Dáil Éireann Debate, Thursday - 29 September 2016
12. Deputy Pearse Doherty asked the Minister for Finance when he or any of his officials were first informed that there were companies incorporated in the State but which had no tax residency in the world, that is, stateless; and the person by whom he and-or his officials were informed. [27536/16]
Amharc ar fhreagraThis is a very simple question. I do not want to go into the ins and outs of the Apple case and whether we should appeal or not. I think our views are very clear on that. In October 2013, on budget day, the Minister announced that he would bring forward legislation to end the application of stateless companies in this State, which happened in the Finance Bill. When was he or any of his officials in the Department first informed that stateless companies were operating in this State, and can he inform the House who informed him?
Different countries use different factors to determine the tax residence of companies. Ireland has traditionally relied primarily on a "management and control" test which takes into account where the key strategic decisions about the company are taken. Some other countries rely primarily on the incorporation test whereby companies are tax-resident in the place where they are incorporated. The interaction of these different types of rules has previously led to a situation where a company could be incorporated in Ireland but managed and controlled elsewhere. These were commonly known as "Irish-registered but non-resident" companies.
There is a Department of Finance tax strategy group paper from 1998 that details the illegitimate use of "Irish-registered but non-resident" companies by groups engaged in fraud, money-laundering, drug-trafficking and other illegal activities. This report followed work undertaken by the Department of Finance, the Revenue Commissioners and what is now the Department of Jobs, Enterprise and Innovation. The Department of Justice, Equality and Law Reform and the Attorney General's office were also consulted. The issues outlined in the paper were subsequently addressed by a package of measures including amendments to company law provisions and the introduction of taxation provisions in the Finance Act 1999.
The existence of these "Irish-registered but non-resident" companies is a matter of public record going back to the 1990s. Their existence was even debated in the Dáil during this time.
The Deputy has asked a question that relates to "stateless" companies. The term refers to the ability of companies to take advantage of mismatches in the tax residence rules of two countries in order to achieve a situation where they can claim that they are not tax-resident anywhere, that they are "stateless" for tax purposes. The concept of a "stateless" company only came to light in 2013, following the US Senate hearings into Apple.
Additional information not given on the floor of the House
I acted swiftly on foot of this information and, in the Finance Act later that year, amended Ireland's tax residence rules to ensure that an Irish-registered company could not be "stateless" in terms of its tax residency.
In the following Finance Act, I made a further change to bring Ireland's company residence rules into line with those in other OECD jurisdictions and address the reputational damage arising from Ireland's association with the term "double Irish". Owing to recent changes made to the company residence rules, such structures no longer exist as from 1 January 2015 it is no longer possible for an Irish-incorporated company to claim that it is "stateless" for tax purposes, and from 1 January 2015 a new company incorporated in the State is generally regarded as tax-resident in the State, thereby bringing an end to the so-called "double-Irish". This will take effect for existing companies, incorporated before 1 January 2015, from 31 December 2020.
I have never claimed that these changes will bring an end to international tax planning. For that to happen, co-ordinated action by many countries working together is required. Ireland has continued to play our part in bringing about solutions to such problems, and I have signed up to the OECD base erosion and profit shifting reports and the EU anti-tax avoidance directive as further evidence of that commitment.
The last paragraph was actually the beginning of the answer to my question. The Minister says that the concept only came to light in 2013. We know - the whole world knew - on 21 May 2013 what Tim Cook and his officials in Apple told the US Senate, that he was operating stateless companies that were resident and incorporated in Ireland. Is the Minister telling me that neither he nor any of his officials knew from information from Revenue officials that these stateless companies were operating prior to that date? That is the crux of the question. I do not have to ask anything else. Is that the date, 21 May 2013, that either he or his officials in the Department first found out that stateless companies were operating in this State?
There was an awareness back in the 1990s of Irish-registered but non-resident companies and that they were used for criminal activity, including fraud. Company law was changed to remediate that. However, no connection was made between Irish-registered non-resident companies and a kind of stateless situation which could be used for the avoidance of tax. This only became an issue after the Apple inquiry in 2013. My Department assures me that was the first awareness it had of stateless companies being used for tax avoidance.
I appreciate that. We can both agree that Irish-registered non-resident companies are completely different from stateless ones because those ones could be resident in another jurisdiction which should be the norm. Have there been any inquiries with Revenue as to when it first became aware that stateless companies were operating in this jurisdiction? We are aware of the opinions, which, obviously, are at the heart of the Apple tax judgment. Are we to believe that back in 1991 Revenue was under the impression that these companies that were registered but non-resident were actually resident for tax purposes in the US? Was Revenue aware that these were stateless companies? Do we know when Revenue became aware that stateless companies were operating in our jurisdiction?
They share information with the Department of Finance all the time. Therefore, they would also have been aware after the Apple inquiry. Going back to 1991 we need to look at how corporation tax evolved in Ireland. When Revenue gave its opinion on Apple originally, coming into the 1990s no tax was payable on exports of exporting companies. It evolved into a 10% tax payable. Following a legal challenge, it then had to apply to all companies and not just exporting companies. It then evolved again and was driven up to 12.5% following EU intervention. To see the picture emerging - it is difficult to see - one needs to match what the tax position was to what was happening. The stateless position did not become an issue until after the Apple inquiry in 2013, which focused on it and highlighted it.
