Taxation Orders 2018: Motion

I move:

That Dáil Éireann approves the following Order in draft:

Double Taxation Relief (Taxes on Income and Capital Gains) (Republic of Ghana) Order 2018,

a copy of which was laid before Dáil Éireann on 14th September, 2018.”

The motion seeks Dáil Éireann's approval for an order as part of the ratification of a double taxation agreement with Ghana. In 2012, officials from the Republic of Ghana raised with the Department of Foreign Affairs and Trade the possibility of negotiating a double tax agreement with Ireland. Ghana had earlier been identified by the Department of Foreign Affairs and Trade as one of four strategic partners for a tax treaty to advance Ireland's prosperity by promoting our economic links internationally. Negotiations on the agreement started in 2014 and were successfully concluded in early 2016. The agreement was then signed by both Ireland and Ghana on 7 February 2018. Ghana requested that Ireland enter into negotiations for this agreement. The Ghanaian authorities have decided that double taxation agreements are good for their country's economic development and this is the 17th treaty that they have signed.

The agreement was negotiated by both countries in good faith and on an equal footing. The final agreement includes a number of provisions that Ghana requested that are not typical of Ireland's tax treaties. These include a number of clauses from the UN model convention, which developing countries like Ghana sometimes, but not always, seek to include. For example, Ireland agreed to the inclusion of the imposition of withholding tax on technical fees at the request of Ghana. In addition, to encourage the development of education in Ghana, there is a two-year tax exemption for teachers and researchers who work in a higher educational establishment in Ghana.

It is very important to consider the impact of domestic and global taxation rules on developing countries. Ireland is one of only two developed countries to carry out a comprehensive spillover analysis on the impact of our tax system on developing countries' economies. This research project was commissioned by the Department of Finance and the methodology was designed and carried out by the independent and highly respected International Bureau of Fiscal Documentation. It concluded that there was no negative spillover from the Irish tax regime, or Ireland's modern tax treaties, on the economies of developing countries. In the past, two old tax agreements with developing countries were found not to be sufficiently beneficial to those developing countries. Those agreements, which were with Zambia and Pakistan, dated back to the 1970s and they have been replaced by new agreements. There is simply no comparison between those agreements from more than 40 years ago and the agreement being debated today.

I wish to respond directly to some of the questions raised at the committee discussion on this last week. I was asked why the agreement does not include the BEPS measures included in the multilateral convention which the House has just discussed. As I said at the committee hearing, negotiations on the treaty with Ghana concluded in early 2016. At that time, the drafting of multilateral convention was still a work in progress and, consequently, neither Ireland nor Ghana was in a position to discuss the provisions. The text on how to translate the BEPS measures into property treaty provisions was not yet agreed. Ireland's position on the multilateral convention makes clear that this agreement will be automatically updated as soon as both Ireland and Ghana ratify the convention. As Ghana has not signed up to the convention to date, Ireland has contacted Ghana's tax authorities proposing a bilateral protocol to the treaty if that is Ghana's preferred way to implement the anti-BEPS measures. In July 2018, Ghana's authorities replied saying to say that they are considering the best way forward for Ghana on this matter.

Comments were also made at the committee to the effect that this agreement is somehow a bad deal for Ghana. With respect, I do not agree. It represents an appropriate agreement similar to other agreements entered into by both countries. The Ghanaian authorities have not raised any concerns with us regarding the agreement. I commend the motion to the House.

I thank the Minister of State for his opening remarks. As a party, we support the expansion of double taxation agreements into which we enter as a country. I note, as the Minister of State said, that the initial request in respect of this agreement came from the Ghanaian authorities back in 2012. In general terms, double taxation agreements are a positive thing in that they facilitate trade and commerce between countries and avoid the kinds of distortions that can arise in the administration of a tax system where there is no such reciprocal arrangement in place.

The Minister of State has said - and this is in the information note - that the Department of Finance provided that this agreement includes provisions in drafting which feature in both the OECD and the UN model conventions, which he said are there to address harmful tax practices and are the international gold standard. Again, both at the committee hearing and directly from Christian Aid we have heard some very significant concerns about particular provisions on withholding taxes, the most favoured nation mechanism, permanent establishment provisions and certain taxing rights on the gains from the sale of assets. I understand the point the Minister of State makes, that the Ghanaian authorities have not raised concerns directly, they presumably want this to proceed and they are in favour of it, but he needs to address these concerns.

In addition, and on foot of the debate we have just had on the multilateral convention, there is no commitment, it would appear, from Ghana that it will sign up to the multilateral convention. What the Minister of State has said on this point is that as Ghana has not done so, the Irish Government has contacted Ghana's tax authority proposing a bilateral protocol to the treaty if this is Ghana's preferred way to implement the anti-BEPS measures. The Ghanaian authorities have replied saying they are considering the best way forward for Ghana on this matter, but the "what if" question must be asked and answered. What if Ghana does not sign up to the multilateral convention and does not bring forward any proposals as to how to deal with the BEPS provisions, which are provided for within the multilateral convention? We have a duty not only to protect Ireland's interest, but also to ensure that countries with which we enter into double taxation agreements meet the same standards as ours. The Minister of State needs to address this question in his closing remarks.

We would like to see this double taxation agreement proceed. In general terms, having such agreements in place is a positive thing for developing countries, and it is worth remarking that the initiative has come from the Ghanian side. It wants this to proceed and clearly believes it is in its national interest for the agreement to be put into force. That said, the fact that it has not yet signed up to the multilateral convention raises questions. Then we have the provisions in this agreement that are particular to the agreement we have with Ghana into which the Minister of State proposes we enter, as opposed to the common features of agreements we have with other countries. These issues need to be addressed as well.

Our position as a party is very clear: double taxation agreements are good. They can allow citizens to work without being taxed twice. They can, however, also be exploited and used as a way of avoiding tax and of exploiting developing countries.

Regarding this specific agreement, however, has the Minister of State made any estimate of the amount of unrelieved double taxation Irish taxpayers actually suffer in Ghana, given that in the absence of a tax treaty Revenue has already unilaterally offered Irish companies and individuals tax credits for a wide range of foreign taxes incurred, including on dividends, royalties, interest, foreign branch profits, leasing income and capital gains from foreign assets? I would like to hear from the Minister of State on that question.

This agreement has elements that need to and should be improved on before it is signed off on. I thank the Minister of State and his officials for the detailed briefing note and the replies to queries that were raised at the finance committee, but in some ways these lead to further questions. For example, the note we got tells us that the negotiation began at Ghana's request, something the Minister of State has repeated here today. It has been suggested to me, however, that this is not quite the full story. We know in fact from documents that have been released that the Irish ambassador to Nigeria and Ghana approached the Ghanaians during the week commencing 2 July 2012 to propose treaty negotiations after it was set as "a deliverable" by the Department of Foreign Affairs and Trade. There is an issue here. It is not the biggest issue, but there are obviously two versions of a story that needs to be clarified.

The important thing, however, is the content, and I welcome the clarification that Ireland has contacted Ghana's competent authorities proposing a bilateral protocol to the treaty if that is Ghana's preferred way to implement the anti-avoidance BEPS measures. In July 2018, as the Minister of State mentioned, Ghana's competent authorities replied to Ireland stating they were considering the best way forward for Ghana on this matter. This is not a one-sided conversation or discussion, however; it is an agreement before us between two sovereign partners. We need to hold ourselves up to high standards, and to me it is not clear why the BEPS anti-avoidance measures, which the Government says the OECD finalised in December 2016, could not have been included in this treaty with Ghana, which was not actually signed by either of the parties until February 2018. The OECD process, as the Minister of State mentioned in his speech, was ongoing at that point but the signature of this treaty came two years later, after the OECD BEPS process had finalised in December of that period. Furthermore, why is the Oireachtas being asked to ratify a treaty now if it is going to change in the immediate future?

This agreement brings up some broader questions as to how we make double taxation agreements, and I have raised this at committee a number of times, especially how we do double taxation treaties with developing countries. The OECD rules are a huge improvement, as was discussed earlier, but the OECD is a rich man's club - let us be clear about that - and the UN model for tax arrangements should be what we use as a rule. The Minister of State's note downplayed the importance of the reduced rates of source country taxation. In effect, these are the rates such as for withholding tax and royalties which would only be 8% for Ghana, whereas Ireland charges 20% as a general withholding tax. I am conscious in all of this discussion that the Ghanian people are independent and sovereign and have negotiated this agreement, as the Minister of State said. My hope is that by the time this agreement is ratified in full in the finance Bill, all sides will have implemented the most up-to-date anti-abuse rules. They should have been included before this was signed off on by the State.

Finally, will the Minister clarify the scope that will be in the finance Bill to deal with either this treaty or the previous motion we discussed?

This is a very interesting proposal when one looks at the details of it. I must say that the only reason I looked at it was that Deputy Maureen O'Sullivan was not going to be around last week when this was supposed to come up for debate so I was standing in for her to discuss it and read through it and read up on it to see what I could find out about it. It is very interesting because if one looks at what we say and the impression we present to the world as to how Ireland takes our responsibilities very seriously in looking at the developing world, the Department of Foreign Affairs and Trade says one thing, and then when one looks at what is actually being done through the Department of Finance and through these treaties, it raises many questions, such as what we are actually doing. This Ghana double taxation order is a perfect example. The Department has said that it did not initiate the agreement, but papers were released from the Department which show clearly that it was the Department that initiated the negotiation. We, therefore, do not know what is actually happening. Then we see that since 2012, Ireland has become Ghana's biggest source of foreign direct investment.

No doubt the Government will argue that the reason it is pushing for the agreement is Ghana is becoming more important. However, the agreement will limit Ghana's rights over income, profits and economic activity. One has to wonder why it is being pushed through now if that is the case.

I refer to Christian Aid's document in respect of withholding taxes as it encapsulates the issue. It states that the Ireland-Ghana treaty halves Ghana's taxing rights over income paid from Ghana to Ireland as royalties and technical services fees. It, therefore, reduces Ghana's key defence against profit shifting via such payments, for which Ireland remains Europe's leading conduit. This greatly increases Ghana's exposure to the risk of this kind of profit shifting. What are we doing here? It goes against everything we have been saying in other fora.

The Minister of State said that this agreement will be beneficial for Ghana and that the spillover analysis agrees with him. However, I have information that the analysis does not agree with him and that it says that it will not be beneficial for Ghana. What is the position? Even the IMF, of which I am not in wild favour, says that the benefits are doubtful. We would not put much store in the IMF but it is speaking out against this as well. We should be more careful and engage in much more scrutiny. These agreements should be opened up to more discussion in this House.

I want to place my contribution in the context of the Irish Aid programme. Last night, I was at the launch of the 2017 Irish Aid report which the Tánaiste Minister for Foreign Affairs and Trade, Deputy Coveney, launched in the EPIC centre in central Dublin. Irish Aid is rightly recognised as one of the best of such programmes. It is untied and targeted, and it is focused on poverty reduction. We have our partner countries but we also support a number of other countries in the global south and the developing world. The support is given to groups to take people out of poverty and get them into education and to look at food production or health, etc. Whether through the missionaries, the NGOs or our embassies, it works with local people to empower them. Irish Aid is effective and is making a difference. Irish Aid has to do itself out of a job to continue making that difference. One of the ways to do that is to empower people in these countries to trade, ethically and in a fair way, and to raise and collect taxes through tax treaties.

That brings us onto the principle of tax justice. There are concerns about ratifying this agreement because it has the potential to unfairly deprive developing countries of those taxing rights that are vital in reducing aid dependency, which is part of Irish Aid's strategy. It also has the potential to open up opportunities for profit shifting and tax avoidance. While Ghana is progressing to becoming a middle-income country, it is vulnerable on social issues and poverty. Ghana wants to do business with Ireland because Ghana trusts Ireland. Our foreign direct investment is important to the country. It trusts us because of that untied aid and our aid programme. Are we repaying that trust in the debate we are having tonight? Christian Aid is one of the organisations bringing these concerns to us. Why is the treaty being ratified before it is amended to provide basic anti-abuse protections? There are serious concerns that the treaty lacks the minimum level of protection against treaty abuse, yet the Minister of State says that Ireland is committed to ensuring that all our tax treaties meet minimum standards agreed in the BEPS process. I will highlight one particular example. The rate of withholding tax on royalties is 8% for Ghana and 20% for Ireland.

I acknowledge the Minister of State said that Ghana has been written to in order to propose adding the BEPS anti-abuse provisions in a protocol to the treaty in the future, but why not delay signing the treaty until we have it? We are talking about policy coherence. The tax treaties in which our country is involved should complement our Irish Aid programme. We are signed up to the sustainable development goals. Their motto is: "Leave no one behind". The Minister of State said that he does not want to see this as a bad deal for Ghana. Are we sure that it is the best deal for Ghana?

I move amendment No. 1:

To insert the following after “14th September, 2018”:

“that the Department of Finance shall report back to Dáil Éireann within three months on responses received from the government of Ghana to its offer to insert as a protocol to the Convention between Ireland and the Republic of Ghana for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gains the ‘minimum standard’ anti-treaty-shopping provisions defined in Action 6 of the Organisation for Economic Co-operation and Development's base erosion and profit shifting process; and

further calls on the Government in accordance with its commitments to the principle of policy coherence for development in Article 208 of the Treaty on the Functioning of the European Union, its commitments under the Addis Tax Initiative, and the provisions of European Parliament resolution 2015/20158(INI) on negotiating double tax agreements with developing countries, to write to the government of Ghana proposing that this additional protocol may also include additional measures to safeguard source taxing rights, including;

— that furnishing services may constitute a taxable permanent establishment in accordance with Article 5(3) of the United Nations Model Taxation Convention between Developed and Developing Countries;

— that withholding taxes on royalties may approach the rates currently established in Ghanaian and Irish law; and

— that the source country may tax capital gains in accordance with Article 13(5) of the United Nations Model Taxation Convention.”

We speak in favour of the double taxation agreement with Ghana but we raise concerns, many of which have been outlined by the Deputies who have contributed, as to why we are not applying what we have just said in our earlier debate in respect of highest standards in this agreement, which should and could have been written taking into account the convention that we are joining. It is important because Ghana is an important country. Thankfully, as it rises, as several African countries are doing, our aid budget for it as a percentage of our overall aid programme is reducing. The influence of Ireland's foreign direct investment is significant and important for Ghana. This is not an insignificant treaty agreement and it is important to get it right.

The various concerns we have tried to outline in our amendment relate to the prospect that withholding tax provisions could be further reduced. These provisions are important in providing protection for developing countries in any trade environment. As I understand it, the royalty withholding tax rate will reduce from 15% to 8% under this treaty and the technical services withholding tax will reduce from 20% to 10%. This does not reassure us that the treaty provides the protection we think is necessary for a country such as Ghana. Even if those provisions are coming from the Government, this Parliament still has the right to say that we are concerned that protection is being reduced. This is particularly the case because, as I understand it, we are inserting a most favoured nation provision in this treaty. This means that if Ghana makes another double tax agreement which has lower rates in respect of royalty or other payments, an Irish company would be able to avail of those rates.

I am also concerned, in light of the latest advice from European bodies, the UN and other tax protocols, that we are not insisting on a serviced permanent establishment. We are not insisting that in any tax agreement done between an Irish company and a Ghanian company in respect of trade there be a real, commercial, physical employed entity in Ghana. The intention of our motion is not to stop the treaty, but to pick up on these issues. The Minister of State said in his contribution that he is hoping to come back with a proposed bilateral protocol to the treaty that would insert the various anti-BEPS measures to which we are signing up in the wider convention.

The Minister of State says that the Ghanian authorities replied and said that they are considering the best way forward for Ghana on this matter. I believe the amendment we are presenting gives a very useful stimulus in that regard because it asks the Department to come back within three months and to report to the Dáil on that correspondence. It means that we will not just forget about this and not bring it back. As Deputy Boyd Barrett said earlier, the difficulty with these international tax arrangements is that they are so complex they do not attract attention. Our amendment is a way to provide a reminder to us to return in three months. If we are signing this now because we have not had the time to implement the recommendations or the elements of the multilateral convention, this gives us the time. It gives a prompt to the Department and to both Governments and makes it clear that this Parliament wants to make sure that what the Minister of State has said in his speech is implemented. That would be the effect of our amendment, which I hope could be supported.

Questions were raised around whether tax treaties are beneficial to developing countries. Double tax agreements provide tax certainty for taxpayers and tax administrators and they reduce tax barriers to cross-border trade and investment. This ensure that the best conditions with respect to eliminating double taxation are eliminated to enable trade and investment to occur. Documents were mentioned which noted that the academic literature in 2012 was inconclusive in respect of the outcomes from this facilitation of trade and investment. Since then, Ireland has commissioned and published its own independent spillover analysis, which made clear that there are no negative spillovers on developing countries from Ireland's modern tax treaties. It is also clear that Ghana strongly believes that such treaties benefit its economy.

Ghana has double taxation agreements with 16 other countries, including Belgium, Denmark, France, Germany, Italy, the Netherlands, South Africa, Switzerland and the United Kingdom. I was asked whether Ireland had carried out any spillover analysis on this specific treaty. A specific spillover analysis was not carried out before entering negotiations with Ghana. However, the results of the broad spillover exercise carried out in 2015 did not find evidence of negative effects from Ireland's modern tax treaties. We would expect that the same result would apply to the treaty with Ghana. I am not aware of any country carrying out a spillover analysis about how an agreement might affect the other country in advance of said agreement being negotiated. It would be difficult, if not impossible, to accurately assess this in advance of an agreement being reached and data being available as to its impact.

The Ghanaian authorities believe this treaty is a good deal for Ghana. I have no reason to believe they are incorrect. Accordingly, I cannot support the amendment proposed by Deputies Eamon Ryan and Catherine Martin to ask for the Department to report to the Dáil on ongoing international discussions with Ghana on updating the double tax agreement. It is a long-established practice internationally that countries keep the details of ongoing negotiations or discussions confidential. It would be highly inappropriate to comment in the Dáil on Ghana's views or responses to us without its consent. It would damage Ireland's credibility as a negotiating party for any international tax agreement. As stated earlier, we have written to Ghana previously as to how it would prefer to update the treaty to include the BEPS measure. We will continue to follow up on this.

The amendment proposes that Ireland insists that the treaty be amended to include clauses or changes which the Deputies believe to be in Ghana's interests. The Ghanaian tax authorities, however, did not seek these clauses or changes during negotiations. The treaty does include UN model provisions which Ghana sought during negotiations. It is inaccurate to assume all developing countries want all UN model provisions to be included in all treaties. The Ghanaian negotiating team was led by a member of the UN Committee of Experts on International Co-operation in Tax Matters which is responsible for the design of the UN model provisions and was well placed to determine what was or was not in their interests. It would be unusual and inappropriate for Ireland to insist that Ghana accepts clauses that it does not want based on the presumption that Ireland knows what is best in its interests.

This is a bilateral agreement reached between Ireland and Ghana. It has been signed by both countries. Over two years have passed since negotiations concluded and we have received no indication that Ghana has any concerns with the content of the agreement. Failure to ratify the agreement would reflect poorly on Ireland as a negotiating partner for any bilateral tax agreement. This is a fair and balanced agreement which should benefit both Ireland and Ghana.

I commend the motion to the House.

Amendment put.

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