Other Questions
6. Deputy Pearse Doherty asked the Minister for Finance if he will provide an update on the on-going negotiations on the issue of the legacy debt in the pillar banks detailing the number of meetings that took place on this issue between him, his officials and representatives of the ECB, the ESM and other EU bodies; the nature and content of these discussions; and the meetings that are scheduled to take place in the coming months. [1772/13]
Amharc ar fhreagraAs is widely known, the Heads of State or Government stated at the 29 June meeting "that it is imperative to break the vicious circle between banks and sovereigns" and that "the Eurogroup will examine the situation of the Irish financial sector with a view to further improving the sustainability of the well-performing adjustment programme."
The European Council on 18-19 October subsequently reaffirmed that the "the Eurogroup will draw up the exact operational criteria that will guide direct bank recapitalisations by the European Stability Mechanism (ESM), in full respect of the 29 June 2012 euro area Summit statement. It is imperative to break the vicious circle between banks and sovereigns.”
The key timeline in regard to the realisation of these commitments is the establishment of the Single Supervisory Mechanism. The European Council stated on 14 December 2012 that "once an effective SSM is established, the ESM will be able to recapitalise banks directly. An agreement on the operational framework supporting this possibility, including the definition of legacy assets, should be agreed as soon as possible in the first semester of 2013".
Aside from the issue of when this new instrument will become available, there is a host of other issues that have yet to be worked through such as how these banks would operate under ESM ownership, what governance arrangements would be put in place between the fund and the banks themselves and between the ESM and member state governments. We need to consider these wider considerations in the months ahead.
Ireland continues to be fully engaged in this process within the Eurogroup and among Heads of State or Government. Furthermore, officials from my Department also participate in technical meetings with the ESM and other member states. In this regard and despite recent media reports, discussions remain ongoing and no conclusion has been reached.
As the Deputy is aware, Ireland is a special case due to the unique circumstances behind our banking and sovereign debt crisis and the fact that our banking crisis emerged at a time when the full range of European mechanisms were not available to us. The Government has been working extremely hard to secure a deal on the Irish bank debt and detailed work will continue to ensure that the positive moves in Europe are harnessed to maximise the benefit to the Irish taxpayer.
There is no doubt that the statement on 29 June offered an opportunity for Ireland to secure the getting back of the money we invested in the pillar banks, which is to the tune of more than €25 billion. Unfortunately, I note from media reports, an editorial in the Financial Times the day before yesterday and an article in The Wall Street Journal yesterday, that it is claimed there is a potential row back from that position in Europe at this point in time. The writer of the editorial claimed to have seen a Commission document which indicated that recapitalisation of banks across Europe in the future would be jointly capitalised by the ESM and member states up to a certain threshold, or the other option is that losses of the ESM would be guaranteed by the member states, which would not be beneficial or would definitely be a worst case position than the statement on 29 June.
The Wall Street Journal took it further yesterday and claimed that the leaders have nearly unanimously agreed in the first part of this year that in terms of the recapitalisation of any banks in the future the first tranche of it, up to 4.5% of core tier one capital ratio, would be done by the member states and afterwards it would be jointly done by the ESM to a certain proportion.
Has the Minister seen the Commission's document? Is he concerned that there is a potential row back on the commitment given on 29 June, or about the difficulties that would place on him and the Taoiseach to try to secure this deal and the impact that could have on our re-entering the markets? I agree with him that the markets have priced in the deal. The 29 June statement was significant for the markets and we have seen our bond yields decrease as a result of that.
I read the article on the front page of the Financial Times, to which the Deputy referred, I have not seen the article in The Wall Street Journal. We have had no indication that there is such a Commission paper. When I spoke to Commissioner Rehn last week in Dublin Castle and discussed these matters with him informally he did not indicate to me that there was such a paper. My officials who have served on various subgroups in Europe have not come across any reference to it either. I do not know what the Financial Times source is or what has led to the speculation. One must be always vigilant in these matters but I have no information which can confirm that. I have had conversations very recently with Commissioner Rehn and there was no indication that there was a change of policy.
As the Deputy is probably aware, the last ECOFIN meeting before Christmas concluded in passing the framework for the single supervisory mechanism and the next step is that it will go to the European Parliament and then it can be adopted as the legal document for the supervision. Once that is in place, that is the prime condition for any movement by the ESM to invest in banks directly. The Deputy may also have noticed that the ESM has raised money on the markets. It is such a strong organisation that anyone who wanted to invest in the ESM had to pay a commission. In other words, the interest rate was a minus interest rate. Not only were investors getting money at zero rates but they had to pay a small premium to ensure that their investment was secure in the ESM. That will show how strong a credit rating it has. There is a whole lot of detail to be worked out on how it would be managed if the ESM were to invest directly in recapitalising banks and I referred to that in my answer. A subcommittee of a committee is working on this at present and going through all that detail. I have not been briefed in the past 48 hours on that. I will be in Brussels on Monday and Tuesday, the Eurogroup will meet on Monday and ECOFIN will meet on Tuesday, so I may get a further update there but there is nothing particular on the agenda that directly refers to this.
I was very conscious of the importance of these questions but I remind Members that we are dealing with ordinary questions and six minutes are allocated per question, two minutes for the Minister and then four minutes with a limit of one minute per supplementary. I ask Members to keep that in mind.
7. Deputy Brian Stanley asked the Minister for Finance if, following information from his Department that negotiations to sell €500 millon - €1 billion of Bank of Ireland contingent capital notes had concluded, he will set out in tabular form the companies and third party persons engaged by the State to act on its behalf in the matter including at pre-sale and marketing stage, an outline of the work undertaken, and the date of engagement and the fees payable. [1799/13]
Amharc ar fhreagra11. Deputy Michael McGrath asked the Minister for Finance the loss of income to the State on an annual basis arising from the sale of its holding of Bank of Ireland convertible contingent capital notes; the reason the sale was undertaken at this time; and if he will make a statement on the matter. [2021/13]
Amharc ar fhreagraI propose to take Questions Nos. 7 and 11 together.
As announced by my Department last week, the State was successful in disposing of its entire €1 billion holding of contingent capital notes, CCNs, in Bank of Ireland. The transaction followed an initial approach by a number of investment banks to the Department late last year which indicated that there was sizeable investor interest in the State’s CCN instruments and particularly the holding in Bank of Ireland. The sale was managed by officials in the Department’s shareholder management unit, with many years’ experience working in financial markets and was not only timed to take advantage of the improving sentiment towards Ireland and its banks but the huge rally seen in international debt markets which has continued into 2013.
The transaction when announced saw the State presented with the opportunity to dispose of a minimum of €500 million of its position at a price of par. This stemmed from an underwriting commitment provided by the consortium of banks – UBS, Deutsche Bank and Davy – having done a preliminary assessment of market appetite for the notes. In the end the book build process generated significant excess demand to enable the State to dispose of its entire holding in the CCNs at a price of 101% of their par value plus accrued interest. This generated a profit for the State of €10 million. Taking account of the coupon paid to the State last year, the taxpayer has earned a total return of over 15% in the space of 18 months.
My officials had full visibility during the book build and pricing phases and were also provided with some valuation advice from NCB Stockbrokers which helped inform their judgment. The transaction was well received in the market and indeed the CCNs traded a few points higher in the after-market during their first few days of trading. This reflects a market recognition of a very successful transaction for Ireland, one in which we have exited this element of support to our banks with a profit. It points to a recognition that Ireland is successfully working to correct the very deep failings that have affected us in the past number of years. In recognising this, however, we must also acknowledge that this after-market price is for a very small volume of stock compared with the €1 billion size of the transaction.
The transaction was settled on Tuesday, 15 January and the State was paid proceeds of just over €1,056 million, comprising the nominal principal amount of €1,000 million, interest accrued of over €46 million covering the period 29 July 2012 to the disposal date, and a profit of €10 million. Fees payable by the State will be minimal in the context of the transaction and will relate to legal expenses and valuation advice provided by NCB. For commercial reasons I am not at liberty to disclose these however. The fees paid to the banks, which are the most significant, are being covered by Bank of Ireland.
The State’s investment in these instruments dates back to the 2011 PCAR exercise, and the successful exit from a large portion of this position represents another step along the road to normalising the State’s relationship with the banking sector. It is Government policy to separate the State from its banks, a policy which I believe has shared support in this House. This policy will see the State this year remove the guarantee of bank deposits and liabilities which dates back to September 2008 and it also requires us to exit our bank investments over time and when conditions allow. It is true that as the CCN investments were earning the State a generous 10% return per annum, the Exchequer will have to forgo this income but will also reduce its risk exposure to the banking sector. The State made this investment only out of necessity and it is pleasing that we have been able to exit this portion of our investment early and profitably.
The sale of these CCNs, contingent capital notes, was kept very quiet and only announced several hours before it was completed. At €1 billion, this is the largest sale of a State asset this year and should be subject to proper scrutiny. The Minister gave many figures in his reply. It is clear from this and replies to other parliamentary questions that there has been a substantial reduction in returns on the notes to the Exchequer. One figure the Minister suggested is that the Exchequer will be down €18 million this year and €64 million next year as a result of this sale of CCNs. Many will ask how could we have lost such amounts and still announced it as a good development.
There is the question of who is the buyer of this CCN. If it were to be converted to capital, what percentage of the bank would the owner or owners have? There is also the question of who managed this sale. The Minister stated the shareholder management unit in the Department of Finance managed this. I do not want to cast any aspersions here but the head of that unit is Michael Torpey. While I wish him well, Michael Torpey will be Bank of Ireland's chief executive of its corporate and treasury division. There is a genuine question there without casting any aspersion on anyone-----
Be careful now.
I have made it clear the reason I have raised this-----
I would prefer if names were not mentioned.
The Minister actually welcomed this transfer yesterday.
Yes, but not in the House.
He mentioned it in public. I am not casting any aspersions on the individual in question.
The issue is about naming people in the House.
I am not casting any aspersions but a genuine question arises when someone who heads up the management-----
Will the Deputy put a question because we are over time?
When the person who headed up the management unit which dealt with the sale of these CCNs becomes a chief executive of the very same bank's unit dealing with similar issues and given the Government's commitment to a programme-----
There is an implication there, Deputy, and it is wrong in this House.
It is wrong and it is not in accordance with Standing Orders. It is as simple as that. Will the Deputy please allow the Minister to respond?
There is a programme for Government commitment to allow for a cooling-off period for senior departmental officials transferring to the private sector. Will the Minister reassure the House there are no questions concerning this appointment?
Will the Minister also explain why this is such a good deal when our Exchequer position is worse as a result of this transaction?
The State has no interest in owning or operating banks. It was because of the catastrophic situation in which we found ourselves that the State had to put capital into the banks and take a shareholding in them. It has always been the policy to recover the taxpayers' money in so far as we could. Up to €1 billion was put into CoCos, contingent capital notes, and we recovered it in full in accordance with that policy. The taxpayer has lost nothing and has, as a matter of fact, gained €10 million on the transaction.
Regarding the issue of the coupon, in any investment one measures risk by the interest rate charged. I mentioned the investment and the ESM, European Stability Mechanism. The reason one had to pay a small commission to get into that mechanism was because there is no risk to one's money. The reason one gets 10% on CoCos is because there is a very significant risk. If the capital holding in the bank were to decline below 8.5%, the CoCos get automatically transferred into equity. As soon as that happens, bad debts can burn it up. One can lose one's full capital as a result. That is why one gets 10%. The interest rate always measures risk. The lower the interest rate, the lower the risk. The higher the rate, the higher the risk.
In my judgment, it was a good idea to take the taxpayers' money out in full even though if we continued with the risk, there would be an annual yield. That was my judgment call. Other people can argue it other ways but I believe the taxpayer has had enough of risk over the years. If I can get money out at par through preference shares or CoCos – there is quite a lot of them through the system – I will sell at par. That is because any arrangement we can get from Europe, I do not believe we will get it at par.
I understand it was a judgment call. What are the budgetary implications for 2013 of not having the income from this source?
It comes to between €17 million and €18 million.
That is a serious figure and I hope social welfare recipients, medical card holders or home helps will not be paying for that next October.
We are okay. We have it well covered under the December returns.
Presumably the initiative for this came from Bank of Ireland as it is in its interest to get the State out of its realm as much as it is the State's. Did Bank of Ireland do most of the running in this sale?
Last year the Minister for Public Expenditure and Reform made a big play that he had got a commitment from the troika that 50% from the proceeds of the sale of State assets could be used for job creation and investment purposes. Is half of the money from the sale of the CCNs going into this fund or will the full €1 billion be taken off the national debt? If it is going against the national debt, why is 50% not being used for job creation?
This was borrowed money which was put into recapitalising the banks as part of contingency funding in case the banks needed it. As I explained, there was a high risk so there was a 10% coupon on it. It has been the Government's decision that any moneys got from the sale of assets in the banks will be used to reduce the debt because that money was always borrowed. We cleared the debt with the sale of the asset.
On the issue of the official to which Deputy Pearse Doherty referred, he went on holidays to Australia on 14 December and did not return until last week. In accordance with normal practice, he will not take up duty in the banks for another two months. There is a kind of cordon sanitaire for three months so there is no conflict of interest in the way this was operated. It is a general policy to reduce the borrowed moneys put into the banks by the taxpayer.
8. Deputy Mick Wallace asked the Minister for Finance his plans to progress discussions on the common consolidated corporate tax base during the EU Presidency; and if he will make a statement on the matter. [1929/13]
Amharc ar fhreagraOn 16 March 2011, the European Commission, which has the right of initiative to bring forward legislative proposals, published its proposal for a common consolidated corporate tax base, CCCTB. This represented the beginning of a process that involves a detailed examination of the proposal, line by line, by all member states at the Council working group. Since the Commission's proposal has been published, Department of Finance officials, along with officials from the Revenue Commissioners, have been attending the working party on tax questions which is the forum for discussions on the proposal. To date, officials have attended meetings on a regular basis on the proposal and there is still a long way to go before agreement on the Commission's proposal could be expected. The Cypriot Presidency completed a first read-through of the proposal in that member states have had the opportunity to give their initial views and ask questions, but no legislative re-drafting has occurred.
In our role as President of the Council of the European Union we will seek to be an honest broker in all tax policy discussions to see what the possibilities are for consensus and compromise among member states. Therefore, the Irish Presidency will continue with the work on the common consolidated corporate tax base, CCCTB, dossier following on from the Danish and Cypriot Presidencies. Our approach to the CCCTB proposal will reflect the views of colleagues from other member states. We intend to hold several meetings on the dossier, including a series of bilateral meetings.
Work on the CCCTB proposal is moving rather slowly, but Ireland is committed to engaging constructively on it under the Euro Plus Pact. I note that the European Union Commissioner with responsibility for tax policy, Mr. Šemeta, has called on Ireland to help push forward the CCCTB proposal during our Presidency. The Government has issues with the maintenance of the 12.5% corporation tax rate and the financial transaction tax, both of which will play a role in the CCCTB proposal eventually. Owing to issues outside Ireland's control, there is no guarantee that we can sustain our low corporation tax rate, which calls into question the wisdom of relying so heavily on that policy.
The Minister will be aware that 11 EU member states are pursuing the development of a financial transaction tax. This group includes four of the five largest member states, namely, France, Germany, Spain and Italy. The 11 countries combined account for 90% of eurozone GDP. Having such a tax makes good sense, given everything that has gone on in the world of financial institutions in recent years.
I understand the Government's fear of losing jobs to London, but we should still sign up to the proposal because it would help to bring certainty and stability to business. The amount of money it would bring in would not be vast and would not be greatly different from stamp duty revenue in this regard. However, it would be a little more. We need to bring stability to the manner in which financial institutions operate, as they have caused so many problems. Aside from getting a fair contribution from them, such a tax would discourage risky trading activities and short-term investments. It would encourage more long-term investments, the lack of which is a major problem in the world today.
The country holding the Presidency and its representatives chair meetings. In their capacity as chairmen, they are expected to act as honest brokers and advance the European agenda rather than their particular national agenda. When I chair ECOFIN meetings, the Minister of State at the Department of Finance, Deputy Brian Hayes, represents Ireland. That has always been the practice. I will not do anything to inhibit those countries involved in enhanced co-operation which are seeking to advance a financial transaction tax. I will facilitate the process, but we will not participate in it. The idea behind enhanced co-operation under the treaties is that countries which share a common objective can process it, subject to certain conditions and make it policy, but it does not apply to other countries not involved in it.
I have indicated that if there is a desire to discuss a financial transaction tax at the ECOFIN meeting on Tuesday, we can do so and the process could advance to the next stage. The discussion on the CCCTB proposal is not about the rate of tax but the base on which corporation tax is applied, on which there is little agreement. While we will do nothing to inhibit discussion on the proposal, the likelihood that there will be an agreement during the Irish Presidency seems remote. If people want to discuss and move it forward, that is fine.
Does the Minister agree that the decision not to sign up to a financial transaction tax is a short-term one from our perspective and that a more positive decision in the long term would be to sign up to it?
I do not believe so. The Deputy referred to the risk of financial services companies migrating from Dublin to London. That is a risk, but what is being examined in terms of a financial transaction tax is stamp duty on certain transactions. We already charge stamp duty of 1% on transactions of shares, a measure which is analogous to what is being discussed. However, once it is introduced, it may migrate to other areas. We will watch it carefully, but it is not 1 million miles from what we apply. There is a similar tax in London of 0.5%. The original proposal from France was stamp duty starting at a figure of 0.1%, a good deal lower than what we apply. Thus far there is nothing dramatic about it, but they may apply it to instruments other than share transactions, in which we would be interested because it might affect the financial services industry here.
9. Deputy Thomas Pringle asked the Minister for Finance his views on a report that companies (details supplied) may be paying an effective corporate tax rate in this country of less than 1% and that other high profile and and highly profitable corporations may be paying similarly low effective rates of corporate tax; and if he will make a statement on the matter. [1984/13]
Amharc ar fhreagraI am precluded from discussing the tax affairs of a particular individual or company. However, I am aware of recent media reports which refer to the ways some companies structure their international tax affairs to minimise their tax costs and the fact that some of these reports make reference to Irish companies being part of these structures. I understand some of these reports have suggested some companies in multinational groups pay Irish corporation tax at rates significantly lower than 12.5%. I emphasise that such companies are not paying a low rate of Irish tax. All companies in Ireland pay the standard 12.5% rate on profits generated in Ireland. The reports concerned appear to have incorrectly attributed to Ireland profits that represent the return due to assets in other jurisdictions owned by group companies not resident in Ireland. It is incorrect to relate the 12.5% corporation tax rate to both the profits of the Irish-resident group companies and the profits of foreign-resident group companies which are not profits chargeable to Irish corporation tax. By mixing up the Irish profits and the foreign profits of multinational groups in this way, these reports can produce an average tax rate for the companies concerned that is lower than the 12.5% rate and an incorrect inference that the full Irish profits are not being charged.
Multinational groups, with subsidiaries in other countries as well as in Ireland, incur other bona fide expenditures. For example, licence payments which are paid to group companies in foreign jurisdictions for the use of intellectual property rights are properly deductible in computing Irish profits. If these licence payments are untaxed in the foreign jurisdiction, it will reduce the average rate of tax for the total profits of the Irish and foreign-resident subsidiaries when they are taken together. From an Irish perspective, we ensure the profits arising in Ireland are taxed at the 12.5% rate of corporation tax. We do not seek to charge profits properly attributable to other jurisdictions.
The ability of entities to lower their worldwide effective rate of tax using international structures reflects the global context in which Ireland and all countries operate. Differences arise in the legal and tax systems between countries. International tax planning takes account of these differences in national systems and rules. The only way to combat such arrangements is for countries to work together to examine these structures and consider how international rules can be amended to ensure fair levels of taxation.
Additional information not given on the floor of the House
In this regard, Ireland participates fully in the OECD's forum on harmful tax practices and the EU code of conduct group. During the forthcoming Irish Presidency of the European Council my Department intends to work closely with the European Commission and other EU member states to make progress on new EU proposals on tax evasion and aggressive tax planning.
The tax system in Ireland has a positive international reputation based on transparency and the fact that it is applied equally and openly to all corporate taxpayers. The fact that Ireland has an extensive tax treaty network confirms our international standing. The January 2011 global forum peer review report on Ireland's legal and regulatory framework for transparency and exchange of information found that Ireland had an effective system for the exchange of information in tax matters and was fully compliant with OECD standards.
The job of the Government is to bring investment and jobs to Ireland and we have used the tax code and, in particular, our competitive corporation tax system to do so for more than 50 years. What companies do outside Ireland is beyond the scope of the Irish tax system. We cannot conclusively determine the effective rate of tax paid under international tax structures by reference to taxation in Ireland alone, but, as I have outlined, we continue to work with international bodies to ensure fair play.
That response is completely inadequate. We had a report that over a six year period Google had €47 billion in sales but had paid only €69.9 million in corporation tax, an effective rate of less than 1%. In replies to questions I had tabled to the Minister for Finance it was revealed that in 2010 total gross profits in this country made by corporations amounted to €70 billion, on which they paid only €4 billion in tax, an effective rate of a little above 6%. When ordinary workers and those least well-off are having their incomes looted through the universal social charge, property taxes and other cuts, how can the Minister stand over a situation where remarkably profitable corporations are getting away with paying almost nothing in tax? Is he going to do anything about this?
Does the Minister stand over the so-called "double Irish with a Dutch sandwich" system which reduces the effective rate of tax of corporations based in Ireland? Does he think it is appropriate or does he want to change it and shut it down? Does the Minister believe there should be a minimum effective tax rate for corporations just as there is for high-income earners?
The Minister will have noticed it highlighted in London recently that in 2011 Google had £2.5 billion in UK sales but, despite a group-wide profit margin of 33%, its main UK unit was subject to a tax charge of only £3.4 million. The company avoids UK tax by channelling non-US sales via Ireland.
Put a question, please.
This arrangement allows Google to pay taxes at a rate of 3.2% on non-US profits. It also diverts some profits through Bermuda. Is the Minister not concerned that we are being used by these people to help them avoid paying tax in other jurisdictions and does he think this is something our Government should address?
I do not mean this disrespectfully, but Deputy Boyd Barrett should re-read the reply of mine to which he referred earlier. He is confusing income and profit. While the income figure was €70 million, there is an entitlement to deduct costs from it which is how the profit figure is arrived at. The computation should be on the profit which will give a different rate. According to international studies, including one involving the World Bank, the effective rate of corporate tax in Ireland is approximately 11.9%. The EU Commission has reported that our effective rate is in excess of 12.5% because certain corporations in Ireland have a tax rate of 25% where they are not trading internationally.
The problem with the so-called "double Irish" from Ireland's point of view is that it has that name. People think that something we do here gives rise to it. That is not the case. It arises from tax codes elsewhere and the way in which the USA regards certain arrangements. We do not operate any kind of tax haven. Our position is legitimate and the 12.5% rate is applied here. Deputy Mick Wallace referred to Google's tax payments in the UK. While I cannot answer for the tax liability of Google in the UK, the 12.5% rate applies to that company here. I am concerned about the misunderstanding on this issue because it gives Ireland a bad name. If the Deputies would like a detailed briefing from tax officials in my Department, they should let me know. I will put something together to provide a briefing across parties so that Deputies can ask detailed questions in a more satisfactory way than this confrontation across the House.
We will take the Minister up on that.
Ceann Comhairle, I have another question.
No, we are over time. The question is not even in Deputy Boyd Barrett's name.
That is twice I did not get a supplementary question.
You did get a supplementary question. A supplementary is when you ask a question in response to the Minister's initial reply. It is 5.55 p.m.
Everybody else gets a second question.
No, they do not. I was trying to be generous. Do not abuse the generosity.
