I apologise for being a few minutes late. I must declare what might be considered a potential interest. My wife works in an oriental carpet business that imports a substantial number of certain categories of oriental carpet from Turkey. Neither she nor the business is even partially resident in Turkey and, therefore, there are no implications.
I am pleased to introduce draft Government orders giving force of law in Ireland to two new bilateral international taxation conventions. This is the second occasion within a short time that I have had the pleasure of addressing the committee on the topic of new double taxation agreements. The reason is that these two new agreements have been signed since I last appeared and there is urgency in securing approval of the committee and the Dáil in order that the agreements may be included in the Finance Bill, thereby completing Ireland's ratification procedures.
Double taxation agreements are recognised as one of the most effective mechanisms for developing and strengthening economic relations between nations. They reduce tax impediments that might otherwise deter the development of bilateral trading and investment activities between countries. The conclusion of such agreements is also important in developing diplomatic and political relations between countries. As a small, open economy heavily dependent on trade and investment activities with other countries, the continued expansion of Ireland's network of international tax agreements is of vital importance to the future of the economy.
The two orders concern double taxation conventions signed between Ireland and the Republic of Turkey and Malta. Ireland has 45 double taxation agreements in force, including with all EU countries, except Malta, and all OECD countries, except Turkey. These agreements, therefore, represent the completion of Ireland's network of double taxation agreements with all EU and OECD countries.
Negotiations are also ongoing with a range of other countries and they are at various stages. Treaty negotiations with Thailand, Albania, Georgia, Moldova, Azerbaijan and Bosnia Herzegovina have been concluded and are due to be signed shortly. Negotiations are also ongoing with other countries, including Egypt, Kuwait, Morocco, Ukraine, Serbia, Tunisia, 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.
The consideration of the agreements with Turkey and Malta by the committee is an important step in their ratification process. Draft Government orders confirming and giving effect in Ireland to the conventions were laid before Dáil Éireann on 17 November in accordance with the provisions of section 826 of the Taxes Consolidation Act 1997. A resolution by the House 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 the committee for consideration. The draft orders will then be referred back to the Dáil for approval. After 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 Finance Bill. On the passing of the Bill, the Irish ratification procedures will be complete. Once both countries have completed their parliamentary procedures, the conventions will take effect in accordance with their entry into force provisions.
I will describe the background to, and contents of, the conventions. 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, such agreements include provisions dealing with non-discrimination in taxation matters. They also have mutual agreement procedures, which allow the tax authorities of both counties to consult each other on taxation matters affecting the agreement, and provisions that allow for the exchange of information for the purpose of preventing tax evasion.
The conclusion of the agreement with Turkey is tangible evidence of the expanding economic relations between Ireland and Turkey. During the past several years, the Republic of Turkey has gone through a comprehensive process of economic reform and restructuring. Turkey experienced major economic crises in 2000 and 2001 but, as a result of a reform programme put in place by the Turkish Government in 2001, the Turkish economy has undergone an impressive economic transformation, such that it now has one of the highest GDP growth rates in the OECD. Economic growth continues to be driven by substantial growth in exports and foreign direct investment and, despite the global financial crisis, GDP is expected to increase by 4% this year.
In 2007 Turkey was Ireland's 21st largest merchandise trading partner with merchandise trade worth €943 million. Exports were valued at €412 million and imports at €531 million with the principal merchandise exports being medical and pharmaceutical products, essential oils and chemical materials while the principal merchandise imports were road vehicles, apparel, iron and steel. With regard to tourism links, the Irish are the fifth largest group of foreign nationals owning property in Turkey. Turkey is also a potential EU accession country and it is, therefore, an important trading and investment partner for Ireland.
The double taxation agreement with Turkey 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. As I have stated already, the agreement is expected to have a positive impact on trade and investment between both countries. Apart from avoiding double taxation and reducing incidence of taxation, especially with regard to dividend, interest and royalty payments, it will provide certainty for taxpayers in both countries on cross-border taxation matters.
I now turn to the double taxation convention with Malta which was signed only last week. As I have stated, Malta was the only EU member state with which Ireland did not have a double taxation agreement. Malta is one of the smallest EU member countries, with a population of just 400,000 people. Malta joined the EU in 2004 and was admitted to the eurozone in 2008. Trade and investment between both countries is small, but good opportunities exist to develop closer economic relations in the future.
In common with other Irish double taxation agreements, the agreement with Malta 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 for reduced rates of withholding tax on dividends and royalty payments and exemption at source for interest 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.
I commend these two draft orders to the committee and, if required, will be happy to deal with any aspects of the agreements in more detail.
