Dáil Éireann Debate, Thursday - 4 October 2012
6. Deputy Thomas Pringle asked the Minister for Finance if he will comment on reports that companies (details supplied) based in Shannon, County Clare, are paying very low effective rates of corporation tax; and if he will make a statement on the matter. [42286/12]
View answerThe Deputy refers to companies based in Shannon. There is no preferential tax rate for companies operating out of the Shannon region. All companies based in Ireland are subject to the same rate of tax on their trading income, which is 12.5%. The 10% corporation tax regime for companies based in Shannon Airport ceased in 2005. I am aware of recent media reports that refer to the ways that some companies structure their international tax affairs to minimise their tax costs, and the fact that some of these reports make reference to Irish companies being part of these structures. I understand some of these reports have suggested that some companies in multinational groups pay Irish corporation tax at rates that are significantly lower than 12.5%. Such companies are not paying a low rate of Irish tax; all companies in Ireland pay at the standard rate of 12.5% on their profits which are generated in Ireland. The reports concerned appear to have incorrectly attributed to Ireland profits that represent the return due to assets in other jurisdictions, which assets are owned by group companies that are not resident in Ireland.
It is incorrect to relate the 12.5% corporation tax rate to both the profits of the Irish-resident group companies and the profits of foreign-resident group companies, which are not profits chargeable to Irish corporation tax. By mixing up the Irish profits and the foreign profits of multinational groups like this, these reports can suggest an average tax rate for the companies concerned that is lower than 12.5%, and make an incorrect inference that the full Irish profits are not being charged.
Multinational groups with subsidiaries in other countries in addition to Ireland incur other bona fide expenditure. Licence payments, which are paid to group companies in foreign jurisdictions for the use of intellectual property rights, are properly deductible in computing Irish profits. If these licence payments are untaxed in the foreign jurisdiction, it will reduce the average rate of tax for the total profits of the Irish and the foreign-resident subsidiaries when these are taken together. Nevertheless, the full Irish measure of profits is being taxed and the rate of tax actually paid on the profits of the Irish-resident subsidiaries is 12.5%.
The ability of entities to lower their effective rate of tax using international structures reflects the global context in which Ireland and indeed all countries operate. The tax system in Ireland has a positive international reputation based on transparency and the fact that it is applied equally and openly to all corporate taxpayers. That Ireland has an extensive tax treaty network confirms our international standing. The January 2011 Global Forum peer review report on Ireland's legal and regulatory framework for transparency and exchange of information found Ireland has an effective system for the exchange of information in tax matters and is fully compliant with OECD standards.
Additional information not given on the floor of the House
Our job in government is to bring investment and jobs to Ireland and we have used the tax code and, in particular, our competitive corporation tax system to do so for over 50 years. What companies do outside of Ireland is beyond the scope of the Irish tax system. We cannot conclusively determine the effective rate of tax paid under international tax structures by reference to taxation in Ireland alone but we continue to work with international bodies to ensure fair play. Ireland is bound by the same rules on state aid, the code of conduct on business taxation, and rulings of the European Court of Justice as all EU member states. Ireland does not support harmful tax competition. Ireland continues to participate fully in the EU code of conduct group, which addresses harmful tax competition, and in the OECD forum on harmful tax practices.
When some of us on this side of the House rail against the austerity the Minister is imposing on working people and the vulnerable, he always asks us for an alternative, implying there is none. I almost felt sorry for him earlier when he said we are never helpful. Let me be helpful by offering him some alternatives. The case of just one company based in Shannon, one of the most profitable companies operating in the State, points to the alternative. GE Capital Aviation Funding, based in Shannon, earned €606 million in profit last year and paid but €379,000 in tax. This represents an effective tax rate of 0.5%. If the company had paid at a rate of 12.5%, it would have paid €95 million in tax. This would cover almost all the savage cuts that the Minister for Health, Deputy James Reilly, imposed over recent weeks on home help and mental health services, and which he attempted to impose on the disabled. I refer to just one company that is paying tax at such a negligible level, and which is not even paying at the standard corporation tax rate of 12.5%. How much more revenue will be available if we force the corporations in the State to pay at a rate of 12.5%, which they are not paying at present?
Last week, I asked the Minister a parliamentary question on the effective tax rate being paid by companies in the State but I did not receive a proper answer. I was told the amount was difficult to calculate. Dr. Jim Stewart of the school of business studies in Trinity College estimates that companies in Ireland are paying corporation tax on profits at a rate of between 4% and 7%. Therefore, will the Minister ensure that all companies pay at the effective rate of 12.5%? If they did so, it would generate, by any estimate, several billion euro in extra revenue for the State, thereby eliminating the need to impose brutal, austere cuts on low and middle-income earners, families on social welfare and the vulnerable.
I cannot comment on the tax affairs of an individual or individual company. Their relationships with the Revenue Commissioners are confidential and I do not have access to the relevant information. I cannot comment on individual cases raised by Deputy Boyd Barrett but can assure him that the low rate of taxation that applied to the Shannon Airport region ended in 2005. As with everywhere else, the region's companies' profits are taxable at a rate of 12.5%. That is the tax rate. While companies may be treated differently abroad, they pay at a rate of 12.5% on profits in Ireland.
Either the Minister is not examining the issue seriously or he is being disingenuous. I cited an example of one of the country's most profitable companies paying a corporation tax rate of 0.5%. It was well publicised. Is it not of concern that the tax forgone to the State is approximately €90 million at a time when Ministers are considering imposing further brutal attacks on people in the coming budget?
Another set of figures show that total profits in Ireland amounted to €51 billion in 2008, but that the effective tax rate across all corporations was 10%. If the Government increased that rate to 12.5%, an extra €1.25 billion would accrue to the State. Is this not a problem that the Minister should examine? Does it not concern him that multinational corporations are getting away with murder and not even paying the derisory 12.5% corporate tax rate at a time when cruel austerity is being imposed on people who cannot afford it?
I will allow Deputy Pearse Doherty to ask a brief question, as we have gone over time.
Without going into the details of any company, the Minister is well aware that the "double Irish" practice exists. Companies set up secondary Irish companies, register in tax havens, base their intellectual rights there and pay a dividend from the Irish resident company to the tax haven resident company. It is not that they are paying less than 12.5%, but the companies' overall profits are being siphoned off to secondary companies that do not pay tax. They do not do this to avoid paying tax in Ireland, but to avoid paying tax in America, as the interaction between the two companies are not taxed when the profits are repatriated. The Minister, President Obama and the American Administration are well aware of this and we need to be careful so that profitable companies cannot avail of tax loopholes of which the Department is well aware and to which it has turned a blind eye. What contact has the Minister had with the American Administration? Prior to the last presidential election, there was discussion of clamping down on this practice. Changing the American tax code would make attracting American multinationals to Ireland difficult. The Minister needs to tread carefully. While it may be the case that companies are paying tax of 12.5% on the profits registered in Ireland, the Irish tax code allows the "double Irish" practice to exist.
My understanding of what Deputy Boyd Barrett describe as the "double Irish" is that while it exists, it cannot be remediated by changes in Irish tax law. Our law applies a rate of 12.5% to the profits of corporations in Ireland. If the situation is to be changed, it is other countries' tax laws that need to be amended, in particular American laws, but it is not within my remit to do so.
What about raising the effective tax rate?
The Deputy is on his own. All of the other parties in the House agree on the 12.5% rate.
