Mr. Brian Keegan:

Chartered Accountants Ireland welcomes the opportunity to contribute to the work of the sub-committee. Its examination of these important tax issues is already making a significant contribution to the public and political debate.

The use of the term "global taxation" by the sub-committee is well-informed. There is no such thing as international tax - taxes are paid by companies to the sovereign governments which hold the taxing rights. Ireland, like many other countries, charges companies to tax on the basis of their tax residence. This concept of tax residence is fundamental to the issue under consideration today, namely, the interaction of Ireland’s corporate income tax system with the rules and regimes in operation in other countries. Companies which are incorporated, managed and controlled in Ireland are tax resident here and are subject to Irish corporation tax, irrespective of where their income arises. Ireland’s claim to corporation tax on the activities of companies which are not resident in Ireland - but which are active here by virtue of a branch operation - is sometimes overlooked. Our corporation tax system is more transparent than other taxation systems which have higher headline tax rates but which also provide for significant deductions to arrive at taxable income and taxable profits.

With the focus on Ireland's 12.5% corporation tax rate, the treatment of profits from companies when after-tax profits are distributed to shareholders and other stakeholders can be overlooked in the tax debate. Ultimately, the profits of a company make their way to individuals and much of the global tax system aims at ensuring those profits are not taxed too many times along the way. A clearly defined interaction of the Irish tax system with the tax regimes of other countries is, therefore, fundamental to international trade. Ultimately, tax is a business cost for companies and it must be predicted and managed. If our tax regime were to be too closed and protectionist, Irish companies simply would not be able to trade abroad and Ireland would not be an attractive destination for companies seeking to locate operations in this part of the world. In that context, SAP Ireland and other companies made announcements about the creation of new jobs this morning.

The main defining instrument for the interaction of Ireland's tax regime with other tax regimes in the world is the double taxation agreement, DTA. The purpose of a double taxation agreement is in fact to eliminate double taxation, that is, the taxing by two sovereign governments of the same profits arising from the same activities of a company or for that matter, an individual taxpayer. Double taxation agreements may have their flaws but they are vigorously negotiated between sovereign states, depending on the needs and aspirations of those states at a particular point in time. Critics point out that such agreements can result in double non-taxation. Another criticism involves so-called treaty shopping. This is the idea that certain activities are better located in one country over another, not because of any commercial considerations but because of a more favourable treaty treatment of those activities. Nevertheless, Ireland cannot tax income or assets which are outside its sovereign charge to tax. It is no surprise, therefore, that debates concerning residence rules focus on the themes of residence in the context of the OECD base erosion and profiting shifting initiative. I understand the Department of Finance launched a public consultation process in respect of the latter earlier this afternoon, which makes the discussion in which we are engaging particularly timely.

Unfortunately our country's tax regime has become something of a target in the discussion of global tax policy. This is unfair and unfounded. We are not outliers in terms of our tax rules, they are grounded in over a century of common law practice and interpretation. In particular, double taxation agreements are bilateral instruments. In other words, they are agreements between sovereign nations. Such agreements must work for both countries involved and can be changed where they do not do so. Harmful tax practices are simply not a feature of the Irish tax landscape. Harmful tax practices, as and when highlighted either by the OECD or the EU, have been changed by successive Ministers for Finance. The Irish system has already been through the mill of good practice scrutiny. That is why concepts such as the requirement to have a substantial presence in Ireland, anti-transfer pricing rules and exchange of information between revenue authorities are features of the Irish system. We must always be mindful of our obligations under the EU treaties when contemplating any changes to our tax system. That is not to say that there is not room for improvement. Tax legislation and best practice can and must evolve, not least because many of the rules which apply predate the growth in cross-border trade and the pre-eminence of intellectual property on the balance sheets of multinational companies.

I look forward to discussing this matter further with members.