Simon Harris (Wicklow, Fine Gael) | Oireachtas source

That is not the way the world works. That is the Deputy’s ideology and I respect that, but it is not how the world works. In Deputy Boyd Barrett’s constituency there are thousands of people, in Cherrywood and other areas, employed by multinational companies. They are in well paid jobs. They pay tax to this country and make a living for their families and therefore they contribute to the economy and to society. The idea that the initiatives put in place by the Government, previous Governments, and presumably successive Governments to try to keep this jurisdiction competitive does not have any bearing on those job creation figures and that it is all just incidental does not stand up to any degree of scrutiny.

It was very interesting when Deputy Boyd Barrett said that - shock, horror - the Minister for Jobs, Enterprise and Innovation had met with the multinationals. Shock, horror - the Minister for Jobs, Enterprise and Innovation interacts with businesses to try to create more jobs. I will let Deputy Boyd Barrett into a little secret: yesterday I met a multinational company in Cork and I talked to those involved and asked what we are doing well in this country in terms of attracting investment, what made the company decide to locate in Cork, how many jobs it had created and whether it was likely to create more. That is the sort of engagement we have. Expressing shock and horror at Ministers with economic portfolios engaging with the business community is the equivalent of condemning the Minister for Agriculture, Food and the Marine for meeting with the IFA. That is what we are meant to do. That is what we are duty-bound to do, and should we choose not to have those engagements we should not be in government. Nobody who has that attitude should be.

I have too much respect for Deputy Boyd Barrett’s intellect to believe he genuinely believes that the knowledge development box is the double Irish by another name, because it simply is not. Deputy Boyd Barrett knows it is not. First, when he says this country got caught in relation to the double Irish, let us be very clear in terms of setting the record straight. No Government of any hue ever sat down in any office in Dublin or any other part of this country and designed the double Irish. The double Irish was an anomaly devised, I presume, by international tax lawyers to enable companies to pay less tax, and we have ended it. Deputy Boyd Barrett is right that we are phasing it out. That is factually correct. The double Irish was never part of the Irish tax offer. It was never something designed by the Government or by any previous Government. It is just one of a number of examples of international tax planning arrangements which were designed and developed by tax and legal experts to take advantage of what could best be described as mismatches between tax rules in two or more countries. That is why the OECD's BEPS process and countries working together on a global level is the only way to address such issues.

In contrast to the double Irish, which was to do with tax residency rules, the knowledge development box is about substance. It is about recognising that there are companies today in this country and right around the world – and even more in the future – that will spend a significant amount of their time, energy and resources in research and development and trying to come up with novel ways of doing things. It is a policy choice. As a country we must decide whether we want that to happen in Ireland - if we want Irish companies to be innovative and to invest time, energy and resources in developing new products that could make significant positive differences in society and the economy. Ultimately, we must consider whether we want foreign companies that are making decisions on where to carry out that research and development to decide to invest and create jobs in Ireland, or whether we should just sit on our hands and allow those jobs and investments to go elsewhere. We have made our policy decision. It is one that is internationally recognised as having merit in terms of investment in growth, and that is the reason OECD economies are increasingly driven by knowledge-based development. It is also the reason the new rules and the new modified nexus recognises the opportunities such boxes provide.

Deputy Boyd Barrett also made the point that if there was a tiny change to a product, it would still qualify the company to use the arrangement. The point I was trying to make earlier is that if there was a tiny change there would be a tiny benefit. The benefit is proportionate to the qualifying asset - the amount that was invested in the change. I wish to make that clear as well.

The Deputy also asked whether companies that used the double Irish could not just use the knowledge development box instead. The non-resident company that formed part of the double Irish structure typically owned highly valuable intellectual property which was tax-resident in a zero-tax jurisdiction.

The substantial research and development activity that led to the development of such intellectual property has typically already been developed, often in the United States. Following the rules agreed to by the OECD, to which we are referring as the modified nexus, the box has been designed in such a way that the 6.25% rate should only apply to profits that are the result of substantive research and development carried out in Ireland. In essence, this means that if a country earns 50% from its research and development that led to the development of an asset in Ireland, 50% of the income arising from that asset will qualify for the KDB rate. It is good that we are aspiring to have that research and development carried out in this country as it will benefit our constituents and the economy, but I take the point that the Deputy and I will not agree on it.

The Deputy also raised the issue of transfer pricing and royalties. Differences can, obviously, arise in the legal and tax systems between countries, an issue we have discussed. International tax planning takes account of these differences in national systems and rules. From an Irish perspective, the profits arising here are taxed at the appropriate rate. The Taxes Consolidation Act 1997 requires that a company's trading profits be computed in accordance with generally accepted accounting practice, subject to any adjustment required by tax law. In computing such profits expenses incurred wholly and exclusively for the purpose of trade, including royalties and licence fees paid for the use of intellectual property, are deductible. The tax code contains transfer pricing rules that apply the OECD's arm's length pricing principles to trading transactions between associated companies. This ensures the profits chargeable to corporation tax in Ireland fully reflect the functions, assets and risks located here by a multinational group.

What companies do outside Ireland is beyond the scope of the Irish tax system. That is the reason we have been having discussions at OECD level for the past few years. We cannot conclusively determine the effective rate of tax paid under international tax structures by reference to the taxation paid in Ireland alone. However, we are continuing to work with international bodies to ensure there is fair play on the international stage. That is what the OECD process is about. Regardless of how long I speak, I doubt that the Deputy and I will agree on this issue, but that is the explanation of my position and that of the Government.