Tax Code

Dáil Éireann Debate, Tuesday - 9 November 2021

Tuesday, 9 November 2021

Questions (78)

Richard Boyd Barrett

Question:

78. Deputy Richard Boyd Barrett asked the Minister for Finance his plans to ensure that the new 15% minimum global corporate tax rate will be an effective rate given the many reliefs, deductions and allowances which the largest and most profitable corporations avail of to substantially reduce their taxable profit and which results in many of these companies currently paying far less than the 12.5% headline rate on their gross pre-tax trading profits; and if he will make a statement on the matter. [54402/21]

Oral answers (10 contributions)

Deputy Richard Boyd Barrett

Growing public outrage and international pressure has finally forced some moves towards having a minimum effective corporate tax rate to deal with the phenomenon of aggressive tax avoidance by some of the wealthiest corporations in the world. Although the Government resisted quite hotly, it has now agreed to an effective rate of 15%. Will it actually be an effective rate, because the 12.5% was not effective, and these companies utilise loopholes in the tax code to avoid paying their fair share of tax?

Deputy Paschal Donohoe

On 8 October, Ireland joined 135 other member jurisdictions of the OECD framework in reaching a two-pillar agreement to address the tax challenges that have arisen from digitalisation. Pillar 1 will see a reallocation of a portion of the income of very large companies from source jurisdictions to market jurisdictions. Pillar 2 will introduce a global minimum effective tax rate of 15% on businesses with a global turnover of greater than €750 million.

It is important to note that 95% of the companies operating in Ireland are outside the scope of this agreement and will continue to be subject to a headline corporate tax rate of 12.5% on their trading profits. I take further comfort from assurances from the European Commission that it plans to propose a faithful implementation of the OECD agreement within the European Union.

As regards the suggestion that companies currently pay far less than the 12.5% headline rate, I remind the House of the published statistics of the Revenue Commissioners, which show that for the year 2019, the most recent period analysed, companies paid an effective corporate tax rate of 10.3%, with foreign-owned multinationals paying an even higher rate. While this is below the headline corporation tax rate of 12.5%, it is relatively close when compared with many of our competitors, and this close alignment of Ireland's headline and effective rates contributes to the tax certainty which so many investors say is an important factor in choosing to locate operations here in Ireland.

Deputy Richard Boyd Barrett

The Revenue figures to which the Minister refers, which I have in front of me, do not say what he just said. What they say for 2019 is that there was €195 billion worth of pre-tax profits, before deductions and allowances, and that €10 billion was paid on that. That is not 10% or anything like it, it is 5.6%. The reason the Minister can claim that it is 10% is because about €84 billion of their pre-tax profits are not taxed at all because they benefit from deductions, allowances and reliefs. It is in that area that these companies have exploited loopholes in the tax code to write down their taxable profits, so they end up paying tax on only about half of their actual profits, mostly through intergroup transactions, paying themselves royalties and paying for the use of patents from their own company, which is a scam. How are we actually going to make them pay the effective rate?

Deputy Paschal Donohoe

I have the figures here in front of me as well. I am sure I got them from the same place Deputy Boyd Barrett did. He is correct, in the sense that credits and deductions are used, but that is not the same as tax avoidance. That is where we differ. Credit, for example, with regard to recognised research and development is not tax avoidance, it is a legitimate way of the tax code recognising that something is happening inside a country that is valuable and that can create employment and investment. It is a common feature of business and corporate tax policy all over the world. The figures – I am sure they are from the same website and publication as Deputy Boyd Barrett has - are very clear. All companies had an effective tax rate of 10.3%; foreign-owned multinationals had an effective tax rate of 11.1% and US-owned multinationals had an effective tax rate of 11.5%.

Deputy Richard Boyd Barrett

I want to pre-empt what will probably be the Minister's final comment by saying we value the jobs these companies bring to this country. They do create employment and we want those jobs here. That does not mean they cannot pay their fair share of tax. Revenue figures show the major reliefs and allowances they benefit from are intragroup transactions worth €16 billion in 2019 as a cost to the Exchequer. They are from amalgamations, losses brought forward and other reliefs like that, not research and development. I refer to the big ones. That is why they are paying themselves money, which is profit, but writing it off as a cost. It would be like me saying my ma came up with a brilliant idea and I have to pay her for that brilliant idea and then I claim that as a deduction off my income tax. Revenue would laugh me out of the room, but that is what these corporations are doing. They are writing their own tax bill. The Minister knows it, and the OECD knows it. That is why there is a reform process. What are we going to do to make sure they pay an effective rate?

Deputy Paschal Donohoe

In his efforts to pre-empt what I was going to say, we had a bit of a hallelujah moment. Deputy Boyd Barrett just said he values the jobs that are here. It is the first time in our years of debating this that I have heard him say that. I think he and I have had a little bit of a breakthrough in this debate.

Deputy Denis Naughten

Give him the application form.

Deputy Paschal Donohoe

It is great that all this is being recorded. If he does value them, surely he can then understand why we want them in the country and that we need to have a tax code that is competitive, which is why we have had this debate regarding the low rate. While we now agree on something regarding these jobs being valued, where we continue to disagree is that Deputy Boyd Barrett sees, for example, the write-down of an expense as tax avoidance, whereas I see the write-down of an expense in the tax code as a tax policy recognising that there are costs involved in something that will ultimately generate a profit or an income, and that is recognised in how something is taxed. That is our difference.

Deputy Richard Boyd Barrett

That is what is recognised by the Minister.

Deputy Paschal Donohoe

Let us recognise all we have agreed on this evening.