That Dáil Éireann approves the following Order in draft:
The Multilateral Convention to Implement Tax Treaty Related Measures Order 2018,
a copy of which was laid before Dáil Éireann on 13th September, 2018.
Today, I am seeking approval for a motion as part of the process of ratifying a particularly important international tax agreement. The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting seeks to modify the application of existing double taxation agreements to ensure they are robust and in line with new OECD base erosion profit shifting, BEPS, best practice. This is one of two motions on tax agreements which we will discuss tonight. This debate will be followed by a separate debate on a new double tax agreement with the Republic of Ghana.
The multilateral convention is a key part of the OECD BEPS project and its ratification is crucial to ensuring that Ireland continues to play its role in the international efforts to address aggressive tax planning. So far, 84 countries have signed up to the multilateral convention and 15 countries have now ratified the agreement. Passing this motion will enable Ireland to complete the ratification of the convention in the upcoming finance Bill.
The multilateral convention offers a mechanism to include agreed BEPS measures into multiple double taxation agreements simultaneously. Although there are a small number of countries with which we are updating treaties bilaterally, the multilateral convention will modify the majority of Ireland’s tax agreements when it comes into force. Of Ireland’s 74 treaty partners, 57 have signed up to the multilateral convention, and we have written to the remainder to encourage them to sign up as soon as possible. If any of our treaty partners fail to sign up, we will look to update those treaties bilaterally.
In adopting the multilateral convention, countries have choices as to which BEPS measures to adopt. It is proposed that Ireland will adopt the vast majority of the choices contained in the multilateral convention. The small number of articles which Ireland is not opting into will be kept under review as it would be open to Ireland to opt into them at a later date.
The key provision in the convention is for countries to include a general anti-avoidance clause into their tax treaties. All countries, including Ireland, will be introducing a principal purposes test, which requires activity to be in a country for legitimate purposes in order to access the benefits of the country’s tax treaties. This will be a very important change to treaties which will give significant powers to tax authorities to prevent tax avoidance.
I would like to draw particular attention to articles 12 to 15, inclusive, which cover permanent establishment rules. Ireland has opted to include articles 13, 14 and 15 but is reserving its position on article 12. Article 12 creates a new test for permanent establishment when a company is operating in a country through an agent. We believe there is not yet sufficient certainty as to how the new rules in article 12 would be interpreted and applied and our caution is shared by almost 60% of countries that have signed the multilateral convention. I am committed, however, to keeping this issue under review and it is possible for Ireland to adopt article 12 at a later date once there is greater clarity about how it will operate in practice.
I should also mention inaccurate reports published last week that claim article 12 is relevant to the aggressive tax planning structure known as the single malt. That is simply not the case; there is no connection. Article 4 of the convention is, however, relevant to reducing the possibility of this type of structure being used, and Ireland is opting into article 4. While US tax reform should eliminate or substantially reduce the tax benefits of operating this type of structure, we are committed to evaluating if any further action is needed. To this end, discussions have been ongoing with the Maltese authorities to identify any bilateral actions that can be taken to remove any remaining concerns. I am optimistic that a bilateral approach can be agreed on this issue.
This multilateral convention and the entire BEPS project is a very positive and successful example of countries co-operating to address tax avoidance. Ratifying the convention will be an important step in Ireland’s ongoing engagement with international tax reform. I commend the motion to the House.