Wednesday, 16 May 2018

Ceisteanna (8)

Pearse Doherty


8. Deputy Pearse Doherty asked the Minister for Finance if the billions of euro of intangible assets onshored during the period when there was no limit on the ability of companies to use these assets to write off tax liabilities will be taxed going forward; and if he will make a statement on the matter. [21436/18]

Amharc ar fhreagra

Freagraí ó Béal (6 píosaí cainte) (Ceist ar Finance)

In 2015, the Minister's predecessor made a bizarre move when he decided to allow that 100% of the intangible assets of a company could be written off against profits. The result was a massive onshoring of intangible assets. It effectively cancelled out billions of euro of profits for tax purposes. There is no reason this huge mistake cannot be rectified. We know from Mr. Seamus Coffey that the benefit to the State of doing that would be €750 million per year. Is this under consideration in advance of budget 2019?

In the Finance Bill 2017, I introduced an 80% cap on the relevant income against which capital allowances for intangible assets may be deducted in a tax year.  This reinstated the cap which had been in place but which was lifted in the Finance Bill 2014 and therefore did not apply to assets onshored between 1 January 2015 and 10 October 2017. On the recommendation of the Review of Ireland’s Corporation Tax Code undertaken by Mr. Seamus Coffey, the 80% cap was reinstated to ensure some smoothing of corporation tax receipts over time. For the purposes of certainty, changes to tax law are generally made on a prospective basis such that they apply only from the date on which they have legal effect. This measure, therefore, does not apply retrospectively.

It should be noted that the operation of the cap is simply a timing matter, and to present tax paid in current years as a result of the cap as additional tax for the Exchequer would not be correct. The measure has no effect on the overall quantum of capital allowances for intangible assets available to use against the relevant trading income. Any amounts restricted in one accounting period as a result of a cap are available for carry forward and use in a subsequent accounting period, subject to the application of the cap in that period. Income generated by assets onshored during the period when the cap was not in place will therefore be taxed going forward when the capital allowances have been fully used. The allowances are one of a number of measures designed to enhance the competitiveness of Ireland as a location for companies to develop intellectual property. This recognises the fact that investment and growth in OECD economies is increasingly driven by investment in intangible assets.

I have raised this with the Minister on numerous occasions. I argued passionately at the Oireachtas Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach that while reintroducing the 80% cap was a positive step, allowing the intellectual property that was being brought onshore to continue to claim the 100% was wrong. It is costing the State €750 million. The parameters of next year's budget, which we now know will be at €1.8 billion, could be increased by just changing this policy. The person that the Department of Finance commissioned to write the definitive report in respect of taxation has argued this should be introduced. It is not about retrospective taxation. There is nothing retrospective about this.

Mr. Seamus Coffey has said that it does not change the amount of capital allowances that are available and the total quantum of capital allowances remains the same. He has said that all that changes is the amount that can be claimed in future years. It is about how we attach them in future years. There are serious questions on where this policy came from. Who decided to raise the cap to 100%? At whose bidding was that done? Other changes were made at that time as well. Those included extending the qualifications for intangible assets and the rules relating to transferring assets. At whose bidding did this happen and why is the Minister so reluctant to bring in another €750 million to the State this year? It could be used to invest in the housing, health or cost of living crises.

I have supplied information to the Deputy in the context of last year's Finance Bill on the contact between my Department and my predecessor across the period when that decision was made. On the question of the decision I made, I made it on the basis of consultation I had with my own Department. I have outlined to Deputy Doherty the contact I had with bodies and organisations in the run-up to the budget. As to why I made the decision that I did and why I am not looking to change it in the way the Deputy wishes, it is because I believe the regime we have in place is competitive and stable. There is great value in those qualities given the changes happening at the moment.

It is my assessment that if I were to make the change that the Deputy referred to, it would damage our ability to attract and retain intellectual property. That is an important feature in how we can retain jobs within our economy. The current regime is competitive. Changing it in any way would undermine that competitiveness. As Deputy Doherty knows and has acknowledged, the €750 million referred to, which is a tentative estimate from the Revenue Commissioners, is a question of the timing of tax revenue.

It is not necessarily the timing of taxation. These companies are highly mobile. Companies could defer their liabilities for ten years and there is no guarantee that they will be here in ten years or that the structure of the companies would mean that the taxation would be available then. They could move their profit centre to some other jurisdiction. Let us not pretend that is not a risk. The reality is that this is a policy choice. The Minister's officials told us that. There is no other reason for this. I am asking the Minister to apply the same tax rules to intellectual property brought onshore by a company last month as we should be applying to intellectual property that was brought on to this shore post 2015.

I refer to what the Minister is allowing companies to avail of in the tax code because of this flawed decision, for whatever reason or at whoever's bidding it was made. We know Apple is one of these multinational companies. This has been written about internationally and has brought shame to Ireland in respect of our tax code. Intellectual property has been brought to Ireland and it has been possible to write down effective tax very close to zero as a result of this. The Minister is saying that he is going to apply a different tax code to that intellectual property and a separate tax policy in respect of intellectual property that was here in the past year or may come in future years.

I re-emphasise that intellectual property was brought to our country in the past and there was an expectation of what taxing regime would apply to that intellectual property when it was moved into our jurisdiction. I believe we should maintain that taxing regime. We gave commitments on what our international tax structure was going to be. Investment took place on that basis. If we were to change it in the way Deputy Doherty suggests, it would undermine our ability to retain investment in our country.

He is correct that it is a policy decision. I made that policy decision and I stand over it on the basis of what the long-term competitiveness of our economy can look like. Deputy Doherty pointed out how mobile a company is that moves to Ireland and that it might decide to move again in future. That is correct. Many of the companies, however, that are involved in technology and research in Ireland have had long-term relationships with Ireland and have been based here for many years. I believe this is the right regime to maintain that long-term trading relationship with those companies.