Oireachtas Joint and Select Committees
Tuesday, 3 October 2017
Select Committee on Finance, Public Expenditure and Reform, and Taoiseach
Taxation Agreements: Motions
The purpose of the meeting is to consider Double Taxation Relief (Taxes on Income) (Republic of Kazakhstan) Order 2017, and Exchange of Information Relating to Tax Matters (Macao Special Administrative Region of the People's Republic of China) Order 2017. As the Order of the Dáil states the committee must report back to the House no later than 5 October, it is intended to conclude consideration of the motions today. The meeting must conclude by 3.30 p.m. In the event that consideration of the motions has not been completed, it is proposed to reconvene at 7.15 p.m. Is that agreed? Agreed.
I thank the Minister of State at the Department of Finance and his officials for attending and for assisting our consideration of the motions. Briefing notes were provided by the Department. I would be grateful if we could adhere to a reasonably strict schedule, the Minister of State will address the committee, following which each of the Opposition spokespersons can respond. We can then have an open discussion. Is that agreed? Agreed.
I am pleased to be here to bring before the committee two draft Government orders giving force of law in Ireland to a new double taxation agreement with Kazakhstan and a new tax information exchange agreement with Macao. The double taxation agreement with Kazakhstan was signed by the ambassador of Ireland to the Russian Federation, Mr. Adrian McDaid, on 26 April 2017. The tax information exchange agreement with Macao was signed on 12 September 2016 by the ambassador of Ireland to the People's Republic of China, Mr. Paul Kavanagh.
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 73 double taxation agreements, of which 72 are in effect. Ireland is a small country which is highly reliant on trade and investment with other countries, and our large network of tax agreements is very important in facilitating this. 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. The double taxation agreement with Kazakhstan is comprehensive in scope and generally follows the OECD model convention. It provides that certain income arising in one contracting state and paid to a resident of the other contracting state is exempt from tax in the source state. Where income or gains remain taxable in both countries, the agreement provides that Ireland will grant a credit against its own tax for tax payable in Kazakhstan. The agreement similarly provides that Kazakhstan will allow a deduction against tax paid by a resident in Kazakhstan of an amount equal to the tax paid in Ireland.
To date Ireland has signed 26 tax information exchange agreements, of which 25 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 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. The tax information exchange agreements are limited to exchange upon request; they do not provide for automatic exchange of information between states. Following ratification, discussions are expected to take place with Macao on how the agreement will be adapted to allow for automatic exchange. The automatic exchange of information between jurisdictions is now being provided for through the new OECD common reporting standard to which more than 100 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 further implementation at an EU and global level. In August, the OECD-led Global Forum on Transparency and Exchange of Information for Tax Purposes awarded Ireland the highest international rating of "fully compliant" with international best practices on tax transparency and exchange of information. The OECD's global forum is a multilateral framework for tax transparency and information-sharing, within which more than 140 jurisdictions participate on an equal footing.
The outcome of the forum's review is a recognition of Ireland's continued commitment to the highest international standards in tax transparency.
Earlier this year, Ireland was among the first countries to sign the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting. This important international agreement is commonly known as the BEPS multilateral instrument, MLI, and will bring Ireland's existing tax treaties into line with the OECD BEPS recommendations and ensure that they cannot be used for aggressive tax planning arrangements.
It is expected that the majority of Ireland's treaties will be modified by the MLI. However, Ireland is also implementing the anti-BEPS recommendations on a bilateral basis with a small number of treaty partners. As to treaty partners that are not signatories to the MLI, Ireland has written to them to discuss options for implementing the BEPS recommendations.
It is the Minister for Finance's intention to bring an order relating to the BEPS MLI to this committee as part of its ratification process sometime next year. In addition, there is a strong pipeline of new tax agreements coming down the tracks. Negotiations for agreements with Azerbaijan, Ghana and Turkmenistan have concluded and the Department of Foreign Affairs and Trade is working towards arranging the signature of these new agreements. Negotiations with a couple of countries have also concluded and permission to allow for their signature is in the process of being obtained. The renegotiation of the treaty with the Netherlands has also concluded. Ireland is negotiating new treaties with a number of countries while renegotiations are under way in respect of existing treaties in other cases, including that with the USA.
The Minister for Finance and I, as well as officials from the Department of Finance and the Revenue Commissioners, will continue to seek to maintain and enhance our tax treaty network. We continue to engage with stakeholders in identifying other jurisdictions where tax agreements would be beneficial for Irish business. We are also continuing in our efforts to open negotiations with other jurisdictions that we have, as yet, been unable to secure. These agreements will play a pivotal role in the strengthening of our economic recovery.
The committee's consideration of these international agreements 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 19 September in accordance with the provisions of section 826 of the Taxes Consolidation Act 1997. A resolution by the Dáil approving the draft orders is required before the Government can make them. The proposal that Dáil Éireann approve the draft orders has been referred to this committee for consideration and, after that consideration, the draft orders will be 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 will be concluded. 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 whatever questions members may have.
I wish to raise two issues regarding the double taxation agreement with Kazakhstan and the sharing of information with Macao. My first question relates to the process. I have raised this matter previously with the Minister of State's predecessor and the Minister for Finance. When agreeing new tax treaties with non-OECD countries, why are we using the OECD template? This question is probably more relevant for countries that are less developed than Kazakhstan, but I wanted to put on record again my disappointment that we are still not using the UN model for these agreements. Does the Government propose to adopt the UN model for future agreements, particularly with non-OECD countries?
Ireland is a developed country and a member of the OECD and has always used this model as a basis for negotiations, adapting it to cater for Ireland's interests. When the UN model convention was published in 1980, it sought to assist developing countries. Ireland already had a well-established policy and model tailored to best represent the country's interests, so there was no need to change from our OECD model.
There have been three treaties in the past 12 months: Pakistan, Ethiopia and Zambia. These contained elements of both the OECD and UN models.
Yes. We discussed them when we dealt with the UN model at this committee. That was an element of progress as the UN model takes on board the underdeveloped countries in particular and is more suited to their needs. Will there be a shift? It had seemed as though there was going to be a shift in the UN model. Has that now stalled or are we looking at engaging with the UN model again rather than with the OECD model? That is what the Minister is following here - namely a double tax agreement with a non-OECD country.
I do not know the answer to that, Deputy. I can only assume that Pakistan, Ethiopia and Zambia were potentially not as well developed as Kazakhstan. There is a tier of development and my assessment may not be 100% correct. I will try to get a more detailed note on why there was a tiered structure between the UN and OECD models for those three countries, and why we are only using the OECD model for Kazakhstan.
It is important that Ireland use the UN model, particularly for agreements with less developed countries. This is something that I will continue to pursue.
Macao, meanwhile, is known as the casino of Asia and is something of a tax haven because of its advantageous personal and corporate tax structure. Residents and non-residents both benefit from ultra-low taxes levied against professional and business income. How did making a tax exchange agreement with this region as opposed to any other region become a priority for the Department? How is this agreement not covered by the Chinese agreement?
The jurisdiction of Macao approached Ireland for an exchange of information. If a country comes to us and is prepared to establish an arrangement, it is our policy to put that arrangement in place. As the committee will have seen from the previous note, there are 25 countries with whom we have exchanges of taxation information in place. Macao will be the 26th such country. They came to us. As Macao is a special administrative region of China we are entitled to make a deal with them in their own right.
I understand that the United Kingdom has a much more extensive network of double taxation agreements in place. It has agreements with approximately 130 countries while we are at 73. Can the Minister of State put this in context for us? Can he explain if there are historical reasons the UK has a much more extensive network than us?
What are the countries we do significant trade with but without an agreement? Where are the obvious gaps? I mean countries with which we do a lot of trade without the benefit of a double taxation agreement.
Has the Minister of State given consideration to the impact the agreement has had on human rights in Kazakhstan? I refer to how the agreement has been used internally in Kazakhstan. It has been linked to Ireland's vote for Kazakhstan's membership of the UN Security Council as a way to suggest that Kazakhstan enjoys a forward moving, democratising and improving situation and thus improve its image, internally and externally. Let me put my comments in context. I had a particular interest in Kazakhstan because, as a member of the European Parliament, I was part of a delegation that travelled to Central Asia. I visited a group of workers in Kazakhstan who were subsequently massacred in December 2011 in a really brutal situation with mining workers in Zhanaozen. I was subsequently blocked from visiting after raising concerns about human rights, workers' freedom and a lack of press freedom. A dictatorship is in power. How is the agreement used in Kazakhstan?
It is very difficult for us to reach an arrangement with a State and it is very difficult for us to know and understand how an agreement is used. As I have pointed out, an improvement in trade gives people an opportunity to improve their standard of living. When one improves the standard of living one certainly hopes and expects there will be more economic freedom. Countries that remain in abject poverty, and I am not saying that applies to Kazakhstan, tend to be poorly ruled. If one gives people the opportunity to trade, improve their economy, receive an education and advance then that is something that can only be welcomed.
I am for trade but not for trade's sake. I am for trade that is linked to real sustainable economic development with human rights playing an important part. It is a fact that authoritarian regimes use international relationships to bolster themselves, internally and internationally. I am not opposed to double taxation agreements in principle, not even, necessarily, with countries that have authoritarian regimes. I do not think it is a question of principle. Has the Department or Minister conducted concrete analysis on this matter? Is the Minister of State open to having a discussion on human rights?
I do not think that matter enters the conversation in terms of the arrangement to have a taxation agreement.
As trade improves and increases, one would have an opportunity to have some influence. If there is a low level of trade or interaction, one would have none.