Mr. Niall Cody:

We had a long discussion about this when we were before the committee on 30 November. We went through the 13 companies and the reason they have a low effective tax rate. There are essentially two reasons. The first is that they are in receipt of large amounts of foreign dividends in effect of which double tax relief was available to offset Irish tax payable. The second reason, which we spoke about earlier, was that they may have claimed research and development tax credits.

On the foreign dividends, Ireland applies a credit system to ensure that foreign source income, including foreign dividends, is not doubly taxed. This means that an Irish resident company in receipt of foreign dividends is chargeable to Irish tax on that income at 12.5% or 25% depending on the country from which it is paid and whether the dividends are paid out of trading profits. Where certain criteria are met, however, a credit will be available against Irish tax in respect of any foreign withholding tax applied in the country of payment, as well as in respect of foreign tax suffered and the profits out of which the dividend has been paid.

We have provided a table to show what the effective rate would be if they were not entitled to the foreign tax credit. They have paid a higher rate of tax in the country in which the dividend comes from. Their effective rate is actually higher than 12.5%