Ceisteanna ar Sonraíodh Uain Dóibh - Priority Questions

I congratulate the Minister, Deputy Donohoe, on the good news of his recent appointment.

Mortgage Lending

Pearse Doherty


1. Deputy Pearse Doherty asked the Minister for Finance the measures he has taken and will take to prohibit the accrual of interest during the moratorium period for mortgage breaks taken in the context of Covid-19; his views on comments made with retail banks at a meeting held on 11 May 2020; and if he will make a statement on the matter. [16464/20]

Déanaim comhghairdeas leis an Aire ar son a cheapacháin arís mar Aire Airgeadais agus mar chathaoirleach ar an Eurogroup. Tá súil agam go mbeidh tairbhe ann dár Stát agus pléifimid sin níos moille. Ba mhaith liom ceist a chur ar an Aire ó thaobh an chruinnithe a bhí agaibh ar an 11 Meitheamh. The Minister, Deputy Donohoe, along with the then Taoiseach, Deputy Varadkar, and the then Minister for Business, Enterprise and Innovation, Deputy Humphreys, had a meeting on 11 May with CEOs of the retail banks. At that meeting, the banks claimed the accrual or charging of additional interest during mortgage breaks in the context of Covid-19 was required by the regulator. We know that was not true. How was it that this was the position relayed to the Minister, Deputy Donohoe, and his colleagues? How was it that they were misinformed on this? Did the Minister address the issue with the banks since? I understand he may have met with the retail banks yesterday. Did this issue arise? What actions does he propose to take to prohibit profiteering by the retail banks during this pandemic by charging additional interest during the mortgage break?

I thank the Deputy for his good wishes on my new role. I look forward to working with Members of the Dáil and with finance Ministers across Europe over the next two and a half years.

To deal with the Deputy's question, the members of the Banking and Payments Federation of Ireland, BPFI, introduced a payment break for their customers on 18 March last. These payment breaks were agreed quickly to provide substantial and rapid relief to worried and anxious borrowers, including mortgage holders, in situations where income had been directly impacted by Covid and during a fast-moving and evolving public health crisis. At the end of June, almost 160,000 payment breaks had been approved for Irish borrowers, representing €20.1 billion of loans.

Two weeks later, on 2 April, the European Banking Authority, EBA, published guidelines which set out the criteria that payment moratoria must meet in order to benefit from supervisory flexibility and for them to not automatically lead to loans being classified as forborne. The key paragraph in relation to the charging of interest, paragraph 24, was interpreted in different ways across Europe. I will not read the entire paragraph but I note that it refers to only allowing changes to the schedule of payments. It goes on to state that moratoria, suspending, postponing or reducing payments, which could be principal, interest or both for a limited period of time, would clearly affect the whole schedule of payment and may lead to increased payments over the payment of the moratorium or an extended duration of the loan. It goes on to note that other conditions of the loan, in particular the interest rate, should not be effected, unless such change only serves for compensation to avoid losses, which would allow the impact of the net present value to be neutralised.

Given the pre-existing EBA guidelines on the classification of default, the BPFI and its members sought to ensure that its payment break would not lead to the classification of loans as being non-performing. Subsequently, in its letter to Deputy Doherty on 22 June, which was well after the meeting of 11 May, the Central Bank stated that the EBA was expected to provide further clarity on the specific issue of interest accrual and, I assume in light of the discussions then under way with the EBA, the Central Bank outlined that both the charging and non-charging of interest is acceptable under the guidelines.

The EBA duly provided clarification in its report of 7 July. It confirmed in relation to the net present value, NPV, of a loan that:

...there may be a decline in the NPV if [...] no interest is charged for the time covered by the moratorium. Alternatively, the moratorium may be NPV-neutral [...] if subsequently at least one of the instalments is adjusted upwards or added.

The EBA also confirmed that its guidelines on the classification of default did not apply to a loan and a payment break under a general moratorium. The moratorium of the BPFI and the banks in Ireland complies fully with the EBA guidelines.

The Tánaiste and I are meeting the CEOs of the three main banks this week. We are having our final meeting this afternoon and issues relating to the payment break will be discussed.

There was only one set of guidelines. They have never changed. I hope the Minister accepts that. Clarification was provided during different periods. The Minister is right to say I wrote to the Central Bank on 11 June. I asked in my letter why Belgium and Spain were able to waive interest rates for consumers in those jurisdictions, while working to the same EBA guidelines. I knew the answer but I wanted it in writing so I could show the Minister and others that this did not need to happen. How did I know the answer? I knew it because I had engaged with the Central Bank before that. We have had conversations on this issue with the Governor of the Central Bank and we have looked at what has happened in other jurisdictions.

We have also looked at the EBA guidelines of 2 April, selections from which the Minister read out, and the guidance that was provided on this issue on 25 March by the European Securities and Markets Authority, ESMA, which included a clarification that it was not necessary for interest to accrue. The Minister knows that because his colleagues in Spain and Belgium do not require interest to be charged, particularly in Belgium, on low-interest loans.

What is the Minister's view of the fact that the CEO of KBC Bank sat at the meeting with the Minister and the Taoiseach where the chief executive officers of the main pillar banks said that interest must be charged, as required by the regulator? They said this approach was required to prevent a loan from being considered as going into default. The AIB representative said the risk was clear that if interest was not charged, there would be a default and there would be a credit rating on the customer. The CEO of KBC Bank sat at that meeting. KBC Bank operates in Belgium, where for low-interest customers with low incomes, interest is not charged during the payment breaks. That is done under the exact same guidance the Irish pillar banks received, namely, the EBA guidelines that were issued on 2 April and the clarification that was issued on 25 March by the ESMA. How can the Minister justify that? More important is the fact that Permanent TSB, a State-owned bank, has made it very clear that if a customer takes a six-month break on a €250,000 mortgage without an extension of the term, the bank will charge that customer an additional €6,300. How can the Minister for Finance, who holds the majority shareholding in that bank on behalf of the Irish people, tolerate such practice?

It was my job as this issue was developing to work with the banks to ensure provisions were put in place to allow payment breaks to be given to mortgage and loan holders at a time when they needed them the most. When we were facing into this period, we were looking at a public health crisis and an economic emergency. As a result of the work done by the Department of Finance and me and the work done by the Central Bank and the other banks, in recognition of the huge challenges people were facing, we were able to put in place payment breaks to meet those challenges.

When we are debating the payment breaks, let us take into account that 160,000 of them have been made available to those who needed and deserved them. Let us recognise that there are 70,000 payment breaks currently in place for mortgage and loan holders who need and deserve support. Deputy Doherty referred to what was done in Belgium but he did not say that people with savings of more than €25,000 are excluded from the payment break provisions that are available in that country. He has not touched on the fact that in Germany, the length of the payment break is three months. There are differences between what is happening in Ireland and what is happening in other parts of Europe. When we look at what is happening in Belgium, we see that many mortgage holders are excluded from being able to access the payment breaks. When we look at what is happening in Spain, we see that there are very strict criteria in place - understandable from the point of view of the authorities there - which limit the breaks to a certain group of people on the basis of their income. What we have done in Ireland is to make mortgage breaks broadly available to those who need them the most.

Deputy Doherty asked about the role of the regulator and how these matters were interpreted by central banks in different European countries. During this period, I was engaging at European level and making the point that we must do all we can to minimise the risk of a further non-performing loan difficulty later in the year. We needed to avoid a situation where we would again see people not able to pay their mortgages through no fault of their own and facing the kinds of difficulties we faced in the recent past. When the Deputy compares what we are doing here with what happens in other countries, he might consider that the type of system we have in place is also different in terms of its breadth.

We will move on to Question No. 2 in the name of Deputy Paul Murphy.

Am I not allowed to put another supplementary question to the Minister?

No, the Deputy has used up all his time. He went well over it in putting his initial question. There are four minutes overall for supplementary questions and we have exceeded that.

I understood that I would be allowed to ask a second supplementary question.

I clicked the bell at one minute when the Deputy was putting his supplementary question. He went well over two minutes and the Minister then had two minutes to respond. The Deputy has exhausted his time.

Apple Escrow Account

Paul Murphy


2. Deputy Paul Murphy asked the Minister for Finance the way in which he plans to respond to the ruling of the General Court of the European Union in regard to a case (details supplied) which was due on 15 July 2020; and if he will make a statement on the matter. [16606/20]

The Apple tax ruling is being portrayed as some sort of victory for Ireland. It is a strange victory where we do not get the €14.3 billion currently sitting in an escrow account. That money is to be added on to Apple's massive cash pile and we cannot use it for housing provision, creating green jobs and avoiding climate catastrophe. I saw coverage of the Minister at a press conference yesterday celebrating this victory and talking about how it shows that we have equality of treatment for taxpayers in this country. If PAYE workers knock on the door of Revenue headquarters later today, will they also be able to access a 0.0005% tax rate?

The Deputy will be aware that the General Court of the European Union annulled the European Commission's state aid decision of 30 August 2016 with respect to Apple. The court concluded that the Commission in its decision had failed to demonstrate that by issuing the opinions in 1991 and 2007, the Irish authorities had granted the two Apple companies, ASI and AOE, a selective advantage. The court rejected all three lines of argument put forward by the Commission and overturned the Commission's 2016 decision that Ireland had granted a state aid to Apple.

Ireland has always been clear that, based on Irish law, the correct amount of Irish tax was charged to the company and that Ireland did not provide state aid to Apple. This was the reason Ireland appealed the Commission decision, and yesterday's judgment from the General Court of the European Union supports the stance we took and our decision to appeal the decision. The State and its lawyers are now examining the detail of the judgment. As both the State and Apple have been successful in having the judgement annulled, the issue of an appeal for either the State or Apple is not possible and does not arise. An appeal is open to the Commission at this stage. The approach we have taken in dealing with this matter, in laying out why we believe that Apple and other taxpayers were treated correctly with regard to the law at that point in time, will continue to be defended by the State in any further action that may ensue.

Does the Minister agree that the grounds upon which the court found in favour of Ireland and Apple were very narrow? It did not find that Apple was not availing of a 0.0005% tax rate. It did not find that Ireland was not a tax haven. It simply found that the tax rulings which were available to Apple did not constitute state aid because they could have been available to other companies as well. That is the essence of the ruling that "the Commission did not succeed in showing .... that, by issuing the contested tax rulings, the Irish tax authorities had granted ASI and AOE a selective advantage". That is the point. Ireland remains a tax haven today but the point is that this extremely low tax rate is also, supposedly in any case, available to other multinational corporations.

In pursuing this issue, the only interest I have had in mind is that of the many hundreds of thousands of people who work in very large companies in this country. At a time of economic turmoil, when we are seeing rates of employment and rates of income change very quickly, the only interest I have had, in three years of dealing with this matter, is how we can continue to stand over an approach that does two things. First, it is part of a legitimate model of competitiveness in which taxation plays a part and which allows for the creation and retention of jobs in our country.

Second, it is about ensuring that all taxpayers are treated fairly and with regard to the law. Yesterday's court ruling was not narrow. The court made very clear in its ruling that it did not accept, in its entirety, the case brought forward by the Commission. I do not know what press conference Deputy Paul Murphy was watching but the last thing I am going to take in dealing with this is an undue tone. The work on how large companies are taxed, as well as on how we handle a changing economy and how that is taxed, will continue. Ireland has to play a role in that but we need to ensure our interests and jobs are recognised.

The problem with basing a big portion of one's economic strategy on being one of the world's top ten tax havens, according to a paper produced by the IMF, is that it is not only immoral but also is completely unsustainable because ultimately, Ireland Inc. cannot win this race to the bottom. It can be outbid by a tax rate of 0.004% or 0.003%. The only winners in this race to the bottom that Ireland is driving with headline and actual corporation tax rates are the big corporations. The losers are those on trolleys and housing waiting lists and those who are going to pay the price for climate catastrophe. Apple continues to avail of extremely low tax rates using a new tax avoidance scheme known as the "green jersey". Will the Minister agree to stop the model of Ireland being a tax haven?

What I want is to have the tax revenue available to pay for public services and to, for example, generate a huge income subsidy support plan over a matter of days that played a role in hundreds of thousands of jobs being retained. I want to have the tax revenue to allow us to bring in payments like the pandemic unemployment payment. My interest is in having the tax revenue to deliver the public services that both I and Deputy Murphy want, as well as the jobs to keep our country at work and provide a good standard of living to people. That is my interest. The Deputy did not mention, though I think it is addressed in a later question, the OECD papers on country-by-country reporting. Based on its analysis, the OECD states that our average effective tax rate is 12% for multinational companies based here. It is not the lowest in the European Union, though it is clearly not the highest either. The only interests I have are the ones I have outlined and, in the future, making the kinds of changes that are needed to ensure larger companies, particularly digital ones, are taxed fairly and effectively.

Corporation Tax

Pearse Doherty


3. Deputy Pearse Doherty asked the Minister for Finance his views on recent findings regarding the effective rate of tax paid by certain companies here; and if he will make a statement on the matter. [16465/20]

The report published by the OECD last week, which the Minister just mentioned, found that the effective tax rate paid by companies in the State was 12%, which is close to the statutory rate of 12.5%. Some will question the report but this comes at a time when our tax arrangements in this State are under intense scrutiny. Yesterday, the European Commission announced a series of tax proposals to tackle what the Commissioner for Economy described as aggressive taxation. I ask the Minister to respond to these proposals. In particular, how does the Government view them? Does it see them as an attempt to impinge on tax sovereignty and an encroachment by the Commission in areas of domestic policy?

Companies in Ireland are mainly taxed at the standard corporation tax rate of 12.5%. Different methodologies are used and while some of them lead to different claims regarding our tax rate, it is important to look at recent work done by the Revenue Commissioners, which published an updated analysis of returns filed in 2018. They noted that the effective rate of tax paid by all companies in Ireland is 10.6%, while it is 11.3% for the top ten companies and 10.8% for the top 100. It is important to put those facts on the record of the House because those are the effective rates of taxation for companies in Ireland, as published by our own Revenue Commissioners. As the Deputy acknowledged, this tallies with the work of the OECD, which found we have an effective tax rate of approximately 12%, which is in line with our nominal tax rate of 12.5%.

As for Deputy Doherty's further question, I am going to be studying carefully what Commissioner Gentiloni published yesterday, though the formal communication of the detail of his statement has not reached Ireland as of yet. Looking at how decision-making processes work in respect of taxation is an initiative which has been pursued at other points. I continue to be of the view that taxation is a matter that must be dealt with by unanimity in the European Union but I am aware of the ongoing debate on the taxation of global companies. I do not often get the chance to point to the kind of change we have made in the past but I might be able to do it later on. Change is coming. It is going to matter for Ireland and we need to ensure it is as fair as possible for our country.

The Minister and myself differ on many issues, particularly on aggressive tax planning and loopholes that need to be continually closed and monitored in our own tax code. However, we do agree on the principle of sovereignty and of tax sovereignty in particular. Yesterday, the European Commissioner of the Economy, Paolo Gentiloni, wrote in the Financial Times:

we must stand ready to activate all existing policy levers to protect our single market. That includes exploring how to make full use of EU treaty provisions that let taxation proposals be adopted not by unanimity but by qualified majority, in agreement with the European Parliament.

Yesterday, the Commission also published a series of tax policies for what it calls fair and simple taxation and there has been an ongoing effort by a number of member states to undermine the idea of taxation by unanimity. This appears to be a serious attempt. I ask the Minister to respond to the Commissioner's comments on moving from unanimity to qualified majority voting, whatever about the policy proposals, in the Financial Times.

I have already relayed to the House my views on unanimity and the need for national sovereignty regarding particular tax matters to continue to be recognised by the European Union. I will continue to hold that view in the future, as I expect this House will as well. In fairness to the Deputy, while he may have raised questions regarding the speed at which change has been brought in and the motivation for that change, he has interrogated me on and at times welcomed the changes that have been made in recent finance Bills dealing with international taxation. This Government and the previous one brought in decisions like changing our transfer pricing rules, dealing with hybrids and aggressive tax planning and the sharing of information between countries to deal with that. We have a track record of making changes. I reaffirm my view on national sovereignty but I note the debate on international taxation will continue. I say that in recognition of the fact that the stance I have taken on dealing with the taxation of one company was recognised by the European General Court yesterday.

Yesterday, Ireland was also fined €2 million for the Government's failure to transpose an anti-money laundering directive on the preferential ownership of shares, which I raised with the Minister a number of years ago. However, that is not the key issue here and there are much more serious ones at play. One of the policies mooted by the Commissioner and the Commission is the triggering of Article 116 for tax policy purposes. That article allows the Commission to move against member states that distort market competition. The clear aim of this proposal is to circumvent the principle of unanimity to effect and determine tax policy through qualified majority voting. This has the potential to seriously impact smaller nations, undermining the principle of sovereignty. What is the Minister going to do to ensure Article 116 does not affect our right as a sovereign nation to set our own tax policies? Does he propose to use his position as chair of the Eurogroup to ensure the Commission does not encroach on national sovereign competitiveness?

I will use my role as the Minister for Finance for Ireland to pursue what I believe are longstanding clear matters for our national interest. That is what I have done in recent years and it is what I will continue to do. I will respond at another point to the ruling concerning anti-money laundering, but in the brief answers I have given to the Deputy, I have pointed to that vast amount of change that has happened in our corporate tax code to deal with aggressive tax planning and practices that I know need to change.

This has happened in Ireland and it has been led by this and the previous Government. We have made significant changes in our corporate tax policy to ensure that issues that were of concern to many have been dealt with while, at the same time, protecting the concept that taxation can be part of the competitive model of a small open economy. That is work that I have done and it is work that I plan to continue.