Mr. Seamus Coffey:

The questions are very interesting. On the comparisons with other countries, international comparisons are fraught with difficulty as to how ones goes about doing it. Then one has to add the complexity of regional variation and that would make it even more complex. A simple way of doing a comparison on corporation tax to try to scale the relevant importance would be to do it on a per capita basis. If one looks at the level of corporation tax that is being collected - in the case of Ireland we can make a comparison for 2016 - in that year corporation tax is approximately €1,600 on a per capitabasis. For every person resident in the country, €1,600 of corporation tax was paid and one can say that 80% of the tax came from multinationals and so on. If one were to look at large countries such as Germany or France, they collected €1,000 and €900 in corporation taxper capita; respectively. Even though we may have a lower rate and we may look at the variety of reasons we collect so much, we are collecting more on a per capitabasis. The chart is trying to highlight some of the issues around the effective tax rates. It is not necessarily a matter of identifying the individual countries but on the naming of the countries, they are ranked by their outturns for the last year for which we have data, which is 2016. One can see the countries up towards the top would have the highest effective rates and the countries towards the bottom would have the lowest, with Ireland being right down at the bottom.

The reason the financial sector is omitted is that much of the focus tends to be on the non-financial corporations, that is, the traditional companies which were set up under foreign direct investment rules such as manufacturing and ICT companies. A similar analysis can be done for financial corporations but for issues of brevity, the financial sector was omitted and the graph shows the effective tax rate on the profits of non-financial companies and the fact that the rate has fallen in Ireland. I think that is linked to another question posed by Deputy Burton as to why are the economic statistics showing the effective tax rate in Ireland to be 8%? It may not be a surprise that it fell in 2008 and 2009, but I think we might have expected it to rise as the economy has recovered and some of the losses have washed out of the system. It is clear that in some instances these losses are not washing out of the system. One of the reasons could be the scale of the losses incurred in 2008 and 2009 in respect of financial companies and second, the continued accumulation of losses through a variety of reasons. It might not necessarily be trading losses, but it could be losses generated by unused capital allowances, so that companies have deductions larger than their income and those deductions could be capital allowances or it could be down to the treatment of capital spending. One could have what we term accelerated capital allowances, where the tax depreciation might exceed the real depreciation of the asset and one area where that might arise is in relation to aircraft leasing and the treatment of the capital expenditure on the acquisition of aircraft for leasing. As for the financial companies themselves and the level of losses, I am not sure I would use such emotive terms as the Deputy has about the companies not paying tax. I think the use of losses carried forward would be a pretty standard feature across all tax jurisdictions, such as capital allowances for intangibles. One could look at putting a cap on the amount that could be used in any one year to establish the minimum effective tax rate and rather than being able to offset 100% of one's income, so that even though one might be generating substantial profits, the use of losses carried forward can offset any tax liability that may fall due. One could limit that to 75% or 80%. That would not be changing the amount of losses that can be used but it would be extending the losses over a particular period and one would be generating some tax revenue in any particular year. An alternative proposal would be to have a time cut-off so that if one has not used the losses within a specified period, they can no longer be carried forward. I am not sure whether that is in place. It is an option.

Some countries do have them in the sense that the cap on the amount can be used in any given year. From a public perception, it can be difficult to get across that much of it is illusory because we do own the banks. The losses carried forward are an asset on their balance sheets such that if we do sell our stake in the banks, we will receive a higher price for them. If the asset is reduced or removed, the price received will be lower. While there may be an outcry about the lack of tax being paid, it will show up in Government revenue one way or the other. There is no doubt that changes could be made to alter the way this looks. There is also the banking levy which is applied across all banks, according to their size, and it is generating some revenue. I imagine that if there were to be changes to the way losses were used, one consequence could be the removal of the banking levy such that what we might gain on the corporation tax side might be lost on the banking levy side and we could definitely use the price to be gained if we chose to sell the assets. These are choices that are available, but the consequences would have to be worked through.

The settlement has been made on some of the correlative adjustments. I am not necessarily sure I would argue Revenue is settling in favour of companies. Generally, what happens is that profits and tax being paid in Ireland are being claimed by another country, but the claim comes through the company.