Mr. Liam Lynch:

I have been a tax partner with KPMG for the past ten years and have more than 20 years' experience in international tax matters. As head of insurance in KPMG Ireland I have particular experience in that area, but my clients spread over many companies, areas and countries. I was recently elected vice president of Chartered Accountants Ireland, where I chaired the tax committee for a number of years. The work of this committee is very important regarding informing the Oireachtas on the current debate on international taxation and how it affects Ireland and I thank the members for that. I will first talk about the global tax framework as it stands and how it is developing, and then discuss some areas of concern from an Irish point of view that are worthy of consideration here.

The global tax framework grew up piecemeal over time. There were national policies and there were responses to national imperatives from time to time. There are three classes of countries. First, there are the large countries which were focused on encouraging the outward expansion of their domestic businesses, such as the US in particular, whose tax policies are based very much on that. Second, there are the intermediate countries, which could be called conduit countries, small islands dependent on those large countries and used by them to facilitate international trade. Third, there is the class of countries with the simple imperative of attracting international business investment and international trade and providing for jobs locally. Despite any commentary to the contrary, Ireland is very definitely in the third category of countries.

Ireland has many international companies employing hundreds of thousands of people directly and indirectly across the economy, with real substance. It is clear that the global tax framework needs reform and investigation, and that leaves open whether such reform should be of a revolutionary or evolutionary nature, and this may be a question of time. From a business perspective it should be evolutionary, and that is along the lines of many of the BEPS proposals, including dealing with perceived hybrid and treaty abuses and considering the appropriateness of current transfer pricing standards. This is because a degree of certainty must be maintained for businesses. We know from experience that constant changes to a framework or rules that are difficult to interpret or get one's head around add to an environment which degrades entrepreneurship, discourages business and, ultimately, reduces tax revenue. Uncertainty in tax law results in businesses declining to make commercial decisions and this retards growth, and I have seen this in numerous countries.

This committee has already examined the global framework in place and how it is largely driven by bilateral treaties, the OECD at global level and the EU here in Ireland. The G20 has only recently become a driver in the BEPS project, which has much to recommend it. It is a genuine attempt to put order on the tax systems of the world and how they interact with each other and deal with mismatches in the laws. If BEPS is to succeed, and we all have a part to play in this, it is important it does not become a vehicle for protectionism and national self interest, which is a fear.

While EU countries are subject to all the controls, if we rely on the four freedoms and state aid within the EU we run the risk of creating a fortress Europe, and while it is important to encourage internal trade, external trade is also important and we do not want to strangle it. Fair tax completion in this context is universally accepted, and has been endorsed by the EU Commission. In Ireland's case it is encapsulated in the 12.5% corporation tax rate. This has been very important and has helped offset the natural pull of the centre for economic development and has been a model for peripheral development of which we should be proud.

Some of the BEPS proposals would hinder peripheral development and international trade. I will refer to four examples of this. The economies of most countries are by now interconnected and rely on foreign as well as domestic capital. Foreign ownership operates side by side with domestic ownership, and is a mark of economic freedom. However, the limitation proposals on double tax treaties being discussed in the BEPS proposals almost exclusively favour domestic ownership over international ownership. If we were to follow that line, particularly for small countries such as Ireland-----