Mr. Brian Hayes:

I thank the Chairman for giving me the opportunity to appear before my colleagues at the Joint Committee of Finance, Public Expenditure and Reform, and Taoiseach. I sent a statement to the secretariat and will take it as read. I will address the issues to which the Chairman asked me to speak.

It is good to be before the joint committee. About 70% of the work I do in the European Parliament relates to my work as a full member of the Economic and Monetary Affairs Committee. Most of the debates that happen in this Parliament are related directly to the work we are doing on a pan-European level. I welcome the efforts of the Chairman which I am assisting to get the president of the ECB to attend the committee. It is really important and I congratulate the Chairman on the initiative. I am confident that we will get there between now and the end of the mandate of the president of the ECB.

The regulatory supervisory element has changed radically as a consequence of the crisis. If one looks at what the Single Supervisory Mechanism, SSM, and the ECB do in terms of the 253 banks at which they look, four of which are in Ireland, it is a totally new landscape. It is really important that those who are involved in the detail of work in the European Parliament relate directly to colleagues back home. I have listed the files I have done thus far and the files on which I am working and I am happy to take questions on them.

I will deal with the four issues I was requested to deal with. First, on the taxation of the digital economy, any taxation matter in the European Union requires unanimity at the European Council; thankfully, it is not an issue for the European Parliament. Ireland does not have a majority on the key issues that face us on these files, but that is not to say the Parliament does not have a view on this issue; of course, it does, but my sense is we cannot be forced to do something we do not want to do. Ultimately, we have a veto. It is not a good place to be in to constantly say we want to use the veto, but on the question of a digital tax, we are not alone in our view as a country. A large number of member states in the east of Europe, the Scandinavian countries and the more export oriented economies in the north agree with our views.

Let us be frank about the taxation of the digital economy. Companies are not paying enough; the effective tax rate is under 10%. We have to find a means to have a fairer taxation system in circumstances where their intellectual property is in one location and their distribution system is elsewhere. We have not been good because our traditional means of taxing the corporate sector has been based on the question of profits, where somebody is domiciled and where real value is added. We have to address this issue. The interim measure Commissioner Moscovici has proposed is not fit for purpose in that it is a turnover tax, effectively a tax on the clicks on Google, Airbnb or whatever else. In that way it would be a radical departure, but it would not be a major tax. Mr. Moscovici has suggested to those of us on the Economic and Monetary Affairs Committee that it would be about €5 billion on an annualised basis and affect the biggest corporate companies with a turnover of more than €750 million, but there are issues that we must address. It could be perceived as an attack on US businesses because essentially it would affect large US tech companies, many of which are based in Ireland. Where the trade disputes are with the new US Administration and the European Union is of concern.

The other question is what is and is not digital. Is the German car manufacturer BMW which produces something at €50,000, 40% of which is digital, in the digital category? Should it be taxed? I cannot see too many people in Germany putting their hands up. If it is just a surcharge on digital companies, it would be a pretty blunt instrument. A better way to approach the issue is to do what the OECD has done on the BEPS side, where the report is available and its want a period of time within which to see if it can be organised on an international basis.

Let me be very frank with my colleagues. We all know that taxation is a highly political issue, no matter from which political family we come. If one were to ask Google or Facebook whether it was okay with them that a percentage of what they pay in tax on an annual basis should relate to the location of users, I think they would probably say yes. If they can see the principle, the next question is what percentage of the tax payable should it be. If a significant number of the people who are clicking on their services come from the larger member states, is it appropriate that some of the money should go to these member states? The question is about percentages. The bigger issue for Ireland is related to the common consolidated corporate tax base, CCCTB, not a digital tax, because a digital tax is about more than taking away something we0 have. We must box clever. I have made a suggestion to the Commissioner on a sunset clause, that we could have such a tax for a number of years. That is not Commissioner Moscovici's proposal, but this proposal is fit for purpose. The correct approach, as the Minister for Finance said, is to work with other member states and stay at the table in order that we can come up with a proposal that will resolves the issue. This is still a piece of work that has to be done, but for me, the digital companies have to pay more but how they pay more is the question. Certainly, we need to be open-minded about it.

I do not need to tell members who have done sterling work on the issue of non-performing loans, NPLs, how important this issue is in the European Union. We have to solve the problem and it has to be solution oriented. If we do not solve the problem of NPLs, the implications are that it will dull the investment in new borrowings to businesses, families and individuals. Second, if we do not solve the problem of NPLs, it means that a larger percentage of a bank's capital will have to be used to offset the NPLs on the balance sheet, which is not a good position in which to be. Historically, banks that have large NPLs on balance sheets are ones that overcharge on mortgages and other services. We must address that question.

There are Single Supervisory Mechanism, SSM, guidelines, but the question is whether we should move to a more exacting standard. That is not yet clear from what the SSM has stated, but progress has been made. We have reduced the debt on NPLs in Ireland from €80 billion to €30 billion. The current rate is about 13%, a reduction from 27%. Much progress has been made on the commercial side, but there are outstanding issues on the residential side. The real question is whether we should move from the SSM guidelines which are to a more exacting standard. I do not think there is clarity within the SSM on that question.

The other point that must be made is that we face very severe stress tests later this year by the European Banking Authority, EBA. The stress tests will not just be about capital but also about how much collateral lies behind the balance sheets of the banks. Split mortgages is another issue we can discuss further.

On the Multiannual Financial Framework, MFF, next week the Commission will propose the draft Cohesion Policy funding for the next seven years. It will not be decided by this Parliament but in the run-up to 2020. It is very important for Ireland that we continue agricultural and regional communities to have very strong exposure to the Structural and Cohesion Funds. I very much agree with the Taoiseach recent remarks, in which he said we were prepared to pay more to breach the 1% GNI threshold. We should pay more. Ireland is now a net contributor. We have gained about €50 billion since 1973 and have done a good job in utilising them. From my perspective, for the PEACE and INTERREG programmes and the agricultural communities, we need to do it. The other advantage is that if one pays in more, one has more control of the design of the funds. We will possibly need funding to deal with the impact of Brexit which we can obtain if we are open to paying more.

They key argument in the paper I have submitted on Brexit financial services is that it is virtually impossible to regard the United Kingdom as a third country when it comes to financial services. I have set out in my paper how integrated they are with the European market. Some 40% of European assets under management are in the City of London, as is 60% of the EU capital markets business. A total of €1.1 trillion of EU lending is provided through the City of London. One cannot regard it as a Mexico or a Venezuela in the context of third country equivalence. We have to find a solution to the problem that will allow systemic threats to be addressed. It will be a disaster if we do not have agreement. It is a new systemic threat that no one has articulated. What will happen?

My view is Europe will say a third party can have equivalence. Equivalence is not the gold standard because it does not exist in all of the files. Even if it does exist in existing regulations, it only applies in some elements of those regulations. The British are looking for mutual recognition, which, generally speaking, we do not do as a Community in third-country negotiations. There is a new term out there of "enhanced equivalence", which means we could come to a special deal with the UK as a separate financial services chapter, which is what we are trying to do with the Americans on TTIP. It could then make it clearer what they will follow.

The big concern in Brussels is the British will have a race to the bottom. The British counter that by saying ten years ago, they were before the European Union when it came to creating new standards in supervision. We have to be very clear about this. Our task in Ireland and as a member of the European Union is to get a good outcome and an extensive deal with the UK. The best outcome would be to make sure we had a financial services chapter in whatever that new deal is and hopefully it would make some difference. Let us be clear about it. The UK is leaving. The activities of the City of London make it cheaper for us in other parts of the European Union because of cost competitiveness. There are economies of scale in London in a way there are not in Frankfurt, Dublin, Amsterdam or Paris. Over time we will get stronger but we should not underestimate the importance of the City of London in the financing generally of the European Union.

I will make a final point. I have gone on too long. I will appeal to people on the broader Brexit issue. No matter who the Government of Ireland is - Sinn Féin, Fianna Fáil, the Socialist Party or Communist Party of Ireland - the issues are the issues and the challenges are the challenges.