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Thursday, 29 Sep 2016

Other Questions

Motor Insurance Regulation

Ceisteanna (6)

Richard Boyd Barrett

Ceist:

6. Deputy Richard Boyd Barrett asked the Minister for Finance if he will consider setting up a State insurance company in order to ensure that the current prices of motor and other insurance are curbed; and if he will make a statement on the matter. [27593/16]

Amharc ar fhreagra

Freagraí ó Béal (6 píosaí cainte)

As the Minister of State and everybody is aware, drivers have been absolutely crucified by enormous increases in car insurance premiums. Overall, they have increased 20% in the last year and are expected to go up another 25% next year. In some categories, it is off the Richter scale. One of the groups that asked me to give a shout out for it is taxi drivers. Huge numbers of taxi drivers simply will not be able to continue doing their job. Then there are young people, people with older cars - one can go through the list. Is it not time to consider a public not-for-profit State insurance company rather than relying upon a failed private insurance industry?

In Ireland, the provision of insurance through private companies has been the norm for a long time. This is an operational model which has in general been shown to work well and efficiently. It is acknowledged that over the last 18 months or so, there have been some difficulties with aspects of the system, particularly in relation to the availability and cost of motor insurance. However, a State-owned company would have to operate subject to the same prudential rules as a private company and there is no basis to conclude that the same problems would not periodically arise with this model. In addition, there would be significant capital costs for the State.

The Government has in the past examined the introduction of a scheme of State indemnification in the flood insurance sector. However, this approach was not considered financially viable because it was concluded that over time it would distort the market and could incentivise the insurance industry to discontinue the provision of insurance cover in medium and high risk areas. This would make the cost of such a scheme prohibitive. Furthermore, potentially complex regulatory implications would need to be examined in detail in consultation with the Central Bank of Ireland and the Office of the Attorney General.

In relation to the current difficulties in the market for motor insurance, the cost of insurance working group, which I chair, is undertaking a review of the factors which are influencing the increased cost of motor insurance. The working group brings together all of the relevant Departments and offices involved in the process. Its objective is to identify immediate and longer-term measures which can address increasing costs, while bearing in mind the need to maintain a stable insurance sector. By the end of October, the working group will provide the Minister for Finance with an update report which will set out the priority actions required. From November to December, the working group will develop an action plan to enable the relevant Government Departments and offices to commence the implementation of these priority actions. In this regard, I will be consulting regularly with Government colleagues and also with the Oireachtas.

I want to shift the terms of the debate towards looking at a public not-for-profit State-led model. Frankly, I believe the Government is being led by the self-serving propaganda of the private insurance industry. The notion that competition in the private insurance market would produce lower premiums has been proven absolute nonsense. It is exactly their competitive drive for market share and, ultimately, profit that has caused this problem. They are now trying to recover lost profits because of the madness of that blind competition as well as the collapse of Setanta Insurance, Quinn Insurance, all the massive waste on advertising and profit-taking generally. I put it to the Minister of State that we need to look at other models. One he could look it is in Manitoba in Canada which has some of the lowest driver premiums anywhere on the American continent. That model was set up precisely because premiums went through the roof in the same way as they have in our private insurance sector. A parliamentary committee was set up, representations were made, they set up a public insurance company and it has worked. I believe we need to look at that because it has ended up cheaper and better for everybody.

I do not want to get ahead of the potential recommendations of the working group, but we are looking at the operations in other jurisdictions and different models that are happening in Canada, New Zealand and Australia. We are also looking at new ideas like peer-to-peer insurance. We are looking at everything and I am not going to pre-judge the outcome of what we are doing. Setting up a State insurance company would take time and we need to look at the current problems, as the Deputy pointed out in his question. We need urgent action on that and are looking at short, medium and longer-term solutions.

We have not finished our work yet but I will give the Deputy an idea of some of my thinking on a State insurance company or even a State insurance model with no private actors. Establishing a State insurance company would not lead to any reform in the market. It might reward bad behaviour that is already in the market. What we would see then is people who are already withdrawing out of riskier parts of the market withdrawing further, leading to an increased cost for the State and expediting that problem. The State would face the same problems that are already there in relation to provisioning and concerns about uncertainty around the cost of claims. Those problems would not go away with a State insurance company. We have to ask who would pay the difference between the market price and the discounted rate being given by the Government. Where would that money come from? Would it come from the taxpayer again? I do not think we can put any more of a burden on them. However, we are looking at other jurisdictions and I am keeping an open mind as to what might come from our investigations into those areas by the relevant sub-group that is doing that work.

There is an assumption behind that that what the private insurance companies are doing with premiums is justified. They are putting a whole case forward on to that. I do not accept it at all. In fact, the number of fatal and non-fatal collisions in this country has fallen substantially. There are not more accidents. There are serious problems of transparency around the finances of private insurance companies. I put it to the Minister of State that it is actually to do with bad investments by these companies and by a crazy and competitive drive for market share. In other words, it is the fault of the private insurance companies and their pursuit of profit that has caused the problem, as well as the collapse of Quinn Insurance and Setanta Insurance and other things. Legal costs have certainly been an issue although I do not think they are the major factor. The costs of all of these things and others such as needless advertising could be eliminated with a public insurance company. I ask the Minister of State to look particularly at the category of taxi drivers who are being run out of business and will not be able to continue unless we do something about this.

On the Deputy's final point, we are looking at the issue of taxi drivers. We are meeting with every interest group that we can, either in the plenary session where we met with the hauliers earlier this morning as well as representatives of the car rental companies, or with taxi drivers, with whom we are meeting tomorrow, I think, or possibly later in the week. I am not going to be led by the industry. One of the big problems we have at the moment is transparency from the industry as to exactly what is happening, be it in relation to the claims process, the cost of claims or how they are calculating premiums. We are trying to get that information at the moment. What we are identifying through our plenary meetings and sub-groups are some honest brokers who are willing to share with us their information in an objective way so that we can get a proper sense of the picture ourselves. We will use that information to try then to build consensus around what the actual problems are and use that information to build consensus around what the solutions might be. Transparency will be the core of it as well as getting the information out into the public domain. I also have a fear that the lack of transparency is creating problems when it comes to competition and I have raised that with the Competition Commissioner myself.

Tax Exemptions

Ceisteanna (7)

Pearse Doherty

Ceist:

7. Deputy Pearse Doherty asked the Minister for Finance if he will consider removing the exemption from dividend withholding tax for non-resident investors of qualifying investor alternative investment funds on dividends relating to profits or gains relating to lands and property situated in Ireland. [27537/16]

Amharc ar fhreagra

Freagraí ó Béal (6 píosaí cainte)

Is the Minister willing to consider removing the exemption from dividend withholding tax for non-resident investors in qualifying investor alternative investment funds on dividends relating to profits or gains relating to lands or property situated in the State? We know from the funds industry that the Irish-registered qualifying investor alternative investment funds have net assets of €383 billion as of March this year. We know that foreign investors are using these funds to buy up property at ferocious speeds over the last number of years since the crash. We also know that our tax law allows for them to have no tax liability on the hundreds of millions of euro of rental income that they receive here each year from the billions of euro worth of property that they own. Would the Minister consider the measure that I have suggested to him?

I am informed by Revenue that once a qualifying investor alternative investment fund is authorised by the Central Bank it falls under the definition of an "investment undertaking" under the taxes Acts. It is therefore subject to the tax treatment provided for investment undertakings. The legislation provides a tax exemption to the undertaking itself and to certain investors, such as investors not resident in the State.

The normal tax treatment afforded to Irish collective investment undertakings is that the funds invested are allowed to grow on a tax-free basis within the fund. The income is taxed at the level of the investor rather than the fund, as is standard international practice. In order to ensure that the appropriate tax is collected from Irish investors, funds are obliged to operate an exit tax regime and remit the tax deducted in this manner to Revenue.

This charge in tax does not apply in the case of unit holders who are non-resident.

In the case of non-resident investors, their liability to tax on gains from the fund will be determined in their home jurisdiction. The broad rationale for exempting such funds from direct taxation is to facilitate individuals to invest collectively, without suffering double taxation, that is, taxation both within the fund and in the hands of the investor on distribution. Most OECD countries now have a tax system that provides for neutrality between direct investments and investments through a collective investment vehicle or fund.

I am aware that concerns have been raised about the use of funds in the Irish property market by international investors which may be eroding the tax base. Officials from my Department and the Revenue Commissioners are examining the use of certain structures in the property market and are preparing measures to ensure the tax base is protected. I will consider these targeted proposals on the use of funds in the property market for inclusion in this year's finance Bill. The measures will be targeted to ensure they do not adversely impact on the wider funds industry which is of great importance to the broader international financial services sector.

I reaffirm the stance that Ireland has extensive protections under our tax code to prevent tax avoidance which are strengthened on a regular basis to keep pace with any new threats to the tax base identified by the Revenue Commissioners or otherwise. In effect, therefore, the answer to the question is "Yes".

The Minister repeated his statements to a committee and in public that he intends to examine this matter. I have been raising the issue of qualified investor funds, as distinct from section 110 organisations, for most of this year. We have found weaknesses in the amendment proposed in respect of qualified investor funds, although I am aware the Minister is open to strengthening it. It is not clear what action will be taken in respect of foreign investment funds. The current position with regard to these funds has been tolerated for far too long. My office has studied the public accounts of many of the funds in question. To give an example, the public accounts of Kennedy Wilson show the company owns property assets in Ireland valued at €1 billion. In the first six months, the fund generated €26 million in rental income, on which it did not pay 1 cent of tax. Other examples include Cedarwood Real Estate, which does not pay any tax on the annual rental income of €2.5 million it receives from the Central Bank. Ireland is out of kilter with international norms in this area. Kennedy Wilson's accounts note the company is exempt from tax in Ireland, whereas it pays tax in Britain and Spain. In other jurisdictions, such funds are subject to a withholding tax. Will the Minister indicate whether this is the line he proposes to adopt?

Following consultations with the Revenue Commissioners, the Department published a draft amendment to deal with the position in respect of section 110. We also intend the draft amendment to be a consultation document in order that it can be further refined, if necessary, before the finance Bill is introduced.

Separately, the qualifying funds to which the Deputy referred continue to be studied by the Department and Revenue Commissioners. We have reached the point where we believe amending legislation needs to be introduced. However, we have not yet formulated the nature of such amending legislation. While measures will be introduced in the forthcoming finance Bill to deal with the issue the Deputy raised, I cannot yet describe the methodology or content of the amendment because it is work in progress.

While I appreciate this is work in progress, I would like to know what principle will be applied. I refer again to the case of Kennedy Wilson because it is a good example of a fund with properties in different jurisdiction. The company's accounts note that it pays income tax of 25% on profits generated in its Spanish subsidiaries and 20% on profits generated in its UK subsidiaries. Dividends paid to non-residents from assets are taxed at a rate of 26.3% in Germany and 30% in France. That is the position in other jurisdictions. While I appreciate that the fund industry is a major employer, this issue is the abuse of certain funds, rather than the industry. Will the Minister apply the principle that income derived from assets in this State should be taxable in this State regardless of whether the investors in the fund are foreign or domestic? At this point, only domestic investors in a fund are taxed on revenue generated from assets in the State. Is the Department considering applying this principle? If so, the change would at least be in line with what we want to achieve. We would then need time to tease out how to achieve this outcome during the debates on the finance Bill.

I have little to add to what I said. We want to ensure tax avoidance is not facilitated by the way in which the law is drafted. The Revenue Commissioners and Department are working up an amendment that will achieve the purpose to which the Deputy drew attention. I cannot yet prejudge the nature of that amendment. but I would be glad to receive any submission the Deputy may wish to make. I would then have it scrutinised alongside all the other inputs that are being scrutinised.

Financial Transactions Tax

Ceisteanna (8)

Thomas Pringle

Ceist:

8. Deputy Thomas Pringle asked the Minister for Finance if he will back the European financial transactions tax, FTT, initiative and support the introduction of the FTT here; and if he will make a statement on the matter. [27547/16]

Amharc ar fhreagra

Freagraí ó Béal (6 píosaí cainte)

The question relates to the financial transactions tax being proposed by a number of EU member states through the enhanced co-operation procedure. What are the Government's views on the proposal?

Ireland already has a tax on financial transactions, a stamp duty on transfers of shares in Irish incorporated companies which currently stands at 1%. The yield from this charge in 2015 was €424.13 million and I understand receipts to the end of August 2016 were more than €260 million.

The financial institutions levy I announced as part of budget 2014 is a revenue raising measure which provides for a contribution from the banking sector to Ireland's economic recovery. The levy is in place for the years 2014 to 2016, inclusive, with an anticipated annual yield of €150 million. As the levy is a percentage of an institution's DIRT liability in 2011, liability to the levy relates to the size of an institution's Irish operation.

The entire banking system has been underpinned by the strong Government support provided both here and abroad. It is appropriate, therefore, that the banking sector should make a contribution to the State's economic recovery. Accordingly, I announced in my budget 2016 statement that I propose to extend the levy out to 2021, subject to a review taking place of the methodology used to calculate the levy. This will bring in an additional €750 million over the period, which is a significant additional contribution to the Exchequer.

With regard to the discussions at European Union level, the Government's position is that a financial transactions tax would be best applied on a wide international basis to include the major financial centres to prevent the danger of activities gravitating to jurisdictions where taxes are not levied on financial transactions. Notwithstanding this, the Government is not prepared to stand in the way of EU member states which wish to work together to implement a financial transactions tax. In this regard, adoption of a decision formally authorising enhanced co-operation took place during the Irish Presidency of the European Union in January 2013.

Additional information not given on the floor of the House

The proposal for a directive from the European Commission in the area of a financial transactions tax was published in February 2013. Ireland had many concerns about the proposal as drafted, not least of which were the potential impacts on, and the trading of, Irish sovereign debt in the secondary market and in total, the potential negative impact on the liquidity of the financial sector as a whole. Members of the Economic and Financial Sub-Committee on EU Sovereign Debt Markets have stated that the introduction of a financial transactions tax would have a significantly negative effect on sovereign debt markets and may impair the good functioning of secondary markets for sovereign debt resulting in reduced liquidity, reduced investor demand and, therefore, higher financing costs for states.

Our concerns are widely shared among member states, including some of the participating countries. These concerns have led to the issuing of a communiqué by the participating member states announcing that they have agreed to implement a financial transaction tax in a progressive manner, with the first step being a charge on shares and some derivatives.

On 17 June 2016, the ECOFIN Council discussed the current state of play with regard to the proposal of a number of member states to introduce a financial transaction tax. In the context of this discussion, ten of the original 11 member states - Estonia has indicated it no longer supports the proposal - issued a statement setting out their agreement on the core design principles of a financial transactions tax. The statement indicates that further reassurances were needed on two issues in particular, for which two task forces will be immediately set up. First, taxation of derivatives should not have a negative impact on public borrowing costs. Second, tax collection should be cost effective. The outcome of these two task forces was to be discussed in September. We understand the task forces have had some discussions but that significant differences of opinion remain.

Much uncertainty remains, therefore, as to the form the financial transactions tax might take and more detail would be needed on the final shape of the tax before a definitive conclusion could be reached about its impact on Irish taxation revenue.

I thank the Minister for his response, which was virtually identical to a reply to a parliamentary question I asked in June. The only difference I discerned was that the 1% transaction tax in share trading had raised €260 million by the end of August this year.

The gist of the Minister's argument appears to be that the regime in place in Ireland is much more onerous than the current proposal for a financial transactions tax. In his response in June, the Minister indicated the proposed financial transactions tax would raise an estimated €360 million, which is a much lower figure than the figures he cited today. If that is the case, why is he not encouraging the ten countries proposing a financial transactions tax to introduce a system based on our regime, given that it is effective and works well?

The Minister cited figures on the revenue generated this year from our financial transactions tax. Does he have figures for the amounts generated in previous years? There appears to be a lack of understanding regarding the way in which this revenue is raised.

I do not have figures for previous years but I will have them sent to the Deputy. Our position on a financial transactions tax has not changed since June when I last replied to a question from the Deputy on this matter.

In Europe, one of the countries that was involved, Estonia, has dropped out and the other ten have not yet reached agreement. I think they are about to make a report but, so far, I do not see that there is going to be agreement to any particular financial transactions tax emerging from the enhanced co-operation between the now ten member states. There is still quite a difference of opinion among the members participating in the enhanced co-operation and, outside of that, there is a wide divergence of views.

The Irish position is driven by our proximity to the City of London and the view, certainly up to Brexit, that if we imposed a financial transactions tax here and the UK did not, and made it clear it would not, there would be a movement of financial services activity from Dublin to London, and there are 38,000 employed in the financial services industry in Ireland.

I have two points. First, with regard to the transactions moving, the proposal is that the financial transactions tax is levied on the portion of a transaction that belongs in the member state where the financial transactions tax is in place. Therefore, in effect, for a company to move in order to benefit, it would have to deal only in transactions that are outside all the member states participating in the financial transactions tax. The argument that businesses would move does not stand up unless they stop trading completely with any country that has a financial transactions tax in place.

Second, with regard to the risk of businesses moving to London, our rates are already higher than the rates in London and we do not see that draw to London from Dublin despite the more onerous taxes, so that argument does not stand up either. Perhaps the Minister is happy that our tax rates are far higher than the financial transactions tax and that is why the Minister does not want to participate in it.

No. We have considered this very carefully and I have stated the policy position. I admit that the relationship and the potential change may be more significant after Brexit, depending on the result of the negotiations regarding the relationships between the UK and the EU. Certainly, the City of London is going to be central to those negotiations. The position is as I have stated and we are not contemplating a change at present.

State Aid Investigations

Ceisteanna (9)

Thomas P. Broughan

Ceist:

9. Deputy Thomas P. Broughan asked the Minister for Finance the position with regard to the EU state aid judgment concerning a company (details supplied), in particular on the collection by the Revenue Commissioners of outstanding tax from the company, on the proposed escrow account and on the preparation of Ireland's appeal; his views on whether similar EU judgments may be faced by other multinationals based here; and if he will make a statement on the matter. [27553/16]

Amharc ar fhreagra

Freagraí ó Béal (7 píosaí cainte)

I am asking for an update on the situation since the debate in the House three weeks ago, in particular what preparations have been made so far in regard to the appeal. The Minister mentioned a two-month period in his response during that debate. What is happening in regard to Revenue collecting the €13 billion-plus from Apple and with regard to the escrow account? What is the likely cost of the appeal? Is the Minister worried there will be similar judgments against companies based in Ireland in the future?

On 30 August 2016 the European Commission issued a negative decision in the Apple state aid case. The Government profoundly disagrees with the Commission's analysis in the Apple case and will now challenge the decision before the European courts.  Dáil Éireann has also passed a motion supporting the Government's decision to appeal the European Commission's decision.

Ireland has a period of two months and ten days to bring an appeal.  The appeal process may take several years.  Apple also has indicated that it will exercise its right of appeal.  An appeal to the European courts takes the form of an application to the General Court of the European Union, asking it to annul the decision of the Commission.

Ireland's position remains that the full amount of tax was paid in this case and no State aid was provided.  Ireland did not give favourable tax treatment to Apple.  Ireland does not do deals with taxpayers.

Notwithstanding the negative decision, no fine or penalty has been imposed on the State. The European Commission has stated: "This decision does not call into question Ireland's general tax system or its corporate tax rate".  No other companies are subject to this decision by the European Commission.

On foot of the Commission's decision, Ireland is required to recover up to €13 billion of alleged state aid from the company covering a ten-year period.  Notwithstanding the right of appeal, Ireland is legally obliged to recover the alleged state aid from Apple in the interim.  Given that this money may ultimately have to be returned to the company in the event of a successful appeal, the money can be held in escrow until the case has concluded.

The Commission has stated that the amount of unpaid taxes to be recovered by the Irish authorities would be reduced if other countries were to require Apple to pay more taxes on the profits recorded by Apple Sales International and Apple Operations Europe for this period; and the amount of unpaid taxes to be recovered by the Irish authorities would also be reduced if the US authorities were to require Apple to pay larger amounts of money to its US parent company for this period to finance research and development efforts. This illustrates the contradiction at the heart of the European Commission's decision.  While requiring Ireland to recover the tax sums, the Commission is also acknowledging that the sums may in fact be taxable in other jurisdictions.

Has the Minister or his Department had any contact with senior Apple executives since the decision and since the 93-36 vote in this House? With regard to the preparation of the case by the Attorney General, is the Minister keeping an eye on the grounds for that case? Is it just on state aid grounds, as the Minister has said, or is there a broader case?

With regard to the cost, the Minister said this will go on for several years. Obviously, Fine Gael, Fianna Fáil and, I think, the Labour Party made the decision to proceed with this costly appeal. What does the Minister consider will be the cost to the country? Has the collection of the money started and is the escrow account in existence? How will it be treated in our national accounts? Have any of the countries which have a claim on this money - we heard Spanish Ministers talking about it - been in contact with the Minister?

The Attorney General's office is preparing the grounds for the appeal, the detailed appeal papers and so on and that is directed by the Attorney General herself. She has two months and ten days from the date of the decision and she is working expeditiously on it.

I have no hard information yet on the collection of arrears but it is the responsibility of the Revenue Commissioners. Some contact has been made with the company and so far there does not seem to be a barrier to the collection of the arrears. However, the calculation of the arrears may be difficult because it goes from 2014 back to 2004, a ten-year period, even though the tax opinion on which the case was made initially commenced in 1991. It is a very peculiar kind of judgment.

The NTMA will look after the escrow and how it will appear in the Government accounts is a matter for discussion at the moment. I will keep the Deputy up to date but that is the information I have at present.

I understand that on Monday last, the Minister met Pascal Saint-Amans, the director of the OECD Centre for Tax Policy and Administration. He apparently said that the IRS in the United States could be entitled to much of this money. In the context of the forthcoming finance Bill, will there be any more impacts from this ruling in regard to our progress on base erosion and profit shifting, BEPS? On an issue we have been discussing at the budget committee, is the Minister confident loopholes are being closed off fast enough to ensure the Minister has more wriggle room on the fiscal space?

I note The Guardian newspaper on 18 September published an open letter from the US Business Roundtable group to 28 leaders of the EU which reads like a veiled threat to the EU on future US investment here and refers to the judgment as a "grievous self-inflicted wound" for the EU and its citizens. Is the Minister aware of this?

Pascal Saint-Amans, who is the tax director of the OECD and was in charge of the BEPS project, visits us regularly and he was here last Monday.

He was asked questions about the Apple decision at a press conference he held. He stated two things of importance: first, that in his view the arrears were due to the exchequer in the United States and second, that there was no threat from the Commission or anywhere else to Ireland's 12.5% rate and that under law and the European treaties we were absolutely entitled to maintain the 12.5% rate.

The issue of the arrears being due to the American exchequer arises from the fact that Apple paid a very low amount of tax internationally. That has been recited several times, but Apple had a significant tax liability, as distinct from the tax it paid. The tax liability turns into payable tax when profits are repatriated to the United States under US law. His view, and that of the OECD, that the arrears are really due to the United States is because that is where the economic activity took place. That is where the iPad and the iPhone were developed and that is the source of Apple's profitability and if the profits are repatriated to the United States the company's liability for US tax will trigger in to the actual payment of tax at 35%.

The Minister must conclude or he will deprive Members of time.

State Banking Sector

Ceisteanna (10, 32)

Michael McGrath

Ceist:

10. Deputy Michael McGrath asked the Minister for Finance his plans in relation to the possible sale of a stake in a bank (details supplied); the estimate of the amount which would be received for a sale of a 20% stake in the bank; the use the proceeds would be put to; and if he will make a statement on the matter. [27549/16]

Amharc ar fhreagra

Eamon Ryan

Ceist:

32. Deputy Eamon Ryan asked the Minister for Finance the intended timeline for the sale of State ownership in a bank (details supplied); and the timetable and approach behind the reduction in the Government's shareholding in the company. [27529/16]

Amharc ar fhreagra

Freagraí ó Béal (6 píosaí cainte)

This question relates to AIB and the position of the State in terms of the possibility of it selling its stake in the bank. The Minister made some comments on Bloomberg TV in London recently, but I ask him to advise the House of his current thinking on the possibility of selling a stake. Has that course of action now been ruled out for 2016 and is it an open possibility for 2017?

I propose to take Questions Nos. 10 and 32 together.

The State has a shareholding of 99.9% in AIB. This shareholding is a valuable asset to the State and it is the Government's intention that the State will exit this and our other banking investments in a measured and careful manner. As I have indicated on a number of occasions, my primary objective in the disposal of those assets will be recovering the maximum amount of money for the Irish taxpayer.

I have indicated in the past that an IPO is likely to be the optimal route to recouping value from our investment in AIB. At the beginning of this year officials in my Department appointed an independent financial adviser, following a tender process, to assist with analysis and exit planning and much of the initial preparation has now been completed. The reorganisation of the bank's capital at the end of 2015 which allowed for the return of €1.7 billion to the Exchequer, the consolidation of the bank's ordinary shares and the maturing of the contingent convertible or so-called CoCo instrument in July of this year, has left AIB with a simplified market-facing balance sheet. The bank's CEO also indicated recently that much of the internal preparation that would be required in advance of launching an IPO process has now been completed. In addition, I also welcome the bank's continued strong performance, demonstrating sustainable profitability and strong capital generation over a number of consecutive reporting periods. I also note the recent comments made by the bank's chairman indicating that AIB may be approaching the time when the board will be in a position to consider the payment of a prudent dividend, in consultation with the regulator, which would contribute to the bank's strong investment case.

Nonetheless, given the complex nature of an IPO process, the need to access certain IPO "windows" and the recent volatility seen in stock markets, I now deem it more likely that a market event involving AIB would occur in 2017, rather than 2016. Given the strong state of the national accounts, progress made in reducing our national debt and positive market sentiment towards Ireland, there are no structural factors that would require the State to recoup the value of its banking assets in a constrained time period. The State is in a good position to consider the divestment of some of its shares in AIB, through an IPO, if and when we deem market conditions to be amenable.

It would not be possible or prudent for me to estimate the amount which might be received from any future sale of shares in AIB. As the Deputy may be aware, the shares in AIB that are currently freely held amount to only a tiny proportion of the bank's total shares. It is therefore an illiquid share with a distorted valuation, and so cannot be considered a valid indicator of how the market would value AIB in an IPO. I note that we have seen substantial reductions in the value of banking shares in the course of 2016, including those banks that could be considered AIB's peers. The weakness and volatility we have seen in banking equities this year reflect market concerns around Brexit, and a prolonged period of low and negative interest rates, as well as uncertainty around the strength of global economic growth. Clearly, in order for us to proceed with an IPO, we would need to be satisfied that the market is prepared to put a fair and reasonable value on the business, bearing in mind its current performance and future prospects and the outlook for the Irish economy. Officials in my Department monitor market conditions and the performance of banking equities on an ongoing basis. When I deem conditions conducive to recovering value for the Irish taxpayer, I will notify AIB and move to ready a market event.

As I have previously indicated, all capital returned from the State's investments in the Irish banks will be used to reduce the national debt. That is the prudent course of action as it reduces our ongoing borrowing costs and ensures the future strength and stability of the economy.

I think the right approach is being taken to make the preparations for a possible sale of a stake in the bank, but there is no rush. The market conditions must be right to maximise the return for the State. We will still retain a majority shareholding in AIB for the foreseeable future, but the bottom line is that we want to get back as much of the €20 billion that was pumped into the bank, and as quickly as possible, but we also want a bank that meets the needs of the economy in terms of lending to SMEs, personal customers and others. I welcome the reduction in interest rates, for example, that AIB introduced for variable rate mortgage holders. In his supplementary response could the Minister widen the issue to include his attitude to the Bank of Ireland in which we still hold 14%? I do not believe we should sell that stake now or for the foreseeable future. Could the Minister also outline his plans for Permanent TSB, PTSB?

I think the Deputy understands the position on AIB. He put it succinctly in his original question. I do not intend to go for an IPO in 2016, but I am leaving the option open for 2017. There are not other considerations now, apart from the best price available. The decision will depend on market conditions and the assessment of whether we will get a good return for the taxpayer in 2017.

We have approximately 14% of Bank of Ireland. Again, we are under no pressure to sell. The stake will be sold in due course but there are no plans to go to market at present. Bank shares took a bit of a hit right across the world and especially in Europe since early summer so it is not a conducive market to selling the stake in Bank of Ireland either at present.

PTSB raised money on the markets and approximately 75% of PTSB is now owned by the State and 25% is owned by private investment. The shares are quoted but the value has gone down since the investment took place. PTSB has been doing quite well. It has almost completed its deleveraging and I expect values to increase there as well. Nothing immediate is planned. The same rule will apply to all three investments: when the time comes and the best possible return can be got for the Irish taxpayer then one or the other will be put on the market.

I will repeat our position as a party. We are open minded to the sale of a stake in AIB when the conditions are right. The programme for Government commits that the Government will not sell more than a 25% stake in any institution up to the end of 2018.

We hold a 14% stake in Bank of Ireland and for now that should remain the position. That bank needs to make more progress in terms of treating customers fairly, especially mortgage customers. That is a drum we will keep banging.

Permanent TSB is a bank that is in recovery phase. It has made good progress but it does have major challenges in terms of the very large tracker mortgage book it has. The management there is doing a good job and it is important for the economy that there is as much competition as possible in the Irish banking sector. Competition is very limited and we would like to see new entrants. I hope the Department and the agencies are seeking to bring new entrants into the Irish market. It may not be the most attractive market in the world at this time, especially when banks are downsizing and deleveraging internationally but I hope the Minister's eyes are open to any opportunities that would emerge to bring new entrants into the Irish market to increase competition.

I met recently with the parent bank of Ulster Bank. I met the new chief executive of Ulster Bank as well. There is some competition there. They have assured me Ulster Bank will remain in the Irish market. Ulster Bank is quite significant in the northern half of the country but also in Dublin. Between AIB, Bank of Ireland, Permanent TSB and Ulster Bank, there is quite a good presence. I hope that when banking union is completed, there will be opportunities for branches or subsidiaries of strong European banks to trade in Ireland. If the economy keeps growing by between 3% and 4%, there should be investment, but I have no indication of any take-up on that yet.

Property Tax Exemptions

Ceisteanna (11, 18)

Louise O'Reilly

Ceist:

11. Deputy Louise O'Reilly asked the Minister for Finance the flexibility that exists in respect of exemption from local property tax, LPT, due to pyritic damage where the property was remediated prior to the introduction of LPT; if those persons who availed of the exemption in good faith and were advised that they could apply for the exemption, but who subsequently are being pursued for back-payment of the LPT, can get an amnesty of flexibility in the repayment of moneys they are told they owe; and if he will make a statement on the matter. [27534/16]

Amharc ar fhreagra

Louise O'Reilly

Ceist:

18. Deputy Louise O'Reilly asked the Minister for Finance if his attention has been drawn to a situation between the Revenue Commissioners and residents of an estate (details supplied) where the Revenue Commissioners are looking for the retrospective payment of the property tax, despite residents having been in receipt of the pyritic damage exemption up until 2016; if he will examine the situation where these residents, who had submitted all the documentation at the time, and who received assurances of their eligibility for the exemption, are now being told they are not eligible and must retrospectively pay property tax; and if he will make a statement on the matter. [27533/16]

Amharc ar fhreagra

Freagraí ó Béal (6 píosaí cainte)

My question concerns a number of frustrated households that have been in contact with my office from my constituency, Dublin Fingal, with regard to any flexibility that might exist for the recoupment of the LPT. These people have homes that were affected by pyrite. Their homes were remediated before the introduction of the LPT. They sent off in good faith any and all documentation that was required of them. They were assured by Revenue that they would be exempt and they are now in receipt of LPT bills.

I propose to take Questions Nos. 11 and 18 together.

As previously confirmed in my reply to Question No. 308 of 16 September 2016, the Local Property Tax (Amendment) Act 2015 does not provide entitlement to an exemption from LPT on foot of pyritic damage where the property was remediated prior to the commencement of the LPT in July 2013. I also clarified that the exemption is claimed by property owners on a self-assessed basis and the onus is on the claimant to provide the appropriate supporting documentation to Revenue when requested to do so. Where the supporting documentation is not provided or where it does not confirm that the statutory requirements have been fully adhered to, then Revenue has no choice but to withdraw the relief and secure payment of any outstanding LPT liabilities.

In regard to the particular estate mentioned by the Deputy, I am informed that 40 residents claimed pyrite exemption, of which 14 were subsequently withdrawn because the remediation work was certified as having been completed prior to the commencement of LPT. While Revenue has no discretion in applying the qualifying criteria in respect of the pyrite exemption, I am assured that it will be as flexible as possible in providing suitable phased payment arrangements to any property owners who incorrectly claimed the exemption in good faith.

The Deputy should advise the property owners in question to make contact with the LPT team on 065-6849292 as soon as possible so that any necessary arrangements can be finalised.

With respect, they did send in all the requested documentation. I would like to put on the record, in case I need to, that it is not their fault that their houses and their homes have pyrite. They could have no way of knowing when they bought their homes that pyrite was present. They sent in all of the documentation. They complied with all of the rules as they understood them. They even went to the trouble of telephoning the Revenue Commissioners - one of them works for Revenue - to double-check that they did in fact have the exemption, and they did this every year. They submitted large quantities of documentation, everything that was requested of them. They further went to the trouble of making telephone calls just so they could be clear about it. Again, it is not their fault that the records and recordings do not go back far enough to capture this, but they have told me and assured me they did everything possible. What they seek from the Minister is a modicum of flexibility. He must understand, their homes have been rendered effectively worthless by pyrite. The value of even those homes that have been remediated is severely impacted. They are looking, I suppose, for someone to take a compassionate view.

I think we all understand the plight of people whose homes are affected by pyrite. All sides of this House have moved to remediate the situation. We have introduced amending legislation to do so. The Revenue administers it. I know the Deputy is a new Member but there are dedicated helplines for Deputies to Revenue, which she probably knows. One can take up any individual case through that helpline and one is not deemed to be interfering with the Revenue or anything like that.

However, I will take a look at the information that the Deputy has brought to my attention, I will transmit it to Revenue and I will see if anything can be done. The crux, according to the reply here, seems to be that the remediation of the homes took place before LPT was part of the tax code. There is a problem of matching an exemption from a tax for expenses incurred before the tax occurred. I do not know whether the Revenue has sufficient flexibility to deal with that anomaly but I will inquire in that regard on the Deputy's behalf.

Does the Deputy have another question?

Tax Residency

Ceisteanna (12)

Pearse Doherty

Ceist:

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 fhreagra

Freagraí ó Béal (6 píosaí cainte)

This 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.

Written Answers are published on the Oireachtas website.
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