Written Answers Nos. 67-86
67. Deputy Mick Barry asked the Minister for Finance the steps he will take to make insurance premia more affordable by limiting the large profits in the sector; and if he will make a statement on the matter. [31780/21]
View answer69. Deputy Aindrias Moynihan asked the Minister for Finance his plans to ensure that insurance premia are successfully reduced for motorists, businesses and other users in line with the revision of guidelines for personal injury awards; if his attention has being drawn to increases in premia for SMEs; the measures being taken to ensure that the benefits to changes in claims playouts are being passed onto customers; and if he will make a statement on the matter. [31756/21]
View answer126. Deputy Dara Calleary asked the Minister for Finance the engagement he has had with insurance companies in relation to reducing premia for consumers; and if he will make a statement on the matter. [31770/21]
View answer404. Deputy Bernard J. Durkan asked the Minister for Finance the degree to which insurance costs for public liability and all other forms of insurance have become affordable; and if he will make a statement on the matter. [32086/21]
View answerI propose to take Questions Nos. 67, 69, 126 and 404 together.
The availability of affordable insurance is a key policy priority as reflected in the Government’s Action Plan for Insurance Reform. In this regard, I welcome the adoption of the new Personal Injuries Guidelines, which came into force on 24 April. This is a key achievement in the Government’s reform agenda that was realised several months ahead of schedule.
The Guidelines significantly reduce award levels for many categories of common injuries, particularly those of soft tissue. Of note is that a number of common injuries will now move to the jurisdiction of the District rather than the Circuit Court, thus reducing associated legal fees. The Guidelines also provide guidance in relation to injuries previously not included in the Book of Quantum and will be used by both the Personal Injuries Assessment Board and the judiciary. Therefore, the Guidelines should help to bring more certainty to claimants and insurers, and as such reinforce the benefits of using the Personal Injuries Assessment Board to settle claims. This in turn should further reduce the costs of claims, particularly legal fees. I have previously set out my view that these costs rather than the profit component tend to represent a bigger factor in the cost of insurance premiums. As such it is important that they are lowered.
In terms of the benefits accruing from reduced award levels, my expectation is that insurers will live up to commitments made, and will now commence reflecting savings to consumers, businesses and other groups. In this regard, I recently met with the CEOs of the main insurers operating in Ireland to set out the Government’s expectations in this regard and hear how they will respond to these recent developments. These engagements were positive and I will meet with them again later this year to review progress.
While I continue to believe that this engagement is key to holding insurers to account, I have also asked officials in the Department to engage with the Central Bank to consider what enhancements could be made to improve transparency further through the National Claims Information Database so that the impact of the Guidelines can be seen in future motor, employer and public liability reports. Technical work is commencing on this and I hope to return to the House later this year with proposals.
70. Deputy Catherine Connolly asked the Minister for Finance his plans to review the current tax exemptions for real estate investment trusts and Irish real estate funds; and if he will make a statement on the matter. [31783/21]
View answerInvestment funds are a long term presence in the Irish market, as in most other property markets. As with investment funds generally, tax occurs primarily at the level of the investor rather than within the fund. Additionally, in the case of both Irish Real Estate Funds (IREFs) and Real Estate Investment Trust companies (REITs), withholding taxes apply on distributions to investors to ensure collection of tax revenues.
The operation of such investment structures is kept under review and in recent Finance Acts, I have made significant changes where concerns have been identified, to ensure that appropriate tax is collected.
In 2019, officials in my Department produced a report on REITs and IREFs as respects their investment in the Irish property market. The report provided a basis for policy discussions and the amendments which were introduced in Finance Act 2019.
In relation to IREFs, amendments were made in Finance Act 2019 to prevent the use of excessive debt and other payments to reduce distributable profits, and to prevent the avoidance of tax on gains on the redemption of IREF units.
In relation to REITs, Finance Act 2019 extended the obligation to deduct DWT to include distributions of the proceeds of capital disposals. In addition, the deemed disposal provisions upon cessation of REIT status were restricted to REITs that have been in operation for at least 15 years, in line with the regime's stated objective of encouraging long-term, stable investment in rental property.
Institutional investment in commercial and residential property is critically important to generating additional supply of property in Ireland through forward-funding of development projects, particularly in the area of high-density urban developments such as apartment buildings. Rebuilding Ireland identified the encouragement of the build-to-rent sector as a key factor in improving the rental sector and acknowledged that institutional investors have the potential to provide significant investment in such projects.
However, I do not support the bulk purchase of residential houses by institutional investors. This is why, in light of recent concerns raised, I have introduced a new 10% rate of Stamp Duty on such purchases, increased from the rates paid by other purchasers of 1% on values up to €1 million and 2% on values above €1 million.
72. Deputy Brian Stanley asked the Minister for Finance the number of settlements that have been made to the Revenue Commissioners by companies or employers due to bogus self-employment and unpaid PRSI in each of the years 2015 to 2020. [31499/21]
View answer85. Deputy Brian Stanley asked the Minister for Finance the number of inspections of bogus self-employment carried out by the Revenue Commissioners excluding the construction sector in each of the years 2015 to 2020. [31500/21]
View answerI propose to take Questions Nos. 72 and 85 together.
I am advised by Revenue that the overall additional tax, including interest and penalties, collected each year during the period 2015 to 2020 through non-compliance intervention programmes, ranged from €487 million to €643 million, of which an average of almost €87 million per year related to additional payroll taxes. Revenue records are not maintained in a manner that allows the amount of additional payroll tax that was directly attributed to bogus self-employment and unpaid PRSI to be separately extrapolated.
Revenue has also advised me that it carried out over 16,500 onsite inspections across multiple business sectors, excluding the construction sector, in the years 2015 to 2020, as part of its wider compliance intervention programmes. These cases were selected based on risk criteria, with some interventions conducted on a multi-agency basis, including officials from the Department of Social Protection (DSP) and the Workplace Relations Commission (WRC).
73. Deputy Niamh Smyth asked the Minister for Finance if the rent-to-buy scheme will continue after 2021. [31752/21]
View answer387. Deputy Catherine Connolly asked the Minister for Finance his plans to phase out the help-to-buy scheme which is due to come to an end in December 2021; the engagement he has had with the Minister for Housing, Local Government and Heritage in this regard; and if he will make a statement on the matter. [31864/21]
View answerI propose to take Questions Nos. 73 and 387 together.
I am advised that Deputy Smyth intended to refer to the Help to Buy incentive scheme, rather than a rent-to-buy scheme.
The Help to Buy (HTB) incentive is a scheme to assist first-time purchasers with obtaining the deposit they need to buy or build a new house or apartment. The scheme gives a refund on Income Tax and Deposit Interest Retention Tax (DIRT) paid in the State over the previous four years, subject to limits outlined in the legislation.
An increase in the supply of new housing is fundamental to resolving the current housing crisis. One of the main aims of the policy underpinning the design of HTB was to help encourage the building of additional new properties. By restricting the scheme solely to new dwellings and new self-builds, it is anticipated that the resulting increase in demand for affordable new build homes will encourage the construction of an additional supply of such properties. In accordance with a commitment in the Programme for Government, HTB was enhanced in July 2020.
The future of the scheme, beyond its current sunset date of 31 December 2021, is a matter that will fall to be considered by Government in the context of Budget 2022 and the subsequent Finance Bill.
75. Deputy Thomas Gould asked the Minister for Finance if his attention has been drawn to insurance companies refusing to provide cover to persons with fully managed type 1 diabetes. [31799/21]
View answerAt the outset, it is important to note that neither I, nor the Central Bank of Ireland, can intervene in the provision or pricing of insurance products or have the power to direct insurance companies to provide cover to specific individuals or businesses. This position is reinforced by the EU framework for insurance (the Solvency II Directive). Consequently, I am not in a position to direct companies as to what terms and conditions apply in relation to cover.
I understand that the Deputy’s question is referring to life insurance, including mortgage protection insurance. It is my understanding that generally, insurers use a combination of rating factors in making their individual decisions on whether to offer life insurance and what terms to apply. These can include age; health; family medical history; occupation; and lifestyle. In addition, these may be determined or linked to the policy duration. In the case of mortgage protection policies, these tend to be over the lifetime of the repayment schedule. In addition, my understanding is that different insurers do not use the same combination of rating factors. Accordingly, prices and availability of cover varies across the market, and will be priced in accordance with firms’ prior claims experience.
While the above applies in general, I am aware of reports that some customers, including those with Type 1 diabetes, have experienced increased difficulties in obtaining life insurance or mortgage protection cover in the context of the COVID-19 pandemic. This is an issue that Minister of State Fleming and my officials have raised in meetings with Insurance Ireland, and more recently with the CEOs of the main insurers in the Irish market. Insurance Ireland stated that while unaware of any cases where life cover has been denied, such policies are assessed on a case-by-case basis and that underlying health conditions, such as Type 1 diabetes, will be taken into account by underwriters, as was the case pre-COVID-19. It will continue to keep in close contact with its members on this issue, which I welcome.
The Deputy will be aware that both Minister of State Fleming and I have consistently and publicly stated that in the context of COVID-19, we expect insurance firms to treat their customers fairly, honestly, and in accordance with the Central Bank’s Consumer Protection Code.
Finally, where somebody feels they have been treated unfairly by a particular insurance provider, they have the option of making a complaint to the Financial Services and Pensions Ombudsman (FSPO). The FSPO acts as an independent arbiter of disputes which consumers may have with their insurance company or other financial service provider. The FSPO can be contacted either by email at info@fspo.ie or by telephone at 01-567-7000.
76. Deputy Richard Bruton asked the Minister for Finance his assessment of access to capital in the site acquisition and housing construction market; the places in which bottlenecks exist; if he is satisfied with the financial instruments now in place; and if he will make a statement on the matter. [31585/21]
View answerAs the Deputy will be aware, housing is a key priority for Government. In Budget 2021, a record total of €3.3 billion was allocated towards housing, including an Exchequer allocation of €3.1 billion. The capital spending on housing for 2021 is 26 per cent higher than the previous year, and almost two-and a half times what it was in 2017, demonstrating the massive commitments Government has already made in the area of housing.
There are also significant non-fiscal constraints to achieving the desired level of output – a pandemic, labour shortages and material shortages. There are also skills shortages, which is why the Government is providing significant investment in skills and trades as announced last week in the Economic Recovery Plan.
The funding landscape for residential development remains challenging particularly outside the main urban areas and commuter belt where demand is less proven. Even within the main urban centres the availability of finance very much depends on the entity, their track record and their previous relationship with banks or alternative lenders. While there has been an increase in the funding options in the market over the last number of years, the onset of the global pandemic interrupted this trend. More recently, the announcement of some lenders exiting the Irish market has created further funding gaps.
To address these ongoing gaps, Home Building Finance Ireland has expanded its product offering to cater for schemes from 5 to 300 units across Ireland. It has also adopted a regional focus with a view to targeting those developers and regions where the availability of funding is even more limited.
Irish banks remain well capitalised and all funding metrics are substantially above minimum requirements which means they remain in a strong position to lend. Financial performance in Q1 2021 was positive across the three banks in which the State has a shareholding with stable loan volumes, no deterioration in asset quality and strong liquidity positions. Mortgage drawdowns for house purchase grew by 5% yoy in Q1 despite the public health restrictions that were in place. Despite the significant losses booked in 2020, the funding and capital positions of the banks remain significantly above regulatory minima leaving them well positioned to manage through the crisis and to support the recovering economy.
77. Deputy Peadar Tóibín asked the Minister for Finance if a public banking forum will be developed by the Government. [22908/21]
View answer119. Deputy John McGuinness asked the Minister for Finance if he supports the establishment of a forum on banking; and if he will make a statement on the matter. [31702/21]
View answerI propose to take Questions Nos. 77 and 119 together.
This is a very difficult period for the retail financial services sector, which is undergoing a major period of change. In the last few months, we have seen several major announcements including the withdrawal of Ulster Bank, the potential withdrawal of KBC Bank Ireland, and the forthcoming closure of a large number of bank branches by Bank of Ireland and a smaller number by AIB.
I appreciate the concerns of bank staff arising from these announcements and for the future direction of the sector they work in.
While many ascribe these announcements wholly or partially to Covid and all the challenges that the pandemic has brought, the reality is that retail financial services is undergoing real change as the sector copes with long running challenges such as negative interest rates, technological change that is reducing the barriers to entry to a whole range of new entrants, and changing customer preferences as they use more and more digital services, while still wanting the traditional branch network to be available.
Accordingly, I am considering how next to structure a review process that will examine the issues in depth. This process is likely to involve engagement with a wide range of stakeholders in developing a fuller analysis of future banking challenges and recommendations that flow from that analysis. I want to ensure that the process is a holistic one as it is important that the future of banking is not determined by the incumbents.
I hope to be in a position to set out details on this in the coming months and all stakeholders will be afforded the appropriate opportunities to contribute their views and suggestions.
78. Deputy Bernard J. Durkan asked the Minister for Finance the degree to which he expects a potential 15% universal corporation tax as agreed at the recent G7 meeting to impact on Ireland’s position as an attractive foreign direct investment location; and if he will make a statement on the matter. [31740/21]
View answer89. Deputy Marc MacSharry asked the Minister for Finance his views on and response to the recent G7 agreement on corporation tax; and if he will make a statement on the matter. [31704/21]
View answer93. Deputy Mick Barry asked the Minister for Finance if he will report on the engagements he has had with the European Commission, Eurogroup ministers and other EU governments on implementing a minimum corporate tax rate; and if he will make a statement on the matter. [31781/21]
View answer103. Deputy John Lahart asked the Minister for Finance his assessment of the economic impact of increasing corporation tax to 15%; and if he will make a statement on the matter. [31775/21]
View answer108. Deputy Réada Cronin asked the Minister for Finance the preparations his Department is making in conjunction with business stakeholders and representatives on the impact on businesses of possible changes in the global corporation tax environment; the meetings he has had with business stakeholders and representatives regarding same; and if he will make a statement on the matter. [30160/21]
View answer116. Deputy Ged Nash asked the Minister for Finance his views on the global corporation tax reform proposals as discussed at the G7 meeting he attended as President of the Eurogroup; the implications for Ireland if an agreement along the lines of that proposal are ultimately adopted; and if he will make a statement on the matter. [31606/21]
View answer128. Deputy James Lawless asked the Minister for Finance his plans with regard to corporation tax rates; and if he will make a statement on the matter. [31698/21]
View answer366. Deputy Pearse Doherty asked the Minister for Finance the details of the agreement reached at the recent meeting of the G7 regarding international tax reform with regard to corporate taxation with particular reference to agreement reached regarding the reallocation of corporate profits based on location of sales and a minimum corporate tax rate; and if he will make a statement on the matter. [31540/21]
View answer367. Deputy Pearse Doherty asked the Minister for Finance if he supports the agreement reached regarding corporate tax reform at the recent meeting of the G7; if not, if he supports the principle of a minimum corporate tax rate; if so, the level or rate at which the minimum corporate tax rate should be set; and if he will make a statement on the matter. [31541/21]
View answer368. Deputy Pearse Doherty asked the Minister for Finance the impact on both corporation tax receipts and inward investment over a medium-term horizon of an implementation of a global minimum corporate tax rate in the form agreed at the recent meeting of the G7; and if he will make a statement on the matter. [31542/21]
View answer369. Deputy Pearse Doherty asked the Minister for Finance the impact on both corporation tax receipts and inward investment over a medium-term horizon of an implementation of the reallocation of corporate tax receipts on the basis of sales location in the form agreed at the recent meeting of the G7; and if he will make a statement on the matter. [31543/21]
View answer395. Deputy Christopher O'Sullivan asked the Minister for Finance the estimated risks to Ireland’s economy if the global corporate tax rate is raised to 15% as proposed by the G7; and if he will make a statement on the matter. [32065/21]
View answer398. Deputy Bernard J. Durkan asked the Minister for Finance if international taxation proposals are likely to impact on the economy and its future prospects; and if he will make a statement on the matter. [32080/21]
View answerI propose to take Questions Nos. 78, 89, 93, 103, 108, 116, 128, 366 to 369, inclusive, 395 and 398 together.
The Government has noted the communique of 5 June from the G7 Finance Ministers which includes the desire for a global minimum effective tax rate of at least 15%. The G7 agreement is an important signpost towards an agreement but it is relevant also that there are 139 countries participating in the OECD/G20 Inclusive Framework on BEPS which is the formal decision body for any agreement. Any agreement will be a compromise and will need to be a consensus, and it must meet the needs of small and large countries, developed and developing.
Firstly, it is important to stress that the Government believes that it is in everyone’s interest to achieve a sustainable, ambitious and equitable agreement on modernising the framework for international tax to reflect increasing globalisation and digitalisation. Secondly, it is also important to highlight that reform of the international tax rules has been an ongoing process since 2013.
In this respect, Ireland has very much played its part in reframing these rules for the benefit of business and citizens, and we have proactively and diligently reformed our tax code in line with the new international norms. A lot has been achieved through the OECD’s BEPS process and we now have far more robust international tax rules and safeguards to prevent abuse, arbitrage, base erosion and profit shifting than existed a decade ago.
Since 2018, Ireland has constructively engaged in the more recent discussions to find a solution at the OECD to address the broader tax challenges of digitalisation and globalisation. This is the subject of the current negotiations which are expected to conclude this year. The OECD is proposing a two pillar solution. Pillar 1 concerns the allocation of a proportion of taxing rights to the market jurisdiction, while Pillar 2 concerns a series of rules, the Income Inclusion Rule, the Under-Taxed Payment Rule and the Subject to Tax Rule which are designed to ensure a minimum effective tax rate for large multi-national enterprises. It is important to note that the Pillar 2 proposals are broadly based on an existing US regime, GILTI, which applies to US multinationals in Ireland may already subject them to a top up tax in the US.
The minimum rate creates challenges for Ireland and other small countries for good reasons. I believe that any agreement must be able to accommodate healthy and fair tax competition. Small countries, and Ireland is one of them, need to be able to use tax policy as a legitimate lever to compensate for advantages of scale, location, resources, industrial heritage and the real, material and persistent advantage enjoyed by larger countries. At the same time, I fully accept that there needs to be clear boundaries to ensure any competition is fair and sustainable.
It is my intention to continue to make a case for the agreement to accommodate Ireland’s low but substantial 12.5% rate.
There will be a meeting of 139 members of the Inclusive framework on 30 June and 1 July in order to try reaching a consensus agreement. Further technical work will continue over the summer and in the autumn with a view to achieving a comprehensive agreement in October in lines with the principles agreed.
The Government has said for some time that change is coming and we will adapt to this change as we have done before. Ireland will remain an attractive place for inward investment.
My Department previously estimated the annual cost to the Irish Exchequer of agreement of BEPS related measures could be between €800 million and €2 billion, depending on the design of the final agreement. The starting point for the Department’s estimate was a provisional jurisdiction-specific revenue modelling-tool circulated to each country bilaterally by the OECD.
While this change could have a significant cost in reduced tax receipts, this is a price worth paying for the stability and tax certainty that will provide a robust international tax framework into the future. We have seen the seen the escalating trade tensions brought about by the introduction of unilateral digital taxes. It will benefit us all to avoid the risk of tit-for-tat sanctions negatively impacting the global trading environment. As a small open economy the imposition of sanctions could result in a disproportionate negative impact to our trading environment.
Regardless of the outcome at the OECD, Ireland will remain an attractive place for inward investment. Tax is not the only driver for multinational enterprises deciding to locate in Ireland, all of the building blocks that make Ireland an attractive place to invest will remain in place. We will maintain a competitive tax rate, with a stable business trading environment, and a young, well educated, English speaking workforce.
83. Deputy Pearse Doherty asked the Minister for Finance the effective tax rate in the form of dividend withholding tax paid by Irish real estate funds as a proportion of operating and pre-tax profits respectively in each of the years 2018, 2019 and 2020; if he will consider increasing the rate of dividend withholding tax while removing exemptions for corporation tax and capital gains tax; and if he will make a statement on the matter. [31810/21]
View answerThe rules relating to Irish Real Estate Funds (IREF) are set out in Chapter 1B of Part 27, Taxes Consolidation Act 1997, and were introduced by Finance Act 2016. An IREF is an investment fund, or a sub-fund, which derives 25% or more of its market value from Irish real estate.
As an investment undertaking, the profits or gains of the IREF are not taxed within the fund, but instead are subject to tax in the hands of the investors, its unit holders. This avoids a double layer of taxation and facilitates collective investment. IREFs operate a 20% IREF withholding tax (as opposed to Dividend Withholding Tax (“DWT”)) on distributions to non-resident investors, who may be entitled to a refund of some or all of any tax withheld under a double tax treaty.
As the Deputy will be aware, there are a number of exceptions from the operation of IREF withholding tax such as for pension schemes and charities as they are more generally exempt from tax, provided the appropriate declarations are in place.
Unit holders in an IREF are generally subject to 20% IREF withholding tax on the occurrence of an IREF taxable event. An IREF taxable event can broadly be defined as any way in which the value of the profits of the IREF are passed to the unit holder, e.g. by way of a relevant payment (which is akin to receiving a dividend), and the IREF taxable amount in broad terms is the profit element of that payment. Information on the amount of the taxable amounts and associated IREF withholding tax deducted for various years (2017, 2018 & 2019) is published by Revenue in section 4.3 of “Corporation Tax – 2020 Payments and 2019 Returns”.[1]
IREFs are obliged to electronically file financial statements with Revenue for each accounting period (under the Investment Undertaking Electronic Account Filing Requirements Regulations 2018 SI No. 368 of 2018).
In relation to the Deputy’s request for information on tax withheld by an IREFs as a proportion of their pre-tax profits and operating profits, I am advised by Revenue that financial statements are presented in accordance with relevant accounting standards and any difference between pre-tax profits and operating profits would depend on an individual IREF’s income, expenses, profits and gains and the applicable financial reporting standards. However, Revenue has advised that generally the difference between operating profits and pre-tax profits is finance costs. Finance Act 2019 amended the IREF regime to provide that IREFs with excessive deductions for financing costs are now regarded as having income subject to income tax. For the three-month period to 31 December 2019, income tax of €6.2m associated with excessive deductions for financing costs, was paid by the IREFs.
The Deputy has asked for a hypothetical effective tax rate calculated as the IREF tax as a proportion of profits. However, such an effective tax rate would not reflect the effects of timing or the manner in which IREF tax is applied. As such, it could not be regarded as an accurate measure of an effective tax rate applicable to IREFs. There are two key timing differences which such a measure would ignore.
The first is that IREF withholding tax applies to IREF taxable events – which generally speaking is the point at which the profits are passed from the IREF to the unit-holder. The profits retained within the IREF, and not yet distributed to unit holders, will in the future be IREF taxable events and will be within the charge to IREF withholding tax at that point.
In addition, as IREFs hold real property, their operating profits and pre-tax profits will include revaluations of the property they hold. Capital gains tax on gains on an investment property would only arise where the property is actually disposed of and any revaluation gains previously booked through the profit and loss account realised.
As such, it would not be appropriate to compare the rate of IREF withholding tax as a proportion of IREF profits (either operating profits or pre-tax profits) with either the rate of corporation tax or capital gains tax. However, in Table 1 below, I have set out the profits of the IREFs, the IREF taxable amount for each year (being akin to the distributions made by the funds in those years) and the tax paid by the fund in those years.
Of note, Revenue has advised that the provision of the profit amounts disclosed in Table 1 come with a number of caveats:
Some of the figures contained in accounts are net figures – in this regard the income & losses, unrealised and realised losses and gains have been netted and therefore the figures should only be used for indicative purposes.
There can be inconsistency in the length of financial periods, with some in excess of 12 months. This was evident in 2017 filings and again last year where a number of the IREFs sought derogations from the Central Bank to prepare 18 months set of accounts for the 2019/2020 period due to impact of Covid-19. Therefore, instead of preparing financial statements to 31 December 2019, some IREFs have now prepared and filed 18-month accounts to 30 June 2020, which will form part of the 2020 filing figures.
Table 1: Profits, IREF taxable events and tax liabilities of IREFs
|
2017 |
2018 |
2019 |
|
|
€m |
€m |
€m |
|
|
Operating Profit per Financial Statements |
912 |
868 |
1,159 |
|
Profit Before Tax per Financial Statements |
691 |
498 |
725 |
|
IREF taxable amount |
45 |
213 |
369 |
|
IREF WHT |
8.3 |
28.2 |
65.8 |
|
Income tax |
6.2 |
||
|
Total tax |
8.3 |
28.2 |
72 |
|
Tax as percentage of IREF taxable amount |
18.44% |
13.24% |
19.51% |
Proposed increased rate of IREF WHT and removal of exemptions from corporation tax and capital gains tax
The IREF withholding tax rate (20%) was not increased in Finance Act 2019 in line with the DWT rate (now 25%). I increased the rate of DWT to 25% to more accurately reflect the tax liability of Irish individuals who receive dividends from Irish companies. IREF withholding tax, on the other hand, is targeted at non-residents, who may be entitled to a full or partial refund of any tax withheld under a double tax treaty. The commonest rate to which IREF withholding tax can be reduced under such double tax treaties is 15%.
As the IREF withholding tax is levied on non-residents who may be entitled to a refund under a double tax treaty, it was not appropriate to increase the IREF withholding tax rate.
The reason that the IREF regime applies an exit tax, rather than an entity level tax, is because IREFs are collective investment vehicles. Ireland’s policy on collective investment vehicles, since 2000, has been to ensure that there is not two layers of taxation: one at the entity level and one at the unit holder level. This is achieved by exempting certain regulated collective investment vehicles from taxation. The IREF withholding tax is the alternative to an entity level taxation for a collective investment vehicle.
A number of anti-avoidance rules were brought forward in Finance Act 2019 to ensure that the IREF withholding tax was not being avoided, including both a debt cap and an income to interest ratio.
With regard to capital gains tax, when introduced in 2016, the IREF regime included a capital gains tax exemption in respect of property assets held for more than 5 years. However this exemption was removed in Finance Act 2017. As a result, where IREF property assets are sold and the gains distributed to investors, IREF withholding tax at 20% applies on those gains.
The success of the 2019 targeted anti avoidance measures , in addition to Finance Act 2017’s removal of the capital gains tax exemption, can be evidenced by the increased tax paid by IREFs as set out in Table 1.
Officials in my Department and Revenue continue to monitor the taxation of IREFs.
[1] https://www.revenue.ie/en/corporate/documents/research/ct-analysis-2021.pdf
84. Deputy Brendan Smith asked the Minister for Finance if he has had discussions recently with a bank (details supplied) on its decision to withdraw from the market and with another bank in relation to its plan to close 88 branches here given the concern of employees and customers on the resulting loss of banking competition here; and if he will make a statement on the matter. [31696/21]
View answer129. Deputy Mick Barry asked the Minister for Finance if he will take steps to protect jobs and services in the banking sector; the engagement he has had with bank management and trade unions in this regard; and if he will make a statement on the matter. [31779/21]
View answerI propose to take Questions Nos. 84 and 129 together.
The withdrawal of Ulster Bank and the potential withdrawal of KBC Bank Ireland (KBC) from the market as well as the decision by Bank of Ireland to close 88 branches in the Republic of Ireland are regrettable, particularly for their customers and staff and they represent unfavourable developments for the Irish banking market.
However, as the Deputy will be aware, decisions with regard to staffing matters and the provision of services, are the sole responsibility of the board and management of the individual banks, which are run on an independent and commercial basis and as Minister for Finance, I have no role in such decisions.
I note that Bank of Ireland has commented that it will be working closely with all colleagues at these branches and will be setting out a range of options, including relocating to a different branch, moving to a new role in the bank, or voluntary redundancy for those who choose it. I also welcome Bank of Ireland's announcement of a partnership with An Post to ensure that counter services will still be available for its customers locally.
With regards to Ulster Bank and KBC, whilst the management of staff matters is entirely a matter for the Banks and any counterparty who acquires any of their business, I would expect all stakeholders to be very sensitive in relation to the needs and rights of staff. This includes full compliance with any statutory requirements, and honouring all agreements in place between the bank and staff representative bodies. In addition, I would expect these entities to engage with staff representative bodies as appropriate.
By way of update, on Friday 11 June 2021 Ulster Bank announced that a new Colleague Agreement has been reached with the Financial Services Union (FSU) subject to a ballot of its members. The Deputy will be aware that I have met with representatives from both Ulster Bank and its parent company, NatWest in recent months. During these engagements, I have always strongly emphasised the importance of timely communication with staff, customers and other stakeholders in relation to strategic decisions regarding Ulster Bank. I also met with the Financial Services Union shortly after NatWest’s announcement and I have committed to further engagement with them in relation to this issue.
I note separately that PTSB and AIB have both mentioned in their recent Q1 trading statements that negotiations are continuing with NatWest in relation to the potential acquisition of parts of Ulster Bank’s portfolio.
In relation to KBC, officials from my Department met with representatives from KBC last month as part of the normal engagements with the banking sector. In light of its recent announcement, KBC confirmed that work on negotiations are underway, as provided for in the Memorandum of Understanding with Bank of Ireland. KBC emphasised that it is engaging with staff in relation to the announcement.
I welcome the engagements which are taking place both between Nat West and AIB and PTSB and between KBC and Bank of Ireland, as well as the progress last week between Ulster Bank and the FSU. While these are commercial negotiations, the Government is supportive of trying to bring about an outcome that is good for AIB, PTSB, and Bank of Ireland, as well as for the staff and customers of Ulster Bank and KBC and for the Irish economy generally.
86. Deputy Jim O'Callaghan asked the Minister for Finance the measures he will be taking to boost banking competition nationwide; and if he will make a statement on the matter. [31706/21]
View answer377. Deputy Neale Richmond asked the Minister for Finance the work of his Department to ensure appropriate competition in the financial services market for consumers given the recent decisions of commercial banks regarding their futures in Ireland; and if he will make a statement on the matter. [31693/21]
View answerI propose to take Questions Nos. 86 and 377 together.
The retail financial services sector is undergoing a major period of change. This year so far we have seen several major announcements including the withdrawal of Ulster Bank by Nat West and the potential withdrawal of KBC Bank Ireland, the forthcoming closure of a large number of bank branches by Bank of Ireland and a smaller number by AIB. While these decisions are regrettable, I welcome the engagements which are taking place between Nat West and AIB and PTSB and between KBC Bank Ireland and Bank of Ireland with regard to the transfer of business.
I note the news on Friday 11 June 2021 that Ulster Bank has reached a new Colleague Agreement with the Financial Services Union (FSU) and that this agreement is subject to a ballot of FSU members. While these are commercial negotiations, the Government is supportive of trying to bring about an outcome that is good for the banking sector, as well as for the staff and customers of Ulster Bank and KBC and for the Irish economy generally.
The sector is facing a number of long running challenges such as negative interest rates, technological change that is reducing the barriers to entry to a whole range of new entrants, and changing customer preferences as they use more and more digital services, while still wanting the traditional branch network to be available. Competing with online firms while coping with high cost structures is posing a considerable challenge for the traditional full service sector. Overall, this puts pressure on banks' profits, and, in turn, the attractiveness of the market.
The Irish retail banking system is concentrated with retail banks accounting for the majority of new mortgage lending and new lending to SMEs. However, price competition is possible even in a concentrated system. Notwithstanding the recent announcements in the banking sector, Ireland continues to have an extensive network for banking services, including post offices and credit unions. An Post also offers counter services for AIB, allowing customers to lodge and withdraw cash at An Post branches and Bank of Ireland has recently announced that it is following suit. A number of non-banks have also expanded their offerings in the mortgage and SME sectors recently.
The Government wants to ensure that the banking and financial system is one which will effectively contribute and support economic growth and employment. Sustainable and responsible competition in the retail financial sector is vital to ensuring that businesses and consumers have a range of banking options available when using financial services and accessing credit.
As such, my Department is considering a review process that will look at the many issues in depth, provide sensible analysis and implementable recommendations and I hope to be in a position to set out greater details on this soon.
