Ciarán Lynch (Cork South Central, Labour)
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The purpose of the meeting is to consider items Nos. 1 and 2. Item No. 1 is a motion regarding the agreement to improve tax compliance and provide for reporting and the exchange of information on tax matters with the United States of America, while item No. 2 is a motion regarding the exchange of information on taxes with Montserrat. I welcome the Minister of State at the Department of Finance, Deputy Brian Hayes, and his officials and thank them for assisting in our consideration of the motions. Briefing notes were prepared by the Department. If we adhere to a reasonably strict schedule, following the Minister of State's address to the select sub-committee, each of the Opposition spokespersons can respond and an open discussion will follow.

Brian Hayes (Dublin South West, Fine Gael)
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I thank the Chairman for giving me the opportunity to come before the select sub-committee. I thank members for being present on what is an important occasion. I know Deputy Michael McGrath knows - I am sure the Chairman and Deputy Simon Harris are also so aware - that in the course of his Budget Statement the Minister for Finance, Deputy Michael Noonan, referred to the agreement forged between the United States and Ireland. This is an important matter for the select sub-committee and I will answer questions members may ask.

Item No. 1 is a draft Government order giving force of law to an agreement with the United States to improve tax compliance and provide for reporting and the exchange of information on tax matters. Item No. 2 is a draft Government order giving force of law to a tax information exchange agreement with Montserrat. Each of these bilateral agreements provides for an exchange of information between countries in order to combat tax evasion and improve tax compliance. Members will recall that before the Christmas break, they considered a number of double taxation agreements, a tax information exchange agreement,TIEA, and the OECD Convention on Mutual Administrative Assistance in Tax Matters which provided for a bilateral exchange of information between countries. I know on that occasion members were very complimentary to the officials from the Office of the Revenue Commissioners and the Department of Finance for the way in which these matters had been concluded swiftly. This provided an opportunity to show to the world that our tax regime and the exchange of information between countries were at a very good level. While the agreement with the United States represents a significant new development in terms of the international exchange of tax information, it should be regarded as a member of the same family of intergovernmental tax agreements and TIEAs more generally as it has the same fundamental aim of enabling tax authorities in both countries to enforce their tax laws and thereby encourage the development of closer economic relations between the two countries in the future.

I will discuss first the tax information exchange agreement with Montserrat. Ireland has now concluded tax information exchange agreements with 20 jurisdictions, 16 of which are in force. All of them are based on the OECD model TIEA which grew from the work undertaken by the OECD to address harmful tax practices globally. The OECD model TIEA now represents the international standard for the effective exchange of information in tax matters. There has been a significant acceleration of the process of signing TIEAs between OECD countries and offshore jurisdictions in the past couple of years, mainly stemming from a threat by the G20 to blacklist jurisdictions that do not conclude at least 12 information exchange agreements.

It is fair to say from any observations of the work of the OECD, that this is a major issue of concern. The OECD has effectively become a specialist in this area in recent years of requiring more countries to exchange such agreements as a means to improve tax transparency in them.

TIEAs allow the Revenue Commissioners to directly request from foreign tax authorities information that is relevant to an Irish tax investigation, such as bank account information or company or trust ownership information. They will, therefore, greatly assist the Revenue Commissioners in tax investigations involving entities and bank accounts located in these jurisdictions.

The second issue is the agreement with the United States to improve tax compliance and provide for reporting and exchange of information concerning tax matters. This is a stand-alone intergovernmental agreement between Ireland and the United States. The main purpose of the agreement is to combat international tax evasion by preventing individuals from hiding money outside of either state in order to avoid paying tax. This agreement provides that the Revenue Commissioners will collect information from Irish financial institutions regarding accounts they hold on behalf of US persons and, in turn, report this information to the US Internal Revenue Service, IRS. In turn, the Government of the US has agreed that the IRS will collect similar information from US financial institutions in respect of accounts held by Irish tax residents and report this to the Revenue Commissioners.

This agreement is necessary following publication of legislation in the US which has effectively changed the requirements for all international financial institutions which wish to carry on business with US financial institutions. These changes were the result of US legislation know as FATCA - the Foreign Account Tax Compliance Act 2010 - which requires that all non-US financial institutions must report information about certain US account holders directly to the IRS or else face financial penalties in the form of a 30% withholding tax on all US source investments.

Ireland is one of many countries which has a considerable amount of business with the US, so Irish financial institutions would be greatly impacted by these changes. Given the network of trade and investment that takes place between Ireland and the US, the early conclusion of the agreement will provide certainty and clarity to Irish and American financial institutions which wish to do business with each other. The agreement, therefore, will have a positive impact on trade and investment between Ireland and the United States and will have a positive impact on Irish business. It will also boost international tax compliance and the Revenue Commissioner's ability to obtain information from the US to help in tackling Irish tax evasion.

The agreement itself is based on a model agreement published by the US Treasury in July 2012. This model has been used as a template agreement for all countries which wish to enter into a similar agreement with the US. At present there are more than 50 such countries, including fellow EU member states, throughout the world.

The exchange of information is already provided for generally under the Ireland-US Double Taxation Convention on a case-by-case basis. This agreement will go a step further and provide for the automatic annual exchange of information held by financial institutions. Automatic exchange of information in regard to interest payments is already provided for in the EU context under the EU savings directive, which came into force in Ireland in 2005. We see the automatic nature of information exchange as an important step to improve the information that the bodies responsible for collecting tax will have and thus complement the international work being done to ensure global tax compliance.

Members might recall that the conclusion of this agreement with the US was announced by my colleague, the Minister for Finance, in his budget day speech last December. The agreement was then signed on 21 December last. Ireland is the fourth country in the world to sign such an agreement with the United States and we welcome the opportunity to demonstrate Ireland's commitment to helping combat international tax evasion.

The conclusion of this intergovernmental agreement was one of the issues discussed at the meeting between the Tánaiste and Minister for Foreign Affairs and Trade, Deputy Eamon Gilmore, and the US Secretary of State, Hillary Clinton, during her visit to Dublin on 6 December 2012. The US was appreciative of the Government's support for FATCA which will be an important instrument in building further economic activity between Ireland and the US.

Consideration of these international agreements by the committee is an important step in their ratification process. Draft Government orders confirming and giving effect in Ireland to the agreements were laid before Dáil Éireann on 16 January 2013 in accordance with the provisions of section 826 of the Taxes Consolidation Act 1997. A resolution by Dáil Éireann approving the draft orders is required before the Government can make the orders. The proposal that Dáil Éireann approve the draft orders has been referred to this committee for its consideration. After consideration by the committee, the draft orders are then referred back to the Dáil for approval. After that, the Government may make the orders and the agreements will then be included in a Schedule to the taxes Acts, by means of a section in the forthcoming Finance Bill. The legal instrument for this will be through the Finance Bill, which will be before the House shortly. Thereupon, the Irish ratification procedures are completed. In the case of the bilateral agreements, as soon as both countries have completed their procedures, the agreements will take effect in accordance with their entry into force provisions.

I commend these draft orders to the committee and, if required, we will be happy to deal with any questions members may have.

Ciarán Lynch (Cork South Central, Labour)
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I thank the Minister of State. To clarify, is the agreement on taxation information relating to individuals and not corporation tax being transferred?

Brian Hayes (Dublin South West, Fine Gael)
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Yes.

Michael McGrath (Cork South Central, Fianna Fail)
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I welcome the Minister of State and his officials. In regard to the tax information exchange agreements, we have signed up to 20 and 16 are currently in force. Are they effective? Presumably, many of them are with countries with which we would not have a significant trading relationship and countries which may be regarded as tax havens. When our Revenue Commissioners request information from countries with which we have such an exchange agreement in place, is there co-operation? Is such information forthcoming?

In regard to Montserrat, I note from the briefing notes provided by the committee clerk that our trade with it is very small - €53,000 worth of trade in 2011. I assume there are no administrative costs associated with having these agreements in place and that there are no countries which are too small, or deemed not significant enough, to have such agreements with.

The Minister of State might confirm if this is the first agreement of its type which we are signing up to with the United States.

Brian Hayes (Dublin South West, Fine Gael)
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Yes.

Michael McGrath (Cork South Central, Fianna Fail)
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In regard to the actual exchange of information between both countries, the Minister of State said it was automatic, happened on an annual basis and that a data file was exchanged once a year? Have the data protection issues been signed off on by our Data Protection Commissioner in regard to the exchange of such information?

Brian Hayes (Dublin South West, Fine Gael)
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I understand the Revenue Commissioners are in discussion with the Data Protection Commissioner in terms of the enabling legislation, that there is not a dispute and that there should not be a difficulty in this regard. Deputy McGrath is right in saying that it requires compliance on both sides. It is worth saying in regard to this standalone agreement, that this is a requirement which the US had. If I can be very crude about it, it was raising the bar because of its own considerations. It was crucially important from our perspective that we were in there first, given the importance of trade relations and the very significant activity in terms of financial transactions between both countries and the number of US multinationals here. Ireland is the fourth country to get it over the line. I think the British were first. It is important in terms of where our sphere of influence is and where we would like to keep it.

The US Congress was proposing that companies which did not sign up to this could face very significant penalties. From the perspective of where our interests lie and being in there quite quickly, it was very important that we made that agreement early on.

It is to the credit of those behind me, the officials in Revenue and in the Department of Finance, that we have managed to get this over the line for what is a small diplomatic mission.

On the second issue, TIEAs are crucially important and make a huge difference in terms of our relationship with other countries. Last year I spent some time at a conference in Paris with the OECD on the question of tax compliance and governance. It has become a new norm that the more agreements one has in place, the greater the ranking in terms of transparency and accountability when it comes to tax evasion. To answer the Deputy's question, it depends very much with whom one has the agreement. There is not the same compliance with every country but we have found them a useful means through which the State can come to a relationship with other countries.

On the Montserrat question, its national holiday is 17 March, the same as Ireland. I am not sure if St. Patrick is the national saint but it is something we have in common. However, I would point out that we do not have much trade in common. I understand that in 2011 Montserrat was Ireland's 209th largest trading partner, total trade was valued at €53,000, exports were valued at €31,000 and imports at €22,000. It is clear we have a long way to go. This agreement is important for Montserrat and it is important for Ireland and is another agreement we have forged. We have a very ambitious target as I have mentioned to the committee previously about signing such agreements and the more we sign the better.

Kieran O'Donnell (Limerick City, Fine Gael)
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What are the practical implications of the agreements and when do they come into force? I recognise they were laid before the Houses of the Oireachtas on 11 January 2012. What are the practical implications in terms of how they will operate in practice, particularly for the US?

Brian Hayes (Dublin South West, Fine Gael)
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I understand we have to introduce domestic legislation first.

Kieran O'Donnell (Limerick City, Fine Gael)
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I am interested in the practical side rather than the theoretical side.

Brian Hayes (Dublin South West, Fine Gael)
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How will they impact on the financial services industry?

Kieran O'Donnell (Limerick City, Fine Gael)
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Yes.

Brian Hayes (Dublin South West, Fine Gael)
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I will provide a carte blanche answer to that question that was given to me. The financial institutions impacted by FATCA include banks, insurance companies in respect of investment services, cash value insurance contracts but not including insurance policies such as health, motor or life, where the policy has no cash value, investment funds, stockbrokers and investment planners. The whole gamut of financial services would be affected. Unless specifically exempted under FATCA requirements, Irish financial institutions will be required to register as a FATCA reporting institution.

Kieran O'Donnell (Limerick City, Fine Gael)
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For US individuals, not corporates.

Brian Hayes (Dublin South West, Fine Gael)
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Any account holder, corporate or individual.

Kieran O'Donnell (Limerick City, Fine Gael)
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Or individual.

Brian Hayes (Dublin South West, Fine Gael)
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Yes. They will have to carry out a specific due diligence exercise to identify any clients who are US persons or otherwise and report annually on any payments of interest or dividends made to such persons. To answer the Deputy's question directly, the practical implications are exactly that.

Kieran O'Donnell (Limerick City, Fine Gael)
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Is there a reciprocal arrangement for Irish citizens?

Brian Hayes (Dublin South West, Fine Gael)
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Yes. The same applies at the other side. The benefit from our side would be to follow the hot money if the money is there and the benefit from the US side would be to do exactly the same.

Kieran O'Donnell (Limerick City, Fine Gael)
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I understand we have to introduce domestic legislation. What is the timeframe for such legislation?

Brian Hayes (Dublin South West, Fine Gael)
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The legislation will be part of the Finance Bill which will come before-----

Kieran O'Donnell (Limerick City, Fine Gael)
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I am sorry, the Minister of State said that earlier.

Brian Hayes (Dublin South West, Fine Gael)
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I understand for all practical purposes it could be September 2015 by the time the whole operation will be in place.

Ciarán Lynch (Cork South Central, Labour)
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On a point of clarification, the briefing note supplied stated 11 January 2012, I assume that was 11 January 2013.

Brian Hayes (Dublin South West, Fine Gael)
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Yes.

Ciarán Lynch (Cork South Central, Labour)
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That is fine, I just want to have that corrected.

Kieran O'Donnell (Limerick City, Fine Gael)
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That was good.

Ciarán Lynch (Cork South Central, Labour)
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It was the clerk who spotted that on whom I can always rely to make me appear good. I thank the Minister of State for appearing before the select committee accompanied by officials from the Department of Finance, Ms Kate Levey, Ms Mairead Ross, Mr. Niall Cases and Mr. John Moore, and from the Revenue Commissioners, Mr. Jim Byrne, Ms Marie Hurley and Mr. Tadhg Spillane.