I thank the Chairman for his good wishes. I am very pleased to be before the committee, where I was honoured to serve for six years and for whose work and membership, past and present, I have great respect. I am here to introduce to the committee three draft Government orders giving force of law in Ireland to new international taxation agreements. Double taxation agreements, DTAs, are recognised as one of the most effective mechanisms for developing and strengthening economic relations between nations. The conclusion of such agreements is also an important milestone towards broadening diplomatic and political relations between countries.
DTAs, as they are known, are widely regarded as critical fiscal infrastructure for developing substantial bilateral trading and investment opportunities by reducing tax impediments that might otherwise deter such cross-border activity. For a small open economy like Ireland's, so dependent on trade and investment with other countries, continuing to expand our network of international tax agreements is not only necessary but vital. Tax information exchange agreements, TIEAs, while serving a different purpose, are also important international agreements which strengthen the ability of the revenue authorities in both countries to enforce their tax laws and thereby encourage the development of closer economic relations between both countries in the future.
The first two orders for discussion today are in regard to double taxation agreements signed between Ireland and Vietnam, and Ireland and Macedonia. The third order concerns two agreements signed between the Government of Ireland and the Government of the Isle of Man. The first of these agreements with the Isle of Man is a tax information exchange agreement and the second is an agreement granting double taxation relief with respect to certain income of individuals and establishing a mutual agreement procedure in connection with the adjustment of profits of associated enterprises. The tax information exchange agreement with the Isle of Man is the first such agreement into which Ireland has entered.
Today's consideration of these agreements by the committee is an important step in their ratification process. Draft Government orders confirming and giving effect in Ireland to the agreements were laid before Dáil Éireann on 15 September 2008 in accordance with the provisions of section 826 of the Taxes Consolidation Act 1997. A resolution by Dáil Éireann approving the draft orders is required before the Government can make the orders. The proposal that Dáil Éireann approve the draft orders has been referred to this committee for consideration. After consideration by the committee, the draft orders are then referred back to the Dáil for approval. Following that, the Government may make the orders, and the agreements will then be included in a Schedule to the Taxes Acts by means of a section in the forthcoming Finance Bill. Thereupon, the Irish ratification procedures are completed. Once both countries have completed their procedures, the agreements will take effect in accordance with their entry into force provisions.
I will now briefly describe the background to, and contents of, the agreements. The main purpose of double taxation agreements is to avoid the taxation in both countries of the same income or gains. This is achieved by allocating exclusive taxing rights to one country, or where both countries retain taxing rights, by requiring the country where the taxpayer is resident to grant credit against its tax for the tax paid in the other country. Double taxation agreements cover direct taxes, which in the case of Ireland are income tax, corporation tax and capital gains tax. They are comprehensive in scope, covering both the taxation of companies and individuals, and are in the main based on the OECD model tax convention.
Apart from relieving double taxation, double taxation agreements include provisions dealing with non-discrimination in regard to taxation matters. They also have mutual agreement procedures which allow the tax authorities of both counties to consult each other in taxation matters affecting the agreement, and provisions that allow for the exchange of information for the purpose of preventing tax evasion.
Ireland has 45 double taxation agreements in force at present. These include agreements with all EU countries except Malta and with all OECD countries except Turkey. Negotiations for agreements with Malta and Turkey have been recently concluded and it is hoped to have these agreements signed shortly. Negotiations are also ongoing with a range of other countries. These negotiations are at various stages. Apart from Turkey and Malta, treaty negotiations with Thailand, Georgia, Moldova, Azerbaijan and Bosnia-Herzegovina have been concluded and are due to be signed shortly. Negotiations are also ongoing with other countries, including, amongst others, Egypt, Kuwait, Morocco, Ukraine, Serbia, Tunisia, Albania and Armenia. The Department of Finance and the Revenue Commissioners also continue to liaise with business representative bodies in identifying other countries where tax agreements would assist Irish business.
Vietnam is the second South-East Asian country with which Ireland has successfully concluded negotiations for a double taxation agreement. The first was with Malaysia and was signed in 1998. Negotiations for an agreement with Thailand have also been concluded recently and will, I hope, be signed shortly. Concluding agreements with key emerging markets such as these are seen as an important element in the Government's ongoing strategy. For example, a couple of years ago, our bilateral trade was worth €145 million. ESB International has engaged in some 15 contracts with Vietnam and Irish visitors to that country amounted to approximately 10,000 in 2006.
Vietnam is a very significant new emerging economy in south-east Asia. Those of us old enough to remember even at a distance the Vietnam War and the opposition it aroused will be particularly heartened by its progress. It has a population of 85 million people and, since the beginning of its economic reform process in 1986, has achieved an average GDP growth of 6.8% per annum. Economic growth continues to be driven by strong industrial expansion, consumer spending and investment in services and tourism. Following accession to the WTO in January 2007, foreign direct investment in Vietnam has surged, reaching $20 billion in 2007. Vietnam has, therefore, been identified as an important developing market for Irish trade and investment.
The double taxation agreement with Vietnam covers direct taxes imposed in both countries. It is comprehensive in scope, and generally follows the OECD model tax convention. Specific provisions in the agreement deal, inter alia, with the taxation of business profits, dividends interest and royalty payments, employment income and pensions. Other important matters dealt with include non-discrimination provisions, which protect nationals from discriminatory tax provisions in the other country, and exchange of information provisions, which are necessary to counter tax evasion.
The agreement is expected to have a generally positive impact on trade and investment between both countries. Apart from avoiding double taxation and reducing incidence of taxation, especially in regard to dividend, interest and royalty payments, it will generally provide certainty in regard to cross-border taxation matters. As such, the agreement will significantly assist the development of future Irish business and investment in Vietnam.
Turning to the Macedonian agreement, the Republic of Macedonia was formerly one of the six republics of the Yugoslav Federation and became an independent state in 1991. The Republic of Macedonia is a member of the UN, the Council of Europe and the World Trade Organisation. During Ireland's Presidency of the EU in 2004, Macedonia submitted its application in Dublin for membership of the EU, and in December 2005 the European Council granted the Republic candidate status.
Macedonia is one of the smaller European countries, with a population of just over 2 million people. As a small developing economy, Macedonia is keen to attract inward investment, and, given the important role that tax agreements play in this regard, it has since its independence signed a number of such agreements with EU member states, including the United Kingdom and Germany in 2006, Austria in 2007 and Spain in 2005. It has also succeeded to a considerable number of agreements that were concluded by the former Yugoslavia, including many with EU states. In all, it has double taxation agreements with 35 countries, of which 18 are EU member states.
As with other such agreements, the agreement with Macedonia generally follows the OECD model tax convention. It covers the direct taxes of both countries and covers the taxation of both individuals and companies. It provides exemption at source for interest and royalty payments and for reduced rates of tax on dividend payments. These provisions are of importance in reducing fiscal barriers to investment flows between each country. Other important articles include non-discrimination provisions, which protect nationals from discriminatory tax provisions in the other country, and exchange of information provisions which are necessary to counter tax evasion.
The agreement is expected to have a generally positive impact on trade and investment between both countries. Not surprisingly, trade and investment between Ireland and Macedonia is rather small at present. However, there will be business opportunities for Irish business and investors in the future, particularly when Macedonia becomes a member state of the EU. Strategically, it is also important that Ireland increases its ties with EU candidate countries.
The third draft order concerns two agreements signed with the Isle of Man. The first is a tax information exchange agreement, TIEA. The Isle of Man TIEA is based on the OECD model. The model TIEA grew out of work undertaken by the OECD to address harmful tax practices globally. Lack of effective exchange of information was identified as one of the key criteria in determining harmful tax practices.
A working group was formed in 2002 under the auspices of the OECD global forum to develop a model TIEA that member states could use to negotiate bilateral TIEAs with jurisdictions. The working group consisted of representatives from OECD member countries, including Ireland, as well as representatives from the offshore jurisdictions. Across the OECD, for several years back, there has been concern to close gaps, which permit an escape of tax revenue lawfully required, by strengthening agreements with all relevant jurisdictions, whatever their size, that offer developed financial services.
The OECD model TIEA now represents the international standard for effective exchange of information in tax matters. Several OECD countries have concluded bilateral TIEAs with jurisdictions based on the model. At present, 28 bilateral agreements have been concluded worldwide. My officials are currently in the process of negotiating other TIEAs, most notably with Jersey and Guernsey.
The Isle of Man was one of the first international financial services centres to make a commitment to the OECD standards of tax information exchange and transparency. It was also one of the jurisdictions that engaged with the OECD in developing the TIEA model. Since then, it has concluded bilateral TIEAs with a number of countries: the USA, the Netherlands, the seven Nordic countries — Denmark, the Faroes, Finland, Greenland, Iceland, Norway and Sweden — Ireland and most recently the United Kingdom.
Ireland welcomes the Isle of Man's commitment to the OECD standards and its willingness to enter into TIEAs. The TIEA between Ireland and Isle of Man will allow the revenue authorities of both countries to request directly from the tax authorities in the other country information that is relevant to a tax investigation, such as bank account information or company or trust ownership information. The agreement will therefore greatly assist the Revenue Commissioners in tax investigations involving Isle of Man entities and bank accounts.
The signing of the TIEA represents a new chapter in relations between both countries. As a direct consequence of this new relationship, Ireland and the Isle of Man also signed an agreement affording relief from double taxation with respect to certain income of individuals. This agreement is aimed at reducing the possible tax obstacles that may hinder the free movement of individuals between both countries. It also establishes a mutual agreement procedure in connection with the adjustment of profits of associated enterprises. Other OECD countries have agreed similar provisions in their TIEA negotiations. The normalisation of relations between Ireland and the Isle of Man concerning tax matters will provide a welcome platform for significantly strengthening the business and economic ties between both islands.
I therefore commend these three draft orders to the select committee. If so required, I will be happy to deal with any aspects of the various agreements in more detail.
