Oireachtas Joint and Select Committees
Wednesday, 23 September 2015
Committee on Finance, Public Expenditure and Reform: Select Sub-Committee on Finance
Double Taxation Agreements Motion: Minister of State at the Department of Finance
The purpose of today's meeting is to consider the following orders referred to this sub-committee by the Dáil. Item No. 1 is the exchange of information relating to tax matters Argentina Republic Order 2015. Item No. 2 is the double taxation relief, taxes on income Federal Democratic Republic of Ethiopia Order 2015. Item No. 3 is a double taxation relief, taxes on income Pakistan Order 2015. Item No. 4 is a double taxation relief, tax on income and capital gains Republic of Zambia Order 2015. Item No. 5 is exchange of information related to tax matters, Commonwealth of the Bahamas Order 2015. Item No. 6 is double taxation relief, taxes on income and capital gains Federal Republic of Germany Order 2015. Item No. 7 exchange of information related to tax matters Saint Kitts and Nevis Order 2015.
I welcome the Minister for State at the Department of Finance, Deputy Simon Harris, and his officials, Mr. Rónán Hession, Mr. Brendan Crowley and Mr. Niall Casey. I also welcome the officials from the Office of the Revenue Commissioners, Mr. Eamonn O'Dea, Ms Ann O'Driscoll and Mr. Finbar Dromoney. I thank them for attending and assisting our consideration of the motions. Briefing notes were provided by the Department. If we adhere to a reasonably strict schedule, the Minister can address the committee, after which each spokesperson can respond and we can then have an open discussion. Is that agreed? Agreed. I invite the Minister of State to make his statement.
I thank the Chairman. I am pleased to be here this afternoon to introduce to the committee three draft Government orders giving force of law in Ireland to three new double taxation agreements with Zambia, Ethiopia and Pakistan; one draft Government order giving force of law to a protocol to the double taxation agreement with Germany and three draft Government orders giving force of law in Ireland to three new tax information exchange agreements with Argentina, the Bahamas and Saint Kitts and Nevis.
With respect to the double taxation agreements first, a new agreement was signed with Ethiopia by the Minister of State at the Department of Foreign Affairs and Trade, Deputy Sean Sherlock, on 3 November 2014 and agreements to replace the existing double taxation agreements with Pakistan and Zambia were signed on 16 April 2015 by me and on 31 March 2015 by the Irish ambassador to Zambia, H.E. Mr. Finbar O' Brien. A protocol to the current double taxation agreement with Germany was also signed by me on 3 December 2014.
With regard to tax information exchange agreements, an agreement was signed with Argentina on 29 October 2014 by the former chairman of the Revenue Commissioners, Ms Josephine Feehily, another agreement was signed with Saint Kitts and Nevis by the Irish ambassador to Great Britain, H.E. Mr. Daniel Mulhall on 20 July 2015 and a third agreement was signed with the Bahamas on 12 January 2015 by the Minister for Foreign Affairs and Trade, Deputy Charles Flanagan.
Double taxation agreements are essential in order to allow Ireland to develop greater opportunities for international trade and investment by reducing the number of tax impediments that may inhibit cross-border activity. Ireland has signed 72 double taxation agreements of which 68 are in effect. Ireland is a small country which is highly reliant on trade and investment with other countries, therefore growing a large network of tax agreements is very important.
Double taxation agreements facilitate trade and investment in a number of ways. They provide greater predictability and fairness for taxpayers regarding their tax obligations in foreign jurisdictions and are key to the prevention of double taxation. This is achieved through the formal allocation of clear taxing rights to one of the countries, or if both countries hold taxing rights, by providing that the authority in the country in which the taxpayer is resident grants a tax credit for the tax paid in the other jurisdiction.
Double taxation agreements reduce the risk of excessive taxation that may arise because of high withholding taxes and ensure that taxpayers are not subject to discriminatory taxation in other jurisdictions. They also facilitate mutual agreement procedures which allow the tax authorities of both countries to consult with each other in taxation matters affecting the agreement and include provisions that allow for the exchange of information for the purpose of preventing tax evasion.
Double taxation agreements cover direct taxes - in our case, income tax, corporation tax and capital gains tax - and apply to the taxation of both companies and individuals. Those agreements made with developing countries such as Ethiopia, Zambia and Pakistan include a mixture of provisions drawn from both the UN and the OECD model conventions, departing from one or the other in certain respects in order to match each country's best interests and best to achieve the objective of avoiding double taxation and non-taxation in two countries with different tax systems.
The protocol to the double taxation agreement with Germany amends the provision in our existing agreement with Germany to bring it into line with the OECD model tax convention.
To date Ireland has signed 25 tax information exchange agreements, of which 20 are in effect. These agreements require parties to exchange information where the information requested is "foreseeably relevant" to a tax investigation in the other state. The tax information exchange agreements are limited to exchange upon request - they do not provide for automatic exchange of information between the states. However, the automatic exchange of information between jurisdictions is now being provided for through the new OECD common reporting standard to which more than 90 other countries, including Ireland, have committed.
The automatic exchange of information between tax authorities is a valuable tool in the fight against tax fraud and evasion and we look forward to its implementation at an EU and global level.
The tax information exchange agreements concluded by Ireland are all based on the OECD model tax information exchange agreements. This model grew out of the work undertaken by the OECD to address harmful tax practices globally and now represents the gold standard. The agreements cover all taxes imposed by each state at the time of the agreement together with any identical or substantially similar taxes imposed at a later date. In the case of Ireland, this is income tax, including the universal social charge, corporation tax, capital gains tax, capital acquisitions tax and value added tax.
As part of Ireland's international tax strategy, published on budget day in October 2013, the Department of Finance set out an international tax charter outlining the principles and strategic objectives that guide Ireland's approach to international corporate tax issues. One of these principles is a commitment to engage constructively and respectfully with developing countries in relation to tax matters and to support these countries in raising domestic tax revenues in ways that are more efficient, that promote good governance and equitable development, and that can allow them to exit eventually from a dependence on official development assistance.
As part of this commitment, the Department has commissioned a spillover analysis of the impact of Ireland's tax system, including the tax treaty network, on the economies of developing countries. Ireland is a thought leader in this area of research - only one other country, the Netherlands, has previously carried out a similar, though more limited in scope, spillover analysis project. Last year, the Minister for Finance, Deputy Noonan, called on the OECD to adopt, at least in spirit, a 16th action in the BEPS project that insists upon all countries undertaking spillover analysis of how their taxation regimes impact on the developing world.
In this context, one element of the tax treaty review component of the spillover analysis has been the identification of certain elements of Ireland's old treaties with Zambia and Pakistan, dating from 1971 and 1973 respectively, which were in need of updating to reflect developments in international treaty policy since that time. Our renegotiation of today's double taxation agreements with Zambia and Pakistan, along with our new double tax agreements with Ethiopia are in line with both the commitment in our international tax charter and the spillover project. Ireland's tax treaty network compares very well with those of other large OECD countries. It now includes most of the world's major economies, which account for in total more than 80% of the world GDP.
In addition, there is a strong pipeline of agreements coming down the tracks. Negotiations for new agreements with Azerbaijan and Turkmenistan and a protocol to the existing agreement with Mexico have concluded and a Government decision authorising signature will be expected in the near future. Negotiations with Ghana, Kazakhstan and the Netherlands are at various stages.
The Minister for Finance and I, as well as officials of the Department of Finance and the Revenue Commissioners will continue to prioritise the growth of our tax treaty network. As outlined in our IFS 2020 strategy document, we will continue to engage with industry representative bodies in identifying other jurisdictions where tax agreements would be beneficial for Irish business, as well as continue our efforts to open negotiations with other jurisdictions which we have, as yet, not been able to secure. We consider that these agreements play a pivotal role in the strengthening of our economic recovery.
Today's 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 15 September 2015 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 the committee for consideration and 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. At that stage, the Irish ratification procedures are completed. Once 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, I will be happy to answer any questions members may have.
I welcome the Minister of State's address. I apologise for being late. I had a look at the draft orders earlier and I have no difficulty whatsoever with them. My party very much supports the three orders giving effect to the double taxation agreements, the one protocol and the three tax information exchange agreements. I commend the officials from the Office of the Revenue Commissioners and the Department of Finance for continuing to progressively build up Ireland's tax treaty network. Clearly it is vital to our economic interests. It makes trade easier. It makes working relationships across trans-national business communities far easier. The fact that we now have a network covering 80% of world GDP and a pipeline of further treaties coming down the track is very encouraging.
I welcome this, Chairman. I do not have any questions as the matter is very straightforward. I wish the Office of the Revenue Commissioners and the Department well in their continuing efforts to expand our network further.
I presume what we have discussed is not part of but has been influenced by the BEPS project. The idea behind the BEPS project is to try to find solutions where we can have simple, almost one size fits all, tax treaties for all countries that sign up for the BEPS project. Will that change all these tax treaties for Ireland? If BEPS were to be successful, will all the tax treaties change?
The Irish ambassador is signing treaties on tax information exchange agreements with the Commonwealth of the Bahamas, Saint Kitts and Nevis. Does that mean they are effectively under the jurisdiction of the United Kingdom? Are the Bahamas influenced by UK law or are they completely separate?
I will check that out for the Chairman.
I will now deal with the questions on BEPS. As the Chairman knows we are now reaching the finality and the BEPS reports are expected to be published in October. The BEPS action plan includes the development of measures to prevent the abuse of treaties. Some of these measures will involve changes to the OECD model convention on which Ireland's model is based, as the Chairman correctly states. This will have implications for Ireland negotiating position generally for future double taxation agreements. However, it has been said that changes agreed under BEPS would take over 20 years to permeate through to tax treaties worldwide. For this reason the action plan also provides for the development of a legal instrument to allow targeted BEPS measures to be incorporated into existing double taxation agreements, DTAs. Work on developing this multilateral instrument is expected to be concluded next year and the Department of Finance and the Office of the Revenue Commissioners are involved in this work. The new rule will apply to all future DTAs. There will be the development under the action plan of a multilateral instrument to apply certain actions to existing treaties and we are working on that currently.
The Bahamas is a Crown dependency, hence our ambassador to the United Kingdom signed the treaty.
That is interesting from the point of view of the other works we are doing with the IFSC and with the city of London. When we get bad press abroad, the Crown dependencies are mentioned as well. Is it the case that the Treasury in the UK could have a significant influence over this?
As I understand it, some of them are regarded as overseas territories and others are Crown dependencies. The most blatant tax havens in the world have very strong relations with the United Kingdom.