Taxation Agreement: Motion

I move:

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.

I am glad to have an opportunity to contribute to the debate. I was not involved in the discussion on this matter when it was before the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach. Deputy Cowen substituted for me at that stage but I have been briefed on the discussions, particularly of the Ghanaian double taxation treaty.

I want to signal Fianna Fáil's support for ongoing engagement with the BEPS process. We believe it is critically important that Ireland continues to play its role in international tax reform. We are cognisant of the whole issue of base erosion profit shifting, particularly around transfer pricing, royalty payments, the shifting of intellectual property, IT, and on-shoring. We saw the very dramatic impact of this on Ireland back in 2015. It is very important that we are leading on these issues.

The motion is very important in approving this convention, in effect ensuring that the double-taxation agreements we have already entered into are brought fully up to date and fully in line with OECD BEPS best practice. The Minister of State said the majority of countries with which we have a double-taxation agreement have signed up to the multilateral convention. That will modify the majority of the tax treaties when it comes into force. In the case of others which fail to sign up, the Government will move to deal with those on a bilateral basis.

I have also been briefed on the concerns Christian Aid has raised. The Minister of State touched on a certain aspect of them in his remarks. It is important that those points are addressed in the debate and that he keeps an open mind on further changes that may be necessary. On Committee Stage of the Finance Bill we can go into the fine detail of changes to the Taxes Consolidation Act and so on.

In his opening remarks the Minister of State drew attention to Article 12, relating to the permanent establishment rules for a company operating in a country through an agent. He made the point that he is reserving the Government's position on Article 12 because he does not believe there is sufficient certainty. I am not sure if the Minister of State gets to reply at the end of the debate, but if he does he should elaborate on what he is referring to there. In particular, what uncertainty has led the Government to the conclusion that it does not wish at this point to sign up to Article 12 on permanent establishment. I acknowledge his point that almost 60% of the countries that have signed the multilateral convention have adopted the same position on Article 12. It is important for the Minister of State to address that point.

Overall we believe we should continue to support BEPS. We should adopt the multilateral convention to bring the double-taxation treaties we have already entered into up to date and in line with BEPS best practice. It is an important step for Ireland and one the House should endorse.

The Minister of State will have five minutes to conclude and he will be able to respond to the points the Deputy raised.

Gabhaim buíochas fá choinne an deis labhartha ar an rún seo atá os comhair an Tí anocht. Tá Sinn Féin ag tabhairt tacaíochta don rún seo. Tá sé tábhachtach ó thaobh an phróisis BEPS. Níl sé gan locht. Níl dabht ar bith go bhfuil lochtanna ann. Tá deacrachtaí móra againn ó thaobh an rúin seo, cé go mbeimid ag tacú leis. Leagfaidh mé amach cuid díobh sa mhéid atá agam le rá. Caithfidh mé a rá gur próiseas iontach tábhachtach é an próiseas atá ag an OECD ó thaobh BEPS. Is próiseas fíorthábhachtach é. Tá a fhios againn go bhfuil athrú mór tagtha ar an saol agus ar an domhan sna blianta beaga a chuaigh thart ó thaobh teicneolaíochta, ó thaobh cúrsaí eacnamaíochta, agus ó thaobh na tseanstíle ina raibh daoine ag déanamh rudaí. Ní mar sin atá sé níos mó. Is ceann de na laigí agus de na fadhbanna a fheicimid ná go bhfuil stádas BEPS íslithe agus go bhfuil cúlú á dhéanamh ar an mhéid a bhí ráite sa chéad dul síos.

While I welcome the motion, I have my reservations which I will outline. The OECD’s BEPS process is hugely important given how the world has changed. The way technology and the economy impact on each other means the old ways of doing things simply no longer apply. BEPS is far from perfect and we have concerns that the initial aim has been watered down significantly. However, it is the best game in town at this time.

The multilateral convention is an important keystone in the BEPS process and we need to ratify it. However, I am disappointed that the Government’s method of implementation will be a minimalist one or at least one that falls significantly short in some very important ways.

The opting out of Article 12, as the Minister of State outlined in his speech, is the most serious reservation I have. This article specifically takes aim at companies artificially avoiding permanent establishment status through double-taxation treaties. It is terribly disappointing that the Government has taken the decision to opt out of this article.

When he signed the convention the then Minister for Finance, Deputy Noonan, said:

If you make the widgets in Dublin, the tax liability on the profits from the widgets is an Irish tax liability... It will be illegal to transfer tax liability to other jurisdictions to avoid taxes.

Yet now at its implementation the State is opting out of that article, which actually prevented what he was talking about. The Government is choosing to leave the door open to some future double-Irish scheme to develop. It is a deliberate decision by the Government. After all we learned - or maybe not learned - it is little wonder that Ireland has a reputation for aggressive tax avoidance.

Likewise on Article 13 the Government has chosen Option B which will also allow for the continued artificial avoidance of permanent establishment status through applying a weaker test in specific activity exemptions listed in double-taxation treaties. I accept the Minister of State is correct in saying the majority of countries applying the instrument have taken the same approach to Articles 12 and 13 but they do not have the same reputation that Ireland has. We should not just look at what other countries are doing; we need to do what is right and best for us, and what is right for other countries, particularly developing countries.

I also wish to know why the Government is invoking a reservation on Part IV which covers arbitration. I believe we could have done better in how we chose to implement Article 7. The default option in the instrument and the option of most EU countries is to adopt a principal purpose of transactions, PPT, provision instead of a limitation on benefits, LOB, provision. The limitation on benefits applies a series of objective tests that must be complied with by the person claiming the benefits of a tax treaty.

The limitation on benefits is often preferable for developing countries. It is understandable why Ireland wants the PPT to apply, and similar rules are in EU directives. However, we could have chosen an asymmetrical option, where the treaty partner can apply an LOB rule and Ireland could apply the PPT rule. The Minister of State is correct in saying the vast majority of instrument countries are choosing the PPT with no asymmetrical application. However, that process should have been considered and included in how we implement this.

The Minister of State seems to be looking for congratulations today on this proposal, but it is not warranted. The State has huge issues in our tax system, both in terms of reputation and in real terms. Were it not for the OECD moves and the work of many activists, the Government would happily be kicking this can down the road.

The Minister of State is not here because he passionately believes in tackling aggressive tax avoidance. He is here because the State’s reputation is in the mud. He is taking a very weak option in implementing this.

The issue of global multinational corporations avoiding tax by shifting profits from where they are actually generated to other jurisdictions where they can through complex means avoid paying tax is arguably the major contributory factor to staggering levels of inequality globally that are galloping away in their obscenity.

Year after year, the gap between the wealth of a tiny minority and the need and often intense poverty of the huge numbers of people just grows and grows.

It says everything about that process that these debates, during which the nuts and bolts of all of this are discussed, are watched by nobody, listened to by nobody, covered by no media outlets and are too obscure and complex for most people to get their heads around. Yet, in that obscure late-night detail is the real devil that is responsible for obscene and staggering levels of inequality and, ultimately, poverty and deprivation, particularly in the developing world.

This multilateral treaty is, on the face of it, a good thing. It is trying to address some of the mechanisms through which these corporations shift their profits and close down those mechanisms and loopholes. However, of course, true to form, on one of the key articles of this treaty which might help to do that, the Government wants to opt out. It asks us to believe that we need clarity. On what exactly does it need clarity? Although I have not had time to look at the new nuts and bolts of all of this, I was chatting to Sorley McCaughey of Christian Aid and he was convincing in explaining how our decision to opt out of Article 12 leaves the door open to this kind of profit shifting continuing and to us essentially engaging in the sort of tax piracy we were very familiar with and that we engaged in with the double Irish and that continues with the Irish malt. This is an effort to close it down yet we decide to opt out of that article.

The Minister of State asks us to believe the Government is going to seriously look into it, will consider it and perhaps ratify it down the road. I am sorry but the Government has no credibility on the issue of tackling corporate tax evasion. It was forced under pressure to get rid of the double Irish but, as soon as the pressure became irresistible, it opened up new windows, specifically on the issue of intangible assets, where it increased the tax relief to 100%. Lo and behold, all of the multinationals that had benefitted from the double Irish onshored all their intangible assets and, as a result, avoided paying hundreds of millions euro in tax, which even Mr. Seamus Coffey said should not have been done. That was deliberate. There is no doubt in my mind that was worked out between the Government and the multinationals to ensure they escaped the noose that was tightening on them and that a new loophole was created. Do I trust the Government on this? Absolutely not. In broad terms, this treaty is a good thing so we have to support it because it is pushing in the right direction. However, it says everything that the Government wants to opt out of one of the articles.

While I may not have time to stick around for the debate on Ghana, it deals with the same issue. In theory, a double taxation treaty should be a good thing in that it makes sure there is not double taxation, but it also has to make sure there is not double non-taxation and, in particular, that we are not implicated in robbing tax revenue from countries like Ghana. Ghana is a poor country where there are 4 million children living in poverty, where a significant proportion of the population suffers extreme deprivation and where the collection of tax is a problem precisely because of multinationals filtering profits out and not having them taxed in that regime. We again are not putting in the provisions that would ensure this cannot be done in the taxation treaty with Ghana. Tax haven Ireland sails on, although some of us are trying to watch it and ring the alarm bells.

We are dealing with this day in, day out. Vulture funds and companies set up abroad can get away without paying tax. We need to make sure the loopholes used by certain companies are not used again in any agreements that are being signed.

I move amendment No. 1:

To insert the following after “13th September, 2018”:

“and that the Department of Finance shall report back to Dáil Éireann within one month on:

- what measures the Department of Finance will be taking to prevent the use of tax structures commonly known as the ‘Single Malt’, beyond its reliance upon United States tax reforms;

- what measures the Department of Finance will be taking to prevent companies from avoiding a permanent establishment in jurisdictions where their agents make sales and then booking the resulting sales income as the income of an Irish company;

- what actions the Government is taking to amend bilaterally its double taxation conventions with other states that have declined to adopt Article 4 of the Multilateral Convention to Implement Tax Treaty Related Measures Order 2018, in order to ensure that the tax residence of Irish-registered companies is determined in accordance with Article 4 of this Convention or with section 43 of the Finance Act 2014;

- precisely which areas of the application of Article 12 of the Multilateral Convention to Implement Tax Treaty Related Measures the Department of Finance regards as continuing to be uncertain, given the completion of additional guidance under Action 7 of the Organisation for Economic Co-operation and Development base erosion and profit shifting project on the attribution of profits to permanent establishments, and the publication of this additional guidance on 22nd March, 2018; and

- the reasons why the Department of Finance regards the application of Article 12 of the Multilateral Convention to Implement Tax Treaty Related Measures to be more uncertain than the application of the other articles of this Convention which the Government is adopting through the Multilateral Convention to Implement Tax Treaty Related Measures Order 2018.”

The amendment addresses the concerns raised on all sides of the House regarding the Government opting out of Article 12 of the convention. As noted by many speakers, the convention is one we agree with, but the amendment seeks to express the concern that in opting out of that article, we are leaving a loophole. The amendment is structured in such a way that it will not stop the ratification of the convention by Ireland but asks that the Department of Finance would report back to Dáil Éireann, which is a reasonable and rational check in the context of the concerns we have.

It asks what measures the Department of Finance will take to prevent the use of tax structures commonly known as the single malt. While the Minister of State says that does not apply to Article 12 and that Article 4 covers us, we read in the newspapers - I commend the work of Christian Aid - of the specific example of US companies based between here and Malta that are able to do the trick that has been done for many years, particularly in respect the large profits from intellectual property, and transfer them to an area where they are effectively not taxed and the end point is that the company pays low single-digit tax returns. That has to stop. We have to close those loopholes. The concerns we have echo those of Christian Aid, which are welcome. We need to hear from the Department what measures it has in place to stop it.

We need to hear from the Department what measures it will take to prevent companies from avoiding a permanent establishment in jurisdictions where their agents make the sales but the resulting sales income is accounted for as the income of an Irish company. We need the Government to outline what steps it is taking bilaterally on double taxation conventions with states that have declined to adopt Article 4, which the Minister of State cited as a concern. Within this motion, we need to insert mechanisms whereby we hear back specifically what the Government intends to do to avoid such loopholes continuing and to ensure that Irish-registered companies cannot use such loopholes to avoid tax being paid in any jurisdiction. The motion asks the Minister to report back on exactly which areas of the application of Article 12 he regards as continuing to be uncertain, given there is no clarity on that and there are no specific reasons why we are opting out of it. We need to know the reason the Government regards the application of the article to be more uncertain than the application of the other articles of this convention which the Government is adopting through the tax treaty-related measures order.

While that is complicated, the amendment is not specifically designed with a view to blocking or hindering transparency but to informing and improving it. We need this because this country is being damaged. Our reputation has been seriously damaged within the EU and further abroad because we have allowed and facilitated the aggressive tax avoidance measures that are driving political anger and public distrust, and an undermining of public services. It simply has to stop and we have to be seen to lead.

The failure to apply Article 12 within this motion is a retrograde step. The motion should be redesigned to give the Government a chance to restore our reputation, provide much greater certainty and clarity in how we implement the treaty. I will look for support to make that amendment when we press it later on.

I recognise that some Members have differing views on one or two of the choices the Government proposes in ratifying the convention. However, it is important to acknowledge that ratification is a powerful weapon against aggressive tax planning. The small number of articles Ireland is not adopting will be kept under review as it would be open to us to opt in at a later date. It is important to highlight the significant changes Ireland is opting into and which will be introduced through the convention if the Dáil ratifies it. The following new anti-avoidance rules would be included in Ireland's tax treaties by the multilateral convention; anti-avoidance rules targeting hybrid entities; new residency rules to prevent mismatches arising due to companies being dual resident; an overall anti-avoidance test which is expected to be a game-changer in stopping treaty abuse; stronger anti-avoidance rules regarding the taxation of dividends and capital gains, and anti-avoidance rules to prevent the artificial avoidance of having a taxable presence. In addition, new and improved dispute resolution mechanisms will be introduced to facilitate cross-border trade and investment by ensuring that tax disputes cannot go on indefinitely. If the convention is not ratified, none of these important changes will be introduced into Ireland's double taxation agreements.

I cannot support the amendment proposed by Deputies Eamon Ryan and Catherine Martin, but I would like to address the questions it poses. As I said in my opening address, Ireland is opting into the articles in the multilateral convention that may be relevant to structures like the so-called single malt. Article 12 is simply not relevant to these structures as it has no impact on the residence status of a company. In reference to the single malt, bilateral discussions with Malta are ongoing and we are confident of finding a solution. US tax reform will already have eliminated or substantially reduced any tax benefits of operating such a structure, but we are committed to working with Malta to examine what further actions may be needed. Nearly 60% of countries which have signed the convention have not opted into Article 12. Ireland's position is therefore consistent with the majority of countries. Germany, Sweden, the UK, Italy, Denmark and 40 other countries have taken the same position as Ireland. However, we are signing up to three other articles in the convention, namely, Articles 13, 14 and 15, which prevent companies from artificially avoiding having a permanent establishment. While initial guidance has been agreed at the OECD as to how Article 12 should be interpreted, it covers a very limited number of scenarios. There remains significant concern and uncertainty about how the new rules would ultimately be applied in practice. This uncertainty is reflected in the way a large number of countries have opted out of Article 12. We are committed to keeping the position under review as it would be open to Ireland to opt into Article 12 at a later date. It would also be open to Ireland to include Article 12 bilaterally in any tax treaty should the treaty partner make a sufficient case for us to do so.

It is important to note that Ireland is signing up to the majority of options within the convention. The convention is a truly international initiative with 84 countries having signed up to it to date. It is important that Ireland ratifies the convention to show that we are serious about BEPS implementation. Ratifying the convention will demonstrate Ireland's commitment to international tax reform. Failure to ratify would be a serious blow to our international reputation and the efforts we have made in recent years to ensure Ireland is seen to be at the forefront of international tax reform. Any suggestion that Ireland is stepping back from the OECD's BEPS process could only be perceived negatively and would have consequences for our reputation and attractiveness for inward investment. I commend the motion to the House.

Our reputation went a good while ago.

The Deputy does not help it.

Is the amendment being pressed?

The Minister has said he wants to review, which is what the amendment allows. As such, I will press it.

Amendment put.

In accordance with Standing Order 70(2), the division is postponed until the weekly division time on Thursday, 4 October 2018.