Dáil Éireann Debate, Tuesday - 30 January 2018
69. Deputy Pearse Doherty asked the Minister for Finance if his attention has been drawn to concerns that have been raised regarding tax arrangements of multinationals in the State post-2014 whereby companies (details supplied) may have availed of intangible asset write-downs in the billions of euro which they may not be entitled to due to section 291A(7)(c) of the Taxes Consolidation Act; and if he will make a statement on the matter. [4535/18]
View answerThe economist, Seamus Coffey, has brought to light an interesting opinion that, if accurate, could mean that the potential amount due from Apple will be significantly higher than €13 billion plus interest. I am sure the Minister read his blog post or least his newspaper article last weekend. Does the Minister accept the view that the State could potentially be in receipt of more than €13 billion with an additional €2.5 billion to €3 billion coming into its coffers?
As the Deputy will be aware, I am not at liberty, nor is it appropriate for me, to discuss the tax affairs of individual companies.
With regard to the tax provision mentioned, section 291A of the Taxes Consolidation Act 1997 was introduced in 2009 to provide relief in the form of capital allowances against trading income on the capital expenditure incurred by companies on the provision of intangible assets for the purposes of a trade.
Prior to the introduction of this scheme, the tax system provided allowances for a limited range of intangibles such as patent rights or computer software but there was not a broad-based scheme for intangible assets generally. By introducing a specific scheme for intangible assets, Ireland has followed the international norm in this regard and has taken a similar approach to the UK and USA.
On foot of the recommendations in the Coffey report, I introduced an 80% cap on the relevant income against which capital allowances for intangible assets may be deducted in a tax year. We debated this provision at length during the passage of the Finance Act 2017. On a number of occasions, I noted that this cap will not affect the overall capital allowances for intangible assets available to use against the relevant trading income but will affect the timing of these allowances.
A number of safeguards are in place to ensure the scheme operates as intended. They ensure relief is only available where a company is carrying on bona fide trading activities in managing, developing or exploiting intangible assets and allowances are ring-fenced. The arm’s length rule applies, ensuring relief is not available in respect of any expenditure incurred as part of a tax avoidance arrangement.
The Office of the Revenue Commissioners is statutorily independent in the exercise of its functions and any matter relating to compliance is pursued by them.
The European Commission has ruled that Apple owes €13 billion in corporate tax to Ireland on profits earned between 2004 and 2014. However, as pointed out by Seamus Coffey, that might not be the end of the story. When the state aid decision is finally handed down by the courts, they may decide that Apple owes the State more than €13 billion plus interest and penalties and that it could owe between €2.5 billion and €3 billion for each year since 2015. This is due to the fact that in light of the Paradise Papers last year, Commissioner Vestager said that she was gathering information about Apple's 2015 restructure. The Minister is familiar with this issue because I have questioned him on it on many occasions. What happened was that Apple moved its intellectual property to an Irish resident company, conveniently coinciding with the intangible asset write-downs cap being increased from 80% to 100%. This allowed the company to write down billions of euro in profits in 2015. However, there is a major snag in the restructure since 2015 as outlined by Mr. Coffey. Section 291A(7)(c) of the tax code specifically states that these deductions are not allowable if the expenditure was incurred as part of a scheme or arrangement in which the main purpose was to avoid tax. This is what will be brought into sharp focus by the Commission given its determination that Apple had a tax liability in 2015. Apple representatives said in response to media queries that the restructure in 2015 was for the main purpose in respect of tax.
It would not be appropriate to comment on what the court may do in respect of adjudication on this matter. We have made it clear that we disagree with the Commission's assessment but while we disagree with its assessment and will defend ourselves in court, we will collect the money that the Commission says is due. We are in the final stages of a procurement process in respect of who will manage the escrow account relating to that money and I expect that the money the Commission believes should be due to Ireland will begin to flow into that account in the second quarter of this year. I will not comment on what the European court may say in adjudicating our claim. We disagree fundamentally with the Commission's assessment and, obviously, we will contest this in a court of European law.
That is another deadline missed as the Minister promised that the escrow account would be in place in the first quarter and, indeed, he previously said it would be in place before the end of last year but that is not the issue. The issue is our tax code and the restructure in 2015 after Apple was caught out by the Commission. It is clear that there cannot be a restructure for the main purpose of avoiding tax. Apple said that the new restructure in 2015 was for the primary purpose of tax arrangements. That is not allowed in the Irish tax code. The Commission identified that there was a €2.5 billion profit in 2014 but that profit evaporated in 2015. The Government and the Revenue Commissioners are facilitating Apple once again in avoiding the payment of a tax liability of between €2.5 billion and €3 billion each year since 2015. Unless the Minister gets his house in order, he will continue to be attacked by people in Davos and elsewhere regarding our tax sovereignty because he is allowing this to happen on his watch. He needs to investigate this and establish whether this provision in our tax code was applied to Apple's restructure in 2015.
The Deputy is conveniently ignoring the fact that I have changed the allowances in respect of how intellectual property assets should be accounted for. I made the change on budget day and it has been legislated for through the Finance Act. I categorically reject any suggestion that the Revenue Commissioners or I are engaged in the kind of activity the Deputy is alleging and if there are concerns regarding compliance with Irish tax law, they are fundamentally a matter for the Revenue to pursue. I will not comment on any company in this regard but the Revenue pursues all matters relating to compliance with the tax code diligently.
