Peadar Tóibín (Meath West, Sinn Fein) | Oireachtas source

This is a very important section, dealing as it does with the issue of foreign direct investment, corporation tax and the Government's efforts to reduce the potential exposure to tax for companies in the future. One of the problems with the economy we have created in this State is its over-reliance on foreign direct investment. There is an inherent imbalance within the Irish economy at the moment, with 90% of exports coming from FDI companies, for example, rather than indigenous business. Any imbalance will cause exposure and will make us susceptible to shocks in the future, whether they be shocks in the context of Base Erosion and Profit Shifting, BEPS, taxation, exchange rates or the competitive realities of emerging markets. Foreign direct investment is very mobile in comparison to indigenous business and therefore it is far easier for it to go elsewhere. Indigenous business does not have the same level of mobility. Typically the attraction of FDI companies is used by emerging economies as a strategy to grow their own indigenous sectors in the longer run. The attraction of such companies is very seldom an objective in its own right but Ireland has not been able, so far, to strike a balance between the two. Of course, FDI must be welcomed and every job that can be created in times of difficulty must be supported but the current imbalance must be addressed.

This Government has been dragged, kicking and screaming, into changing the taxation environment for FDI companies. Sinn Féin has long been calling on the Government to resolve the so-called double-Irish problem and the various loopholes that were in existence which allowed companies to pay very low effective rates of tax. This year I attended a committee meeting addressed by the chief economist of the Department of Finance and have tabled parliamentary questions to the Minister on this issue but there seems to be confusion around the fact that corporation tax receipts are so far ahead of profile this year in comparison to other years. The trading environment and exchange rates have been suggested as reasons for this but there is a large body of opinion that holds that corporation tax is so far ahead of profile this year because some companies are locating their profit generation base for tax and accounting purposes in Ireland which has resulted in a ballooning of the corporation tax take here. If that is the case, it means we have lost the opportunity which existed for the last four or five years and the State has lost out on those funds because of this Government's reticence to become up to date with international best practice on taxation.

My worry is that the knowledge development box is simply another method by which the Government is seeking to ensure that we maintain a competitive advantage through our corporation taxes. Foreign direct investors will tell one that they want to make a profit. The infrastructure of profit for any business is based on having access to customers, low input costs and a skilled workforce. The availability of most of those components is falling in this country because we are reducing our investment in education and infrastructure and therefore, our competitive advantage is our bargain basement corporation tax rate. We are putting all of our competitive eggs into one basket and making it difficult for ourselves to broaden out and re-balance the economy in the future. I am concerned that the knowledge development box is simply another way of going down this route.

I understand that the knowledge development box is designed to replicate the patent box which has been introduced in other countries. Will the income generated from products developed from patents or intellectual property be identified as income under the knowledge development box structure? Will it cover not just the sale of intellectual property or a patent but also the sale of a product developed from same? The cost analysis from the Government indicates that it will cost about €50 million but I ask the Minister of State to outline how this was calculated. My understanding is that this can only be calculated by determining the income to the State if the effective corporation tax was 12.5%, then determining the percentage of profits made by FDI companies which would be booked under the knowledge box and working out the difference. If that is the case, we have to be talking about billions of euro in costs to the State.

Much of the work being done by FDI companies at the moment is contract work which leaves employees in a precarious position. Does the Minister of State know what percentage of the employment created by FDI companies is contract based as opposed to direct labour?