Thursday, 30 November 2017

Questions (9, 12)

Richard Boyd Barrett

Question:

9. Deputy Richard Boyd Barrett asked the Minister for Finance the reasoning behind the decision of the former Minister for Finance in budget 2014 to raise the cap on the capital allowance of tangible assets from 80% to 100%; if he will report on lobbying, submissions, discussions or meetings in relation to this issue prior to it being included in that budget; the minutes, memos and communications with regard to this change; and if he will make a statement on the matter. [50865/17]

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Richard Boyd Barrett

Question:

12. Deputy Richard Boyd Barrett asked the Minister for Finance if he will report on all meetings and communications involving his Department officials, himself or his predecessor and a company (details supplied), other large multinational companies or a group in which the issue of corporate tax, intellectual property or intangible assets were discussed in each of the years 2011 to 2016 and to date in 2017; the submissions received or commitments made on these issues during those years; if all relevant documents received or sent in relation to same will be provided; and if he will make a statement on the matter. [50867/17]

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Oral answers (6 contributions) (Question to Finance)

We are aware that Apple avoided paying €13 billion in tax through the double Irish scheme using Irish registered companies. The Paradise Papers reveal that in 2014 and 2015, changes made by then Minister for Finance, Deputy Michael Noonan, to the intangible assets allowance enabled Apple and almost certainly other companies to continue to avoid billions of euro in tax, using Irish registered companies and offshore tax havens. Will the Minister tell us what lobbying, discussions and communications took place for the Government to make the decision in 2014 which facilitated Apple and others?

I propose to take Questions Nos. 9 and 12 together.

Capital allowances for intangible assets were introduced in Finance Act 2009 to support the development of the knowledge economy and the provision of high quality employment. When the capital allowances were introduced, to ensure that a measure of tax remained in charge annually, a restriction was provided to cap the amount of income that the allowances could be used against in any year at 80%. The restriction did not deny the use of the capital allowances. It merely lengthened the period over which they could be utilised.

Ireland is not unique in providing capital allowances for intangible assets and the tax treatment of intangible assets is similar to the approach taken in other countries, such as the UK and the US. In the Finance Act 2014, the cap of 80% was increased to 100%, effective for accounting periods commencing on or after 1 January 2015. The rationale for increasing the cap was to bring the tax treatment of intangible assets into line with the tax treatment of similar assets in other jurisdictions. The change also ensured that the treatment of intangible assets was in line with the treatment of other capital assets in our tax code. Noting a significant increase in the use of the capital allowances in 2015, the Coffey review recommended that to ensure some smoothing of corporation tax revenue over time, the 80% cap be restored. The cap does not affect the overall capital allowances available but merely lengthens the timeframe over which they can be used.

Regarding meetings, my officials and I meet a range of organisations and individuals regularly and I note that this subject was discussed at length on Committee and Report Stages of the Finance Bill. As I noted on those occasions, as part of regular pre-budget meetings, I met with the American Chamber of Commerce but the subject of capital allowances for intangible assets was not discussed. I did, however, have many meetings with my officials on this and other policy choices. On the basis of these discussions, I implemented the recommendation of the Coffey review and re-introduced the 80% cap to capital expenditure incurred from budget night.

Regarding meetings held at the time of the 2014 change, I gave an undertaking on Committee Stage of the Finance Bill to ask my Department to review its records from that time to establish the position with regard to that period. This review is ongoing.

The change made by the former Minister, Deputy Noonan, in 2014 is a scandal. Séamus Coffey said that had we not made that change, we would have collected €722 million in additional tax in 2015, and presumably there would have been a similar figure in subsequent years. Mr. Coffey said that if one ensured that all claims for this allowance was under the 80% regime, we would have an extra €1 billion next year. In 2015, a window was opened, through which Apple jumped, using Jersey and Ireland. This was conveniently opened that year by the former Minister, Deputy Michael Noonan. We need to know what lobbying took place, what discussions were undertaken and what the rationale was for increasing that allowance in 2015. It cannot be a coincidence that after the double Irish was closed, Apple and others restructured their tax avoidance arrangements using Irish companies and Jersey to escape billions of euro in tax.

I have not commented on any engagement or action that may have been taken by an individual company in the Paradise Papers, and it is not appropriate for me to do so. However, something that emerges from the papers is that they show how quickly large international companies can respond to changes in tax codes in any jurisdiction and if further efforts are to be made to increase the efficiency and the legitimacy of global tax collection, it must be done on a co-ordinated basis. All countries and all jurisdictions must move in the same direction.

On lobbying, I have already given a commitment to make those records available. I have outlined the rationale. We changed the tax treatment of intellectual property assets in line with what was happening in other jurisdictions with which we could compare ourselves. I entirely reject the Deputy's description of this as a scandal. That change was made for the reasons I outlined but as we were making those changes, the OECD process on how we deal with these matters was under way elsewhere and that was a factor in what took place.

During the committee hearings that year, it was said that the much trumpeted double Irish would, in fact, be replaced by another scheme through which the same companies would be able to avoid pretty much the same amount of taxes, but in a slightly different way, by speaking about patents and intellectual property rights. That is exactly what happened. The Government was warned about it. The Minister acts as though he is some sort of innocent and Apple got the better of him, but the change that the then Minister, Deputy Noonan, made in that budget resulted in them avoiding billions of tax, just as I said it would at the committee meeting. The mechanism through which they did this has now been revealed in the Paradise Papers. The former Taoiseach, Deputy Enda Kenny, met the CEO of Apple earlier that year, as did the Minister, Deputy Richard Bruton, and in the 2015 budget which was presented in October 2014, the change was included which opened the window for this tax avoidance scheme. Is the Minister seriously suggesting that he did not know this would be the result, and that conveniently Apple would be allowed to onshore billions of euro of assets and, as Séamus Coffey pointed out, not pay any extra tax at all even though the profits in that year jumped by approximately €50 billion?

I have outlined to the Deputy the reason those changes were made. I have given him a commitment that any records for the period in question that are available will be shared. A recognition of the change to the tax code that was made in last month's budget is entirely missing from the points made by Deputy Boyd Barrett. In light of the understanding we now have of how big and valuable these assets are, I believe it is appropriate to go back to the regime that was in place previously. I reiterate that a key insight which has emerged from these papers is the need for all countries and jurisdictions to move on the same journey at the same time as we seek to improve global tax collection.

Written Answers are published on the Oireachtas website.