Mr. Seamus Coffey:

The key element of non-trading income that could be in question here would be interest and the creation of loans. If one looks at the Irish data on the balance of payments received, there was a substantial increase in lending both in and out of Ireland, running to hundreds of billions of euro in recent years, but we are not seeing a change in interest flows. It suggests, to a certain extent, that many of these are interest free loans that have been set up because transfer pricing rules do not apply to these non-trading transactions.

It seems these loans are being set up because transfer pricing rules do not apply to these non-trading transactions. The scale of it is now quite large and it runs into hundreds of billions. That is the impact of it.

It is hard to know what companies are undertaking because there is not much visibility about it. There is a suggestion that it is possibly related to the activities of some of the so-called inverted companies that have set up headquarters in Ireland in recent years, simply because they are of the size and on the scale of companies involved. One consequence of applying transfer pricing to non-traded income arises. There are legitimate reasons for companies to loan between each other. It may not be the case at present that they do that on an interest-free basis. If we start applying transfer pricing rules and companies have to start charging interest, the company collecting the interest will be a non-trading entity. It is a lending company and it may be subject to tax at 25%. The company paying the interest would be a trading entity and would get at deduction of 12.5%. Therefore, we could have a transaction happening wholly within a parent company that is getting a 12.5% deduction while the subsidiary paying the interest is paying tax at 25%. That may be a concern for indigenous companies that have a cash company at their centre moving money from one entity to another. I would advise caution on the move to apply transfer pricing rules to non-trading companies on that basis. Given the scale and nature of the loans we are seeing in and out in Ireland, it is something worth considering.