Michael D'Arcy (Wexford, Fine Gael) | Oireachtas source

Article 12 is not a technical matter. I did not say in my speech that it was. I said that we chose to opt out of it because we do not know how it will work. The multilateral convention is a legally binding convention. One does not get to choose to opt out of it. We are satisfied that if it works properly, we can opt into it. That is why we are choosing not to accept Article 12 right now. Many other countries are doing likewise. There is some confusion in this regard. We do not know how it will establish itself. We do not know how it will work.

It might be helpful for me to read the note on Article 12, which is an important aspect of this matter. Article 12, which deals with so-called dependent agents, provides that an enterprise of one country "shall be deemed to have a permanent establishment" in the other country if it operates through a dependent agent, that is, a person or entity that acts under clear instruction of a head office in the first country. The current permanent establishment standard was creating concerns for civil law countries that are bound by law to interpret the texts strictly. There was concern about particular structures being set up to avoid having a taxable presence in large market countries. It is generally expected that other BEPS recommendations being introduced into domestic law should put an end to these structures, regardless of whether Article 12 is adopted by countries. Some guidance has been reached at the OECD on the level of profits that would be attributed to new permanent establishments created under Article 12.

However, there is still significant uncertainty as to how the test will be applied in practice. Reflecting this concern, approximately 60% of the countries that have signed the multilateral convention to date have indicated that they will not accept Article 12. Of the 74 countries with which Ireland has a tax treaty, only 24 have indicated that they wish to adopt Article 12. Based on the most recent OECD information available, it appears that only 17% of treaties around the world that will be impacted by the multilateral convention will be updated to include the definitions of Article 12. It is intended that Ireland will opt not to apply this article due to this uncertainty. However, this position will be kept under review as it is open to Ireland to lift our reservation on this article at a future date. It would also be open to Ireland to bilaterally agree to include this article in any of our tax treaties, should treaty partner countries make a sufficiently strong case to include it. As I stated, very few countries are choosing to accept this article as part of the multilateral convention but we will, on a case-by-case basis and equal negotiating footing, go back to all other countries with which we have a double taxation agreement and if it is appropriate to insert the article, we will do so individually.