I am glad to report substantial progress on a matter which is strongly supported by the committee and which is of interest and importance to the country.
I am pleased to be back here to introduce to the committee draft Government orders giving force of law in Ireland to six new bilateral double taxation agreements and eight new bilateral tax information exchange agreements. This is the third occasion I have had the pleasure of addressing this committee on the topic of new international tax agreements.
Let me explain why so many agreements are being presented to the committee together. First, there has been a significant acceleration of the process of signing TIEAs between OECD countries and offshore jurisdictions over the last year. This has resulted from recent international pressure against tax evasion through the use of tax havens and bank accounts in countries that apply strict bank secrecy rules. The new US Administration has taken a particularly strong line in this area. In Europe this matter recently came to the fore concerning German and other European country residents hiding money from tax authorities in bank accounts in European countries affording strict bank secrecy. I represented Ireland at two meetings in Paris and Berlin organised under the auspices of the Franco-German Council of Ministers when a roadmap for progression was developed.
As a long established member of the OECD, Ireland has shown leadership in engaging with many of these jurisdictions in trying to bring them on board on tax transparency and exchange of information.
Furthermore, it was recognised that this new climate of engagement afforded opportunities for Ireland to secure bilateral agreements with jurisdictions that had previously been beyond our reach. Accordingly, the staff of the Office of the Revenue Commissioners has been exceedingly busy over the past year in concluding these new agreements. The immediate urgency in getting approval of this committee and the Dáil is so that the agreements may be included in the forthcoming finance Bill, thereby completing Ireland's ratification procedures for them.
I will now briefly describe the background to, and contents of, the agreements. The six double taxation agreements that are before the committee today are with the following countries: Bahrain, Belarus, Bosnia and Herzegovina, Georgia, Moldova and Serbia.
Double taxation agreements are recognised as key instruments for developing and strengthening economic relations between countries. They reduce tax impediments that might otherwise deter the development of bilateral trading and investment activities. The conclusion of such agreements is also important in developing diplomatic and bilateral relations between countries, recently I met the Finance Minister of Belarus in this context. As a small open economy heavily dependent on trade and investment activities with other countries, the continued expansion of Ireland's network of international tax agreements is of vital importance for the future of the Irish economy. Accordingly, Irish businesses which have lobbied hard for the expansion of our network will particularly welcome the addition of these six new double taxation agreements to Ireland's existing network of agreements.
The main purpose of double taxation agreements is to avoid the taxation in both countries of the same income or gains. This is achieved by allocating exclusive taxing rights to one country, or where both countries retain taxing rights, by requiring the country where the taxpayer is resident to grant credit against its tax for the tax paid in the other country. Double taxation agreements cover direct taxes, which in the case of Ireland are income tax, corporation tax and capital gains tax. They are comprehensive in scope, covering both the taxation of companies and individuals, and are in the main based on the OECD model tax convention.
Apart from relieving double taxation, double taxation agreements include provisions dealing with non-discrimination in taxation matters. They also have mutual agreement procedures, which allow the tax authorities of both counties to consult with each other in taxation matters affecting the agreement, and provisions that allow for the exchange of information for the purpose of preventing tax evasion.
Ireland has 46 double taxation agreements in force at present. These include agreements with all EU countries and all OECD countries, except Turkey — the Turkish agreement has been ratified by Ireland but awaits ratification in Turkey. Ireland also has agreements with significant non-OECD countries, such as China, India, Russia and South Africa.
The ratification of the six agreements before the committee today will therefore bring Ireland's tally to 53 when Turkey is also ratified. The present agreements represent a significant spreading of the Irish tax treaty network beyond the EU/OECD pale into newly developing countries. Their addition to the Irish network of such agreements will be welcomed by Irish business, as they will allow freer access to the developing markets in the countries concerned.
In addition, Ireland is also in the process of signing and negotiating new double taxation agreements with Albania, Argentina, Armenia, Azerbaijan, Egypt, Kuwait, Hong Kong, Montenegro, Morocco, Saudi Arabia, Thailand, Singapore, Tunisia, UAE and Ukraine. In that context, it should be noted that both the Taoiseach and the Minister for Finance have given assurances to the business sector that we will have 60 treaties in force by early 2010.
As I mentioned at the start, the second batch of draft orders before the committee today concerns eight tax information exchange agreements, TIEAs, which have recently been signed with the following jurisdictions: Anguilla, Bermuda, Cayman Islands, Gibraltar, Guernsey, Jersey, Liechtenstein, and Turks and Caicos Islands. Ireland has one TIEA in force with the Isle of Man, which was approved by this committee in October 2008.
The TIEAs concluded with the above jurisdictions are all based on the OECD model TIEA. The model TIEA grew out of the work undertaken by the OECD to address harmful tax practices globally.
The OECD started the process of examining tax havens with its 1998 report, Harmful Tax Competition: An Emerging Global Issue. It identified key indicators of tax havens as a lack of transparency, such as the absence of beneficial ownership information and bank secrecy, and an unwillingness to exchange information with tax administration of OECD member countries.
A working group was formed in 2002 under the auspices of the OECD Global Forum to develop a model TIEA that member states could use to negotiate bilateral TIEAs with jurisdictions. The working group consisted of representatives from OECD member countries, including Ireland, as well as representatives from the offshore jurisdictions.
The OECD model TIEA now represents the international standard for effective exchange of information in tax matters. Many OECD countries are currently concluding bilateral TIEAs with jurisdictions based on the OECD model. At present, approximately 175 bilateral TIEAs have been concluded worldwide.
Recent developments culminated in the G20 Heads of Government communique issued in April 2009 advocating a much tougher international stance against tax secrecy. The G20 communique proclaimed, "The era of banking secrecy is over". It asked the OECD to report on the progress of jurisdictions in adopting the OECD standard. The OECD had established a threshold requirement for jurisdictions to be recognised as having "substantially implemented" the OECD standard. To achieve this recognition each jurisdiction was required to have in place 12 information exchange agreements with OECD member countries. Jurisdictions that had not achieved this threshold requirement were put on a grey list, which is subject to ongoing monitoring by the OECD. The OECD has undertaken to make further progress reports to the G20.
Following the OECD communique, a minority of OECD countries, that is, Switzerland, Luxembourg, Austria and Belgium, that had previously objected to the OECD information exchange standard as it applied to banks also agreed to renegotiate their double taxation agreements with other OECD countries to include the new OECD information exchange standard in them. Ireland is currently engaged in renegotiating the Austrian and Belgian treaties and negotiations are being planned with Switzerland and Luxembourg.
Ireland welcomes the commitment to the OECD standards by Anguilla, Bermuda, Cayman Islands, Gibraltar, Guernsey, Jersey, Liechtenstein, and Turks and Caicos Islands, and their willingness to enter into bilateral TIEAs with OECD member countries. The TIEAs between Ireland and each of these jurisdictions will allow the Revenue to directly request from their authorities information that is relevant to an Irish tax investigation, such as bank account information or company or trust ownership information. The agreements will therefore greatly assist the Revenue Commissioners in tax investigations involving entities and bank accounts located in these jurisdictions.
The signing of the TIEA represents a new chapter in relations with the jurisdictions concerned. As a direct consequence of this new relationship, Ireland also signed agreements with Jersey and Guernsey affording relief from double taxation with respect to certain income of individuals. These agreements are aimed at reducing the possible tax obstacles that may hinder the free movement of individuals between both countries. They also establish a mutual agreement procedure in connection with the adjustment of profits of associated enterprises. The provisions of these agreements mirror those in the agreement with the Isle of Man, which were approved by this committee in October 2008. Other OECD countries have agreed similar provisions in their TIEA negotiations with Jersey and Guernsey.
Ireland is fully compliant with the OECD transparency and exchange of information standard. The domestic powers under which the Revenue Commissioners can obtain information from third parties, including banks, was specifically amended in the 2005 Finance Act to allow the powers to be used to exchange information with the tax authorities of other countries.
Today's consideration of these double taxation agreements and tax information exchange agreements by the committee is an important step in their ratification process. Draft Government orders confirming and giving effect in Ireland to the agreements were laid before Dáil Éireann on 18 November 2009 in accordance with the provisions of section 826 of the Taxes Consolidation Act 1997. A resolution by Dáil Éireann approving the draft orders is required before the Government can make the orders. The proposal that Dáil Éireann approve the draft orders has been referred to this committee for consideration. After consideration by the committee, the draft orders are then referred back to the Dáil for approval. After that, the Government may make the orders and the agreements will then be included in a Schedule to the taxes Acts by means of a section in the forthcoming finance Bill. Upon the passage into law of the finance Bill, the Irish ratification procedures will be completed. Once both countries have completed their ratification procedures, the agreements will take effect in accordance with their entry into force provisions.
I commend these 14 draft orders to the committee. If required, I will be happy to deal with any aspects of the agreements in more detail. The draft orders form part of an important process involving Europe and the OECD in the context of restricting so-called tax havens and encouraging everyone in the international community to operate to recognised and transparent tax standards. As a French Minister informed me two or three months ago, enormous progress has been made in the past couple of years.
