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

I thank the Chairman. I am pleased to bring before the committee two draft Government agreements giving force of law in Ireland to a new double taxation agreement with Kosovo and separately, a new protocol to the existing double taxation agreement with Germany.

The new double taxation agreement with Kosovo was signed by ambassador O’Neill on behalf of Ireland and the acting head of mission, Ms Arrita Gjakova, on behalf of Kosovo on 25 June 2021 in London. The protocol to the double taxation agreement with Germany was signed on 19 January 2021 by the Minister for Foreign Affairs, Deputy Coveney, and the German ambassador to Ireland, Ms Deike Potzel.

As the committee will recall, arising from the OECD base erosion and profit shifting, BEPS, process, Ireland ratified the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting in 2018. The convention was discussed at this committee and in Dáil Éireann and was included in the Finance Act 2018.

The BEPS multilateral convention came into force for Ireland in 2019 and updates the majority of Ireland’s existing double taxation agreements to make them BEPS compliant. As was previously indicated to the committee, however, our existing double taxation agreement with Germany was not updated by the multilateral convention but will instead be updated bilaterally to reflect BEPS changes. This is what the German agreement before the committee seeks to do.

It is another important step in the implementation of the BEPS process and one which Ireland takes seriously in both signing and ratifying the multilateral convention.

Ireland has written to those partner jurisdictions that have not yet signed the convention to discuss options for implementing the BEPS recommendations. We are committed to ensuring that all our double taxation agreements meet the minimum standards agreed in the BEPS process.

A common feature of both the new agreement with Kosovo and the protocol with Germany is the incorporation of strong tools for tackling tax treaty abuse and anti-avoidance measures. Both contain the minimum standards committed to during the BEPS project, as well as several measures which are recommended best practices under BEPS, as agreed bilaterally.

Ireland first signed a double taxation agreement with Germany in Dublin in November 1962. That treaty was replaced in 2011 and there has been one protocol to the new treaty in place since 2014. In May 2017, the German Federal Ministry of Finance asked the Office of the Revenue Commissioners if the 2011 agreement between Ireland and Germany could be updated by protocol, instead of using the multilateral convention to implement tax treaty related measures to prevent BEPS. Ireland agreed to the request and negotiations successfully concluded in February 2020. That protocol was signed in January of this year and is before the committee today.

The new double taxation agreement with Kosovo is comprehensive in scope and while it generally follows the OECD model convention, it also includes some provisions that feature in the UN model convention. The agreement contains provisions to deal with BEPS and to make the new double tax agreements fully compliant with the minimum standards under the BEPS project. As well as the minimum standards, the double taxation agreement contains several measures which are recommended best practices under the BEPS project, as agreed between Ireland and Kosovo.

The treaty with Kosovo will enhance economic relations and co-operation in tax matters between both countries. Following an approach from Kosovo in 2017, the negotiations were successfully completed. The treaty is designed to eliminate double taxation without creating opportunities for non-taxation. The reduced rates of withholding tax on certain dividends, interest and royalties and the safeguards against discriminatory taxation in the agreement will support existing trade and facilitate further trade and investment between both states.

Our network of double taxation agreements is an important aspect of our competitiveness in attracting investment and facilitating Irish business in operating internationally. In addition, double tax agreements are a cornerstone of Ireland's trade policy and are a key element in stimulating trade and investment flows between countries. They provide greater certainty and fairness for taxpayers regarding their tax obligations in foreign jurisdictions and they are key to the prevention of double taxation.

The benefits of double taxation agreements are well known but concerns have been expressed that treaties may inadvertently facilitate aggressive tax planning. This concern was central to the BEPS project and to the BEPS multilateral convention. Updating our existing double taxation agreements, whether via the multilateral convention or bilaterally, helps to ensure they cannot be used for aggressive tax planning arrangements.

Ireland has been a strong supporter of the BEPS process since its inception and continues to engage positively at both EU and OECD level in addressing the tax challenges that arise from the digitalisation and globalisation of the economy. Proactively updating our double taxation agreements is a key example of that support.

As indicated in the update to our corporation tax roadmap that I published in January, it is my intention to publish a treaty policy statement at the end of this year or early in 2022. The proposals under discussion at the OECD have implications for the global network of tax treaties and it is important that any potential treaty outcomes agreed in that forum are reflected in the treaty policy statement. The rationale for this statement is to take stock of our existing network and formalise our treaty policy. As a small open economy, a robust treaty network is necessary to facilitate international trade.

We have come from a period of expansion of the network to the point where we have treaties with the vast majority of our international trading partners. It is my intention that the policy statement will have a particular emphasis on tax treaties with developing countries, having regard to Ireland’s development commitments. We have an excellent reputation for our positive policies towards developing countries through Irish Aid and I want to ensure that our treaty policy is fully consistent with our development policy. This is also in line with the Government commitment to domestic resource mobilisation policy the aim of which is to strengthen developing countries’ tax administrative capacity.

To inform the treaty policy statement, I launched a public consultation in April this year that ran until May and received 15 submissions, all of which are available on our website. My officials have also held a series of stakeholder engagements to discuss the content of the submissions in detail and this will inform our future treaty policy.

If Dáil Éireann approves the making of these orders by Government, I will include the orders in the Taxes Consolidation Act 1997 by way of an amendment in the upcoming finance Bill. This will enable Ireland to complete the necessary notifications to finalise the ratifications of both agreements.

I commend these draft orders to the committee. I am happy to take questions on them. I am also aware that the members of the committee have expressed a desire to discuss the ongoing work on the international tax framework at the OECD and I am also open to discussing that matter with the committee.