Paschal Donohoe (Dublin Central, Fine Gael) | Oireachtas source

I thank the committee for inviting me to speak to it in advance of the next ECOFIN Council of Ministers meeting, which will take place on Tuesday. This is the first meeting of the Estonian Presidency and will be my second Council to attend since my appointment as Minister for Finance, having attended the June Council in Luxembourg. In light of these developments, I want to discuss quickly the issues that are before finance Ministers at the ECOFIN meeting. In the committee's invitation, it asked if I would also provide a brief overview of the proceedings of the June ECOFIN meeting, so I will address that first.

The June ECOFIN meeting took place in Luxembourg on 16 June and it was the last under the Maltese Presidency. The June agenda included discussions relating to the reduced VAT rate for electronically supplied publications, known as ebooks, the general reverse charge mechanism, which I will explain quickly for the benefit of members, strengthening of the banking union and risk reduction measures, and an update on the current financial services legislative proposals. On the non-legislative part of the meeting there were discussions on non-performing loans, the fight against the financing of terrorism, the capital markets union, the contribution to the June European Council meeting, and the Stability and Growth Pact. As usual for the final meeting of a Presidency, it was busy.

The first item on the agenda was a proposal to amend the Council directive dealing with a reduced VAT rate for epublications. At present, the EU VAT directive prevents member states from applying the same VAT rates to epublications as currently applies to physical publications. The result is a less favourable VAT treatment of epublications in most member states. The modernisation of VAT on ecommerce proposals published by the Commission on 1 December 2016 includes provision to grant all member states the possibility to apply the same VAT rates to electronically supplied publications as member states currently apply to printed publications. Furthermore, the proposal also allows all member states to apply a zero or super-reduced VAT rate, which is below 5%, to publications in any format. Until now, only member states that applied such treatment to physical publications on and since 1 January 1991 could avail of zero or super-reduced rating. Unfortunately, no agreement was reached on this.

The second item dealt with a proposal to amend the directive on the common system of VAT specifically relating to the temporary application of a generalised reverse charge mechanism relating to supplies of goods and services above a certain threshold. This item was last discussed at the March ECOFIN meeting. The current EU VAT directive provides for sectoral reverse charge mechanisms to apply in certain circumstances where known fraud exists. However, it is proposed to introduce a generalised reverse charge mechanism which extends the reverse charge to all supplies of goods and services in a member state and not just to a specific sector. Under the reverse charge mechanism, the person liable for payment of VAT to the tax authorities is the consumer and not the supplier. This is an anti-fraud mechanism. As with the ebooks proposal, no agreement was reached on this matter either, as they both require unanimity to proceed.

Ministers also discussed a number of legislative proposals that dealt with strengthening the banking union and also dealt with risk reduction measures. Two of the proposals, namely, a draft directive on the ranking of unsecured debt instruments in insolvency proceedings relating to bank creditor hierarchy and a draft regulation on transitional arrangements to phase in the regulatory capital impact of International Financial Reporting Standard 9, IFRS 9, were agreed by Ministers. The first general approach seeks to harmonise the ranking of unsecured debt instruments across Europe, that is, to establish a common hierarchy for the repayment of creditors when an institution is resolved. The second general approach introduces transitional arrangements to phase in the impact on bank capital of IFRS 9, an accounting standard that comes into effect on 1 January 2018, and to phase out the exemption of sovereign bonds from the large exposure rules due to expire at the end of 2017. This means that the Presidency can commence discussion on these draft proposals with the European Parliament as soon as the Parliament has approved its own negotiating stance.

The Council noted the progress made by working parties on the remaining four draft proposals. These relate to bank capital requirements, the directive on bank recovery, a regulation on the Single Resolution Mechanism and a regulation establishing a European deposit insurance scheme. The first three proposals are aimed at reducing risk to the financial sector and are designed to incorporate into EU law standards agreed at the global level by the Basel committee on banking supervision and the financial stability board. The final proposal sets out to establish an EU-level insurance scheme to strengthen the protection of bank deposits. Work will now continue at a technical level on these proposals. We were given an update on non-performing loans in Europe, the mid-term review of the capital markets union action plan and progress made on the implementation of the action plan for strengthening the fight against terrorist financing. As the Council will return to the first two topics in July, I will say more about them later.

Let me now turn to the remaining two items on the June ECOFIN agenda: the contribution to the European Council meeting to the European semester and the implementation of the Stability and Growth Pact. The EU semester refers to the EU economic governance rules and related monitoring. This is an annual cycle of economic and budgetary policy guidance which culminates in the adoption of country-specific recommendations. The Council discussed and approved the recommendations on each member state's country-specific recommendations. This is a routine part of the annual EU semester process and these recommendations were endorsed by the European Council in June and will be adopted at the July ECOFIN meeting. We are broadly satisfied with the policy guidance contained in the three country-specific recommendations addressed to Ireland. Finally, ECOFIN was asked to approve the draft Council decisions to abrogate the excessive deficit procedures of Portugal and Croatia. Both countries outlined the progress made with respect to their economies and welcomed this. The Council also agreed to launch a significant deviation procedure for Romania as part of the preventative arm of the Stability and Growth Pact with a view to correcting its significant deviation from the structural adjustment path towards its budgetary objective.

Next week will be the first ECOFIN meeting under the Estonian Presidency and I wish it well. I remind the committee that this is a draft agenda and there may be changes between now and the meeting. On the legislative side of the agenda, Ministers will be informed, as usual by the Presidency, of the state of play on the current financial services legislative proposals. The Commission will make a presentation about its recently published proposal on the mandatory disclosure of tax schemes by tax advisers. This would require tax advisers to disclose to tax authorities when they market or promote tax planning schemes that meet certain so-called hallmarks. The disclosures would be shared with all other member states. The logic for that proposal is that tax authorities would be made aware of arrangements that may constitute tax avoidance and therefore would be able to carry out more detailed audits or introduce legislative changes to close loopholes. The proposal stems from the recommendation in the OECD base erosion and profit shifting, BEPS, process.

This is a Commission proposal that has not been contributed to yet by member states. Ireland and other member states will now examine the proposal in detail and discuss it at Council working parties under the Estonian Presidency. These technical discussions have not yet begun. The Presidency has not made this proposal one of its tax priorities but the Commission will be eager for agreement to be reached in the coming months. Ireland already has mandatory disclosure rules in place and is one of only four member states to have such rules. A Government decision in September 2016 confirmed Ireland's support in principle for all member states agreeing a directive to introduce similar rules to the extent that they are in line with the BEPS Action 12 report.

Turning to the non-legislative side of the agenda, there are three topics down for consideration.

The first item will be a presentation on the work programme of the Estonian Presidency which will be made by the Estonian Finance Minister, Mr. Toomas Tõniste, as is usual at the start of a presidential term. The main overall objectives of the Estonian Presidency are: an open and innovative European economy; a safe and secure Europe; a digital Europe and free movement of data; and an inclusive and sustainable Europe. The Presidency views an open and innovative European economy as developing a business environment which supports knowledge-based growth and competitiveness. It is also committed to the principle of better regulation and will examine opportunities for e-solutions.

The second item will be the topic of the Commission's mid-term review of the capital markets union action plan, on which Ministers will seek to adopt draft Council conclusions which we generally support. As I mentioned, this item featured on the agenda for the June Council. The mid-term review which was published on 8 June details the progress made so far and sets out timelines for new actions in the coming months. Ireland is broadly supportive of the capital markets union project and welcomes the continued efforts of the Commission to implement the action plan, including through the review which shows that significant progress has been made across many measures. The capital markets union action plan has the potential to increase the sources of finance for Irish businesses and investors. The creation of larger and deeper capital markets in Europe would also be of benefit to our financial services industry. The majority of the proposed new measures will help to achieve these objectives. It is generally the case that the cumulative effect of many measures will have an impact, rather than any single measure being transformative by itself.

The report of the expert group of the financial services committee subgroup on non-performing loans will be presented to Ministers and followed by an exchange of views. The Council will also be asked to adopt draft conclusions. From an Irish perspective, notwithstanding the progress made and the strong pace of reductions in 2014, 2015 and 2016, pressure remains on Irish banks to reduce the value of non-performing loans at a faster pace. The value of impaired loans in Ireland has fallen by approximately 63%, from a peak of €85 billion at the end of 2013. In 2016 alone it fell by approximately 25%. The momentum of this reduction in the value of non-performing loans has continued into 2017. Ireland is broadly supportive of proposed measures which cover 19 policy proposals across four core areas: supervision; insolvency and legal frameworks; the development of secondary markets; and the restructuring of the banking sector. The aim of the proposals is to introduce consistent and strong supervision of non-performing loans; improve the legal frameworks and efficiency across the European Union; enhance the consistency of approaches to secondary markets; and assist member states in setting up asset management companies. However, we do have some concerns about specific elements of the proposals. For example, we are concerned that restructuring activity will be disincentivised in favour of loan sales, or that possible changes to legal and insolvency frameworks might need to make allowance for the independence of the courts system and our common law framework. The draft conclusions make it clear that the matter will be reviewed. Accordingly, we are broadly supportive of the draft Council conclusions.

I trust that the Chairman and members of the committee have found the summary of last month's meeting and the outline of this month's agenda informative. I thank them for their attention and will be happy to respond to questions or observations members may have.