Despite the fact the previous Government introduced so-called rent restrictions, IRES REIT has increased its rents by up to 12% in Dublin in its properties this year. It states that this is due to tenants leaving properties. When a tenant leaves a property, the rent can be increased and a new lease begins. A substantial proportion of the portfolio relating to this entity will be up for renewal in 2017. IRES REIT has stated it will provide an opportunity next year for more rental increases. We are in the middle of a rental crisis, people are being put to the pin of their collar and others are being made homeless. However, one of these REITs, the biggest non-Government landlord in the State, is telling us boldly in its published accounts there are huge opportunities to increase rents again in Dublin, that it did so by 12% this year and that it will do it again next year because a substantial portion of the portfolio is up for renewal.

It is obvious to me, but the Government needs to ask why we are giving tax breaks to a structure that is hiking up rents and the business plan of which for next year involves further rent increases. The tenants in these apartments are those who are paying the price because what is involved here is tax that is foregone to the State. It is similar to Deputy Donnelly's previous argument in terms of how to buy a hotel. Prior to the introduction of REITs in the 2013 Finance Act, a limited company would have had to purchase the 2,377 apartments involved in this instance. If we had not introduced this measure in the Finance Act 2013, IRES REIT would be IRES Limited, and it would be obliged to pay 12.5% corporation tax on the profits from its €40 million in annual rent. It does not do this, however,

What report, if any, has been done on a cost-benefit analysis of REITs since they were introduced in the Finance Act 2013? Will the Minister provide details of the tax paid to the Exchequer so far from dividend withholding tax from REITs? The information should be available. An Irish REIT is required, subject to having sufficient distributable reserves, to distribute to shareholders by way of a dividend, on or before the filing date for the tax return in the accounting period, of at least 85% of the property income. One of the proposals I made in 2013 related to the property income of the property rental business arising in each accounting period. We should have this information.

The third point I wish to raise relates to the dividend withholding tax applied to distributions from a REIT and a non-residential investor's ability to reduce the rate of dividend withholding tax under the relevant terms of a tax treaty between Ireland and the investor jurisdiction. There is significant scope for entities to reduce the dividend withholding tax they pay. We know, for example, that the only tax treaty agreement that specifically mentions REITs is that with the US. Dividend withholding tax can be reduced to 15% where the investors hold 10% of the REIT shares. There are questions to be raised and answered on this.

Amendment No. 81 states the Minister shall, within nine months of the passing of this Act, prepare and lay before the Dáil a report on the ability of non-resident investors, from countries with which Ireland does not have a double tax treaty, who hold Irish business assets, including shares in Irish businesses, in qualifying investor alternative investment funds, QIAIFs, or ICAVs to avoid dividend withholding tax on any dividends they receive from their Irish business holdings. I dealt with this on Committee Stage and the officials gave me their view on it. They informed me last week that all Irish sourced dividends paid to non-resident investors, regardless of whether they are from an Irish limited company or an ICAV, are paid tax-free without the application of dividend withholding tax. I am not sure about this, but the Minister's advisers and the Department are better informed. They state that this is the case provided the non-resident investor in receipt of the Irish dividend resides in a country with which Ireland has a tax treaty.

First, can the Minister confirm whether that is accurate? Second, can a non-resident residing in a country with which Ireland does not have a tax treaty - for example, Monaco - receive Irish dividends tax-free with no Irish dividend withholding tax paid when they are paid through an ICAV or qualified investment fund? I ask the question because the focus so far has all been on property assets. If I were tax-resident in Monaco, owned an Irish newspaper or Irish company, put the shares of that newspaper or company into an ICAV and were therefore resident in a non-tax treaty agreement country, would I be exempt from dividend withholding tax? My understanding is that I would. The purpose of the amendment is to examine how these vehicles can be used not only for property assets, but also potentially to hold the shares of companies and, because of tax residency, be exempt from dividend withholding tax.

It is incredible that we do not even know how much tax is forgone through these tax breaks the Minister allows for these speculators and investment funds of various kinds. I thought I knew a thing or two until I started to delve into the world of finance as a Member of the Dáil. I am consistently amazed by the elaborate variety of mechanisms that somebody - I presume the tax lawyers representing these speculators and investors - has dreamt up. These tax lawyers then lobby the Government through the Clearing House Group to come up with these vehicles. They make a fortune out of them, and we get a dysfunctional property sector, a massive property bubble, an out-of-control rental crisis and an out-of-control housing and homelessness crisis. The Government allows it, and we do not even know how much tax is foregone through all these vehicles: ICAVs, REITs, QIFs and super-QIFs. You could not make this stuff up. The Minister cannot even tell us, under these different headings, how much tax on a year-to-year basis we do not get because we allow these tax breaks. That should be the absolute minimum of information furnished to us in this House to make any judgment whatsoever as to the merits or otherwise of these tax breaks and tax loopholes. The Minister cannot tell us, but it is big money - billions - and deals with the massive accumulation of property assets in the hands of these speculators, with all the effects it has on the country. The Minister cannot even tell us how much tax we are not getting. That is extraordinary. It is worth thinking about the extent to which the Government will go to try to get water charges from people or go after them for property tax and how they can be hauled through the coals by the Department of Social Protection if it thinks they might be doing nixers or something. However, when it comes to these speculators, when we are talking about hundreds of millions - probably billions - of tax forgone, the Minister cannot even tell us how much. It is unbelievable. Of course, this is so flipping complicated that anyone watching this debate or reading these documents will ask, "What the hell is all that gobbledygook about?" It is in that labyrinth of complexity that all this stuff is obscured so that nobody really understands what is going on while they are being ripped off on a massive scale. The term "there is one law for the rich and another for the rest of us" gains a new meaning and significance with this stuff. All we would like is a little information at the minimum. We do not think these vehicles should exist, but the Minister should at least give us a little information on the amount of money involved so we can make a judgment as to whether he is making a good call. We have already made our judgment: it is not a good call. However, the information and the facts surrounding this should at least be put before us and the wider public so we can understand what is going on and how people are being ripped off.

I had another point. It might come back to me in a minute if I get another chance to contribute.

In 2010, the OECD published a report on the taxation of collective investment vehicles, or funds as they are more commonly referred to, which stressed the importance of tax neutrality for investments made through funds. As the investor will pay tax on any income received from the fund, any taxation at the fund level itself would result in double taxation. Without tax neutrality, the benefits of investing through a fund would be outweighed by the double taxation that would arise. Most OECD countries now have tax systems that provide for neutrality between direct investments and investments through a fund. The normal tax treatment afforded to Irish collective investment funds is that the funds invested are allowed to grow on a tax-free basis within the fund. The income is taxed at the level of the investor rather than the fund, which, as I have outlined previously, is standard international practice. In order to ensure that the appropriate tax is collected from Irish investors, funds are obliged to operate an exit tax regime and remit the tax deducted in this manner to the Revenue Commissioners. This charge to tax does not apply in the case of unit holders who are non-resident. In the case of non-resident investors, their liability to tax on gains from the fund will be determined in their home jurisdiction. There is a recognition worldwide of the benefits that collective investment vehicles provide to facilitate smaller investors in planning for retirement. In its 2010 report, the OECD noted that Governments have long recognised the importance of funds as a complement to other savings vehicles in terms of facilitating retirement security. In many countries, participants in defined contribution retirement plans invest primarily in funds. Because funds allow small investments, they are ideally suited for such periodic savings plans. They are highly liquid, allowing withdrawals as needed by retirees. With aging populations in many countries, funds will become increasingly important. The OECD report notes that a small investor who buys interests in funds can instantly achieve the benefits of diversification that otherwise would require much greater investment. Funds also allow small investors to gain the benefits of economies of scale even if they have relatively little invested. In addition, investors in funds benefit from the market experience and insights of professional money managers.

A REIT is a quoted company used as a collective investment vehicle to hold rental property. A REIT generally has a diverse ownership requirement, so no one person or group of connected persons can control the REIT. REITs originated in the USA in the 1960s, and aspects of the REIT model have now spread to become a globally recognised investment standard in more than 35 countries worldwide, including the majority of the world's developed investment jurisdictions. Again, REITs do not provide any loophole or tax break. It is important to note that Ireland has extensive protections under our tax code to prevent tax avoidance. These are strengthened on a regular basis to keep pace with any new threats to the tax base identified by the Revenue Commissioners or otherwise. Where tax avoidance schemes or abuse of the tax regime are identified by the Revenue Commissioners and brought to the attention of the Department of Finance, any proposals will be considered by the Minister in the context of the Finance Bill. In this Finance Act, significant moves have been made to ensure that the Irish tax base is appropriately protected, particularly in respect of the use of different corporate vehicles and Irish property. However, I am satisfied that the use of funds in the wider industry is not a threat to the Irish tax base. As I have outlined, the use of fund vehicles or REITs is not a loophole or a tax break. It is simply a method of facilitating collective investment. Therefore, I do not accept the proposed amendments.

Regarding amendments Nos. 79 and 81 and some of the questions asked about this section, Deputy Doherty is correct in his interpretation that anyone artificially setting up a Luxembourg fund will still be caught by the anti-tax avoidance measures. Regarding the treatment of a company in a treaty country, there would be no dividend withholding tax as income tax would not be considered an Irish source. However, in a non-treaty country, income tax would be considered an Irish source for taxation, and dividend withholding tax would apply in most cases.

Individual Irish REIT investors will be liable to tax at their marginal rates. Corporate REITs will be liable to tax at 25%. Institutional portfolio investors will be liable to tax on REIT dividends at 12.5% because this rate is generally applicable to trading income. Dividend withholding tax at the standard rate of 20% will be deducted by the REIT from dividends paid to shareholders and will be available as a credit against tax liabilities. For foreign investors in a REIT, the REIT will withhold dividend withholding tax at the standard tax rate of 20%. Foreign investors who are resident in treaty countries may be able to reclaim some of this withholding tax under the relevant tax treaty. Tax treaty rates on dividends vary from treaty to treaty, but the most common rate applicable to small shareholdings is 15%. This means that Ireland will retain taxing rights of 15% on dividends paid from Ireland.

The Minister of State has responded by saying there is nothing to see here, there are no tax loopholes and there is no need for us to have a study. We are talking here about things that were set up to be, and are, tax breaks and tax loopholes. It is not an accident that Ireland has the 15th largest international financial sector in the world. We are talking about Panama on the Liffey. The idea is that there are no bad consequences here from the point of view of society. The suggestion is that it is okay and no harm is being done as long as we get the money in, even if there are no jobs or taxes associated with it. We are seeing what Nick Shaxson has described as the "finance curse", where an outsized finance sector dominates and distorts the economy and distorts society. That is what exists in this country. It is just like the oil or resource curse in other countries, with the symptoms including greater corruption, steeper inequality, more repressive government and greater poverty. Ireland ticks all of the boxes. The dominance of finance capital is a symbol of a stagnating global economy. There is no investment in production because capitalists have so little confidence in future demand. Instead, capitalists are looking for ways to gamble money while paying as little tax as possible. Successive Irish Governments have sought to facilitate that through the alphabet soup of special purpose vehicles like ICAVs, REITs and all the rest of them. This gets to the heart of a failed and a failing Government economic strategy. This is what it means when it talks about industrial policy, which is no industrial policy whatsoever. It is a shame that the Government will not even agree to a study in order that we can see the amounts of money we are talking about.

The Minister of State has said that REITs and ICAVs simply facilitate collective investment. REITs and ICAVs and the changes to QIFs were set up to make property investment tax free. They were not set up to facilitate collective investment. If one visits any legal website in Ireland or if one reads any of the hundreds of PowerPoint presentations on the issue of REITs, QIFs and ICAVs, one will see that the legal profession is saying unambiguously on its websites that the point of these tax-neutral funds is to avoid paying taxes. The previous Government took a policy decision to exempt investment property in Ireland from tax. That is being copper-fastened tonight. One of the many results of this is that we now have a commercial property bubble in Dublin that is bigger than the 2007 commercial property bubble in Dublin. I have a simple question for the Minister of State. The Government has repeatedly said that its position is based on the requirement to avoid double taxation. Will he tell the House where corporation tax is being paid? If he can show us where corporation tax is being paid and show us how the Government's position will avoid a second charge of corporation tax, that is fine. I would accept the point about double taxation in those circumstances. Will the Minister of State show the House how this applies to someone who owns a hotel, an apartment block or some other property that is in an ICAV? They all have trading income. At what point within the ICAV, the QIF or the REIT is corporation tax paid?

I want to make another point. Most of the points have been made. One of the amazing things about all of this is that it will not deliver a single extra house.

There will be even fewer.

The housing and homelessness crisis is the biggest crisis facing this country. The Government never tires of telling us that it is caused by a lack of supply and that we need to consider where that supply should come from. We think the State should provide that supply, but any bloody supply would be pretty helpful at the moment. It is an absolutely disastrous situation. All of these ICAVs, QIFs and REITs, etc., will not deliver a single extra house. The position might get even worse, as Deputy Donnelly has suggested. Money is being forgone in tax to benefit people who are just speculating. That is all they are doing. They are just speculating.

When the Minister of State responded to me earlier, he said we have fundamentally different views about the role of the private sector. I get that, but what exactly is the benefit of this particular private sector involvement? It is not delivering anything. It is not bringing us anything. It is not helping to deal with the housing and rental crisis. It is making it worse. I remember opposing the REITs and ICAVs when they first appeared in 2013. I told the Minister for Finance I could not believe he was introducing these tax incentives. I did not fully understand what they were. I saw them and I asked what they were. It was at a similar late-night session to this one, when we had been debating for hours. I could easily have let it pass because we were all so tired. I asked what the REITs were. I asked whether they would incentivise the kind of speculation that led to the last property bubble. The Minister, Deputy Noonan, said that there would not be a property bubble, but we have a property bubble now.

Amendment put:
The Dáil divided: Tá, 38; Staon, 29; Níl, 59.

  • Adams, Gerry.
  • Barry, Mick.
  • Boyd Barrett, Richard.
  • Brady, John.
  • Broughan, Thomas P.
  • Buckley, Pat.
  • Burton, Joan.
  • Collins, Joan.
  • Coppinger, Ruth.
  • Crowe, Seán.
  • Cullinane, David.
  • Doherty, Pearse.
  • Donnelly, Stephen S.
  • Ellis, Dessie.
  • Ferris, Martin.
  • Fitzmaurice, Michael.
  • Funchion, Kathleen.
  • Healy, Seamus.
  • Kenny, Gino.
  • Kenny, Martin.
  • McDonald, Mary Lou.
  • Mitchell, Denise.
  • Munster, Imelda.
  • Murphy, Catherine.
  • Murphy, Paul.
  • Nolan, Carol.
  • O'Brien, Jonathan.
  • O'Reilly, Louise.
  • O'Sullivan, Maureen.
  • Ó Broin, Eoin.
  • Ó Caoláin, Caoimhghín.
  • Ó Laoghaire, Donnchadh.
  • Ó Snodaigh, Aengus.
  • Pringle, Thomas.
  • Ryan, Brendan.
  • Ryan, Eamon.
  • Smith, Bríd.
  • Stanley, Brian.

Níl

  • Bailey, Maria.
  • Barrett, Seán.
  • Breen, Pat.
  • Brophy, Colm.
  • Burke, Peter.
  • Byrne, Catherine.
  • Canney, Seán.
  • Cannon, Ciarán.
  • Carey, Joe.
  • Collins, Michael.
  • Corcoran Kennedy, Marcella.
  • Coveney, Simon.
  • Creed, Michael.
  • D'Arcy, Michael.
  • Daly, Jim.
  • Deasy, John.
  • Deering, Pat.
  • Doherty, Regina.
  • Donohoe, Paschal.
  • Doyle, Andrew.
  • Durkan, Bernard J.
  • English, Damien.
  • Farrell, Alan.
  • Fitzgerald, Frances.
  • Fitzpatrick, Peter.
  • Flanagan, Charles.
  • Griffin, Brendan.
  • Halligan, John.
  • Harris, Simon.
  • Healy-Rae, Danny.
  • Heydon, Martin.
  • Humphreys, Heather.
  • Kehoe, Paul.
  • Kyne, Seán.
  • Lowry, Michael.
  • Madigan, Josepha.
  • McEntee, Helen.
  • McGrath, Finian.
  • McGrath, Mattie.
  • McHugh, Joe.
  • McLoughlin, Tony.
  • Mitchell O'Connor, Mary.
  • Moran, Kevin Boxer.
  • Murphy, Dara.
  • Murphy, Eoghan.
  • Naughten, Denis.
  • Naughton, Hildegarde.
  • Neville, Tom.
  • Noonan, Michael.
  • O'Connell, Kate.
  • O'Donovan, Patrick.
  • O'Dowd, Fergus.
  • Phelan, John Paul.
  • Ring, Michael.
  • Rock, Noel.
  • Ross, Shane.
  • Stanton, David.
  • Varadkar, Leo.
  • Zappone, Katherine.

Staon

  • Aylward, Bobby.
  • Breathnach, Declan.
  • Browne, James.
  • Butler, Mary.
  • Cahill, Jackie.
  • Calleary, Dara.
  • Casey, Pat.
  • Chambers, Jack.
  • Chambers, Lisa.
  • Dooley, Timmy.
  • Haughey, Seán.
  • Lahart, John.
  • MacSharry, Marc.
  • Martin, Micheál.
  • McGrath, Michael.
  • McGuinness, John.
  • Moynihan, Aindrias.
  • Moynihan, Michael.
  • Murphy O'Mahony, Margaret.
  • Murphy, Eugene.
  • O'Brien, Darragh.
  • O'Callaghan, Jim.
  • O'Keeffe, Kevin.
  • O'Rourke, Frank.
  • Ó Cuív, Éamon.
  • Rabbitte, Anne.
  • Scanlon, Eamon.
  • Smith, Brendan.
  • Troy, Robert.
Tellers: Tá, Deputies Richard Boyd Barrett and Paul Murphy; Níl, Deputies Regina Doherty and Tony McLoughlin.
Amendment declared lost.

On a point of order, it is crazy for us to continue with this Bill dealing with detailed and complicated matters, including tax matters, at this-----

It is Report Stage of the Bill. The Deputy should know the rules.

The Deputy is not the Ceann Comhairle anymore.

For us to continue, as is necessary for us to do our job of proper legislative scrutiny, at these hours, which are anti-social and keep the staff here late-----

The Deputy is on the Business Committee.

I appeal to the Government to conclude the debate now and defer the rest of it until tomorrow morning.

It was agreed at the Business Committee.

This was not brought up at the Business Committee.

(Interruptions).

Where is Bríd tonight?

Silence please. I remind Members that the Business Committee recommended the Order of Business to the House yesterday.

A Deputy

It should be scrapped.

It was endorsed by the House and it is clear. It states that if consideration of the Finance Bill is not concluded by 10 p.m., the House will sit late and will adjourn on the conclusion of the Finance Bill.

Until what time, a Leas-Cheann Comhairle?

Until it is finished.

I must abide by that and if Members are now interested in finishing earlier than we had anticipated, I will call on Deputy Pearse Doherty to move-----

Sorry, I am asking until what time the House will sit.

-----his amendment No. 80.

It is perfectly legitimate to make a point of order at 11.30 p.m., and for people-----

(Interruptions).

Deputy, resume your seat.

We will have to bring back old politics.

It is perfectly legitimate to make a point of order.

Deputy Smith, I am calling on you to be orderly. I have made it very clear, and you are all intelligent enough to know-----

If Deputy Smith had to travel to work she would know all about it.

-----that this was endorsed by the House-----

-----and I have no discretion whatsoever in the matter. I call Deputy Pearse Doherty to move amendment No. 80.

It is a bit rich that some on the Government benches who did not set foot in this Chamber during Report Stage of the Finance Bill would shout down a Member who was making a point of order. He has been here during the entire debate and has contributed to it.

The Minister is here.

There are allegations of filibustering from people who did not say a single word in this debate even though they were entitled to do so. I will withdraw my amendment No. 81.

Sorry, Deputy Doherty was to move amendment No. 80.

I move amendment No. 80:

In page 63, between lines 1 and 2, to insert the following:

“23. The Minister shall, within eighteen months of the passing of this Act and every twelve months thereafter, prepare and lay before Dail Eireann a report on the potential additional tax take were the exception in 739K(i)(I) inserted by section 22 of this Act removed.”.

This amendment relates to the capital gains tax exemption on the funds industry and while the Government-----

Will Deputies leaving the Chamber please allow Deputy Doherty to continue? There are Members interested in the debate and we must give them the opportunity to speak.

We cannot put forward amendments that would impose a charge on the State and on the people but this amendment goes to the core in terms of the Government facilitating the purchase of both commercial and residential property in this State by international funds in that despite the huge uplift in property prices in recent years, capital gains tax will not apply. I made this point strongly on Committee Stage. It is one of the serious flaws in terms of these funds.

I have welcomed the Minister's amendment in that it goes further than was the case previously but this allows for those in the funds industry who came here and bought commercial property in Dublin four and a half years ago to hold on to that property for another six months before they flip it and not be subject to capital gains tax. That is immoral. We are talking about billions of euro of assets, not millions or hundreds of millions, that have been bought up by international investors who have invested in these funds structures and the huge uplift in commercial property in the past three to four years, which is usually taxable in terms of capital gains if the company was outside a funds structure, but CGT will not apply.

While I cannot put forward an amendment, as we tried to do on Committee Stage, as did other Deputies, to delete that section, we need a report from Government stating clearly the amount of tax the country is losing because this exemption has been put in place. It is a fair request that the Government would have to lay before the House, within 18 months of the passing of the Act to allow for the reporting to take place, and every 12 months thereafter, a report on the amount of money the Exchequer is down as a result of allowing this exemption from CGT for funds that hold properties for five years or longer.

We discussed this issue at length. Deputy Doherty's amendment covers similar territory to that covered in the previous discussion and some of the discussions we had earlier, so there is not a lot to add other than to ask if there is any recognition on the part of the Government that we have a property bubble. Is there any concern about that, and that these property-based tax incentives, the very thing that led to the last bubble and crash, are producing similar effects again and that we should be doing something to prevent that from happening? It will be on the Minister's head when this property bubble comes crashing down again. It is already having a devastating social impact in terms of housing and homelessness and the rental crisis, which is reaching across society.

It does not affect just the people on the very lowest incomes, but also working people in relatively well-paid jobs who are unable to afford a roof over their heads because there is a property bubble as a result of a group of super-rich speculators who think it is okay to profit from the crisis and the shortage of housing. They are having an absolute bonanza at the expense of the misery of huge numbers of our citizens. This bubble is staring us in the face, yet the Minister insists on retaining this elaborate architecture of property-based tax incentives. The Minister is completely refusing to acknowledge in any shape or form that there is a very serious problem that his policies have contributed to creating.

If he is not willing to close down these crazy tax loopholes for speculators, the very least the Minister could do is carry out a proper study in which we can look in detail at how it is all working, what impacts it is having, how much tax is forgone, who is benefiting from it and what is the impact of it on wider society, housing, rents and all the rest of it. I am frankly flabbergasted as to the Minister's motives in all of this. I was even asking Deputies during the break what the thinking behind this could be. The only conclusion I can come to is that the Government is completely hostage to these speculators via the Clearing House Group. That group seems to exercise influence on the Government in order that it puts these measures in place. It then advertises on its websites to invite investors and speculators to come to Ireland, the best little country in the world in which to pay no tax.

The amendment is extremely reasonable. It is basically a request for information of the kind that will ultimately be published in any event by the Revenue Commissioners. With regard to the requests of a number of Deputies to be allowed to go home early, the Minister for Finance could actually speed things up very considerably by simply clarifying the situation, as he did earlier in the evening with a number of other requests for studies, and that he is agreeable to the amendment. We were able to reach an agreement on amendments of mine and of Deputy Doherty. I believe it would be helpful now if the Minister could indicate his position on these amendments. What is requested is information; it is then for the parties to make judgments on what that information will tell us and what positions may be taken as a consequence of it. I do not see that there is any problem in principle with the amendment. The Minister may not like yielding to a request for information, but he has done so now on several occasions in a very reasonable way during the course of the Bill. I strongly appeal to him and recommend that the information be given. He has done it for me, for Deputy McGrath and for Deputy Doherty. We can reach that agreement and probably settle the Bill in the next hour and a half, I presume. People can then go home at a reasonable hour or go on to something else, as the town will just be opening up.

It was acknowledged on Committee Stage that the provision whereby the IREFs, or the funds, to use that term generally, that hold assets for five years and are then exempt in terms of the application of withholding tax to any chargeable gain was a policy decision. It is not something from Revenue; it is an issue of policy and was decided upon by the Government. As the Minister knows, fund investors have a pretty short-term horizon when they consider an investment. They do not look at ten to 15 years, but more probably at three to five years. The argument that has been put forward that giving them an exemption that kicks in after five years does not really cost them anything in the sense that they would probably hold the assets for about that period of time anyway, and certainly not for considerably longer. Therefore, I believe the Minister does need to set out the rationale behind the provision.

Is it because funds invested in Ireland are based on structures which were enacted in this House that essentially exempted them from tax and, as a result, the Minister is moving the goalposts, which happens every year in the budget to ordinary citizens when tax rates change? Even transactions that took place some time ago but perhaps have not yet crystallised in a gain would be subject to any changes in rates and so on, which are decided upon at budget time and enacted. Or, is it because the Minister believes that this is the right policy? Does he believe that this is the right policy to attract investment into Ireland? How does he square that with the position facing ordinary Irish investors who do not establish as a fund or who do not set up a fund structure? They are subject to the capital gains tax regime in the same way that anybody else is in terms of a chargeable gain. I believe the Minister does need to set out the rationale and logic for that, because this is a significant public policy issue. The funds are now here. They have bought huge swathes of commercial real estate in particular and are looking to cash in. We need to have clarity on the policy and the rationale behind it.

I thank Deputy Burton for acknowledging the fact that we have tried to provide as much information as possible where we can. In previous amendments in which there were requests for reports to provide information within a certain period of time, we have tried to be able to do that where possible. It is not a question of principle; it is a question of what information it is possible to provide.

Speaking to Deputy Doherty's amendment, we debated it at length on Committee Stage. As a result of the debate that we had on Committee Stage, changes have been made since then to the amendments that are now coming through on Report Stage. As I previously noted, in amendment No. 47 we are restricting the ability of non-residents to use closely-held funds to avoid paying Irish tax on capital gains on Irish property. This is in order to ensure that the IREFs cannot be used for tax planning by investors who have influence or control over the IREF.

On the issue of all other funds, the five-year CGT exemption period is being legislated for to distinguish between funds that flip a property and are in it for the short-term gain and those that hold property for longer periods and are therefore a more stable presence in the market. In the longer term, this will lead to a more sustainable and secure property market for both investors and property tenants, while generating regular and reliable tax revenues for the Exchequer from the taxation of the rental profits. The IREF provisions do not encompass any tax forgone and, therefore, there would be no additional tax take compared to the current position. That speaks to the questions raised by Deputy McGrath.

I am advised by the Revenue Commissioners that the return required from IREFs will require details of any capital gains distributed without the application of IREF withholding tax. Revenue will monitor this to ensure that it is not being used by closely-held funds to avoid Irish tax on Irish property transactions. Should any inconsistencies be found, they will be thoroughly examined by the Revenue Commissioners and acted upon as necessary. Finally, as the first returns by the IREFs will not be due until 30 June 2018, it would not be possible to prepare the report requested in the proposed amendment. Therefore, I cannot accept the amendment.

We do not need anybody to point out to us where there might be issues that we need to close down. The Government has already written it into the tax legislation and into this Finance Bill. It is there in black and white. Let us put on record some of the figures. In 2006, investment in commercial property from outside of Ireland equated to 2%. In 2016, it makes up 68% of the investment. All of that investment heretofore has been tax free. We have made advances and I acknowledge that there will be a dividend on withholding tax on the funds. However, there has been a huge increase in commercial property in the last year alone. Last year, there was something like a 23% increase in commercial property. The idea that the funds will not be paying capital gains tax is absolutely ridiculous. It is madness.

I have made the point time and time again that, in my view, this is a very deliberate and conscious effort by the Government to increase the value of commercial real estate. When we look at NAMA and the banks, the damage that was done in the property crash was all in commercial real estate.

That is what went into NAMA. That is where the real holes were in the banks. When one pushes up the price of commercial real estate one gets a better return for NAMA and fixes the balance sheets of some of the banks, in which we are now minority shareholders. That is the intention of Government. This has been pushed to such an extreme that Moody's and the IMF are warning about imbalances in commercial real estate property. I am blue in the face saying how much property in central Dublin has been sold out from under our feet in the past number of years. The amendment does not revisit all of that but that is its spirit. If the Government introduces a deliberate policy that says to international investors to buy up Ireland but do it tax free in terms of capital gains tax, then the least the Government should do is have the decency to tell us in the Parliament how much the measure will cost the people. That is what my amendment seeks to do and that is why I will press it.

The Deputy's time is up and I call Deputy Boyd Barrett.

I will not go over the ground already covered but I asked a question on Committee Stage, the answer to which I would like confirmed. If there is no distribution in dividends from the income that is generated by these vehicles but instead the profits are rolled up and used to buy even more property by these vehicles, so that all of the profit gets rolled up into capital gain, the withholding tax does not apply as long as they hold on to it for five years. Is that right? Potentially, all of the profits that they make, and are making, from the extortionately high level of rents, as long as they do not distribute them as dividends, but instead reinvest them to buy even more property, so the capital gain element of the investment goes up and up and up, and they hold on to it for five years, then they can walk away and all of it is tax free. Therefore, the withholding tax becomes meaningless. Is that not a fact?

I shall respond to Deputy Doherty's point. His comparison with 2006 is an interesting one because it shows a massive structural imbalance in terms of how property was invested, or the investment around property, in Ireland at the time. Of course we are talking about a real bubble event. The Deputy and I both know that from the work that we did on the banking inquiry. I refer to the almost 100% investment by Irish money in Irish property and the disaster that it led to.

On the possibility of preparing a report that will have the information that is requested, I am advised that it would not be possible to prepared the report requested in the proposed amendment. Therefore, I cannot accept the amendment.

On Deputy Boyd Barrett's question, we discussed this at length on Committee Stage. We talked about the gross roll-up regime, how it might apply and the ability of a fund to grow or a profit within a fund to grow without being taxed. To clarify, the formula used to calculate the portion of the IREF profits is based on a retained earnings of the IREF. As the IREF's rental profits accrue they become part of the retained earnings. The IREF may then use its cash surplus, from that rental business, to invest in a capital asset. If it is then realised as a capital gain that capital gain will then also form part of the retained earnings. While the cash that is distributed may come from the sale of a capital asset the profits, from which the distribution comes, will be partly from the rental income and partly from the capital gain. That is, it is not possible to reduce retained earnings other than by making a distribution of some sort to the unit holders or incurring a loss in the current year.

Anybody who understood that reply deserves a double A+.

Deputy Boyd Barrett does not have the floor; I call Deputy Doherty.

First, the Minister of State relies heavily on Revenue saying the data will not be available. We have gone through the Finance Bill and amendments I tabled on Committee Stage have been included in the legislation, which is a welcome new approach. If he is genuine he will accept the principle behind my amendment. My party could table an amendment in the Seanad. My amendment proposed that at the earliest stage where data is available the Minister will provide in a report to this House the tax foregone as a result of providing a capital gains tax exemption for property that is held for five years or more. I ask the Minister of State to think about the matter and discuss it with the Minister. The Minister of State has correctly pointed out that what happened in 2006 was Irish fuelled investment and a credit bubble.

We now have a commercial property bubble, without doubt. It is not the same type of bubble that we saw in 2006. The current bubble is not credit fuelled. It is tax efficient fund structures fuelled. It is also foreign investments. It is unbelievable that until the President puts his signature on this legislation any foreign investor buying commercial property in this country, and the rents that they get for their commercial property, are completely tax free. That is what has caused a bubble in Dublin. That is what has resulted in 38% of Dublin being sold in the past three years. That is why in Dublin we have the second highest commercial property rents in Europe. If that is not considered a bubble then we need to wake up. We have a serious problem here. That is why the IMF and Moody's have issued warnings. That is why the ministerial advisers and experts in the Department in the tax strategy papers have recommended that we should increase stamp duty on commercial property, which is not happening, because of what has happened with commercial property. There is a need to dampen down that type of investment. Everybody knows this. Some of the Government's backbenchers have complained that there is filibustering. I have spent a long time dealing with Finance Bills and the debate on the Finance Bill 2016 is the most thorough examination of certain aspects, particularly in terms of the funds and section 110s. Other areas have gone without the proper scrutiny in previous Finance Bills. Thankfully, we are all working on this Bill and are starting to reverse the position.

I ask the Minister to accept an amendment that we will table in the Seanad that will rephrase this amendment to state "at the earliest opportunity in which the data is available and every 12 months thereafter that the Minister will lay before the Houses of the Oireachtas the amount of revenue foregone as a result of this section of the Finance Bill".

How stands the amendment?

No, the Minister of State has made two interventions already. How stands the amendment?

If my amendment is accepted there will be no vote.

I am sorry, Minister of State, but I must go by the orders of the House and I do not have the discretion.

How stands the amendment?

I am waiting for a wink or nod from the Minister.

Perhaps the Minister of State could make his comment and then make a suggestion to the Minister.

There have been two notable reports into property-based tax incentives that led to decisions by previous Governments to eventually wind down many of the incentives. Today we are discussing property-based tax incentives but they are bundled up in a complex web of different types of fund structures. Some of the earlier amendments proposed an overall look at the system to compare the Irish regime with regimes in other countries and to compare the regime for fund structures here with those for other investors such as Irish investors be they institutional, corporate or non-body corporate. I believe an assessment should be carried out, including one on this particular issue. The Minister should and could give that commitment. His commitment does not need to be statutorily based.

Earlier we discussed how the mechanism for tabling amendments that call for a report is generally done to generate discussion. The Government should carry out an assessment on this important public policy issue, particularly given the structural changes that have taken place in the Irish property market. In the past significant reports on property-based tax incentives led to major changes in the direction of public policy. We should take a hard look at this whole area.

Standing Orders dictate that I put the question and I cannot allow more speakers to contribute. Does the Minister of State wish to make a very brief comment?

I will briefly speak directly to the amendment. We have, in other areas, tried to provide the information and make the compromises where we could without tying the legislation or the proposal in the amendment, as drafted, into the legislation, because the data would not be available. It is not that we have a principle of not wanting to provide the information when we can. It is just that the advice that we are being given in this area is that we will not have the information available and it will not be possible to prepare a report until 30 June 2018. Of course if the amendment is included in next year's Finance Bill it will be possible to accept it.

On Deputy McGrath's point, we agree it should be looked at - of course we do. It is a question of ensuring we have the information at the right time so when we look at it we can have a meaningful conversation around it. According to the advice we received, if we put this amendment into the legislation we would not be able to meet the requirement.

Just briefly-----

I cannot open up the discussion again.

There is a lot of information-----

Please Deputy, you have to obey the Chair. I will not let you shout down the Chair.

I am not shouting.

Please resume your seat. I am putting down my foot. I am not allowing the Deputy in - I cannot as I have to go with Standing Orders.

Given the Minister would not accept that we would rephrase the amendment in the Seanad and put it into this year's Finance Bill or just give a commitment, I have to push the amendment.

Amendment put:
The Dáil divided: Tá, 38; Staon, 31; Níl, 56.

  • Adams, Gerry.
  • Barry, Mick.
  • Boyd Barrett, Richard.
  • Brady, John.
  • Broughan, Thomas P.
  • Buckley, Pat.
  • Burton, Joan.
  • Collins, Joan.
  • Collins, Michael.
  • Coppinger, Ruth.
  • Crowe, Seán.
  • Cullinane, David.
  • Doherty, Pearse.
  • Ellis, Dessie.
  • Ferris, Martin.
  • Fitzmaurice, Michael.
  • Funchion, Kathleen.
  • Healy, Seamus.
  • Kenny, Gino.
  • Kenny, Martin.
  • McDonald, Mary Lou.
  • McGrath, Mattie.
  • Mitchell, Denise.
  • Munster, Imelda.
  • Murphy, Paul.
  • Nolan, Carol.
  • O'Brien, Jonathan.
  • O'Reilly, Louise.
  • O'Sullivan, Maureen.
  • Ó Broin, Eoin.
  • Ó Caoláin, Caoimhghín.
  • Ó Laoghaire, Donnchadh.
  • Ó Snodaigh, Aengus.
  • Pringle, Thomas.
  • Ryan, Brendan.
  • Ryan, Eamon.
  • Smith, Bríd.
  • Stanley, Brian.

Níl

  • Bailey, Maria.
  • Barrett, Seán.
  • Breen, Pat.
  • Brophy, Colm.
  • Burke, Peter.
  • Byrne, Catherine.
  • Canney, Seán.
  • Cannon, Ciarán.
  • Carey, Joe.
  • Corcoran Kennedy, Marcella.
  • Coveney, Simon.
  • Creed, Michael.
  • D'Arcy, Michael.
  • Daly, Jim.
  • Deasy, John.
  • Deering, Pat.
  • Doherty, Regina.
  • Donohoe, Paschal.
  • Doyle, Andrew.
  • Durkan, Bernard J.
  • English, Damien.
  • Farrell, Alan.
  • Fitzgerald, Frances.
  • Fitzpatrick, Peter.
  • Flanagan, Charles.
  • Griffin, Brendan.
  • Halligan, John.
  • Harris, Simon.
  • Heydon, Martin.
  • Humphreys, Heather.
  • Kehoe, Paul.
  • Kyne, Seán.
  • Lowry, Michael.
  • Madigan, Josepha.
  • McEntee, Helen.
  • McGrath, Finian.
  • McHugh, Joe.
  • McLoughlin, Tony.
  • Mitchell O'Connor, Mary.
  • Moran, Kevin Boxer.
  • Murphy, Dara.
  • Murphy, Eoghan.
  • Naughten, Denis.
  • Naughton, Hildegarde.
  • Neville, Tom.
  • Noonan, Michael.
  • O'Connell, Kate.
  • O'Donovan, Patrick.
  • O'Dowd, Fergus.
  • Phelan, John Paul.
  • Ring, Michael.
  • Rock, Noel.
  • Ross, Shane.
  • Stanton, David.
  • Varadkar, Leo.
  • Zappone, Katherine.

Staon

  • Aylward, Bobby.
  • Brassil, John.
  • Breathnach, Declan.
  • Browne, James.
  • Butler, Mary.
  • Cahill, Jackie.
  • Calleary, Dara.
  • Casey, Pat.
  • Chambers, Jack.
  • Chambers, Lisa.
  • Dooley, Timmy.
  • Haughey, Seán.
  • Healy-Rae, Danny.
  • Lahart, John.
  • Lawless, James.
  • Martin, Micheál.
  • McGrath, Michael.
  • McGuinness, John.
  • Moynihan, Aindrias.
  • Moynihan, Michael.
  • Murphy O'Mahony, Margaret.
  • Murphy, Eugene.
  • O'Brien, Darragh.
  • O'Callaghan, Jim.
  • O'Keeffe, Kevin.
  • O'Rourke, Frank.
  • Ó Cuív, Éamon.
  • Rabbitte, Anne.
  • Scanlon, Eamon.
  • Smith, Brendan.
  • Troy, Robert.
Tellers: Tá, Deputies Pearse Doherty and Aengus Ó Snodaigh; Níl, Deputies Regina Doherty and Tony McLoughlin.
Amendment declared lost.
Amendment No. 81 not moved.

Amendments Nos. 82 to 84, inclusive, are related and will be discussed together.

I move amendment No. 82:

In page 63, line 15, after “subsection (4)” to insert “and that is published and made available for public viewing by the Revenue Commissioners”.

This series of amendments seeks to make country by country reporting requirements for multinationals or corporations operating in multiple jurisdictions-----

I ask Deputies to show some respect when leaving the Chamber.

I thank the Leas-Cheann Comhairle. It is very difficult at this stage to string two or three coherent sentences together, but I will do my best.

I thank Deputy Durkan. I appreciate the vote of confidence. It might lead him to support the amendment.

I am glad the Government has agreed to introduce country by country reporting. Those who are fighting for tax reform in the area of corporate tax to try to clamp down on aggressive tax avoidance strategies of multinationals have long argued that country by country reporting is key to beginning to close these aggressive tax avoidance practices. However, they have always said that that reporting, which the Government has accepted has to happen, should be public, and it seems the Government is not willing to accept this and it is what our amendment is trying to press.

We have spent the last few hours discussing just how complicated the tax avoidance strategies in a number of areas are, in property in terms of speculators and people investing in property, and that is equally true of the tax avoidance strategies of these multinationals. They have very well paid tax specialists who are working all the time to figure out ways to minimise their tax bill. Therefore, simply having reports given to Revenue but which cannot be viewed by the public and by Members is not good enough. These things need to be available for the public to see and for Deputies to see, analyse and judge as to whether these corporations are properly tax compliant and paying the taxes they should on their enormous profits. I see no reason why the Minister would not accept the amendment. People like Richard Murphy who has spearheaded the campaign for country by country reporting, which has finally been taken on board by governments, has always said it has to be public and that is true.

The Minister should accept this. It would make the transparency we need to have tax justice and tax reform a reality. I commend the amendment and hope the Minister will consider accepting it.

I add my support to the amendment. We in Sinn Féin have been calling for this in terms of country by country reporting, which is to be welcomed, for many years. It is very much international measures which have forced the Government to move in this direction. The important part is that it would be public as stated by the previous speaker. Country by country reporting has to be public.

There is a wider issue regarding transparency. We need a public register of beneficial owners. We encounter that need as we deal with many other matters. Work has been done in respect of tax transparency and that to be welcomed. Although, as I said, country-by-country reporting is a positive step, the Government has not covered itself in glory in respect of these matters. It has been dragged into the era of tax transparency. Acceptance of the amendment would be positive.

Last year, when we proposed a similar amendment, the then Minister of State at the Department of Finance, Deputy Harris, said he had an open mind on public country-by-country reporting. Since then, however, the Government - Fine Gael supported by Fianna Fáil - took the unusual step of waving the yellow flag regarding an EU proposal to make some information relating to very large corporations public. It has always been the case that protecting the large multinationals and their tax secrecy has become a matter of national pride. It is time for the Oireachtas to make it very clear that we support tax transparency. This measure has been called for by people who are not radicals but who believe in tax transparency and in ensuring companies cannot abuse the system. The best way to so it is by means of a public register. Amendment No. 82 does exactly that, and we support it.

This is part of the process into which Ireland entered with the OECD. It is important that we meet the standards set by the OECD and that we encourage the other OECD member states, which include many more countries than are in the EU, to produce transnational reports on companies that operate across a number of jurisdictions. It is important that such information be published. In some cases, when the structure is first being established, it may take time. However, it should not take too much time to make the information available. The publication of such information would make for a much better decision-making framework.

The effect of the proposed amendments would be to require Revenue to publish the country-by-country reports filed under section 891H of the Tax Consolidation Act 1997. Section 23 of the Bill simply makes minor amendments to country-by-country reporting as introduced last year. These minor amendments are to ensure our legislation is fully consistent with the EU directive agreed after we had already legislated for country-by-country reporting. Under the internationally agreed approach for country-by-country reporting, the reports filed and shared with tax authorities must remain confidential. The OECD and the other countries involved in agreeing the BEPS reports have also been clear on this. If Revenue were to make these reports publicly available, other countries would be entitled to stop exchanging country-by-country reports with Ireland. This would result in much less information being made available to the Revenue Commissioners and dilute the significant benefit of this important BEPS measure.

The purpose of country-by-country reporting is to provide Revenue with the information necessary to make informed risk assessments. It will give a clear overview of the global activities of large corporate groups. This will enable Revenue to target audits and interventions by highlighting where there may be particular transfer pricing risks. Making the reports public would not improve Revenue's ability to carry out this work. Instead, it would be much more difficult for Revenue to do its work because it would not receive the country-by-country reports filed with other tax authorities. Separately to the OECD's proposals for country-by-country reporting to tax authorities, which section 891H relates to, the European Commission has published a proposal for public country-by-country reporting. This would require companies - not the Revenue Commissioners - to make information about operations, activities and profits in each country in which they operate publicly available. This proposal is being discussed by member states and is actively being dealt with by my colleague, the Minister for Jobs, Enterprise and Innovation. Ireland is actively in engaging in this work.

Amendment No. 83 would impose an obligation on Revenue to make regulations under the section rather than giving it authority to make regulations. Revenue has already made regulations under this section and they are in force. This amendment merely tweaks Revenue's power to ensure that minor changes required under the EU directive on country-by-country reporting can be made to the regulations. I am advised by the Revenue Commissioners that they intend to issue new regulations before the end of the year.

Amendment No. 84 proposes to remove Revenue's ability to make regulations protecting the confidentiality of the information. The amendment is related to amendment No. 109, which involves making the information public. As I have outlined, I do not support it. Preserving the confidentiality of the information is an integral part of the OECD agreement on country-by-country reporting. For these reasons, I am not minded to accept the amendments.

We want it to be a legal requirement that Revenue will provide the information and not that it may do so. We do not want it to be just at the discretion of Revenue. I do not see why Revenue needs discretion or flexibility in respect of this matter and I do not understand why there is a need for confidentiality. Our inability to ascertain where these multinationals are making their profits, and their ability to hide the fact, is at the heart of their ability to avoid vast amounts of tax, robbing the taxpayers of Ireland and their counterparts across Europe and the world of enormous amounts of money. Some estimates put the untaxed profits held by multinational corporations at approximately €2 trillion per year. Much of their ability to engage in this tax avoidance is based on their ability to mask where the profits are being made. We want it to be an absolute legal requirement that companies provide this information and that it be made available to the public. I do not buy the confidentiality argument. I do not see the justification for it. Transparency and the imperative for tax justice make it a necessity that we should get the information, that companies should be forced to provide it and that it should be made available for the public to scrutinise.

The point of what I read out is that country-by-country reporting arises from an OECD recommendation under its BEPS project. It was accepted internationally. Last year, country-by-country reporting was enshrined in law in accordance with our international agreement with all other OECD members. Part of the international agreement is that while there would be an exchange of information between revenue authorities, such information would remain confidential. If we were to decide to publish unilaterally, we would be in breach of the international agreement and other countries could legitimately refuse to exchange confidential tax information with the Irish tax authorities.

There is another forum for debate then, as I referred to in the answer, which is the European Commission. The Minister for Jobs, Enterprise and Innovation is involved with the negotiations with it and there is a proposal from the Commission that an obligation would be put on companies to publish the information. We will see where that lands. To do what the Deputy requests in his amendments would be a reversal of policy. Rather than giving us additional information about the global activities of multinationals, it would reduce the information the Revenue Commissioners get because we would be in breach of the OECD agreement to keep the information exchange confidential. That is the point.

In the interests of not keeping us here all night I will take the Minister's response and consider it so I will not press this for now. Some mechanism must be found to force these companies to cough up the information. If there is a real problem in us not getting the information as the Minister suggests - I will think about what he has said - it is a reasonable point. We need to take a lead and not just be dragged, as we have to date, on these matters. We must insist that it does happen and the European Union proposal that is being discussed has power so these companies are forced to provide the information. I do not see why we cannot do it unilaterally, albeit not via the Revenue Commissioners as suggested in the amendment. We could put a compulsion on those companies to provide those country-by-country reports.

I cannot take any more speakers. How stands the amendment?

I can explain Standing Orders. Everybody is allowed to contribute once and a second contribution is limited to two minutes. The Minister may come in after that and the only person who may come in a third time is the mover of the amendment.

I have only spoken once.

The Deputy did not indicate during the second round of contributions. Those were the two-minute slots and the Deputy did not indicate a wish to speak at that time. If the Deputy wishes to speak he should indicate to the Chair and I will give him the opportunity to do so.

Amendment, by leave, withdrawn.

I move amendment No. 83:

In page 64, line 16, to delete "may" and substitute "will"

Amendments Nos. 82 to 84, inclusive, were discussed together.

Amendment No. 83 is different from the previous amendment.

We have discussed the three of them together.

Amendment put and declared lost.

I move amendment No. 84:

In page 65, to delete lines 8 to 10.

Amendment put and declared lost.
Amendment No. 85 not moved.

Amendment No. 86 has been discussed with amendment No. 26.

I move amendment No. 86:

In page 67, between lines 21 and 22, to insert the following:

“Report on relief from corporation tax for losses

25. The Minister shall within one month of the passing of this Act prepare and lay before Dáil Éireann a report on the offset of losses, carried forward from preceding accounting periods, for which relief is available in succeeding accounting periods, setting out the costs of tax foregone and the merits of any alternative to the current treatment of those losses.

I would like to hear from the Minister for Finance. He indicated earlier that he was prepared to publish information in the context of amendment No. 26 and this amendment. The issue is there are very significant tax losses built up in the Irish tax system relating to the banking and finance sector. With construction it is approximately €10.4 billion and in finance and insurance activities, it is approximately €119 billion. I would really like to hear-----

I cannot open discussion on the matter.

I am just stating a case. I am not really discussing it. The Minister has had some time since our earlier discussion and I would like him to set out what he is prepared to do in making a report on the issue. It is an important public policy matter.

The Deputy will appreciate it has already been discussed. I just have to put the question.

I gave the commitment the Deputy is requesting when we discussed it with amendment No. 26.

I just wanted to clarify the issue as the two amendments are slightly different. What is the nature of the Minister's commitment?

The nature of the commitment is I will give Deputies a full briefing note on the issues raised by a number of colleagues when we discussed amendment No. 26.

So we will get a report.

Amendment, by leave, withdrawn.
Amendment No. 87 not moved.

I move amendment No. 88:

In page 67, between lines 21 and 22, to insert the following:

“25. The Minister for Finance is to order a study to be carried out on methods to increase the corporation tax take from big business, including by doubling the rate of corporation tax for big business to 25 per cent and abolishing corporation tax breaks and is to report to the Dáil within six months of the enactment of this Act on the findings of this study.".

This relates to the tax that dares not speak its name unless it is going downwards; it is the question of corporation tax. The Minister, Deputy Noonan, has indicated that the rate has never been and never will be up for discussion. In other words, corporation tax is beyond the realms of democracy and debate in this House and this country. We fundamentally reject that. It is not in order for us to put forward proposals to increase the rate of corporation tax or eliminate loopholes and so on. This proposal is for a study to be carried out on methods to increase the corporate tax take from big business, including by doubling the rate of corporation tax for big business to 25% and abolishing corporation tax breaks. The report would come before the Dáil within six months.

There is much context to this but the first example is the European Commission ruling about Apple's unpaid €13 billion in tax with substantial tax to be added. This demonstrates quite decisively what the Anti-Austerity Alliance, People Before Profit and the left have argued, which is that Ireland functions as a tax haven for big business and the wealthy, and the losers in this are working people in this country and all across the world. The Government and Fianna Fáil may not like to hear about the reality but Apple is only the tip of the iceberg. More cases will be taken by the European Commission in this respect. We know Google paid a corporate tax rate of 0.14% between 2005 and 2011 and Starbucks paid a grand total of €45 last year. That is €45 and not €45,000 or €45 million. We know vulture funds feasting on the carcasses of a property crash pay €250 in tax on billions of euro in assets.

That is it and Ireland is a corporate tax haven. In the context of the debate on Apple, this was sold to people as being very important because foreign direct investment, according to the Minister, Deputy Noonan, is the seed potato of economic development. It is 60 years since these seed potatoes of attracting foreign direct investment through low corporation tax were first sold to people as a temporary measure to give the Irish economy a leg-up after years of colonial underdevelopment. That has not worked and Ireland still lacks an indigenous industrial base. Even at the height of the boom, indigenous manufacturing employment was only half of the EU 15 average, productivity in Irish-owned firms is low and a few multinationals account for the vast majority of supposedly Irish research and development investment, which still remains lower than the EU average. That is linked to the low multiplier effect of multinational corporations in our economy. They buy few inputs in Ireland and they horde or repatriate much of their profit. Apple is a clear case in point as many of Apple's divisions are headquartered here but the $200 billion or so of retained profits are not invested here.

We know multinationals offer fewer direct economic benefits and between 2000 and 2015 there was a net increase of only 21,500 full-time multinational jobs, equating to approximately 1,300 per year. It is also estimated that half of Irish service exports are fake in the sense that most or all of the declared activity really happened somewhere else with a higher rate of corporate taxation. This is becoming a global story. I referenced earlier the more than 60% of people attending the Web Summit who believe Ireland is a corporate tax haven.

In 2010, The New York Times estimated that almost a quarter of Irish GDP came from ghost multinational corporations declaring profits here to minimise their tax bills. If one looks at the list of the top ten Irish companies, one will see that three of them are multinationals redomiciled here as part of a tax inversion. It took the Apple case and the leprechaun economics incident, when it was suggested that we had a 26% GDP growth rate, to bring attention to this. The reality that 80% of corporation tax in this country is paid by multinationals can be explained by the fact that such companies are funnelling huge amounts of profits here to avoid paying as much tax as possible. The third biggest Irish company, Eaton Corporation, declared profits of €19 million per Irish worker last year. Irish workers are very productive and create lots of profit for their employers, but this is clear evidence of the use of Ireland as a tax haven.

The brutal point that needs to be made is that this is finished as a strategy. It is clear from the international picture - the Apple case, the suggested 26% growth rate, the Brexit vote, the election of Trump and recent events in Hungary - that the space for the Irish establishment to pursue its strategy of facilitating the exploitation of Irish workers and resources and the non-payment of tax by European and US corporations is closing quickly. Such corporations are the only winners from tax competition, which is a disaster from the point of view of ordinary people. Ireland has been a driving force in the race to the bottom in terms of corporation tax. As a consequence of the reduction in average corporation tax rates across the OECD from 49% in 1981 to 32% in 2012, vital public services such as those relating to health and education have been starved of resources. The impact is even worse in developing countries. The winners of tax competition are those who avoid paying taxes. The losers are the workers and public services in this country and around the world.

We believe it is time to call a halt to the policy of low corporate taxation in this country and elsewhere. In co-operation with other countries, this country should reject the race to the bottom and say that corporations should be forced to pay an increased rate of tax. The Department of Finance has refused for the first time to officially cost our request for increases in corporation tax. It has done this in previous years by setting out how much would be raised through such a move. That is one of the reasons I am raising this question. The Anti-Austerity Alliance proposed in its alternative budget statement that the rate of corporation tax should be doubled for profits in excess of €800,000. In other words, a new marginal corporate tax rate of 25%, or twice the current rate, should apply in the same way that PAYE workers pay marginal rates of tax that increase as income goes upwards. Obviously, the corporation tax rate would still be lower than the highest rate of tax paid by PAYE workers. We estimate that this would raise at least €3.5 billion. That seems to us to be quite a conservative estimate because the reality is that corporations in this country do not pay 12.5%. Many companies pay 0%. The average is probably between 6% and 8%. We receive approximately €600 million in additional revenue for every 1% increase in the effective rate.

We are calling time on the corporate tax haven strategy. We are saying that corporation tax should be increased. We reject the idea that discussing such an increase should be a taboo in Irish politics. We have set out our ideas for how the additional resources that would accrue from such a change could be used to invest in public services and to pursue a real socialist industrial policy of sustainable public investment that can create sustainable economic and environmental growth as part of the necessary radical transformation to a socialist economy of public ownership of our key resources.

We want to take this sacred cow out of Irish politics. The suffocating consensus on the question of this country's 12.5% rate of corporation tax has dominated the Irish political landscape to the extent that we cannot talk about touching it. It seems that we cannot possibly dream of increasing corporate taxes. I suggest that this terrible consensus has played a key role in spearheading the race to the bottom throughout Europe and across the globe regarding the amount of tax paid by super-wealthy corporations. I would add to the points made by Deputy Paul Murphy by arguing that the focus on low corporation tax rates is the single greatest contributory factor to global financial instability. The less tax these corporations pay, the more wealth is concentrated in the hands of a tiny number of entities that move their profits at a whim to places where they think they will pay the least amount of tax or make the biggest return on investing their money. The fact that corporations control so much money is making for a chronically unstable global economy. They literally hold governments hostage. They really hold us hostage. We have encouraged and facilitated that. In fact, we spearheaded the drive towards lower corporation tax rates and our lead has been followed by other countries.

I would like to add to the figures mentioned by Deputy Paul Murphy regarding our role in the race to the bottom. The average rate of corporation tax applied across Europe in 2004 was 27.2%. That figure has fallen to 18.3%. We have played a key role in encouraging other jurisdictions to adopt low-tax policies. Ireland has been the reference point for other countries when they have been deciding to cut their corporation tax rates. The cumulative effect of all of this has been to rob citizens across Europe and the world. It has even been a reference point for Mr. Trump in his race to reduce corporation tax in the United States. We have inspired him to do this. Any benefit we may think we have got from having a low corporation tax rate over a period of time is going to come to an end, even in its own terms, as others try to overtake us in the race to the bottom. Regardless of what one might have thought about this country's strategy previously, it is coming to an end. We are saying it is time to bring it to a halt. We should impose a proper tax rate on these corporations while we can and get some money back while it is possible to do so. We should then use that money to invest in reconfiguring our entire economy and developing a proper and sustainable industrial base that will not be hostage to the whims and fluctuations of the global market and the giant multinationals.

I would like to make a point about the effective rate, to which I referred earlier. The Government keeps trying to maintain that our nominal rate of 12.5% or something close to it is the actual rate that is applied to corporate profits, but that is simply not true. The Government is telling fibs to the Irish public and this House when it restates that case. As I said earlier, in 2014 total gross pre-tax profits were €95 billion and other income was an additional €8 billion. This gave us a grand total of €103 billion in pre-tax profits, but just €4.9 billion was paid in tax. This equates to an effective rate of 4.75%.

Even if we imposed the 12.5% rate on pre-tax gross profits, we would get €9.2 billion or an additional €4 billion per year. Imagine the difference that would make and how much extra money we would have for the housing programme we need, the chronically underfunded health service, our education system and all the public services and infrastructure deficits that we have. That €4 billion would make a world of difference to the lives of our citizens and the health and sustainability of our economy.

It is a matter of urgency, if the economy is to be sustained for the citizens in years ahead, for us to move in a radically new and different direction in terms of corporate tax. That is the thinking and logic behind the amendment.

The 12.5% rate of corporation tax is the cornerstone of our corporate tax policy. It has been a key driver of inward investment since its introduction in the late 1990s. A number of studies over the past few years have proved how important the 12.5% rate is to the Irish economy. In 2014, the Department of Finance published an economic impact assessment of Ireland’s corporation tax policy. This contained the results of extensive research carried out and commissioned by the Department of Finance, which sought to quantify the effect of corporation tax policy on the Irish economy. As part of this project, the Economic and Social Research Institute, ESRI, was commissioned to carry out a study into the impact the corporation tax rate has on the decision of firms to invest in Ireland. This independent research found that if the rate had been higher over the period of the sample, the number of new foreign investments into Ireland would have been lower.

A further report by the ESRI published earlier this year again outlined the importance of the 12.5% rate in attracting inward investment. The paper demonstrated that among all European Union countries, Ireland would be the most sensitive to a change in the corporate tax rate in its ability to secure inward investment. An increase in Ireland’s statutory corporate tax rate of 1% would be associated with a reduction in its probability of being chosen as a location for inward investment projects from non-EU countries by 4.6%. The Deputy could do the maths on what the reduction would be if the 12.5% rate was to be doubled to 25%.

I remind the Deputies that although we have a low rate on trading income, a higher 25% rate already applies in respect of investment, rental and other non-trading profits and profits from certain petroleum, mining or land dealing activities. Furthermore, a rate of 33% is applied to the chargeable gains of companies. As opposed to other countries, in Ireland we have a transparent approach. Other countries may have a high headline rate of corporation tax but this is usually supplemented by a high number of tax reliefs. Our rate may be low but it applies to a broad base and therefore the overall level of corporation tax paid to the Exchequer is in line with OECD averages. Given the independent evidence that has proved the importance of the 12.5% rate to the Irish economy and the ongoing commitment to the 12.5% rate stated in the programme for a partnership Government, I do not accept the proposed amendment or the arguments advanced in support of them.

To be honest, I do not accept the connection of corporation tax with growth and jobs, etc., in the very clear way that the Minister would like to put it forward. Mr. Michael Burke, an economist in Britain who writes often enough about Ireland, did an amount of research on this, including the relationship between corporation tax rates and growth. He concluded there is no effective relationship in that regard and I read another paper with the same argument.

If there is no corporation tax and there must be public services, what will be the consequence? It is the imposition of other direct and indirect taxes on workers, which also have an impact on consumption. The Government and the right wing would like to portray a simple scenario where if taxes are cut, more growth will be created and we might even end up with a bigger tax take at the end of the day. It relates to the Laffer curve. Instead, there is a race to the bottom with the likes of corporation tax. Hungary is aiming for a rate of 9%, US President-elect will go for 15% and the British Prime Minister will go with whatever she wants. What will we do here if the North has a rate of less than 12.5%? It is a race to nowhere from the point of view of ordinary people.

The Government gets itself into trouble with the gymnastics involved. I listened to Pat Kenny on the radio, whom I would broadly view as being part of the establishment, when he interviewed the US ambassador on the day Mr. Trump was elected. He asked if it was a real problem that Mr. Trump was talking about reducing the corporation tax rate to 15%. The ambassador replied it would only be a problem if Ireland was a tax haven and had low corporation tax rates as a main selling point. On the one hand the Government is trying to say we are not a corporate tax haven and we have other offerings but on the other hand it is a core part of the Government's strategy.

There is a notion of legitimate tax competition underpinning the Government's view. I ask the Minister and anybody who is open-minded on this to consider the following question. How is it that in the 1950s, 1960s and right up to the 1970s, we could afford the likes of social housing while in Britain they could afford the National Health Service? We had expansion of a public health system and we were able to invest in all sorts of areas of infrastructure to expand public services but now we cannot afford such things, apparently, as there is no money even to build the amount of social housing we could at that time. We do not have the money for infrastructure now but we had it then, when we were poorer.

The level of corporate taxation has dropped from approximately 50% then to negligible levels now and something gives when there is such competition and a race to the bottom. We go from where corporations pay 50% tax on profits to 4.7% on those profits now. As a result, we do not have the money for social housing, infrastructure, education and everything we need to sustain a decent society and a proper infrastructure for that society. That is the consequence of the race to the bottom that the Government has spearheaded and we want to move in the opposite direction.

If Deputy Boyd Barrett believes social services were better in the 1950s-----

That is the mistake of a young man as he did not live through it. There have been enormous advances in this country under several Governments in terms of health services, education and living standards of the people in both urban and rural Ireland. That is an absolute fact. I do not really have anything to add further to that.

The proof of the pudding is in the lack of an indigenous manufacturing and industrial base in this country. It is a failure. Brexit, Mr. Trump and a few international developments could come along and wipe out the entire strategy overnight. It is not a way to develop an economy in a sustainable way. Unfortunately, the chickens will come home to roost and I am not sure the Government has another plan. The left, at least, will be very clear in stating the alternative that exists.

Amendment put and declared lost.

I move amendment No. 89:

In page 67, between lines 23 and 24, to insert the following:

“25. The Minister for Finance is to report to the Dáil within six months of the enactment of this Act on the projected cost of property-related exemptions from Capital Gains Tax, including the Capital Gains Tax exemption for properties bought between 7 December 2011 and the end of 2014 and held for seven years and the new exemption introduced for IREFs holding property for 5 years introduced under this Act.”.

I will be very brief. This kind of issue has been debated a lot tonight. The amendment is asking for a report to the Dáil on the projected cost of property related exemptions from CGT, including the CGT exemption for properties bought between 7 December 2011 and the end of 2014 and held for seven years and the new exemption introduced in this Bill for IREFs holding property for five years. We believe there is a substantial amount of tax being legally avoided in this manner and will continue to be under the new proposals. That tax is overwhelmingly avoided by much better-off sections of our population. We want to see what the figures are and how much money is involved.

A capital gains tax relief on disposals of land or buildings acquired in the period commencing on 7 December 2011 and ending on 31 December 2013 was announced in budget 2013 and in section 64 of the Finance Act 2012. Section 44 of the Finance (No. 2) Act 2013 extended the period within which the land or buildings may be acquired for the purposes of this relief to 31 December 2014. If the property is held for the full seven years, the land or buildings will qualify for the full relief. Partial relief is available if the property is held for longer than seven years.`

I am advised by Revenue that it is not possible to estimate with any degree of accuracy the impact of the capital gains tax relief granted in respect of land and buildings, including commercial property, introduced in budget 2012 and extended in budget 2014. I am further advised by Revenue that, in view of the fact that the nature of the relief is time related and requires a minimum ownership period of seven years, which ownership period could not commence earlier than 7 December 2011, it will not be in a position to offer initial soundly based costings until the returns for the tax year of 2018 have been processed. More detailed costings would follow on from the processing of tax returns from 2019 onwards. There is therefore no basis at present on which to prepare a report on the cost of this relief.

With regard to Irish real estate funds, IREFs, the proposal ensures that any rental income or development profits earned by the IREF will be included in the calculation of the IREF's profits. Capital gains will also be included in the calculation of profits unless the asset is held for five years or more. The exemption from capital gains has been legislated for to encourage sustainable investment focused on the long-term holding and management of income-producing rental property. This will, in the longer term, lead to a more sustainable and secure property market for both investors and property tenants while generating regular and reliable tax revenues for the Exchequer from the taxation of the rental profits. Although any gain may be exempt where the property is held for more than five years, tax will still be payable on the rental income that is being generated. It should be noted that this exemption reflects the current position regarding capital gains tax, CGT, and funds and does not reduce the current tax burden on funds. Therefore, it does not give rise to an additional cost.

To ensure, however, that the IREFs cannot be used for tax planning, as I have noted, I am proposing a Report Stage amendment which removes from section 22 the ability of an investor who has influence or control over the IREF to receive a distribution of capital gains without the operation of the new 20% withholding tax. This proposed IREF is not a tax incentive for people investing in commercial property. All rental income and development profits earned by the IREF will be included in the calculation of the IREF’s profits. Where an IREF makes a distribution of these profits, non-resident investors will be subject to a withholding tax of 20%. The proposal has been drafted in a balanced way to ensure the Irish tax base is protected where Irish property transactions are taking place within collective investment vehicles while not damaging the commercial property market in the long term. The IREF provisions apply to accounting periods beginning on or after 1 January 2017. Therefore, as the Revenue Commissioners will not receive accounts for these funds until mid-2018, it would not be practicable to prepare the report in the timeframe requested. I cannot accept the proposed amendment. Of course, when the data is available, it will obviously be reported on and the kind of information the Deputy has requested will be provided in due course.

Amendment put and declared lost.

Amendment No. 90 has been ruled out of order.

Amendment No. 90 not moved.

I move amendment No. 91:

In page 69, between lines 9 and 10, to insert the following:

“Capital Gains Retirement Relief and Agricultural Relief for farmland with solar panels

30. The Principal Act is amended in section 664(1) by substituting the following for the definition of “farm land”:

“ ‘farm land’ means—

(a) land in the State wholly or mainly occupied for the purposes of husbandry and includes a building (other than a building or part of a building used as a dwelling) situated on the land and used for the purposes of farming that land, or

(b) land in the State on which solar panels are installed which is still mainly occupied for the purposes of husbandry and includes a building (other than a building or part of a building used as a dwelling) situated on the land and used for the purposes of farming that land;”.”.

This amendment relates to the use of farmland for solar power generation and the taxation implications of that. It relates to cases in which a farmer leases his land for the purpose of the installation of solar panels. This is more popular than one might think. This week, the Irish Examiner reported that Kerry County Council had received six applications in the past 12 months alone for solar farms, essentially for parts of farms to be used for solar power generation. The particular issue I raise relates to the application of agriculture tax relief, which comes, as the Minister knows, under the long-established provisions of the 90% relief that applies when a qualified farmer inherits a farm. There is a key test to be defined as a farmer, which is that the beneficiary's agricultural property must comprise at least 80% of the gross market value of that person's total property at a particular date.

The issue here is that, for the purposes of establishing whether a beneficiary satisfies the 80% test, Revenue takes the view that land on which solar panels are installed is not agricultural property. Therefore, depending on the amount of an individual's land that is actually occupied by solar panels, the use of agricultural land for a solar farm may result in the beneficiary's failure to meet that 80% test and therefore to qualify for agricultural relief. Mr. Jim Gannon, the CEO of the Sustainable Energy Authority of Ireland, pointed out in comments today that about 9% of our total energy currently comes from renewable sources, which we need to get up to 16% by 2020. Tax practitioners are now advising farmers to be very cautious in making their land available for solar panels because of the taxation implications, namely and principally, the capital acquisitions tax, CAT, implications of the possible non-application of agricultural relief. It is an emerging issue and one which is going to have to be addressed. I look forward to the Minister's comments on it.

Deputy McGrath’s amendment raises the issue of the tax treatment of the installation of solar panels on farmland. I will speak first to the detail of the proposed amendment and then to the wider issue. Deputy McGrath proposes changing the definition of “farm land” in section 664 of the Taxes Consolidation Act 1997. While his amendment as drafted refers to reliefs from capital gains tax and capital acquisitions tax, the amendment itself affects only a relief for certain income from the leasing of farm land. As such, the amendment is not likely to achieve the objective which I think Deputy McGrath had hoped for in terms of the treatment of the capital gains tax and capital acquisitions tax of solar panel installations on farmland.

The issue of how the installation of solar panels on farmland affects entitlement to various payments and reliefs from taxation has been raised with both my Department and the Department of Agriculture, Food and the Marine in recent times. Various interconnected issues are at play and all of these policy areas need to be considered in a systematic and coherent manner rather than being considered in isolation. The Government response to such policy issues needs to be consistent and complementary.

From a tax policy perspective it is important to ensure reliefs from taxation are implemented only after proper consideration and where their effect justifies any revenue forgone. Therefore, I intend that these various issues should be considered in a unified manner in co-operation with interested parties over the coming months with a view to changes, if any, being made next year. Given that the proposed amendment is not likely to achieve what I consider was intended by the Deputy and that there are wider policy issues to be considered, I believe this to be a more effective way in which to approach the matter.

For this reason, I do not propose to accept the amendment. However, I accept that this is a genuine issue and may be an issue of greater magnitude in a year or two or three years than it is now, and I am prepared to work with the Deputy to establish the full facts and come up with a solution in advance of next year's finance Bill.

I thank the Minister for his reply. It is acceptable to me. An amount of thought must go into it, given that there are several potential implications across the tax code if the use of land in this way is not deemed to be agricultural in nature. Those who are investing in this type of technology will argue that the land can still be made available for dual purpose, for example, an area covered by solar panels can be grazed by sheep. The issues are significant and have serious implications for farmers and we all buy into increasing the percentage of our energy that is provided by renewables. We have a long way to go, and at the current rate of progress we will not meet our targets. This is one area that offers a further potential way to increase renewable levels. I take what the Minister said in good faith, that he will engage with stakeholders to deal with all the issues in a unified manner.

Amendment, by leave, withdrawn.

Amendments Nos. 92 to 94, inclusive, are related and will be discussed together.

I move amendment No. 92:

In page 78, line 8, to delete “of Finance” and substitute “of the Finance”.

The amendments are minor technical changes to section 34, which deals with Revenue's powers regarding search warrants and substitute fuels and fuel fraud. The amendments improve the effectiveness of the section. On Committee Stage, the Minister of State, Deputy Eoghan Murphy, indicated my intention to bring the amendments forward on Report Stage.

Amendment agreed to.

I move amendment No. 93:

In page 78, line 29, to delete “purchased” and substitute “procured or purchased”.

Amendment agreed to.

I move amendment No. 94:

In page 78, to delete lines 35 to 39 and substitute the following:

“(5) Where the officer forms the opinion that the relevant product is a substitute fuel or additive that relevant product shall, in accordance with the provisions of Chapter 1 of Part 2 of the Finance Act 1999, be liable to mineral oil tax.”.”.

Amendment agreed to.

Amendments Nos. 95 to 97, inclusive, are out of order.

Amendments Nos. 95 to 97, inclusive, not moved.

I move amendment No 98:

In page 89, between lines 26 and 27, to insert the following:

“Value-Added Tax in respect of charities

45. The Minister shall, within 3 months of the passing of this Act, prepare and lay before Dáil Éireann a report on the introduction in 2017 of a capped Value-Added Tax compensation scheme for charities with reimbursement to commence in 2018.”.

This issue has been discussed in detail. The Minister established a working group on taxation and charities, which produced a very good report. Now is the time to signal that the Government is prepared to move on it. The issue relates to the VAT liability of the charitable sector. The most recent data, set out in the report of the working group under the Department of Finance, is that in 2010, total expenditure by Irish charities was approximately €1.7 billion and total VAT incurred was €77.4 million, or 4.5% of total expenditure. It is heartbreaking for many volunteers who spend their time fund-raising for charities that much of the money raised, especially for capital projects, returns to the Exchequer by way of VAT payments.

A number of models are in use elsewhere in Europe. The Danish model is probably one of the best. It caps the amount of VAT that can be repaid to charities under a VAT compensation scheme. The cap in Denmark is approximately €20 million. Nobody is suggesting it would start at that level in Ireland. The ground work has been done. The report is very good. We need a policy objective from the Government to introduce a VAT compensation scheme. The fundamental objective is that the money charities raise through fund-raising is spent for the purpose for which it is raised and does not end up in the arms of the Exchequer by way of a VAT liability. I hope the Minister signals that he is prepared to move on it.

I support the amendment. I raised it, along with many other Independent Members, during the programme for Government talks. It is a major issue in communities across the country and this is a very reasonable amendment, especially given the many spiralling costs including insurance. Insurance costs will be very detrimental to voluntary and community associations. The Minister told us he could have only a certain number of VAT rates. The hardship is awful. The Minister expects people who have already paid taxes on their incomes, whether they be self-employed, PAYE workers or social welfare recipients, to fund-raise and contribute, and then charities must pay VAT.

In my county, many ambulance services are unavailable and the Red Cross provides ambulances on a voluntary basis, expecting a contribution from the patient. The Red Cross fund-raises to buy these ambulances. It is farcical in the extreme that a community has to pay a third tax. They pay for the services that provide ambulances and then the patient is expected to make a contribution to the Red Cross. This must be dealt with. Ireland depends on voluntary services to a huge extent. Some move must be made to right the situation of VAT being paid on defibrillators and many other facilities. The Minister should consider the amendment in any way he can. It is long overdue.

I add our support for the amendment. We need to see substantial progress. Work has been done outside the Government on examining the issue. On Committee Stage, I said I was raising it when I was elected to the Seanad in 2007, and we are still raising it. This week I was contacted by a local Donegal charity which is doing great work transporting cancer patients to Galway. When the charity had to purchase a new vehicle, it paid VAT. Charitable fund-raising events take place in my parish and other parishes around the State for such organisations. It is not right that some of it is going into the coffers of the Exchequer. It could be argued that the State should be providing these services in the first place. It is bad enough that these charities are stepping into the breach; the State also charges them for it.

It is not an unlimited reimbursement. It is a measured and affordable step, and the Government must commission a report in time to allow the Committee on Budgetary Oversight to scrutinise it and make a recommendation before the 2018 budget and finance Bill. I hope the Government indicates that we are on this trajectory and that next year's finance Bill will have something substantial on the issue.

I thank the Deputy for moving the amendment, and I thank Deputies Mattie McGrath and Pearse Doherty for their contributions. Charitable organisations are, for the most part, outside the scope of VAT. This means they do not charge VAT on any goods or services they supply and they are not entitled to claim back VAT incurred on inputs related to their charitable business. In 2015, I agreed to the establishment of a working group, comprising representatives from the Department of Finance, the Revenue Commissioners and the Irish Charities Taxation Reform, ICTR, group, to examine options available to reduce the VAT burden of charities. The working group's report was provided to me at the end of 2015, in my deliberations ahead of the budget 2016. While the report acknowledges the burden imposed on charities by the inability to reclaim VAT on their inputs, I decided not to introduce any new tax relief in the area, given that I remain to be convinced that the use of a tax expenditure is the best approach in this case.

There are some 8,500 registered charities in this country and many are already in receipt of significant Government subvention through the Health Service Executive, HSE, Departments, the national lottery and others. The provision of funding in this way has the advantage of transparency and economic efficiency in that the Government can direct funding to those charities operating where the need is greatest and which can deliver the services most efficiently. Charities also benefit from favourable and costly concessions across all tax heads. However, as I mentioned in my recent budget day speech, I have asked my officials to engage again with the working group on charities with a view to reviewing the options available to provide compensation to charities as regards the burden of VAT, while being mindful of fiscal constraints. I understand my officials have already met with Charities Institute Ireland in this regard.

I have some supplementary information also. The Danish VAT compensation scheme is not the only model the group will consider, and I am reserving my position on this until I receive the report from the group that I have re-established. As I stated previously, there are some 8,500 registered charities operating in Ireland and the vast majority are worthy of our support. They range hugely in size and scope from international emergency and humanitarian relief agencies to local community groups. We need to ensure that Government continues to direct funding to those most deserving of our support.

The review group has already met and has agreed to look at how the Danish system might apply to Ireland, as well as looking again at alternatives such as providing VAT refund orders for particular activities or particular goods and services or even for specific sectors, as is the custom and practice in the United Kingdom. Other considerations of the group involve finding a means of granting VAT relief to charities that would not result in undue administrative burdens on the charities or the Revenue Commissioners.

In line with the commitments made on budget day, the work has advanced speedily and we will continue to drive it to a conclusion, and we will keep Deputies informed. In view of that, I ask Deputy McGrath to withdraw his amendment. I will bring forward a report on the issue and make it available to him on completion.

I thank the Minister for his reply. Listening to the reply it appears he has not made up his mind as to whether he believes this is the right direction in which to go. It is fair to say he has raised some concerns but he has a group that will now examine the option of introducing some form of VAT relief for charities in Ireland and I welcome that.

One point the Minister made was that many of the charities receive direct financial support from the State, which I acknowledge, but it is possible to design a scheme whereby the VAT rebate does not occur in respect of expenditure from the money they receive from the State and that the VAT rebate relates to the expenditure on the back of fundraising efforts and non-State sources of funding. That can be done. It is done elsewhere.

I respect what the Minister said. I will not press the amendment. I look forward to that work being advanced and I hope he will keep all sides of the House informed as to the progression of this issue because it seems there is broad consensus in the House that there should be some relief for the charitable sector in regard to its VAT liability.

I would like to do something but I am still open minded about what the best approach might be.

I withdraw the amendment.

Amendment, by leave, withdrawn.

I move amendment No. 99:

In page 91, line 33, to delete “1 January 2017” and substitute “1 January 2018”.

This amendment relates to the proposed amendment to the flat-rate scheme for unregistered farmers, which could result in a restriction in the flat-rate addition in some circumstances. The issue, as I understand it, has particular relevance to the poultry sector, which is very concentrated in geographic terms, particularly around the Border counties. It makes an important economic contribution to that part of the island in terms of employment, investment and so on. I would imagine that the issue here, identified by Revenue, is that the flat-rate addition is resulting in more VAT being refunded than is being incurred by the farmers concerned. The Minister might clarify if that is the thrust of where this is coming from but I am hearing from our Deputies in areas that are affected, and I am sure he is hearing it from his parliamentary party colleagues, that if this goes through as presently constructed, it will have a devastating and immediate effect on that sector. We dealt with this on Committee Stage and my understanding is that nothing happens automatically on 1 January 2017, that there may be a Revenue review into a certain sector and that if there was to be any change to the flat-rate addition for farmers or a particular sector, that would require a statutory instrument by way of secondary legislation. The Minister might clarify those issues but the amendment is proposing a deferral for one year to allow the sector to restructure its affairs and reorganise itself. I look forward to his response.

I would like to clarify that this legislation is an enabling provision only. It provides me, from 1 January 2017, with the power to exclude a particular agricultural sector from the farmers’ flat-rate scheme by way of a ministerial order. It does not exclude any sector from the flat-rate scheme from 1 January 2017; it merely gives me the power to make an order for any exclusion to apply. No agricultural sector will be excluded from the farmers’ flat-rate scheme on 1 January 2017. Before that can happen, the Revenue Commissioners must carry out a review of the sector and they will consider the business structures or models in place and the relationships between the parties involved. If they feel that the application of the flat-rate addition in this sector has resulted in and will continue to lead to over-compensation of VAT to those farmers, they will contact the persons involved and advise them accordingly. If those persons refuse to change the models or structures that give rise to the over-compensation of the flat-rate addition, a report will be forwarded to the Minister for Finance with a recommendation that the flat-rate scheme be withdrawn from the particular sector. In other words, the industry will have an opportunity to restructure its operations to allow it to remain within the scheme.

Any sector where such structures and arrangements have evolved should unwind them now if they wish to continue to operate under the flat-rate scheme. They will have adequate time between now and the completion of any such review to do so. Revenue has indicated to me that it would expect to commence any reviews that might be warranted from the start of the second quarter of 2017. I would urge any sector where there are issues of this nature to start the process of unwinding with immediate effect and to advise Revenue of its plans.

There are indications about the precise nature of the issue. There are indications that certain structures or models have emerged in some sectors which, through a combination of normal VAT deductibility rules and the flat-rate scheme, result in a much higher level of flat-rate addition payments and VAT recovery in the sector than would otherwise be available. While VAT should not be a cost to business, simplification schemes should not result in businesses being over-compensated. Where there is over-compensation of flat-rate farmers and certain sectors for VAT borne on their input costs, this would have implications for VAT neutrality and possible competitiveness within the sector and within the agricultural industry generally.

Deputy McGrath and a number of colleagues have asked that time be provided. There is no Deputy in favour of tax avoidance or tax evasion. The request has been for time. In summary, the position is that the legislation enables me to issue a directive in due course but I can only do so after the advice of the Revenue Commissioners, and they can only advise me after a review. They will not commence any review until the second quarter of 2017. When the report comes back to me, I would not expect to be issuing any order until later in the year, and certainly not rushing it.

My preferred outcome would be that the particular sector involved would move now to change its structure so that we would not be giving back more VAT than we collect because that is what it comes down to.

We dealt with this in detail on Committee Stage. The Minister was unable to be there but the Minister of State stepped in for him. The Minister will know that I welcomed the provision on Second Stage because we were conscious of the Commission's view. It is appropriate that we, in this House, take the relevant actions instead of others forcing our hand to do so.

The Minister spoke about a scheme, regardless of where it is. My track record speaks for itself when it comes to schemes involved in tax avoidance or tax evasion. He also said that if there are scenarios, then we should unwind them. The problem is Revenue has given all these schemes a clean bill of health until now. Why would somebody unwind something that Revenue has said is completely legitimate until now? If Revenue decides to carry out a review and believes a sector has been over-compensated, I presume at that stage, once the sector has been informed that Revenue holds a different view subject to a review, it will take action.

The Minister mentioned that Revenue would allow the sector sufficient time to reorganise itself after a review had been completed. Will he elaborate on that? It may not just be a case of unwinding mechanisms, which is at the core of this. As the Minister mentioned, dismantling a type of model may be easy enough but the difficulty is if the model confers a financial benefit on the sector. If we dismantle it, we take away the financial benefit. Will the sector be sustainable afterwards?

The Minister's earlier contribution suggested that a review would be carried out in the second quarter of 2017 and there will be engagement with the sector to give it ample time to adjust. Therefore, I presume the Minister will not consider orders until 2018, if an order is required. I would like him to make it clear whether sustainability of the sector will be a factor in this. We are very aware that some of this is heavily concentrated in Border communities and that Brexit will have an impact. There is a need for us to support the agricultural sector while at the same time ensuring no additional benefit is conferred on it by the tax code, which was never intended. It is time for this but it needs to be a bit clearer in terms of when Revenue will complete its review and the associated timeframe. The clock will start ticking when a particular sector is first told, despite what has been said beforehand, that it needs to change practices or models engaged in heretofore.

I have not heard a suggestion of tax evasion, deliberate tax avoidance, falsified returns or anything like that. What is at issue here is the operation of a system and how Revenue has identified a flaw in the system that resulted in an over-compensation of VAT, particularly for one sector. The Minister has outlined a process that will be provided for in the legislation. He has given some comfort that there will be enough time to tease out the issue properly. I will not withdraw my amendment until he responds to the issue raised by Deputy Doherty. The question of the viability and overall sustainability of the sector is not within the competence of Revenue. The Revenue Commissioners are charged with administering the tax code. I ask the Minister to address the point made about viability because serious issues have arisen from this matter. No one in my party can stand over a situation where more VAT is returned than is incurred in the first place. This debate allows us to tease out all the issues and ensure this matter is dealt with in the proper way.

What I am proposing in this particular section is as a result of a submission from the Revenue Commissioners that there were practices which, from the Revenue point of view, needed to be stopped because of an application of the flat-rate rebate of VAT, together with other practices in one sector that were no longer acceptable. There seems to be the suggestion also that not every business in the sector was involved in these operations. There would be a competitive issue in respect of those which were involved and those which were not. So far it is one agricultural sector that I have been advised about.

What I propose to do is to ask the Deputies to give me the enabling section. As I said, the process is that Revenue will not start conducting a review until the second quarter and then it will have to report to me. I do not have to act on its report within any particular timeline. I think it is fair to say that since there is no specific time in which the Minister for Finance must decide on restrictions to the flat-rate scheme, the Minister for Finance will have the ability to delay signing an order to restrict the flat-rate addition, if he or she believes that the affected agricultural sector is arranging its business structures, contractual arrangements or models to provide that no systemic excess of flat-rate additional payments over VAT on inputs will occur. To put that in simple English, I will give the time necessary for the sector to make the arrangements necessary to end the practice. We will take into account any evidence that is provided as to the effect of that on competitiveness. Since there are businesses, as I understand it, in the sector which are not involved in these practices, and if they are competitive, then it seems to me that the others can make themselves competitive.

I withdraw my amendment on the basis of the commitment given by the Minister.

Amendment, by leave, withdrawn.

Amendment No. 100 in the names of Deputies Paul Murphy and Richard Boyd Barrett has been ruled out of order. It did not arise from Committee proceedings.

Amendment No. 100 not moved.

I move amendment No. 101:

In page 93, between lines 32 and 33, to insert the following:

“Tax exemption for dwelling house

51. The Minister shall within one month of the passing of this Act prepare and lay before Dáil Éireann a report on the operation of section 86 of the Capital Acquisitions Tax Consolidation Act 2003 (which provides that gifts or inheritances of a dwelling house are in certain circumstances exempt from capital acquisitions tax), insofar as the section facilitates the purchase by parents of valuable homes for their children and the inter vivos transfer of those homes, as a means of avoiding inheritance tax.”.

My amendment refers to a development in respect of capital acquisitions tax. It requests that the Minister, within one month of the passing of the Finance Act, would lay before the Dáil a report on the operation of section 86 of the Capital Acquisitions Tax Consolidation Act 2003 where gifts or inheritance, in respect of dwelling houses are, in certain circumstances, exempt from capital acquisitions tax. The section is being used by high net worth people to pass valuable homes to their children and there have been a number of examples. I believe the Department has received those examples of houses worth €1 million or so being purchased for children and then using the provisions of section 86 to ensure that over a period of time a very valuable property is passed to the child and that the transfer is tax free.

In terms of our CAT structures, the Minister increased the threshold for capital acquisitions tax for a transfer from a parent to a child from €280,000 to €310,000 in this year's Act. The abuse of section 86 can only really be practised by high net worth individuals because only somebody who is very well off could afford to buy a child or a number of children very expensive houses, in some cases for values of up to around €1 million. Provided they meet the requirements of section 86, which they can arrange, they can pass the asset, which would otherwise incur capital acquisitions tax at the appropriate rate, tax-free to the child. The purpose of the report would be to set out the context and cost of what has happened here. This is something which in recent times some wealth managers and tax and legal advisers have advised high net worth individuals to utilise to pass assets to their children without any issues arising in terms of paying capital acquisitions tax. This is an important public policy issue. I would like the Minister to agree to have this report prepared and laid before the House. The Revenue Commissioners are well aware of the situation and I believe such a report could be compiled quickly.

I support the amendment. It is a very important one. On 16 October, I was contacted by a journalist and a concerned citizen about this loophole. I raised it with the Taoiseach on Leaders' Questions on 26 October. The Taoiseach told me to go away and draw up an amendment to put into the Finance Bill because at that stage it was not on the agenda. The Department of Finance decided last year it would not reform this rampantly abused exemption from inheritance tax despite knowing for close to a decade that it has been used for tax avoidance by the wealthy. A specific loophole in Revenue rules allows parents to gift valuable properties to sons and daughters without paying any tax so long as their child has lived in the property for three years and remains there for another six years. The loophole has in the past been used to transfer properties worth tens of millions of euro each year and has been aggressively used by tax accountants as a mechanism for their wealthiest clients to help shelter money. Documents obtained by the journalist under freedom of information revealed that both the Department of Finance and the Revenue Commissioners have known since at least 2007 that this scheme is subject to systematic abuse. It is in the public interest to know why this was brought in and when it was changed.

In 2007 there was an investigation done. It was obvious it was being used by wealthy families for that purpose but it had not been touched. An e-mail sent from a Department official to Revenue in April this year explained that there was a truncated timespan in which to consider it and so it would be better to postpone. As part of that discussion, a Department of Finance submission was also circulated which revealed Revenue had already carried out a review of the exemption and its abuse nine years ago. That briefing note was clear in its findings saying there was strong evidence it was being used by some wealthy individuals to avoid inheritance tax and it is probable that if section 86 relief is not curtailed it will become the vehicle of choice for inheritance tax and passing on wealth to the next generation. Figures for 2005 show that properties with a value in excess of €1 million had been inherited entirely tax-free on 19 occasions and given as gifts tax-free on four occasions. This is very serious. What shocked me when I was approached by the journalist and the concerned citizen was not that we had a tax loophole but that it had been known we have had a tax loophole since 2007. There is evidence there for it and it was not moved on until I raised it in the Dáil. Deputies Tommy Broughan and Joan Burton also raised it. The briefing note in 2005 mentioned two sisters who were both given tax-free gifts of houses, one of which was worth €2.25 million and the other cases involved houses worth up to €10 million. It stated the system in place now allowed parents to purchase a house for a child to live in and on the death of the parent the child inherits the house tax-free. It said "To all intents and purposes, this is a mechanism for the tax-free passing on of wealth". On occasion, children were renting out the house and living and working abroad. The exemption generally only benefits high net worth individuals as they are best positioned to purchase a second property outright for the children. The Revenue Commissioners said:

[Our] responsibility is for the fair and impartial administration of the tax legislation in place, and responsibility for tax policy rests with the Minister for Finance and the Government. Revenue has no further comment to make in this regard.

In response, the journalist approached the Department of Finance about this amendment and it said the investigation by Revenue had conservatively estimated the total loss to the Exchequer at almost €19 million over the period from 2011 to 2015. It stated that as the investigation had been carried out and a significant modification of the exemption had been included in the Finance Bill, a further historic report would not be warranted. It is warranted and the Minister has a duty to the people of this country to ensure it happens. The loophole could have been closed in 2014 when a detailed submission was prepared for the Minister warning him about the tax avoidance. However, at that point, for reasons not explained in the official records, the Minister opted not to act. The submission seeking change was bluntly marked "no" in the freedom of information material received, which I have seen. It has to be looked into. It is a very serious situation. Since 2007, the Department of Finance, Revenue and the Minister at the time knew about it. The Minister, Deputy Noonan, knew about it in 2014. We have to find out exactly what went on.

Deputy Burton has proposed that a report on the gifting, tax-free, of valuable properties from parents to their children within the conditions of the current dwelling house exemption provision be prepared and laid before the Dáil. Earlier this year Revenue carried out an investigation into the use of the exemption as a form of tax-efficient wealth transfer. Following on from the results of this investigation, I put forward an amendment on Committee Stage, introducing what is now section 51 of the Bill, which will put an end to such arrangements by restricting the exemption to inheritances of dwelling houses. Parents will no longer be able to gift properties to their children and qualify for the exemption unless that child is a dependent relative, as defined. Children can, however, continue to inherit the family home and avail of the dwelling house exemption. In the circumstances, there is nothing to be gained by producing a historical report.

We have accepted there is a loophole and, on the advice of Revenue, we are closing it in section 51 of the Bill, which was debated fully on Committee Stage and referenced on Report Stage today. The reason I did not act earlier was that I wanted to establish the facts. I asked Revenue to do a review and it did a review and found there was some abuse. For example, I have a note here which says 14 of the properties gifted to children over the five-year period exceeded €1 million in value. One donor gifted separate properties to four of his children which were valued at €1.7 million, €1 million, €800,000 and €700,000, respectively. This happened between 2011 and 2013. There was abuse. When the abuse was identified and quantified and the Revenue came up with a suggestion on how to deal with this, we moved to close the loophole. It is closed by section 51 of the Bill before us.

I welcome that this loophole will be closed and the way this has happened. In private discussions with the Department's officials, I suggested restricting it to the principal dwelling. With regard to Deputy Burton's amendment, there is value in putting a report together as we need to learn from the past. The information put on the record is new and it is worth quantifying just what has been lost to the Exchequer as a result of this. It has been reported that a whistleblower has made this information available but there is a concern that this has been known for quite a while.

The Minister provided an example where it was clear from the data that there was abuse, with one individual gifting high-value properties to children. Given the conditions that must be satisfied, is there not a case for the anti-avoidance provisions within the Taxes Consolidation Act to have kicked in to stop the abuse? There is no doubt that such a structure was put in place so that people would avoid inheritance tax being placed on their children in the transfer of an asset. Remarks have been made that people have been asleep at the wheel and this has been ongoing for quite a while. Should the appropriate provision of the Taxes Consolidation Act have been used? In such cases, it is clear that an elaborate structure was used by the individual in question at the very least to avoid paying tax to the Irish Exchequer. There is a very strong catch-all provision within the Taxes Consolidation Act that should be applied in such circumstances. Perhaps the Minister could enlighten us as to whether that happened in that or other cases.

The following amendment in my name, which was ruled out of order, was to propose the removal of section 86 of the Capital Acquisitions Tax Consolidation Act so I thank the Minister for the amendments he brought forward in section 51 of this Bill to remove this abuse and loophole that had developed. Frankly, it is a very simple and clear example of how people involved with tax avoidance comb through the Finance Acts to see such mechanisms. This example appeared quite straightforward, as parents could gift €310,000 to their children from a capital acquisitions perspective entirely tax-free. However, using this mechanism, people could buy very valuable houses for their children and over a period transfer them totally tax-free.

The Minister has confirmed some additional information. There has been much talk about the individual who bought four houses for €1 million each for each child. It is important that the Minister elaborates somewhat on the summary information read into the record of the House. That is empowering in cases where sometimes people feel it is open to everyone to abuse the tax system. The vast majority of people in this country pay their taxes and are compliant. They are citizens who support the paying of taxes to fund health and education services. It is important to send a message to them that if people abuse the system, we will change it to close that loophole. For that reason, I urge the Minister to publish the report.

My understanding is that this was introduced in 2000 and was very specific to carers supporting an elderly parent or whatever. It was only in such a case that a tax benefit would be accrued. It was opened around 2004 to amount to a gift to children. The Minister has read some recent information, with the investigation indicating that in 2005, properties with a value in excess of €1 million had been inherited entirely tax free on 19 occasions and given as gifts, tax free, on four occasions. The Minister was not in the Department at the time, as it would have been under a Fianna Fáil Minister. The change was made under that Minister for Finance, who must have been aware of what was going on. It remained that way until 2014, when there were again investigations into the process. The Minister has sat on it since 2014 and not just last year. There were whistleblowers and the Department and Revenue Commissioners explained what was going on, but nothing was done. It is really important we get this report done and the people see what went on and how it went on. We must ensure this does not happen again. It is not for me to question the political connections of parties like Fianna Fáil and Fine Gael and what they might do to support them, as that is another story. We must find out exactly what went on as it was outrageous.

The practice is that the Revenue Commissioners, where they believe there is tax evasion or avoidance, bring the information to the attention of the Department of Finance. In the annual finance Bill, we close the gaps. We do not do it immediately or with a special finance Bill but we do it as we are doing it tonight. I have no problem in asking the Revenue Commissioners to provide the budgetary committee with a report on the practice or malpractice. I will get them to do that and have it sent to the clerk of the budgetary committee, the finance committee or both. I will give Deputies the full information.

There are always schemes for avoiding or evading tax. When it comes to a point where the Revenue Commissioners have hard information, they ask for amendments in the law. They carried out a review earlier this year and told the Department of Finance about it. We were not quite ready when the Bill was published to have an amendment to deal with this but we did it by means of Committee Stage amendment. The gap has now been closed. There is a legitimate scheme whereby family homes may be transferred to adult children caring for their parents or a disabled family member. This was a very good provision but it allowed a gap for abuse and there is no doubt it occurred when houses were being purchased for children who were not in any kind of a caring or supportive role. We are not talking about young children when we speak about children. We are talking about adult members of families getting gifts of property from their parents. The transfer is from parents to adult children rather than the colloquial use of the term.

I understand the Minister has proposed that the information would be given to the budgetary oversight and finance committee in some form of published report.

I am saying I have limited information and the Department of Finance has limited information. The Revenue Commissioners have the full information that caused them to ask me to close this tax loophole. I will ask the Revenue Commissioners to prepare a report giving all the background information.

That is very satisfactory.

I am looking to formalise this and the route to get every Deputy informed is through one of the committees. As the Deputy raised it, we will give her a personal copy.

It is important for law-abiding taxpayers, the vast majority of people in the country, to hear that the Revenue Commissioners can and will close tax loopholes as they arise. It is a very important public issue. I am delighted the Minister has closed the loophole.

I look forward to getting the report. In these circumstances, I will not pursue the amendment.

Can I ask to have it sent to me as well?

The Deputy has had her second contribution.

Amendment, by leave, withdrawn.

Amendment No. 102, in the name of Deputy Joan Burton, and amendment No. 103, in the names of Deputies Paul Murphy and Richard Boyd Barrett, are out of order because they involve a potential charge on the Exchequer.

Amendments Nos. 102 and 103 not moved.

As amendments Nos. 104 to 111, inclusive, are related, they may be discussed together.

I move amendment No. 104:

In page 99, line 19, to delete "1 May 2017" and substitute "1 January 2017".

This amendment relates to section 54, which I strongly welcome. Essentially, I am proposing to change the arrangements that are proposed in the Bill in respect of certain people with offshore activities who are seeking to mitigate or avoid tax. I welcome the moves by the Minister and the Revenue Commissioners to address this situation. The Bill provides that from 1 May 2017, the penalty mitigation arrangements that are currently available to tax defaulters who make qualifying disclosures to Revenue will not apply firstly where the disclosure relates "directly or indirectly to offshore matters" - believe it or not, we have some offshore tax defaulters in this country - and secondly where the disclosure relates to any other tax default in circumstances in which the person has "before the date the disclosure is made" tax liabilities "that are known or become known" to Revenue and give rise to "a penalty".

I will explain the purpose of this amendment, which is in my name and that of Deputy Pearse Doherty. When an offshore tax defaulter comes to the attention of Revenue Commissioners, it is more than likely that the sums are very significant and potentially very large. Why should law-abiding and tax-abiding citizens and workers agree to give tax defaulters an extra five months, over and beyond the effective commencement of the Finance Act, to put their affairs in order? It is possible that tax defaulters will use that time to seek the advice of their current tax advisers or other tax advisers, perhaps with a view to moving their assets further away from the jurisdiction of the Revenue Commissioners and making new arrangements. For all we know, such arrangements could be effective in avoiding tax. I am proposing, therefore, to move the date on which this very welcome change in tax law, which will enormously strengthen the hand of the Revenue Commissioners in dealing with offshore tax defaulters, will come into effect from 1 May 2017 to 1 January 2017.

The purpose of the series of amendments in my name is identical to the purpose of the amendment that has just been proposed by Deputy Joan Burton. I tabled the same amendment on Committee Stage and we had a discussion on it then. I will summarise the argument for it. For many years, the finance code has allowed reduced penalties to be imposed on individuals who come forward voluntarily to say they have been involved in this illegal activity. The Government is saying that after 1 May 2017, they will no longer be able to benefit from reduced penalties. I suggest that such people have had their chance. They were given years to come forward. The inclusion of reduced penalties in a previous Finance Bill many years ago sent out a signal. The individuals who might benefit from the Minister's decision not to bring this to an end before 1 May 2017 have so far decided not to come forward with their hands up and come clean about the tax evasion they have been involved in. They have decided to ride it out. The idea that we would make a legislative provision that will allow this illegal activity to continue with reduced penalties until a date that is eight months away is not acceptable.

It is quite interesting that no date was provided for when we were talking about the flat-rate addition in the context of VAT. I took the Minister at his word when he said that time would be made available. The reality is that under the tax code, the flat-rate addition could be taken from the entire sector within a number of months of this legislation being passed and certainly before 1 May. At the same time, we are telling these tax defaulters that they have a number of months to come forward before the increased penalties will apply. This simple amendment proposes to bring the date forward to 1 January. I listened to the Government's arguments and considered changing the date to 1 March. The Minister mentioned that it would be difficult for these people to get their accountants to put their work together, but that is their problem. I think the State has been overly generous to individuals who have been involved in illegal activity and thereby denied the people of this State revenue that should have been paid many years ago. Therefore, I am continuing to propose that the relevant date should be 1 January, which is still a number of weeks away, and to recommend that the Government and the other parties in the Chamber should support this series of amendments.

Deputy Richard Boyd Barrett and I have tabled amendments Nos. 105, 107 and 109, which are essentially identical to the amendments in the names of Deputies Pearse Doherty and Joan Burton. The first thing that comes to mind when we are discussing this stuff is why on earth there were penalty mitigation arrangements for tax defaulters in the first place. Why should people who are engaged in not paying tax be given special deals, or the option of special deals, if they agree to pay tax? I welcome the Government's decision to change the situation by closing down that possibility, but I do not understand why it feels the need to give tax defaulters months to put their affairs in order. I suggest we should move as quickly as possible to get the tax that is owed. I do not understand why we would have any concern for their need to get their affairs in order, to talk to their accountants or to do anything else. When people owe tax moneys to the State and its people, we should simply get it as soon as possible.

Amendments No. 104 to 110, inclusive, relate to the commencement date for section 55 of the Bill. As I pointed out on Committee Stage, this measure is in no way a concession to those who have evaded tax through the use of offshore accounts or failed to disclose offshore assets or income sources. On the contrary, it is a significant withdrawal of an incentive - the opportunity to significantly mitigate penalties and avoid publication in the list of defaulters by making a voluntary disclosure to Revenue - that is currently available to all tax defaulters. Offshore defaulters will now face a harsher regime than those whose defaults occur exclusively within the State. From 1 May 2017, there will be no opportunity for offshore defaulters to make a voluntary disclosure of their defaults. This measure was put forward on the basis that, with new sources of information coming on stream, Revenue will have access to an unprecedented level of information about financial assets held around the world. As the disclosure regime is an incentive for taxpayers to disclose matters to Revenue, it makes little sense to offer incentives to tax defaulters to tell Revenue what it will already know from its sister tax administrations around the world.

While some automatic exchange of information data is already flowing to Revenue under the first directive on administrative co-operation and the US Foreign Account Tax Compliance Act, further rich seams of new information will not begin to flow under the OECD's common reporting standards and the second directive on administrative co-operation until September 2017. In that context, it makes sense to offer people a limited chance to disclose what will otherwise become known later next year. We have estimated a yield of €30 million from the measure in the budgetary arithmetic for 2017 as a result of the expected increase in the number of disclosures relating to offshore income and assets in the period before implementation.

If insufficient time is allowed for the initiative to work, then any change in the date could prove counterproductive.

Finally, I also emphasise that the six-month timeframe is in line with the length of time afforded to individuals to respond to other similar initiatives in the past. On balance, I would consider that the date of 1 May next should be left unchanged and, therefore, I do not propose to accept these amendments.

I am, in effect, following the advice from Revenue, which recommended 1 May as the date. I ask the House to accept Revenue's advice on this occasion.

I disagree with the Minister. The Finance Bill was published some weeks ago and there is still more than a month to go before 1 January. If someone who is an offshore tax defaulter has gone to such trouble, then it is almost certain that the moneys and assets - and the trade, if any - involved may well be significant. The Minister will be aware of that.

I welcome that Revenue is now utilising the new sources of information that have become available in the recent past. I also welcome that it has been so active, as this information has become available, in pursuing those who are really giving two fingers to taxpayers, even those on relatively low earnings, who pay both PRSI and USC. Such taxpayers deserve, as far as the Dáil is concerned, this particular mitigation of or reduction in penalties. In fact, those affected are being given an amnesty which has been extended for an extra four months instead of just the roughly two and a half months' notice that has been made available from the time of the budget and the publication of the Finance Bill. I do not see any good reason why the period should be extended. I am of the view that 1 January would be a perfectly operable date for Revenue to bring in the new arrangements.

The argument put forward by Revenue is that the date is intended as a clearly-signalled withdrawal of this opportunity from May next and will provide a powerful incentive to tax defaulters with offshore assets to come clean in the intervening period. Revenue believes, from experience, that a more entrenched cohort of defaulters will fail to come forward but that by getting a significant number of offshore defaulters out of the way in this period, it will then be able to focus its resources on the task of vigorously pursuing the cohort to which I refer. The Chairman of the Revenue Commissioners has expressed a serious concern that shortening the timeframe to a date earlier than May could prove counterproductive. Tax defaulters need time to assemble the necessary information to make proper disclosures and if they do not have the time to do so, they will have no incentive to do anything other than to wait and hope that Revenue will fail to find them for some reason. This, in turn, would mean a far less productive use of Revenue resources because it would be obliged to pursue every offshore case individually.

I advise the House of the considered view of the Chairman of the Revenue Commissioners. The date was not picked arbitrarily. It is the Revenue Commissioners' advice that 1 May is the most appropriate date.

Amendment put and declared lost.

I move amendment No. 105:

In page 99, line 19, to delete "May" and substitute "January".

Amendment put and declared lost.

I move amendment No. 106:

In page 99, line 35, to delete "1 May 2017" and substitute "1 January 2017".

Amendment put and declared lost.

I move amendment No. 107:

In page 99, line 35, to delete "May" and substitute "January".

Amendment put and declared lost.

I move amendment No. 108:

In page 100, line 9, to delete "1 May 2017" and substitute "1 January 2017".

Amendment put and declared lost.

I move amendment No. 109:

In page 100, line 9, to delete "May" and substitute "January".

Amendment put and declared lost.

I move amendment No. 110:

In page 100, line 19, to delete "1 May 2017" and substitute "1 January 2017".

Amendment put and declared lost.

I am sure all Members are interested in the number of amendments left. There are three to be dealt with. Amendment No. 111 is in the name of the Minister and amendments Nos. 111 and 112 are related. All three will be taken together.

I move amendment No. 111:

In page 100, between lines 21 and 22, to insert the following:

"(a) in subsection (2A), by substituting "Subject to subsection (2D), for the purposes of subsection (2)," for "For the purposes of subsection (2),",".

Amendments No. 111 and 112 relate to section 56 of the Bill. Briefly, by way of background, section 56 amends section 1086 of the Taxes Consolidation Act 1997, which relates to the publication of the names of tax defaulters. The purpose of the amendments made by section 56 is to ensure that the scheme of publication in respect of tax defaulters operates as intended and clarifies the portion of any settlement sum that may be published in circumstances where the settlement sum comprises an amount relating to a qualifying disclosure and an amount relating to matters not subject to such a disclosure. As a result of the changes proposed in section 56, only the portion relating to the other matters will be publishable.

The reason for these further amendments is primarily to correct a technical drafting error made in amending the section on Committee Stage and, in doing so, to clarify aspects of the section. Specifically, amendment No. 112 is necessary to remove an incorrect reference to subsection (2A) in paragraph (b)(ii) of new subsection (2D), as inserted on Committee Stage. It also provides, on a stand-alone basis and in a much clearer fashion, that where Revenue accepts payment of the full amount of a claim in circumstances where there is both a qualifying disclosure and other tax defaults, it will be deemed to have accepted the part of the full amount that relates to the other defaults on foot of an agreement with the taxpayer to refrain from initiating court proceedings, etc. This will allow the name of the defaulter to be published in respect of the other tax defaults once the publication criteria are met in respect of those defaults. The amendment will thus allow new subsection (2D) to operate as intended. It is also necessary to make the existing subsection (2A) subject to new subsection (2D) and amendment No. 111 achieves that.

I commend these amendments to the House.

Amendment agreed to.

I move amendment No. 112:

In page 103, to delete lines 3 to 20 and substitute the following:

"(ii) the Revenue Commissioners shall be deemed to have accepted or undertaken to accept, as the case may be, the adjusted specified sum pursuant to an agreement, of a type referred to in paragraph (c) of subsection (2), made in the relevant period in which the Revenue Commissioners accepted or undertook to accept the total claim sum.",".

Amendment agreed to.

I move amendment No. 113:

In page 105, between lines 11 and 12, to insert the following:

Report on Panama Papers

57. The Minister shall within one month of the passing of this Act prepare and lay before Dáil Éireann a report on the use of offshore accounts to avoid tax, with particular reference to analyses carried out by members of the International Consortium of Investigative Journalists into the documents known as the Panama Papers, which demonstrate how wealthy individuals and public officials can use offshore shell corporations for illegal purposes including fraud, tax evasion and evading international sanctions."

The purpose of the amendment is to have the Revenue Commissioners and the Department of Finance prepare a report in regard to the publication of the Panama papers and their impact in Ireland in terms of information about people who are using offshore vehicles and shell companies to avoid tax and arrange their affairs so as to facilitate fraud, tax evasion and the evading of international sanctions. The publication of the Panama papers by the International Consortium of Investigative Journalists has been a very significant event in regard to highlighting the extent to which very wealthy people - families, individuals and groups - can make arrangements through various tax havens throughout the world to hide assets offshore from their home country, including Ireland.

We have had no information from the Revenue Commissioners about the extent to which they have sought to find details in regard to Irish tax residents, Irish citizens and people associated with Irish companies who may be availing of the arrangements highlighted by the Panama papers. We know that other countries have done this, including Germany, which is often used as a country of reference by this country in regard to having a tax system which is fair and understandable to people in that country. On a number of occasions, the Revenue Commissioners have expressed their desire to pursue individuals who have been using offshore tax havens, notwithstanding the fact they are liable to tax in this country.

It is very important that the message again goes out to compliant taxpayers, particularly people on middle and low incomes who are meeting all of their obligations in accordance with the law, that we will cease to tolerate in this country people who engage in offshore tax avoidance and evasion, thereby reducing the funding for critical services ranging from education and health to social services. I believe it would be important for citizens to have available to them such a report. As I said, I know from previous statements made on a number of occasions by the Revenue Commissioners that they are anxious to deal with the kind of tax evasion disclosed by the Panama papers. This is something every western European country, including Ireland, needs to be worried about and needs to address. I recommend the amendment to the House.

Amendment No. 113 seeks that a report be prepared and laid before the House within one month of the passing of the Finance Bill into law on the use of offshore accounts to avoid tax. The release of the so-called Panama papers earlier this year showed how defaulters use offshore structures and accounts to avoid paying tax. International developments and agreements are leading to the better sharing of information. To maximise the use of this information, I have brought forward amendments in section 55 of the Bill to the penalty mitigation regime currently available to tax defaulters who make a qualifying disclosure to Revenue, which will ensure that defaulters who have used offshore accounts or assets in their evasion will find themselves in a very difficult position if they do not come forward quickly to regularise their affairs with Revenue. We have just discussed the question of the 1 May date as against the 1 January date, so the House is familiar with the considerations in this regard.

While I could ask my officials to prepare a report as suggested, I am not sure it would add much additional value. In recent weeks the Deputy asked a parliamentary question about the status of my Department's work with the Revenue Commissioners in tackling the tax evasion uncovered in the Panama papers. I do not propose to repeat the entire reply, which is, of course, now in the public domain, but, in summary, I was advised by Revenue that it has been to the forefront in acting against the use of offshore accounts, trusts and structures to evade tax liabilities. All told, Revenue's work in regard to all offshore accounts and other financial product investigations has, to date, resulted in the recovery of €2.8 billion in tax, interest and penalties. In line with its active approach to identifying and confronting those who try to escape their tax responsibilities, Revenue has also advised me that it is examining the information that has become available through the Panama papers revelations, and, in addition, that it has requested access to any elements of that documentation that could be of relevance to its work against tax evasion and avoidance.

Similarly, the Deputy will recall the recent appearance by the Chairman of the Revenue Commissioners before the Committee of Public Accounts. He noted that certain elements of the papers had been placed on the International Consortium of Investigative Journalists' website and that Revenue was analysing named Irish persons and entities. He also noted that Revenue is involved in the Joint International Taskforce on Shared Intelligence and Collaboration, JITSIC. Therefore, any information that Revenue had has been put in the public domain in one way or another in recent times. People who had offshore accounts are being given the opportunity to face up to their malpractice between now and 1 May. If Revenue believes that, through international agreements, it is going to get new streams of information in September 2017, it will be some time in the fall of next year that Revenue will be in a position to provide the kind of report the Deputy has in mind.

I ask the Deputy not to press the amendment. We will return to it when people voluntarily come forward to Revenue arising from the Panama papers between now and 1 May and, later, when what Revenue describes as new streams of information come through the new international agreements that Revenue has entered into. I do not think anything additional will come forward from a report within a month.

Where stands the amendment?

I want to press the amendment. I am not satisfied Revenue has sufficient resources to actually go after the disclosures relating to Ireland that I am quite sure are within the Panama papers. Ireland is not an offshore tax haven, although there are many in this House who would claim it is. We have tax law which is enforced in this country and that is critically important, particularly given people who may be hostile to Ireland's interests are often anxious to portray it as some kind of a tax haven. It is very important that we address issues like this and that we use the work of the International Consortium of Investigative Journalists on the Panama papers.

I would like an assurance from the Minister that Revenue has sufficient resources. Tracking what has been disclosed by the papers is quite detailed work but other countries have taken rapid action and it has yielded a very interesting haul of defaulters in a whole range of fields. Given that people buy international tax arrangements which involve fraud, evasion and malpractice, as the Minister has said, I think the House deserves an assurance from the Minister that Revenue will have sufficient resources to go after this. Certainly, for law-abiding taxpayers in this country, it will be an enormous comfort that people who have been avoiding paying their fair share will from now on contribute properly.

I thank Deputy Burton. Her two minutes have expired.

Revenue is pursuing these issues already. It has carried out an analysis of the ICIG offshore leaks database to identify all cases with an association with Ireland. A total of 261 individuals, 245 addresses and 51 intermediaries have been identified. The individuals, companies and intermediaries identified are being profiled using internal systems and open sources and all appropriate inquiries will be made.

Revenue is participating in two JITSIC sub-groups, the first dealing with non-financial intermediaries; and the second in relation to the exchange of information on engagement. The aim of this network is to agree concrete actions the tax administrations can take in response to the ICIG information and leading to a multilateral and co-ordinated approach to the data.

When Revenue committed to pursue these issues, it was allocated an extra €5 million in the budget, as colleagues will recall. Members will remember that on budget day Revenue was allocated an extra €5 million so that it is adequately resourced to pursue the Panama Papers and other untoward tax evasion problems that emerge.

Amendment put and declared lost.
Bill, as amended, received for final consideration.

When is it proposed to take the Fifth Stage?

Is that agreed? Agreed.

Question put: "That the Bill do now pass."
The Dáil divided: Tá, 58; Staon, 30; Níl, 38.

  • Bailey, Maria.
  • Barrett, Seán.
  • Breen, Pat.
  • Brophy, Colm.
  • Burke, Peter.
  • Byrne, Catherine.
  • Canney, Seán.
  • Cannon, Ciarán.
  • Carey, Joe.
  • Corcoran Kennedy, Marcella.
  • Coveney, Simon.
  • Creed, Michael.
  • D'Arcy, Michael.
  • Daly, Jim.
  • Deasy, John.
  • Deering, Pat.
  • Doherty, Regina.
  • Donohoe, Paschal.
  • Doyle, Andrew.
  • Durkan, Bernard J.
  • English, Damien.
  • Farrell, Alan.
  • Fitzgerald, Frances.
  • Fitzpatrick, Peter.
  • Flanagan, Charles.
  • Griffin, Brendan.
  • Halligan, John.
  • Harris, Simon.
  • Harty, Michael.
  • Heydon, Martin.
  • Humphreys, Heather.
  • Kehoe, Paul.
  • Kyne, Seán.
  • Lowry, Michael.
  • Madigan, Josepha.
  • McEntee, Helen.
  • McGrath, Finian.
  • McGrath, Mattie.
  • McHugh, Joe.
  • McLoughlin, Tony.
  • Mitchell O'Connor, Mary.
  • Moran, Kevin Boxer.
  • Murphy, Dara.
  • Murphy, Eoghan.
  • Naughten, Denis.
  • Naughton, Hildegarde.
  • Neville, Tom.
  • Noonan, Michael.
  • O'Connell, Kate.
  • O'Donovan, Patrick.
  • O'Dowd, Fergus.
  • Phelan, John Paul.
  • Ring, Michael.
  • Rock, Noel.
  • Ross, Shane.
  • Stanton, David.
  • Varadkar, Leo.
  • Zappone, Katherine.

Níl

  • Adams, Gerry.
  • Barry, Mick.
  • Boyd Barrett, Richard.
  • Brady, John.
  • Broughan, Thomas P.
  • Buckley, Pat.
  • Burton, Joan.
  • Collins, Joan.
  • Collins, Michael.
  • Coppinger, Ruth.
  • Crowe, Seán.
  • Cullinane, David.
  • Doherty, Pearse.
  • Ellis, Dessie.
  • Ferris, Martin.
  • Fitzmaurice, Michael.
  • Funchion, Kathleen.
  • Healy-Rae, Danny.
  • Healy, Seamus.
  • Kenny, Gino.
  • Kenny, Martin.
  • McDonald, Mary Lou.
  • Mitchell, Denise.
  • Munster, Imelda.
  • Murphy, Paul.
  • Nolan, Carol.
  • O'Brien, Jonathan.
  • O'Reilly, Louise.
  • O'Sullivan, Maureen.
  • Ó Broin, Eoin.
  • Ó Caoláin, Caoimhghín.
  • Ó Laoghaire, Donnchadh.
  • Ó Snodaigh, Aengus.
  • Pringle, Thomas.
  • Ryan, Brendan.
  • Ryan, Eamon.
  • Smith, Bríd.
  • Stanley, Brian.

Staon

  • Aylward, Bobby.
  • Brassil, John.
  • Breathnach, Declan.
  • Browne, James.
  • Butler, Mary.
  • Cahill, Jackie.
  • Calleary, Dara.
  • Casey, Pat.
  • Chambers, Jack.
  • Chambers, Lisa.
  • Donnelly, Stephen S.
  • Dooley, Timmy.
  • Haughey, Seán.
  • Lahart, John.
  • Lawless, James.
  • Martin, Micheál.
  • McGrath, Michael.
  • Moynihan, Aindrias.
  • Moynihan, Michael.
  • Murphy O'Mahony, Margaret.
  • Murphy, Eugene.
  • O'Brien, Darragh.
  • O'Callaghan, Jim.
  • O'Keeffe, Kevin.
  • O'Rourke, Frank.
  • Ó Cuív, Éamon.
  • Rabbitte, Anne.
  • Scanlon, Eamon.
  • Smith, Brendan.
  • Troy, Robert.
Tellers: Tá, Deputies Regina Doherty and Tony McLoughlin; Níl, Deputies Paul Murphy and Richard Boyd Barrett.
Question declared carried.

Before concluding today's proceedings, I would be obliged if, in accordance with Standing Order 163, the Ceann Comhairle would direct the Clerk of the Dáil to make the following minor drafting corrections to the text of the Bill. On page 17, line 37, insert "," immediately after "claimant". On page 21, line 32, substitute "a" for "b". On page 50, line 30, insert "a" immediately following ","".

The Bill, which is certified to be a money Bill in accordance with Article 22.2.1° of the Constitution, will be sent to the Seanad. Ba mhaith liom mo bhuíochas a chur in iúl díobh go léir sa ucht an chomhoibriú agus go háirithe díobh siúd a bhí páirteach sa díospóireacht.

The Dáil adjourned at 2.48 a.m. until 10 a.m. on Thursday, 24 November 2016.