Oireachtas Joint and Select Committees

Thursday, 26 April 2018

Joint Oireachtas Committee on Finance, Public Expenditure and Reform, and Taoiseach

EU Proposals on Taxation of the Digital Economy: Discussion

10:00 am

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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We are now dealing with engagement on EU proposals for the taxation of the digital economy and other matters. I welcome Mr. Brian Hayes, MEP, and Mr. Matt Carthy, MEP. I advise that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to do so, they are entitled thereafter only to a qualified privilege in respect of their evidence. Witnesses are directed that only evidence connected with the subject matter of these proceedings is to be given and are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable.

Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House or an official either by name or in such a way as to make him or her identifiable. I understand both witnesses have an opening statement. I call Mr. Hayes.

Mr. Brian Hayes:

I thank the Chairman for giving me the opportunity to appear before my colleagues at the Joint Committee of Finance, Public Expenditure and Reform, and Taoiseach. I sent a statement to the secretariat and will take it as read. I will address the issues to which the Chairman asked me to speak.

It is good to be before the joint committee. About 70% of the work I do in the European Parliament relates to my work as a full member of the Economic and Monetary Affairs Committee. Most of the debates that happen in this Parliament are related directly to the work we are doing on a pan-European level. I welcome the efforts of the Chairman which I am assisting to get the president of the ECB to attend the committee. It is really important and I congratulate the Chairman on the initiative. I am confident that we will get there between now and the end of the mandate of the president of the ECB.

The regulatory supervisory element has changed radically as a consequence of the crisis. If one looks at what the Single Supervisory Mechanism, SSM, and the ECB do in terms of the 253 banks at which they look, four of which are in Ireland, it is a totally new landscape. It is really important that those who are involved in the detail of work in the European Parliament relate directly to colleagues back home. I have listed the files I have done thus far and the files on which I am working and I am happy to take questions on them.

I will deal with the four issues I was requested to deal with. First, on the taxation of the digital economy, any taxation matter in the European Union requires unanimity at the European Council; thankfully, it is not an issue for the European Parliament. Ireland does not have a majority on the key issues that face us on these files, but that is not to say the Parliament does not have a view on this issue; of course, it does, but my sense is we cannot be forced to do something we do not want to do. Ultimately, we have a veto. It is not a good place to be in to constantly say we want to use the veto, but on the question of a digital tax, we are not alone in our view as a country. A large number of member states in the east of Europe, the Scandinavian countries and the more export oriented economies in the north agree with our views.

Let us be frank about the taxation of the digital economy. Companies are not paying enough; the effective tax rate is under 10%. We have to find a means to have a fairer taxation system in circumstances where their intellectual property is in one location and their distribution system is elsewhere. We have not been good because our traditional means of taxing the corporate sector has been based on the question of profits, where somebody is domiciled and where real value is added. We have to address this issue. The interim measure Commissioner Moscovici has proposed is not fit for purpose in that it is a turnover tax, effectively a tax on the clicks on Google, Airbnb or whatever else. In that way it would be a radical departure, but it would not be a major tax. Mr. Moscovici has suggested to those of us on the Economic and Monetary Affairs Committee that it would be about €5 billion on an annualised basis and affect the biggest corporate companies with a turnover of more than €750 million, but there are issues that we must address. It could be perceived as an attack on US businesses because essentially it would affect large US tech companies, many of which are based in Ireland. Where the trade disputes are with the new US Administration and the European Union is of concern.

The other question is what is and is not digital. Is the German car manufacturer BMW which produces something at €50,000, 40% of which is digital, in the digital category? Should it be taxed? I cannot see too many people in Germany putting their hands up. If it is just a surcharge on digital companies, it would be a pretty blunt instrument. A better way to approach the issue is to do what the OECD has done on the BEPS side, where the report is available and its want a period of time within which to see if it can be organised on an international basis.

Let me be very frank with my colleagues. We all know that taxation is a highly political issue, no matter from which political family we come. If one were to ask Google or Facebook whether it was okay with them that a percentage of what they pay in tax on an annual basis should relate to the location of users, I think they would probably say yes. If they can see the principle, the next question is what percentage of the tax payable should it be. If a significant number of the people who are clicking on their services come from the larger member states, is it appropriate that some of the money should go to these member states? The question is about percentages. The bigger issue for Ireland is related to the common consolidated corporate tax base, CCCTB, not a digital tax, because a digital tax is about more than taking away something we0 have. We must box clever. I have made a suggestion to the Commissioner on a sunset clause, that we could have such a tax for a number of years. That is not Commissioner Moscovici's proposal, but this proposal is fit for purpose. The correct approach, as the Minister for Finance said, is to work with other member states and stay at the table in order that we can come up with a proposal that will resolves the issue. This is still a piece of work that has to be done, but for me, the digital companies have to pay more but how they pay more is the question. Certainly, we need to be open-minded about it.

I do not need to tell members who have done sterling work on the issue of non-performing loans, NPLs, how important this issue is in the European Union. We have to solve the problem and it has to be solution oriented. If we do not solve the problem of NPLs, the implications are that it will dull the investment in new borrowings to businesses, families and individuals. Second, if we do not solve the problem of NPLs, it means that a larger percentage of a bank's capital will have to be used to offset the NPLs on the balance sheet, which is not a good position in which to be. Historically, banks that have large NPLs on balance sheets are ones that overcharge on mortgages and other services. We must address that question.

There are Single Supervisory Mechanism, SSM, guidelines, but the question is whether we should move to a more exacting standard. That is not yet clear from what the SSM has stated, but progress has been made. We have reduced the debt on NPLs in Ireland from €80 billion to €30 billion. The current rate is about 13%, a reduction from 27%. Much progress has been made on the commercial side, but there are outstanding issues on the residential side. The real question is whether we should move from the SSM guidelines which are to a more exacting standard. I do not think there is clarity within the SSM on that question.

The other point that must be made is that we face very severe stress tests later this year by the European Banking Authority, EBA. The stress tests will not just be about capital but also about how much collateral lies behind the balance sheets of the banks. Split mortgages is another issue we can discuss further.

On the Multiannual Financial Framework, MFF, next week the Commission will propose the draft Cohesion Policy funding for the next seven years. It will not be decided by this Parliament but in the run-up to 2020. It is very important for Ireland that we continue agricultural and regional communities to have very strong exposure to the Structural and Cohesion Funds. I very much agree with the Taoiseach recent remarks, in which he said we were prepared to pay more to breach the 1% GNI threshold. We should pay more. Ireland is now a net contributor. We have gained about €50 billion since 1973 and have done a good job in utilising them. From my perspective, for the PEACE and INTERREG programmes and the agricultural communities, we need to do it. The other advantage is that if one pays in more, one has more control of the design of the funds. We will possibly need funding to deal with the impact of Brexit which we can obtain if we are open to paying more.

They key argument in the paper I have submitted on Brexit financial services is that it is virtually impossible to regard the United Kingdom as a third country when it comes to financial services. I have set out in my paper how integrated they are with the European market. Some 40% of European assets under management are in the City of London, as is 60% of the EU capital markets business. A total of €1.1 trillion of EU lending is provided through the City of London. One cannot regard it as a Mexico or a Venezuela in the context of third country equivalence. We have to find a solution to the problem that will allow systemic threats to be addressed. It will be a disaster if we do not have agreement. It is a new systemic threat that no one has articulated. What will happen?

My view is Europe will say a third party can have equivalence. Equivalence is not the gold standard because it does not exist in all of the files. Even if it does exist in existing regulations, it only applies in some elements of those regulations. The British are looking for mutual recognition, which, generally speaking, we do not do as a Community in third-country negotiations. There is a new term out there of "enhanced equivalence", which means we could come to a special deal with the UK as a separate financial services chapter, which is what we are trying to do with the Americans on TTIP. It could then make it clearer what they will follow.

The big concern in Brussels is the British will have a race to the bottom. The British counter that by saying ten years ago, they were before the European Union when it came to creating new standards in supervision. We have to be very clear about this. Our task in Ireland and as a member of the European Union is to get a good outcome and an extensive deal with the UK. The best outcome would be to make sure we had a financial services chapter in whatever that new deal is and hopefully it would make some difference. Let us be clear about it. The UK is leaving. The activities of the City of London make it cheaper for us in other parts of the European Union because of cost competitiveness. There are economies of scale in London in a way there are not in Frankfurt, Dublin, Amsterdam or Paris. Over time we will get stronger but we should not underestimate the importance of the City of London in the financing generally of the European Union.

I will make a final point. I have gone on too long. I will appeal to people on the broader Brexit issue. No matter who the Government of Ireland is - Sinn Féin, Fianna Fáil, the Socialist Party or Communist Party of Ireland - the issues are the issues and the challenges are the challenges.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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Mr. Hayes better mention Leo because he has mentioned most things.

Mr. Brian Hayes:

That includes our crowd, my apologies. Whatever the composition of the Government is, the issues are the issues. As far as we can gain some cross-party consensus on Brexit and on the importance of North-South and east-west, we should try as best we can, while holding the Government to account, to work on a joined-up strategy on Brexit because of its significance to this country and to our future economy.

Mr. Matt Carthy:

I thank the committee for the invitation and for its engagement with MEPs today and on previous occasions. We are often critical of the fact there is not enough engagement between the representatives of the Dáil and those of us who represent the country in Europe. When I first went to the European Parliament in 2014 and joined the Committee on Economic and Monetary Affairs as a substitute member, I had very clear priorities. At the time we advocated strongly for retrospective recapitalisation of the Irish banks to alleviate the burden that had been placed upon us, to stand up for Irish citizens and to oppose an austerity agenda that was very much championed at an EU level and imposed on the Irish State and other countries by the troika and to support regulation of the financial sector to make it more stable and fairer for consumers. These priorities still stand although in some cases, the position of the Government has made it very difficult to see how we can achieve them, particularly with regard to retrospective capitalisation. It seems the Government has surrendered in that battle.

On the debt and deficit rules, I welcome that the Government has belatedly begun to call for flexibility after enshrining those rules in the Constitution. Since I have been in the European Parliament and over the past number of years, we have had new priorities, primarily as a result of Brexit. It is a notion none us ever thought we would see. I am in a position where it now makes up around 40% or 50% of my work, which is the case across the Sinn Féin team of MEPs. Our priorities now include the protection of Ireland, particularly with regard to the all-Ireland economy, the peace process and the Good Friday Agreement and the EU budget in the post-Brexit scenario considering that one of our larger contributors will exit the European Union. Other issues have arisen as a result of what is now a strong international focus on tax avoidance, tax evasion, money-laundering and other financial crimes as a result of some of the leaks we have seen. I sat as a member of the Panama Papers inquiry committee that was established by the European Parliament and which completed its work last December. I am now a member of the new Special Committee on Financial Crimes, Tax Evasion and Tax Avoidance, which is looking into all of these issues. We are also working on ensuring that Irish mortgage holders are protected, insofar as possible, from the sell-off of their homes to vulture funds. We are also involved with colleagues across the EU to try to resist what is a new way of financial deregulation.

With regard to taxation, people will be aware of my party's position on tax sovereignty. It is one of our principal issues. I have consistently argued at an EU level that the Irish State and other EU member states should retain maximum economic powers in order to safeguard the democratic decision-making process but also to be able to respond effectively to the specific challenges that happen in very diverse economies in the EU. That includes the power to set and collect our own taxes, whether corporate or otherwise. Having said that, and having sat on the committees I mentioned, I am now convinced the only way we can tackle cross-border tax avoidance - it is almost all cross-border - is through binding and enforceable international rules. My preference is that those global tax rules would be set at the United Nations. I support the OECD BEPS process as an important step forward internationally but I recognise its limitations in terms of both its ambition and implementation. There is a role for specific EU-wide action to combat base erosion and profit shifting across borders within the Single Market. It does not mean we support every EU tax proposal - far from it. We examine every proposal on its merits and make judgments on it with regard to the potential impact it would have on the Irish economy, its impact on tackling tax avoidance and its impact on sovereignty issues.

On the digital taxation proposals, I am following these two files as closely as possible. I will engage constructively with them. It is far more focused and targeted than the more sweeping proposals that were outlined in the CCTB and CCCTB proposals and which I and Sinn Féin have opposed for several reasons. It is important that members all recognise where these proposals are coming from. There are four reasons for the Commission's proposals. One reason, as Mr. Hayes has already said, is that digital firms are effectively paying a corporate tax rate of less than 10%, which is half of the effective tax rate for bricks and mortar. The prevalence of tax avoidance schemes and tax breaks on intellectual property in many EU member states means that in some cases the effective rate is far lower than 10% and sometimes as low as 0% to 1%. There is a crucial problem with the OECD on this issue because members of the OECD disagree on how to implement action 1 of BEPS, whether to create a digital tax and if so what form it would take. The interim report from the OECD on this issue released last month demonstrates the level of the disagreement, particularly the very strong opposition from the Trump Administration. It means it is unlikely we will see OECD action in the near future. We know there are a number of EU member states that are already trying to tackle this issue unilaterally. The 3% levy on turnover proposal is the aspect most reported on but the general approach of defining a taxable digital permanent establishment is an important proposal, which warrants close consideration. While global approaches are absolutely preferable, we also need to be wary of the approach that states there can be no action outside of the OECD framework at all. In the short to medium term, that means there will be no action at all.

Regarding the potential impact on the Irish economy, it is something we need to examine closely. It is important to recognise the actions of successive Irish Government have contributed to the situation where the Commission is proposing its own legislative initiatives on taxing technology giants.

Last month, the Commission released a report on aggressive tax planning indicators in the framework of the European semester. The report revealed that a staggering 23% of Irish GDP from 2010 to 2015 was made up of royalty payments. The capital allowance regime for intangible assets, which was put in place in 2015, prompted a surge in corporations using intellectual property-related tax avoidance schemes in Ireland and other states. Although an allowance cap of 80% was reintroduced in budget 2018, this huge and unjustified tax break for intellectual property is still allowing digital giants to avoid paying their fair share.

We have been engaging recently with the ECB on its guidance to banks on non-performing loans, which was circulated last month. Along with my colleague, Deputy Pearse Doherty, who is a member of this committee, I am dealing with this matter with the aim of understanding whether the Irish banks' mass sale of mortgages to vulture funds was required under the ECB guidance, as the banks were telling us at that stage. The very firm and clear answer we received was "absolutely not". The chair of the Single Supervisory Mechanism has written to me in response to a letter to state definitively that the ECB has no preference regarding the resolution of non-performing loans. Now that the EU and the Irish regulators have rejected the claim that the Irish banks are required to sell these loans to vulture funds, and have confirmed definitively that debt restructuring and write-downs are alternative options, we need to put in place actions to prevent the continued sale of these loans.

The ECB has also clarified that split mortgages can be classified as performing loans as long as particular legal structures are put in place. Last month, the Commission made a specific legislative proposal based on four key aspects - provisions by banks, securitisation of non-performing loans, debt recovery and a non-binding blueprint for member states to establish an asset management company. Basically, we are going to share our experiences of NAMA with the rest of Europe, God help them. While I have clear issues with some aspects of the proposal, I welcome the decision not to include consumers in the debt recovery proposal and I am pleased that the establishment of asset management companies will be voluntary. The Commission's efforts to revive the securitisation market for non-performing loans is troubling from my point of view. We will engage actively with these proposals as they come before the European Parliament Committee on Economic and Monetary Affairs. I would be interested to hear the views of members in this regard.

Mr. Hayes has outlined the context in which the multi-annual financial framework will take place. My colleague, Liadh Ní Riada, MEP, sits on the European Parliament Committee on Budgets, which has estimated that the Brexit gap could be between €12 billion and €14 billion, which is quite significant. EU Commissioners have been floating various notions and ideas, including the possibility of a 50:50 split between spending cuts in programmes and increases in contributions by member states. I am not fully comfortable with either of these prospects. As we know, EU funds are of clear importance in areas across Ireland. In addition to CAP, initiatives such as PEACE are very important for large parts of my constituency. We need to bear in mind that the Irish State is now a net contributor to the EU budget. As time moves on, we are going to be paying increased contributions anyway. Of course, this committee and other committees here in the Oireachtas will have to consider that for every additional €1 we pay to the EU, our Minister for Finance will have €1 less to distribute as part of his annual budget. Given that the CAP budget is going to come under threat - it would have come under challenge regardless of Brexit - the potential exists for Ireland to agree to increase its gross national income contributions without seeing a corresponding increase in the CAP budget, or even the maintenance of that budget at its current level. We need to be very vigilant in that regard.

I am aware that I have spoken for longer than the Chairman would have liked. I will conclude by referring briefly to Brexit and financial services. As I have said, my priority with regard to Brexit is not to campaign for, support or defend financial services firms in the City of London but to ensure our own interests and our own communities are protected. I am thinking particularly of Border communities and communities in the North. My view on financial services in a post-Brexit scenario largely coincides - for once - with the current position of the Commission, which is that the market actors themselves should be responsible for responding and adapting to the new circumstances while maintaining our own financial services and our own economy, in so far as that is possible. I apologise for taking a little too much time.

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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I thank Mr. Carthy and Mr. Hayes for their attendance this morning. I hope Mr. Hayes recognises me without my Taliban outfit. It is good to have both of them here for this useful exercise. There needs to be more connectedness between the activities of the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach, the Department of Finance and the EU. When the Minister, Deputy Donohoe, was responding in the Dáil last month to questions asked by two of my colleagues about the PEACE and INTERREG programmes, he said "Regrettably, what we are looking at are equivalent programmes in what are referred to as 'third countries' [this has been mentioned by Mr. Hayes] to see how or whether they offer a precedent for the development of programmes post-2020". That seems to be incompatible with the guarantees that have been won during the Brexit negotiations. Are Mr. Carthy and Mr. Hayes concerned about the Minister's language? Will they raise it at the European Parliament Committee on Economic and Monetary Affairs?

Mr. Brian Hayes:

Is the Senator talking about PEACE funding?

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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Yes, and the INTERREG programme.

Mr. Brian Hayes:

That is not an issue for the European Parliament Committee on Economic and Monetary Affairs because it has nothing to do with it. It is a budgetary issue and therefore relates to the European Parliament Committee on Budgets. The EU negotiates a seven-year multi-annual framework of almost €1 trillion and then puts in place multiple streams, including PEACE and INTERREG, through its funding programmes. It is not an issue for the European Parliament Committee on Economic and Monetary Affairs. It relates to the budget. My understanding is that the Irish Government is fully supportive of the PEACE and INTERREG funding. I know that because when I was in government, we were pushing it in a way that the British Government was not pushing it. When Ireland held the Presidency of the EU during the period of the last multi-annual financial framework, we made sure these programmes remained in place for all seven years of the framework. I do not see any departure from that. The question we need to consider is how the British Government will fund this when Northern Ireland is no longer in the EU. Having spoken to Michel Barnier about this issue, I am aware that there is a willingness for these programmes to continue. There is considerable support in Brussels and Dublin for their continuation. A mechanism needs to be found to enable this to happen. Although the amount of money involved is relatively small, it is significant for the Border community and in the North-South context.

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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We recognise that. It is for that reason we were somewhat alarmed by the language used by the Minister. Does Mr. Hayes agree with what the Minister is saying when he speaks about "third countries"?

Mr. Brian Hayes:

I did not see the Minister's comments.

Mr. Brian Hayes:

Maybe the Senator should ask the Minister.

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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Does Mr. Carthy want to say something on the matter?

Mr. Matt Carthy:

I agree with Mr. Hayes on this issue. We agree sometimes, but not all that often.

Mr. Brian Hayes:

It happens more than Mr. Carthy wants to admit.

Mr. Matt Carthy:

We must acknowledge there is substantial support for the maintenance of the PEACE programme at European level, particularly in the European Parliament. One of the first resolutions regarding Ireland to be adopted after the Brexit vote was an amendment proposed by my colleague Liadh Ní Riada, MEP, to a budget file in respect of the multi-annual financial framework. It was a statement of intent to protect PEACE funding in the post-Brexit scenario. This clear and definitive statement on the part of the European Parliament happened within a couple of months of the Brexit vote, at a time when it was refusing to make clear and definitive statements on almost any other aspect of Brexit. We have tried to capitalise on that. We have met Michel Barnier and all the key negotiating figures at European level. All of them have indicated that this is the case. The problem in a worst-case Brexit scenario is that in order for PEACE to happen, we will need the British Government to pony up the money and agree to the structure that is in place. At the moment, there is a special EU programmes body, the role of which is to roll out this funding. There will need to be another body that is not simply an EU body so that the British Government will be able to tie into it. One of the successes of the PEACE programme has been the value of the engagement with it by all communities on both sides of the Border. People might not like every decision that is made by the special EU programmes body.

They might not like where all of the funding has been allocated. Those who submit applications will always think they are good and that they deserve more but they have always considered the scheme to be administered by a politically neutral body in terms of how decisions are made. There is a fear - it is one I share - that we have not adopted a strong position on the PEACE programme. The Minister must strongly emphasise that whatever body is put in place to distribute funding is politically neutral. I assume and hope that we can take everybody at their word that they will remain committed to that goal. We just need to be very focused about this matter.

The issue of broader INTERREG funding is more worrying from my point of view because there is not the same commitment. In that instance and, again, dealing with the worst-case Brexit scenario, the more optimum cases or even Britain remaining in the Single Market and the customs union, there is no guarantee that Britain would remain part of the INTERREG programme. In some cases, it is the INTERREG programme as opposed to PEACE funding specifically that has delivered some of the major infrastructural projects, whether it be transport projects or other infrastructural developments, on a cross-Border basis. In that context, we probably have not - I say this collectively in terms of the Government and all representatives - had an opportunity to put the amount of time and detailed work into formulating an Irish position that we can articulate. There will be openness at European level. When one talks to British representatives, it depends on who one speaks to and what day of the week it is in the context of figuring out the British Government's position on anything Brexit-related. The Senator is quite right in what she said. I cannot imagine what my community in County Monaghan and communities in many other Border counties would look like today were it not for the provision of PEACE and INTERREG funding over the past number of decades.

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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We have argued that Ireland needs a Brexit package to be included in the next budget and through other means, such as state aid flexibility and other flexibilities, in order to respond to the potential negative impacts of Brexit. Is there an appetite in Europe for such a move? Do our guests think that some tax moves would be conditional on Irish acquiescence? Will the EU link them to conditions?

Mr. Brian Hayes:

In response to the first question, there are lots of examples of third countries that pay into the EU budget. This matter will have to be part of a withdrawal agreement.

In terms of taking the Minister's comments out of context, the Irish Government wants the PEACE and INTERREG programmes to continue. We are all on the same page on this issue.

Mr. Brian Hayes:

Pretending that there are huge differences and quoting one Minister out of context is a game that people should not play.

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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This is not a game. We seek assurances from our guests-----

Mr. Brian Hayes:

I have told the Senator that.

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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-----that we are all working together-----

Mr. Brian Hayes:

Exactly.

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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-----to ensure that we prioritise because, as has been outlined, the programmes are a hugely integral part-----

Mr. Brian Hayes:

Yes.

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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-----of keeping everything together.

Mr. Brian Hayes:

We all should be honest about that aspect.

Mr. Brian Hayes:

On the question about the future, there is support in the European Union for Ireland. Everyone knows there is huge support for all our strategies in order to ensure that we deal with the North-South question. In any full agreement, provision can be made for Ireland. In the context of the budget, much of that will depend on the scale of the adjustment and knock-back experienced by the economy as a consequence of a hard Brexit. We know all of the modelling that has been done. We have to regard for that and it is always a sensible approach.

In terms of the two big threats that we face, I would argue that the possibility of a trade war is as significant as Brexit in light of the globalised nature of our economy. We have to be mindful to make provision in this regard in the upcoming budget, and that should be done.

I agree with the Senator that there is a window of opportunity in terms of state aid but that depends on the final outcome. I made that point in my earlier remarks and that is why the Taoiseach's comments in Strasbourg were important. If we are prepared to pay more, albeit a small amount, over the lifetime of the next money market fund, MMF, then not only will it help the design of that fund, it will also help us, as a contributor country, to put in some contingency funding opportunities as a consequence of a negative Brexit.

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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Mr. Hayes mentioned a 1% of GNI. Has he quantified that percentage in terms of this country's financial projections?

Mr. Brian Hayes:

That is impossible to quantify as the GNI is done on an annualised basis. Since 2014, Ireland has been a net contributor of very small amounts of money. The current budget is approximately €1 trillion over seven years. The big question is not so much what individual countries will pay, although that aspect is important here, it is, rather, what will be the size of the total pot. However, that has yet to be determined. I would see a small increase over a seven-year period. In the context of a budget of €60 billion, that would mean we would pay €240 million. Of course the contribution will increase but our economy will grow as a consequence. We should make the argument that the reason we moved from being a poor country to being a relatively wealthy one is due to the fact that the Single Market provided our businesses and communities with an opportunity to sell into a bigger market. We should never lose sight of that fact.

It is an open question, in the context of the issues raised by the Senator, as to how much support Brussels will provide. I do not think the matter is contingent on tax because, even since the common consolidated corporate tax base, CCCTB, proposal was reinvented by Pierre Moscovici, there has not been a herd of countries wishing for this to happen. We know that at least nine member states are against the proposal. It is not a case of little old Ireland versus the big bad Commission, a significant number of medium-sized and small member states are against this aspect as well.

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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Are our guests happy that the decisions will be decoupled?

Mr. Matt Carthy:

It is easier for me to answer the first part of the Senator's question. Yes, there is an appetite for a post-Brexit funding stream for counties and sectors that will suffer as a result of Brexit but it is difficult to predict how that will be formulated. I am of the view that it would be better to argue for sector-wide packages. In terms of agrifood, I met representatives of the Irish Thoroughbred Breeders Association in Brussels yesterday. The sector faces huge external threats as a result of Brexit. Quite a number of other sectors will also be affected. It would be much easier to seek that an EU-wide package be made available to any sector that is damaged by Brexit. Ireland relies heavily on the agrifood sector so we know that it will get more than its fair share of suffering because it will be hit harder that any other member state. We would have a stronger case if we asked for an EU-wide package rather than a package for Ireland. However, that is not to say that we should not argue for both.

Who knows exactly what goes on behind the doors of the European Council because it is a secretive body and lacks transparency. In my view, the excuse that the Irish Government did a bad thing because of another thing is overplayed. Sometimes the Government sees the Council as a handy way of getting bad things through. Permanent structured co-operation, PESCO, has been given as an example. I listened to the debates in the House during which Members claimed that the only reason Ireland signed up to PESCO was because of Brexit and the fact that we felt we owed them one. The only reason that we signed up to PESCO is because Fine Gael is committed to PESCO. That is a political argument.

Mr. Matt Carthy:

I fundamentally disagree with Fine Gael on the matter. I am of the view that it is possible - this is very frightening because I am agreeing with Brian Hayes again - that they can be dealt with on a separate level in terms of taxation.

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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The Chair wants me to conclude. I just want to ask whether our guests know the level of support for the proposals relating to CCCTB , the financial transactions tax, FTT, and digital taxation in the wider EU?

Mr. Matt Carthy:

Does the Senator mean the European Parliament?

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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Yes. Is there much support for the proposals?

Mr. Matt Carthy:

Within the Parliament, the proposals have huge support. The CCCTB proposal was voted on and it receive almost two thirds support.

Mr. Brian Hayes:

Yes, two thirds.

Mr. Matt Carthy:

Universally, the Irish representatives voted against the proposal for different reasons. The CCCTB proposal enjoys huge support within the European Parliament but, as has been said, the European Parliament has no say in the matter whatsoever. At a Council level, there is broad support and certainly by the larger member states.

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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Why has no action been taken?

Mr. Matt Carthy:

Because there was a veto.

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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The matter has been talked about for so long.

Mr. Matt Carthy:

It is specifically because each State has a veto and Ireland and other countries have same.

Mr. Brian Hayes:

There are two reasons. First, the European Parliament has no power to exert in respect of taxes.

Mr. Matt Carthy:

Yes.

Mr. Brian Hayes:

Second, unanimity is required.

As long as one member state says "No", it does not happen.

Photo of Rose Conway WalshRose Conway Walsh (Sinn Fein)
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I might come back in later if the Chairman will allow me to do so.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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Of course.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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I welcome both MEPs. I will focus on two issues. One is the issue at hand this morning, namely, the digital services tax proposals from the Commission, while the second is on non-performing loans. The digital tax strikes me as a fundamental shift in the operation of taxation across the European Union. It is currently a matter for each member state and there is a veto, as both witnesses said. However, taxing companies on a pan-European basis is a significant shift and it could be the start of more to come. We have spoken a little about the CCCTB but this is a move away from the system based on tax residency that currently obtains. Can the witnesses give us a sense of the timeframes for these proposals, COM (2018) 0147 and COM (2018) 0148? They were only published in March. When will they go before the European Council for decision?

Mr. Brian Hayes:

Commissioner Moscovici proposed the measure in Buenos Aires when he was there for a G20 meeting. He came before the ECON committee and I questioned him on it. Mr. Tang and Mr. Lamassoure were also before the committee. In the two reports on the CCCTB that went before the European Parliament, the digital tax component was put in on the question of intangible assets. It is already the stated position of the Parliament that it wants this. However, it has no power in this area with the exception of putting up important signposts.

My sense is this. Two things happen with a year to go before the end of a European Parliament mandate. Proposals are put out there for the purposes of the legacy of a Commissioner and his or her future plans. The proposals can obtain general agreement in Council but I do not see a chance that the digital tax can be agreed in the lifetime of this Parliament's mandate or any time soon. I say that for two reasons. The recent comments of the new socialist German Finance Minister, Mr. Scholz, have been very interesting. He sees the implications for Germany, which has a highly export-orientated economy like our own, and he sees the issues of trade ramping up the difficulties with the Trump Administration, a matter to which my colleague referred. Without Germany and France pushing this, there will not be a quick decision.

The Commission constantly puts forward ideas and many of them take five years to come before the co-decision-making bodies of Parliament and the Council but they often remain on the shelves, and I think the digital tax is one such idea. However, I would not underestimate the political imperative to do something about this. As Deputy Michael McGrath said, internationally tax and accountancy are normally based on profit, residency and value added. If one moves to a sectoral approach and sets out to get the big digital companies with a nebulous turnover formula, one is changing the rules. Nevertheless, there is a political concern in large member states which get none of this income but who use the service. At some point, one has to ask how that is to be resolved. Our task as MEPs is not just to articulate Ireland's concerns but to explain other people's concerns to people here. The right approach is to stay around the table and try to work on a better and more proportionate proposal but I do not see this going anywhere fast.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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There was an estimate of €5 billion being raised from a 3% turnover tax. How would those taxes be distributed? Would it be like the CCCTB where it depends on sales, assets and employees with an apportionment whereby the large member states get the bigger share? What would the apportionment of the tax be when it is collected?

Mr. Matt Carthy:

The first part of the Deputy's question goes to the heart of the matter. It is true that it could be some time before we see movement on this file and it could be never. However, something has to happen as citizens across Europe are demanding that companies such as Google, Facebook and Apple pay some level of tax. It is morally indefensible to have the current situation whereby they can exploit different tax bases. We cannot say that we will figure out a way of taxing these companies in the same way as we tax traditional, bricks-and-mortar companies because the nature of these business is fundamentally different. As a result, their tax will also have to be different.

The second part of the Deputy's question is also important because it deals with building public support for this move. There are people in the European Commission who want this to be an own resource of the Commission, meaning all the money is soaked up and distributed as the EU institutions see fit. I have huge concerns about that in terms of accountability and transparency. Money is power and those within the EU who want the EU to have more power are adamant about getting additional resources.

The distribution would be different from under the CCCTB in that, under it, there is a threat to money coming into the Irish Exchequer, which could leave a hole in our finances. There is no digital taxation at the moment so we should perhaps come up with proposals to input into the discussion and this committee, or the Committee on Budgetary Oversight, could have a role in that. We could propose a mechanism whereby these companies could be taxed and for how the money could be distributed.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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If they paid this tax, presumably it would reduce the taxable profits available to be taxed in the member states.

Mr. Brian Hayes:

That is not the case. The objective is for the €5 billion, which Commissioner Moscovici came up with in the absence of a significant impact assessment, to be additional to the taxes that are already there. Apart from apportionment, the tax would have to be based on where the end user is located. It is inevitable, therefore, that if a company has to report on an annualised basis where its end users are, the countries with the most would get the lion's share of the tax.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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It is another strand of the CCCTB.

Mr. Brian Hayes:

In the CCCTB, the criteria were clear. It was based on the number of staff a company had, its tangible assets and its sales, the last of which worried us because we do not have a big domestic economy. Then they added the bit about intangible assets, from an amendment to the report from Mr. Lang and Mr. Lamassoure, in order to try to take account of the digital component. I think the Deputy is right on this. The bigger problem is whether this is CCCTB by the back door. If it is simply a sunset subsidy, an additional tax on digital companies over and above what they currently pay to member states, we have to engage in that but only if it is an interim measure for a full OECD proposal.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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My party is very sceptical about this and I see it as a step towards tax harmonisation across the European Union. We all know what the agenda is. One of the levers we have left is sovereignty around tax but they just keep coming at us from all different angles. There is an issue with the taxation of the high-tech companies, however.

I wish to move on to the issue of non-performing loans, which both witnesses raised.

They are aware of the work we have been doing in the context of Permanent TSB's proposed portfolio sale, Project Glas, in particular because it involves family home mortgages and private dwelling houses, PDHs.

On the classification of split mortgages, an issue to which Mr. Hayes referred, we received a letter from Ms Danièle Nouy, the chairman of the supervisory board. We are trying to get to the bottom of why AIB split mortgages are regarded as performing and those of Permanent TSB are regarded as non-performing. We teased this out at meetings with representatives of both organisations. Ms Nouy probably cuts to the heart of the matter without mentioning any institution. She states in her letter it is "essential that the split-loan restructuring has resulted in two separate and independent payment obligations with substantially different terms and conditions" so an obliger or borrower should not be subject to any contractual repayment obligations in respect of repayment of the junior debt, which I take to be the warehouse debt, until the senior debt, the active mortgage, has been repaid in full, or if the borrower defaults on the senior debt. Does that cut to the heart of it as Mr. Hayes understands it?

Mr. Brian Hayes:

It does. It was actually a reply to the question I posed at the time. A determination had not been reached on the proposal by Permanent TSB when it asked that its split mortgages be considered. Ms Nouy is making a differentiation. She is saying that there are two elements to the payment, namely, the active amount and the warehousing amount. She is regarding the active amount as the senior and the warehousing amount as the more junior, meaning greater collateral is required. In our circumstances and given the way Permanent TSB operates, as I understand it, one is paying both at the same time. As I understand it, Ms Nouy is expecting the active amount to be paid in its totality and then regarding it as outside the loop of the non-performing loans. That is a difficulty I do not believe we have resolved yet.

I have seen newspaper reports in this regard from sources here and abroad. I very much hope a definitive view can be given on this. As the Deputy knows from his work here, not all non-performing loans are the same. Equally, not all banking legacy problems are the same. The one-size-fits all approach, which I understand the SSM is trying to move towards, may not help our situation here.

There was a great expectation in Brussels up until recently that there would be a move towards a more exacting standard. The 5% is a guideline rather than a standard. Ultimately, Permanent TSB and others that still have a capital reserve problem are working with the SSM teams in this regard. As they tried to work out the problem, there was an expectation that a very exacting standard would be published by March. That has not happened. There is still a long way to go, largely because the Italian problem is worse than ours. Quite frankly, it is the unknown quantity in terms of the capital reserve ratios that remain. I hope we can achieve some progress on this but I am not pretending I am very optimistic at the moment.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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On what issue?

Mr. Brian Hayes:

On the split mortgages.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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In the context of what Ms Nouy said and insofar as it relates to AIB and Permanent TSB, it seems that because of the way Permanent TSB structures its split mortgages, and because it is open to the bank at any time to transfer some of the warehouse debt into the active mortgage-----

Mr. Brian Hayes:

Making the distinction between-----

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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She was saying they then had to be regarded as non-performing.

Mr. Brian Hayes:

Correct. She is regarding the warehouse debt as junior debt and, for the purpose of the tier 1 capital ratio, it does not exist under EBA rules.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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She says that in cases where the retail split-loan restructuring has not resulted in two separate and independent payment obligations, the senior and the junior aspects cannot be treated as separate exposures and are both considered non-performing from a regulatory classification perspective.

Mr. Matt Carthy:

I do not have much to add to what Mr. Hayes said. It is clear that the onus is now on Permanent TSB to examine its own legal structure in terms of addressing these issues. We can wrangle and have all these disputes or discussions with the SSM and at committee meetings but, ultimately, the outworking is such that people are living in fear for their homes because of the handing over of portfolios to vulture funds.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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Mr. Carthy rightly said that the European and domestic regulators have said they have not instructed banks to sell portfolios and that this is not necessarily the preferred option. There is no preferred option; there is a range of options set out under the guidance. Is it the case that, in reality, the regulator - at European level, say - is putting pressure on the banks here to reduce their non-performing loans fairly quickly, suggesting that there are various ways in which they can do it. In effect, is the coded message that the portfolios should be sold on? The regulators will not say it outright but, in truth, is there not pressure to sell and adopt a big-bang approach?

Mr. Matt Carthy:

There absolutely is pressure for institutions to restructure their non-performing loans and resolve their non-performing asset issues through whatever mechanism is required. One must remember, however, that we got in touch with the SSM in the first instance because the banks were saying, sometimes to Oireachtas committees, that they were effectively being told they needed to engage with the vulture funds to get the loans off their books. The big development is that the regulators, a Central Bank source referred to in The Sunday Business Postat the weekend and others have said quite clearly that this is not the option they are urging the banks to take although it is quite clear that they are urging them to take options in more broader terms. It is important from our point of view, however, to note that there is no obligation on banks to dispose of loans to vulture funds.

Mr. Brian Hayes:

I have one point for Deputy Michael McGrath, who has been following this very closely. Any time one asks President Draghi and Ms Nouy about this, they make it very clear they do not have a consumer protection remit. The Central Bank of Ireland has that remit. Mr. Draghi and Ms Nouy regard the consumer protection policy of the Central Bank as the primary policy here. Therefore, there is flexibility in what we can do here. I acknowledge that the Deputy is working with the Minister for Finance, Deputy Donohoe, on legislation in this regard. I raised this in the Parliament and the function of the Central Bank of Ireland in terms of consumer protection was made very clear. Mr. Draghi and Ms Nouy make the distinction at a supervisory level. Notwithstanding these points, the large number of non-performing loans on our bank balance sheets is dulling investment. We have got to resolve this. The question is how we might do so. It is not easy.

Photo of Paddy BurkePaddy Burke (Fine Gael)
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I welcome Mr. Hayes and Mr. Carthy. It is very good to have interaction between MEPs and members of the various committees. I will not go over the ground covered by the two previous speakers so I will move on slightly. I have two questions.

First, the average Irish mortgage is probably double the European average. Is there any proposal for, or do our guests envisage, an EU-wide mortgage facility? Mortgage terms elsewhere in the European Union are much longer than in Ireland. The vast majority are 35 years or longer, and in some cases up to 50 years. Do our guests envisage our being able to obtain a European mortgage? It would put a lot of pressure on the banks here to bring down their mortgage rates and it would bring more competition to the market here. This should be examined. I would like to hear our guests' views on it.

The second issue concerns insurance. Quite a number of businesses have closed down recently because of the high cost of insurance here. In my home town, a pub called Bosh, owned by Mr. Michael McDonald, has closed because his annual insurance premium is €67,000. It is an ordinary pub that does a bit of food. Obviously, Mr. McDonald had a couple of claims but the insurance premium is outrageous for a small business in the west.

Elsewhere in Europe, the insurance set-up is different from that in Ireland. The state takes some of the responsibility in some European countries.

If one changes from one insurance company to another in some European countries, the state part of it does not kick in, I think, for about six months, so there are differences in this regard. While the European Union says there must be competition and one is allowed to switch from insurance company to insurance company, there are differences in the way in which insurance companies operate right around Europe. In some cases it seems the state covers part of the premium or pays out in some instances, perhaps for flooding or whatever else. If this were the case, it could well reduce the cost of insurance in Ireland, so perhaps the witnesses and the European Parliament should look at this. I would like to hear their views on it.

Mr. Matt Carthy:

The Senator has asked two good questions, for which I thank him. The issue of the interest rates imposed on Irish mortgage-holders needs to be addressed. I would argue that the best way of doing so would be to put in place, through either the ECB or legislation, mechanisms to stop what is effectively a cartel being operated by our own banks. Our banks are screwing the very people who bailed them out, to put it very bluntly. I would be wary of an EU mortgage scheme because - to refer to the next question, on insurance - we saw what happened with Setanta Insurance, for example, a company based in one member state and regulated at that level but operating in another state in respect of financial transactions. If there is a crisis or any anomaly, it is the end user who ends up suffering. Therefore, we should address the high interest rates being charged by our banks by putting in place provisions to prevent them from doing so.

I have many dealings with the farming community, as members may know. Anyone who drives a car knows that insurance costs are going through the roof. I have always advocated that the State have a State insurance company in order to be able to provide services that are not available in the private market and to offer an additional choice to consumers as a way of dealing with these issues and with some of the blatant discrimination on the part of insurance companies towards certain businesses and sectors.

Mr. Brian Hayes:

Retail financial services, which Senator Burke has raised, is a crucial issue for consumers. I can walk out of the European Parliament tomorrow, go into a KBC branch and get a ten-year mortgage product at 2% for €400,000 or €500,000, whereas a standard variable rate here is about 3.7%. The reason consumers on the Continent are in a better position - and this is where I fundamentally disagree with my colleague - is competition. They have significant banks pitching against one another on rates and conditions. We will not get to a better place in respect of standard variable rates here unless we get competition. We need to encourage banks to come into Ireland, to set up here and either to use the distribution channels that are here or compete against our own banks. This is the only way we will get rates down because competition, ultimately, will ensure we get mortgage products.

I am much more ambitious than Mr. Carthy; I think we can have mortgage products across the European Union. We have done so much in the past decade to stabilise the banks, to put the supervisory system in place and to change the rules from Central Bank of Ireland national competent authorities to the ECB SSM for the big banks. However, we have not done enough for consumers. Regarding the Single Market, in so many areas we have driven down prices - for example, on roaming and the airline industry. These are huge benefits for ordinary people. The one area on which we have done nothing is cross-border financial services, and I am passionate about this. There is so much that can be done.

What can we do to get to what the Senator wants done? If I may be very frank, in our time in government, when I was a Minister of State, the one thing I am most ashamed about is the length of time it took us to get insolvency working. It was a disgrace. The first thing the IMF told us when we came into government was to get our insolvency laws right because the longer one puts off putting the inevitable in place, the more difficult it gets. If there were an EU-wide insolvency regime, I think there would be confidence in moving more operators to Ireland. Furthermore, if there were an EU-wide valuation process with confidence and a kind of gold standard of valuation, I think there would be more new entrants to the mortgage market in Ireland. That is my sense of the matter. The past ten years have been very good for the banks, the supervisors and governments, particularly with Mr. Draghi's doing everything he could to save the euro, which has worked, broadly speaking, but not good enough for cross-border business. Be it insurance or mortgages, we can do so much more to embrace the principles of the Single Market and drive down our standard variable rates. I think it is possible to do this, but it requires political will. What government will put its hand up and say it will go to an EU-wide solvency regime? People will not put money into Ireland if they cannot get it out. They have been burnt enough. This is the nature of risk. We have now moved to a risk-based model - rightly so, given the light-touch regulation Mr. Carthy spoke about. We must embrace the Single Market, and I hope the next ten years can be about taking down those protectionist barriers that exist between member states which drive up the cost of insurance premiums and borrowings for mortgages.

Mr. Matt Carthy:

May I say just one thing on that? I am sure members will remember that we actually had quite an amount of competition in the banking sector in this State. In fact, it contributed to the crash we experienced. Therefore, whatever we are doing, if we are getting to a point at which we are attracting banks from outside the State to enter the Irish market, we need to put in place mechanisms and protections to ensure they cannot just cut and run as soon as things do not necessarily go their way.

Mr. Brian Hayes:

That is not really true. The fundamental difference is that the new Central Bank of Ireland rules on borrowing and lending capacity have radically changed the landscape as to who can get what and where. Even though some of us were critical of this at the time, the truth is that the SSM has supported the new Central Bank of Ireland regime on lending. That has been the game changer which was not there in the madness years.

Photo of Paul MurphyPaul Murphy (Dublin South West, Solidarity)
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I thank the MEPs for coming before the committee. It is good to have this engagement with our ECON MEPs. I wish to focus on the issue of digital taxation. I will start by putting the issue in a broader context because this definitely takes place in a broader context. There are two fundamental aspects to this broader context. The first is an increasing tension between the US and the EU. This is real, I think we can acknowledge it as such and it does play a part in the broader context.

The second is related but also has an independent dynamic. I refer to the moves on taxation that are taking place, including the CCCTB and the digital taxation proposals, both of which I am broadly supportive of. These point to the fact that, whether one likes it or not - and I do like it - the clock is ticking on Ireland's tax model, to be very neutral, or Ireland's tax haven model, to be descriptive, as I would be.

I have a few questions related to this general point for both MEPs. First, would they accept the point that, whether they agree with it or not, the global picture is changing to put Ireland's tax model into question, between what is happening in the US and in Europe and with Brexit? Second, would they agree with the description of Ireland's tax model as a tax haven, specifically a conduit tax haven, reflected by the fact that over 50% of royalty outflows from Ireland go to countries that are quite clearly tax havens. I refer to Bermuda and other such countries.

Mr. Matt Carthy:

Is the global picture changing? The dynamic absolutely is. As I mentioned, I have been a member of the committees in the European Parliament dealing with this issue.

There are a number of reasons this is becoming an issue. Governments are recognising that they are losing income at a time when citizens are being asked to pay ever increasing stealth charges and additional family taxes, whether it be on homes or whatever. There is increasing pressure on governments also to ensure corporations pay their fair share of tax. There is also an issue globally. An awful lot of people are asking themselves about issues pertaining to the injustice of tax avoidance by corporations. Nicolas Shaxson wrote a very good book in which he estimated or quoted someone else's figures to the effect that for every €1 western countries provide in development aid to Third World countries, our corporations deny those same countries €8. If we got tax justice right, we could contribute eight times more to the developing world. It would be fair, it would not be charity and it would not cost us as citizens a single penny.

For all of those issues, there has been a very welcome shift in dealing with this. We can have discussions around the measures. For example, when the CCCTB proposals were initially being put in place, tax avoidance had very little to do with it. It was a power grab. The latest package put forward is couched in the language of tax avoidance and put forward on that premise. The GUE-NGL group in the European Parliament, which Deputy Murphy will know very well, commissioned a report assessing the potential impact of CCCTB and found there were many questions. The report noted that in some cases, CCCTB would result in some companies paying less tax. There were a number of fundamental flaws in the Commission's package, even without going into the issue of tax sovereignty which, of course, was an issue for our own party.

As to whether Ireland is a tax haven, it does not matter what I think. The problem, from our point of view, is that lots of other people think so. Oxfam has repeatedly described Ireland as a tax haven. As a member of the committee dealing with tax avoidance, every report and book I have read and the majority of people addressing these issues at our hearings have cited Ireland as an example of bad practice. That is bad for us on a number of levels, including in terms of our international reputation, our capacity to withstand moves at EU level to harmonise taxation rates and, crucially, it is bad for those of us who want to protect and maintain foreign direct investment and encourage others to come.

The fact of the matter is that, right across the world, consumers and shareholders are demanding of their companies that they be squeaky clean when it comes to tax avoidance. It is fitting into the framework when companies decide where to locate. I do not want to be provocative, but it is like the child labour issue for our generation. Companies do not want to be associated with it. If a country has a reputation which is clouded at even the most peripheral level with the notion of tax avoidance, some companies will want to move away from it. I can understand at some level why people would think us taking the Apple case to court and adopting other measures might be necessary to protect foreign direct investment, but in the medium to long term those actions could in fact damage the economic model they claim they want to protect.

Mr. Brian Hayes:

We were asked two questions, the first of which was whether things are changing. They are changing and the evidence from BEPS is that it has made a difference. We are trying to assess as a consequence of the 13 actions so far how much extra has been brought in. Irish corporate tax receipts are a bit frothy and we need to be concerned about their sustainability. Of our total tax pie, 15% of tax receipts are the corporates whereas the OECD average is 8%. For every man, woman and child, the corporates pay €1,700 whereas in Germany it is €600 and in France it is €700. We depend on this. If it is knocked out by €1 billion, it is a major problem no matter who is in government.

The international environment has actually helped us to get more money in as more money is brought onshore. An interesting point I raised recently with President Draghi is on the changes brought about in the USA recently. One of President Trump's few achievements domestically has involved the tax changes implemented from 1 January 2018. We will not see their full effect until next year's reporting period. There will be two effects. First, a huge amount of money will be brought onshore to the United States of America to take the credit of this redistributive tax rate. That will prolong the US economy's comeback. It will be a significant tax return, as we are already hearing in the USA. Second, significant holes will be left in eurozone banks as a consequence of the money coming onshore to the USA. The ECB admits that it has yet to see the full implication of that. In this world of tax changes, it is not just at OECD level, it is also within the European Union and the USA.

I reject the notion that Ireland has tax haven status, obviously. However, I get the point that Mr. Carthy makes, which is about what other people think. I want to be the first to admit honestly that there was significant reputational damage done to Ireland as a consequence of the Apple case. Those of us who work in the institutions can testify to that. People do not fully understand the context of these things and they do not understand the arms-length principle of the OECD and how it is applied by our Revenue. All of these issues will be worked out. Nevertheless, significant reputational damage was done to Ireland as a consequence of that decision. That is not to say significant improvements were not made when Deputy Burton and others were in government in closing down the double Irish, establishing the FATCA arrangement and changing residency rules. All of those things are very important. We have a legacy issue here which is hard to explain and we can point to a very significant tax take on the corporate side as evidence of the fact that corporates pay their fair share in Ireland.

For Europe to remain strong, we must always be welcoming to investment. Very significant international players from outside the European Union, that is from third countries, operate within the EU, including its peripheral regions. I can keep making the point that Apple employs 6,000 people in Ireland. These are real people doing real jobs in real communities and paying real mortgages. They are ordinary people and our Irish people. We have a collective responsibility to defend a model of industrial development which has been very successful for Ireland, produces genuine goods and services and real value added across the European Union. A lot of people are jealous of that success. We did not have an industrial revolution and we did not have colonies. We were colonised. The idea that everyone is the same on day 1 is not the case. We had to do things differently because of that model. Of course, the model will adapt and change as it must as things move up the value chain. However, in trying to rebut some of these arguments, we must point to our successes also. I am very conscious of that.

Photo of Paul MurphyPaul Murphy (Dublin South West, Solidarity)
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That was the easy question. I will give both witnesses a hard one. First, there is an echo in what Mr. Hayes is saying about the digital tax, albeit it is not exactly the same thing, of the Government's approach to digital taxation, CCCTB and so on. The Government acknowledges that there is a problem and a danger of reputational damage and it has to be seen to do something. As such, it is in favour of something happening. Mr. Hayes goes on to make correct criticisms of the digital tax as it exists. If he is saying it should not just apply to tech companies but should also apply to BMW, for example, because a lot of that is digital, I agree with him 100%.

If the witness is saying it is not good enough for it just to be at a European Union level and it must be at an OECD level, I agree with him. It seems that he makes those criticisms not necessarily in order for those things to happen and for the process to be expanded to cover the car and other industries at an OECD level but as a way of kicking it to Never-never land, where it will simply never happen. The Government hides behind the base erosion and profit shifting, BEPS, process. It deliberately opted out of article 12 of the BEPS process and it goes on about it while avoiding signing up to measures at an EU level.

Mr. Brian Hayes:

I have probably said that I am open to looking at it and I have not ruled it out. I have said this proposal on turnover effectively clicking is not going to work. If it is to be a direct subsidy, it should be "sunsetted", as I mentioned. I said that to Mr. Moscovici at the time. I have an open view on it and that is not the Government's view.

Photo of Paul MurphyPaul Murphy (Dublin South West, Solidarity)
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The Government often has an open view on such things. It has the threat of a veto and it hangs there, delaying the matter, until-----

Mr. Brian Hayes:

One of the advantages of the European Parliament, as the Deputy and those of us in politics for a few years know, is that one can have an independent view. I am very conscious that we must try to reflect a solution that works in this. That is the diplomatic way and I am saying I am open to looking at proposals on it. I have not ruled it out.

Photo of Paul MurphyPaul Murphy (Dublin South West, Solidarity)
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Does the witness agree that country by country reporting should be public?

Mr. Brian Hayes:

Yes.

Photo of Paul MurphyPaul Murphy (Dublin South West, Solidarity)
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Does he agree transfer pricing should be two-way?

Mr. Brian Hayes:

Yes, and I voted that way.

Photo of Paul MurphyPaul Murphy (Dublin South West, Solidarity)
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I must ask Mr. Carthy a hard question. I have read the paper he referred to on the common consolidated corporate tax base, CCCTB, and I agree with it. The paper calls for a harder and more effective CCCTB, in reality, and I am for that. I do not have any illusions about where the European Commission is coming from and that it is seriously interested in tackling tax evasion for the benefit of the public. It reflects the interests of the bigger states and it is trying to grab more tax revenue. In referring to the paper, Sinn Féin is trying to say it is left-sided opposition to the CCCTB but it is not. The points made by the witness relate to tax sovereignty, and fundamentally it is about sending a signal to businesses operating in this country. It is establishing the idea that although they may not agree with everything, Sinn Féin will be a safe pair of hands when it is in government. Does Mr. Carthy agree with the principle that we will not be able to deal with tax avoidance unless there is a common tax base? A common way of working out allocation of tax is required. We can argue about details and the way to effectively do that afterwards.

Mr. Matt Carthy:

I am sorry if I was ever ambiguous about my way of dealing with taxation matters but they should be decided at a national level. It is a fundamental right of people to elect a Government to make such decisions. With monetary and fiscal policy, we have given away too much power and that has limited our ability to enact progressive change in this country. The problem with a common corporate tax system across the EU is that the ink would not be dry before the next proposal would come in on income and other tax regimes. The argument would be fundamentally undermined as parties in countries like Ireland would have acceded to the principle that there would be taxation on an EU level. We are not opposed to unitary taxation regimes. For example, we believe the corporation tax regime should be on a global scale. In the EU, companies are manipulating individual states. If there is an EU-only CCCTB type of system, we would be further offshoring the practice as companies would move their base to other parts of the world, as they have done on many levels.

To be clear, I want corporations to pay their fair share of tax. I do not get bogged down on issues of flat rate or the issue of the 12.5% rate. I am happy with the 12.5% rate for corporation tax as long as corporations pay it, which they are not. We need to be much more vocal about that and put measures in place in that respect. I agree entirely that the Government's position on public country by country reporting is an absolute scandal and cannot be equated to anything relating to tax sovereignty. It is about tax transparency, which is a completely different matter.

The Deputy asked if we are trying to appease corporations or whatever. We will be a safe pair of hands in government with the economy. We will shift the focus away from solely depending on foreign direct investment and we will put in place the type of supports that indigenous sectors need, as well as supports for local businesses and other models, including co-operative processes, in order to develop and thrive. We will not on day one try to drive out foreign direct investment that we have as it plays a pivotal role in many parts of the economy. Many workers and people who support my party and the Deputy's party work for those companies. If corporations, wherever they are based, are willing to come to Ireland and provide well-paid employment while paying their corporation tax, Sinn Féin will be a safe pair of hands for them. It does not undermine my left-wing credibility if I say we want a thriving economy. We need that in order to collect taxes to pay for services and infrastructure we want to see implemented in this country.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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When Mr. Carthy mentions "a safe pair of hands", is he referring to himself? Is he making an announcement?

Mr. Matt Carthy:

I would be confident of Brian's oversight in Brussels. I look forward to reading his Sunday Independentcolumn on a weekly basis to let us know how we are getting on.

Mr. Brian Hayes:

I wish it was weekly.

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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I welcome the witnesses back to Dublin. I will come back to the broader tax issue later but I will first speak to a slightly different area. This week we had another event with Ulster Bank and I am asking about consumer protection. Frankly, I do not believe the bank's explanation. European banking is part of the global banking process and there is a massive amount of outsourcing of back office services to different countries. In 2012, Ulster Bank had a disastrous meltdown with its accounting functions. It was a systems breakdown that might have been affected by outsourcing to countries around the world by the parent company, Royal Bank of Scotland.

This is apparently an extraordinary case of human error, with somebody pressing or not pressing a button or whatever, leading to people's accounts losing much money. We are all expected to trust that banks are okay, even given what happened as recently as 2012. Many pensioners right across Ireland have pensions from places like the Department of Social Protection paid directly into bank accounts, as it is the mechanism of choice. The problem in 2012 went on for a number of weeks, leading to difficulty for many people. Consumer protection and regulation is definitely a problem in Ireland but is it a European problem? There is a destructive tension between regulation and consumer protection, and the loser is always consumer protection. We really do not get adequate reports on what happens. Perhaps somebody fell asleep in this case or was working for too long. We have not heard anything and the bank told us nothing happened, except that many people's accounts were affected. It was a major event in banking.

Do the witnesses have a view on that tension between consumer protection and regulation? They will both be aware that here in Dublin the Central Bank is responsible for consumer protection as well as regulation. There is a separate but much weaker consumer protection agency. In respect of much relating to the trackers and, particularly, to distressed mortgages in cases where people are making an effort to pay, if there was a stronger consumer protection model it would be possible to get deals done for people who are co-operating. That is my view. From a European point of view, do the witnesses get any sense of that?

The second thing again relates to Ireland. For approximately six years a German bank has been offering to run a pilot somewhere in Ireland, possibly in the middle or north of the midlands, around small-scale banking based on the German model. Mr. Hayes will remember from his time in the Department that this German bank was coming in to meet people and so on. To be perfectly honest, there seems to be incredible negativity towards that initiative. Do the witnesses also find that in Europe? Clearly banks are fleeing less well-off parts of big cities and towns. There is often not even an ATM. The same is true in significant numbers of rural areas. From a consumer service point of view, do the witnesses have any sense of there being a European model which we could access? Clearly there has been a deal with An Post in respect of its potential future viability. However that will again take a bit of time. They are my two questions.

Mr. Brian Hayes:

To address the last question first, this is a huge problem within the European Union which is regularly reflected in debates in the European Parliament's Committee on Economic and Monetary Affairs, ECON. As Deputy Burton rightly says, it started even before the fintech revolution, but with the rise of technology in banking banks are getting out of branches and distribution arms. Everything is online. That is putting more and more pressure on the systems as banks move from one platform to the next, which we saw this week not only in Ulster Bank, but in the case of TSB in the UK. It is a huge problem not just for consumers, but for the banks who have to decide how to deal with this and how to provide for it in their balance sheets.

Our consumer protection in the European Union is not good enough. When the tracker mortgage scandal hit I made a complaint directly to Commissioner Vestager asking whether the banks were colluding in this matter. Her investigation remains open on the basis that she has real, genuine power. If one looks at competition policies one will see that the Directorate-General for Competition, DG COMP, has significant power in the European Union. That is not the case in the area of consumer protection. We have not done enough to advance that. It is probably a cop-out for the European institutions to say that the Central Bank of Ireland is the consumer protection arm of the State and that it is up to it to deal with these things. I made a note of what the Deputy said. We have directives on the issue of unfair contracts and on unfair commercial practices, UCP, both of which affect consumers, but they are not within DG COMP. DG COMP has the stick and the power. It can go after institutions with genuine fines and it frightens them. We need to move to that model.

Earlier on we had a discussion on mortgages. I personally believe we need more players in that market. I was making that case. There are two things we could do to help. One is that we could have an EU-wide directive on insolvency which would allow more players into Ireland because they would have more certainty that they could get their money out at the end of it. The second thing is that we need an EU approach to valuations. If we had that there would certainly be more players in financial services. It is the one great failure of the past ten years. A lot of progress has been made on regulation, supervision and putting in a directive on how to resolve banks, but no progress has been made on cross-country financial services, which account for less than 10% of insurance and mortgages. That is work for the next ten years but it cannot be done without proper EU-wide consumer protection. The question is whether member states will give up that function. It will require a significant bumping up of responsibilities at an EU level. Some 85% of all competition cases are taken at member state level. They are not taken by DG COMP. It takes the big cases like Monsanto and Apple but it does not take the other cases of genuine dereliction of duty by businesses. That is something we need to address.

Mr. Matt Carthy:

I thank Deputy Burton for her questions. I do not have much to add in respect of consumer protection because, as Mr. Hayes has said, the EU is very weak in that area in terms of financial services. As we have seen the advances with the capital market union and all the rest, one of the things we have been calling for is an expansion of powers at EU level for the European supervisory authorities. We need an EU consumer protection agency specifically for financial services.

Having said that, every time we raise particular issues with the European Central Bank, ECB, in respect of Irish banks and their treatment of consumers - which as the Deputy knows sometimes verges on the atrocious, particularly in respect of the tracker mortgage scandal, in which we have seen even more developments in recent days - it continually redirects us to the Central Bank. I know this committee and others have been having detailed discussions on whether the Central Bank needs additional powers or whether it needs to use the powers it currently has. Last night I was reading the story of someone who has lost their home as a direct consequence of the tracker mortgage scandal. Something needs to happen. I will not direct this committee on what needs to happen.

The Deputy raised a really good point on small banking. It is one of the things I found most surprising in the European Parliament because there is a European representative body for many of those small community banks. It regularly comes to the European Parliament and meets us and gives its input in respect of legislative proposals coming from the Commission and how they would impact its members. It is a source of real disappointment that we do not have an equivalent sector here in Ireland because one can see the support it provides for small businesses and families. I know we have the credit union movement and post offices, which the Deputy mentioned, but these banks are on a different level in terms of being able to provide a certain level of investment. Of course we need to be mindful of some of the other provisions we put in place. I know of many very successful credit unions that are under huge pressures as a result of measures being put in place by the regulator that were intended for the larger financial institutions. That is not to say that we do not need regulation for credit unions because clearly we do.

I would absolutely welcome any initiative taken on this issue in these Houses. We might be able to facilitate something like that at an EU level and could assist with discussions on how we could promote and encourage the establishment of that type of banking sector. I am sure that other Irish MEPs would be very eager to engage with committees such as this if they were to come to us with a proposal for an initiative in the European Parliament to bring some of the actors in other states together in order to learn from their experiences and perhaps encourage people in Ireland to make a move on something like that.

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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To go back slightly, my second question is on digital taxation. In recent times Italy seems to have been having conversations with companies about locating in Italy and thereby creating a jobs base, particularly in parts of northern Italy. The consequence of that, in terms of some of the discussions on the digital tax, is that Italy is going to allow credit in respect of other taxes levied on such entities in that country. Is that a model which the French, for example, will follow? The French actually do well out of IT but they certainly have a fixation on Ireland in that respect. They have had that fixation over the tenure of the last two or three presidents. It is kind of a long-running thing for them. Do the witnesses have a sense of what the trade-offs are likely to be? As it is evolving, this tax is becoming, in a sense, a specialised form of VAT at a low rate with credit write-offs. Do the witnesses have any sense of where it is intended to take it in order to get wider agreement at the European Council?

Mr. Brian Hayes:

As we discussed earlier, the proposal by Pierre Moscovici is on the turnover, which is a very crude measure. Many of the questions to the Commissioner in ECON were on how he would assess this. It would be self-administered by companies with regard to how many users they had in Apple, Google and Airbnb, which is effectively deciding that policy within each company. They see it as an additional amount, not as a substitute on existing tax that is paid. They do not see it as a potential write-off for the purposes the Italians might be using at present. I do not see that proposal working. However, I see some movement. The Deputy asked about the trade off. The trade off could well be some movement on digital tax over a period of time as an interim measure before the OECD can come to an agreement with possibly a sunset element. As I said in my statement earlier, there is some potential in that, with the trade off ultimately being for member states to believe that the wider question on the corporate tax base and consolidation would be left to another day.

To be frank, the bigger concern for Ireland is the CCCTB issue, not digital tax, because of its additionality. The Germans, and this has only changed since the new Finance Minister took over, are now very concerned about the impact this is going to have with the United States of America in this tit-for-tat warfare between the US and the EU. Consider the very hefty fine that was given to Deutsche Bank, during the Obama Administration, for a tiny indiscretion which most American bankers would feel was totally disproportionate. However, then they say in the next breath, "Well look at how you are treating Apple. We will treat Deutsche Bank this way". The whole thing disconnects itself. I believe the Germans are very concerned at present that this can turn into a tit-for-tat. As the Deputy knows, proposals that are made in the last year of a Commission are generally ironed out much later. However, potentially there will be a trade off by accepting some type of digital tax on the basis that the broader issue of CCCTB is left to one side. That is my political sense at present.

Mr. Matt Carthy:

Not to repeat anything that has just been said or anything I said earlier, it will be interesting to see what happens in Italy. There are at least two other member states considering putting unilateral digital tax regimes of some description in place. There are likely to be challenges to that if it is considered to be a distortion of the Single Market. The fundamental problem is that this proposal raises a number of questions. In terms of Facebook what does one do if a company in France advertises on Facebook, an individual in Germany hits "like" on that sponsored advertisement and then the algorithm is used by Facebook or sold to a third party to generate an economic strategy in a third country? Where exactly is the profit made and directed and which state draws it down? There are big questions. As I said earlier, the only clear answer I have is that we need to figure out a way of taxing these guys because it is unfair and unsustainable. The tech sector is likely to become much bigger in the future and if we do not find a mechanism to tax it sufficiently we know that either services will suffer or families will suffer because they will be expected to pay even more taxes.

Mr. Brian Hayes:

I wish to make another point. One of the other outcomes could be an attempt to do this under enhanced co-operation. The last time we saw enhanced co-operation was with the financial transaction tax, FTT, proposal, which did not go very far in terms of what-----

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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I was going to ask where it was.

Mr. Brian Hayes:

It is nowhere. The enhanced co-operation procedure has been devalued as a consequence of the very low return on FTT. That is why, even though President Macron made it implicit in his remarks in Strasbourg two weeks ago that he would be prepared to go the enhanced co-operation route for digital tax, I am not convinced the Germans would support it.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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I have a few questions. First, the purpose of the meeting is the digital tax and the question of tax harmonisation. The committee will deal with that next week and then we will issue our report which I presume will be debated in the Dáil. We will bring forward the views of the committee in that.

I oppose digital taxation or tax harmonisation. Each state has its own obligations and responsibilities in that regard and that is how it should be. With regard to the Central Bank, it tells us that it deals with the issue of consumer protection. However, looking at what happened with the tracker mortgage issue, for example, and the recent failure of Ulster Bank's systems, it is not consumer protection but standards within banking that have caused both of those issues to arise. The ECB must have a view on the Irish banks that have allowed such circumstances to arise whereby so many Irish customers are now affected by the tracker mortgage issue and by the breakdown of the system in Ulster Bank. When this committee went about contacting the ECB it very quickly kicked the ball back to the Central Bank. The ECB was very active when this country was broke and it did all sorts of things to restructure the banks, but when there was even a smell of consumer protection it turned its back on us and on the Irish people. Is there any way of raising this issue in a significant way with the European Central Bank and to show it that it is not a consumer protection issue but a failure of regulation in Ireland and a failure of the banking system, which directly affects the citizens of this country and the European Union?

Mr. Brian Hayes:

My sense is that the ECB regards the local central banks in the 19 member states of the eurozone as the conduits for consumer protection and it does not want to get involved in what is their responsibility. If one asks that question the ECB will reply that if its mandate and articles are changed it will do that, but that at present it does not have the power to do it. It will be constantly aware of the issues that are going on in the banks but it looks at these issues on a macro prudential basis. Of course, there is a macro prudential basis. If banks are conning people to the tune of €500 million, as we now know on the tracker issue, involving not 8,000 or 9,000 but 35,000 people, I believe it is a macro prudential issue. I have raised that with the ECB in terms of the stability of the Irish banking sector in circumstances where people have been let down. That is an important point and we have to keep raising it. However, the ECB is slow to get involved in what it describes as national competent authorities, NCAs, in this case the Central Bank of Ireland. The Central Bank of Ireland is on the board of the ECB and the SSM and the ECB wants to create clear independence between its monetary function and the operation of that monetary policy in Ireland through the Central Bank. I am not defending the ECB. I am simply saying what its reply will be. It will say, "Change our mandate and we will do it, but that is not our mandate".

Mr. Matt Carthy:

I note your comments on digital taxation, Chairman, and I can understand why somebody would come to that view. However, I believe there is an obligation on anybody who says he or she does not support the digital taxation proposals to outline his or her suggestions for taxing the tech giants, because I do not believe it is sustainable into the future to just allow these guys to get away without paying any taxes in terms of the level of their activity. I look forward to hearing the committee's deliberations-----

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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I do not mind asking them for a greater amount of tax in this country. I would not have minded if the Government had gone to those big companies during the recession and asked them to give us a little more or had taxed them more, instead of ignoring it.

Mr. Matt Carthy:

I get that.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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I am talking about the issue of tax harmonisation across Europe.

Mr. Matt Carthy:

We are closer in that regard. I believe you have hit the nail on the head with regard to consumer protection. This is about standards in banking and, frankly, the culture of the Irish banking sector.

One can understand the reason they have come to that view. They destroyed the country's economy. They landed all of us with €64 billion worth of bank debt. Of course they believe they can get away with anything. They got away with that and now, less than ten years later, we are having a discussion about bonuses for the same people who were in place at that time. The Chairman is right. This comes down to the overall standards. There needs to be an element of accountability, and there is none.

In terms of the tracker mortgage issue, despite all the lukewarm apologies this committee and others have heard, nobody has been held accountable for it yet. We can see why Ulster Bank would not consider the mess in which people found themselves. In terms of management level, it does not understand what it means for somebody not to have a relatively small amount of money in their bank for a period of time. It would not have any understanding of the pressures or the difficulties that would pose for someone.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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I put it to both witnesses again-----

Mr. Matt Carthy:

To finish on that, the problem is how we put in place those accountability measures. I understand what the Chairman is saying about the European Central Bank, ECB. The problem is that the ECB is not the most accountable of bodies. The committee is engaged in a battle to get its representatives to come before it. They refused to attend the banking inquiry. In the first instance, the process that needs to be exhausted is to either enforce our Central Bank or increase its current powers to protect consumers in terms of the work the banks are doing.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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I would say to both Mr. Hayes and Mr. Carthy that when legislation is proposed in this House and it smacks of anything to do with banking, regulation or whatever, it goes to the ECB for its views and it reports back to us. Here we have a banking scandal in, separately, Ulster Bank and, collectively, all of the other banks and the ECB tells us it is not within its remit and that it is within the remit of the Central Bank. It is damn well within its remit because it is a banking standard issue. I would encourage both witnesses not to let it get away with that.

I want to link that to another issue before Mr. Hayes comes in.

Back in the days of the collapse of the economy, Jonathan Sugarman, who reported in some way to the European Union, raised the issue of the controls within the Italian bank for which he worked. I believe a very senior individual from the European Union was a director of that bank at the time. In spite of making the formal complaint, nothing ever happened. When I attended with him at the Central Bank recently to make the complaint and find out what was happening and get its response, it made every effort to close him down and to close down that meeting. I will deal with that when its representatives come before us again. The Central Bank said it was one incident but he said it was not just one incident. He said that over a long period of time there were a number of breaches of the regulation and that he was told by that bank not to make another complaint to the Central Bank. As an employee he was forced not to do it, and everyone disregards that. That is a very bad reflection on the European Central Bank. It undermines the regulation to think that that individual told the guards and the Central Bank: "I am here. I have broken the rules." He should have been arrested and the bank charged, but nothing happened. I am asking the witnesses, as Members of the European Parliament, what they think of that. How do they protect that man's rights?

Mr. Brian Hayes:

That is the fundamental question. The European Parliament was very clear on this question. In any of the reports I have supported attempts were made to protect whistleblowers to make sure that where people make disclosures there is not just a beginning but a middle and an end point. As I understand it, the dilemma in the case the Chairman refers to is that there is no end point to that investigation. What people want to see when they come forward with a disclosure in the financial services area, or anywhere, is that there is a process which will get to an end point. They may not be satisfied with the end point. They may not have confidence in the outcome, but they need to know that the process is in train to get that outcome.

The Chairman asked what we can do. When the tracker issue broke, I knew what the reply would be from the ECB. It would be that the Irish Central Bank is dealing with it. The Central Bank representatives were very slow off the blocks in this committee. I remember what was said very well. Things have improved since then. It has taken us longer, and I believe by the summer we will be in a better position in terms of the number of people who were abused in that entire process as a consequence of the tracker scandal. The Chairman of this committee and the Government can look back over a 12-month period and tell people that that issue has been resolved but unless it changes its mandate, the European Central Bank will not get involved on a country-specific issue like that. However, the window is on the issue of the Commission. I complained on the tracker scandal. I argued that there was systemic collusion within the banking system, which effectively allowed all of them to take people off the legitimate rate they were on over that period of time.

As I said, Commissioner Vestager, in a comprehensive reply, said she was aware of and understood this problem and that within her Directorate-General, DG, there is an opportunity for people to make a disclosure secretly without publicising their name, rank or whatever. If there is information on collusion, she wants to hear about it and she will be on top of the banks like a tonne of bricks. That was the effect of what she was saying. I believe that is a more effective arm of the institution of the Commission because, as I said to Deputy Burton earlier, it has genuine built-up confidence in this area and a legal basis for what it is doing, but it requires evidence to be brought forward. The investigation I complained about is still open. If there were people who saw some form of collusion or anti-competitive practice because effectively there would have been collusion in Irish banks against other banks in other member states of the European Union, it would have been a fundamental breach of EU law to come forward with that information to her. That case remains open.

Mr. Matt Carthy:

There are a number of measures. There is an onus on us sometimes to believe that failures at a national level can automatically be addressed at a European level. Unfortunately, in some respects, the EU bodies have as much power as the member states-----

Mr. Brian Hayes:

Want to give them.

Mr. Matt Carthy:

-----have given them. In cases where there have been systemic failures at a member state level, it is unlikely that that Government would have given the powers to somebody else to prevent them from having those failures in the first instance. It creates a level of extreme frustration when we know, for example, the ECB's role in terms of our own crisis period. I would argue it played a very destructive role in terms of the troika and the bailout programme. We know of the telephone call about bombs going off in Dublin, and the letters Mr. Trichet sent to our Minister for Finance at the time. It is very frustrating when we know the impact they have had on Ireland's economy for the ECB to simply reply, when we say, "By the way, these banks that you forced us to bail out are now treating our citizens with absolute disdain" that there is nothing it can do about that and that we should go back to our Central Bank.

The accountability of the ECB is to the European Parliament and both myself and Mr. Hayes would have engaged on that. It is a much different scenario from that which exists today, for example, because Mario Draghi comes in and a small number of MEPs are selected to have a five-minute interaction with him, which means that if one spends four minutes asking the question, he has one minute to respond. It is very difficult to draw out the answers.

To return to the point I made earlier, I strongly believe there are mechanisms to address at a national level the issues of the tracker mortgages and the other failures in terms of banks, including the issue of some overcharging by banks.

We need to be big and bold enough to claim them. We need to move ahead in putting in place the proper protections for whistleblowers, not only here but also across the European Union.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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What would Mr. Carthy do with Mr. Jonathan Sugarman?

Mr. Matt Carthy:

It comes down to the whistleblower legislation.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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What can be done to assist Mr. Jonathan Sugarman who seems to be the only one who told the truth? It can be said his life has been destroyed by the fact that the Central Bank of Ireland did not respond and does not seem to care about the fact that there was more than one.

Mr. Matt Carthy:

Mr. Jonathan Sugarman's story is very harrowing. Our colleague Mr. Luke Flanagan has hosted him in the European Parliament and the group in which Mr. Flanagan is involved is ours. We facilitated the publishing of his story which was very important in being able to tell the story. On any direct engagement the Chairman, Mr. Jonathan Sugarman and I think would be useful, either with the European Central Bank, the Commission or any of the director generals, we will be only too happy to do so. On the accountability of the ECB, it may be of use to members to know that we do have a provision - as I am sure do many other MEPs - as members of the Committee on Economic and Monetary Affairs, ECON, to put written questions to the ECB. In fairness to it, its replies are much more substantive than those that are given to written questions to the Commission, for example. We have been able to extrapolate some useful information; therefore, if there are questions members have, they should feel free at any stage to direct them to us.

Mr. Brian Hayes:

The frustration felt on all sides in coming to conclusions in investigations is felt by us, but the real power to resolve this question ultimately lies in the Central Bank of Ireland. It needs to be held accountable on where the investigation stands. As I understand it, the formal position is that it is still under investigation, but that is not a good enough response. There needs to be-----

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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To which one is Mr. Hayes referring?

Mr. Brian Hayes:

The case to which the Chairman is referring.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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That of Mr. Jonathan Sugarman.

Mr. Brian Hayes:

Yes.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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It has closed it down.

Mr. Brian Hayes:

Yes, exactly. The question for the Central Bank of Ireland is why has that happened. That is the question that should be posed to it. I mentioned the frustration of MEPs, but it is too easy to fire shots at the ECB. I know that this is not popular to say, but it sees its mandate in the treaties and as independent. It ultimately see its mandate in monetary policy and getting the rate of inflation to 2%, which would solve a lot of the debt problems we face. The view of the independence of central banks is different in other parts of the European Union. Some have a more political view, while others have an entirely independent view of what the functions of central banks are, that they cannot be contaminated by politics and must have a singular view of monetary policy. I make that remark to explain some of the frustration felt by MEPs in trying to get concrete information from them. They will tell us what they can, but they are very guarded about what their mandate is. That is something we need to understand.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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We have a letter from Ms Danièle Nouy on the Single Strategic Mechanism, SSM, and so on. We attempted to get her to come to a committee meeting. Separately, as Mr. Hayes knows - we thank him for his help - we invited Mr. Draghi, but it is almost impossible to get them to come here. One would imagine that there would be far greater interaction between these individuals and committees such as this and I find it disappointing that they do not see such interaction as being important. We are holding out for Mr. Draghi's attendance in a few weeks' time, but we have not yet received a response. We did not receive a timely response from Ms Nouy. Deputy Joan Burton raised the issue, for example. Representatives of Sparkasse bank in Germany have been here with us and we are going to meet them at some stage in the near future. They have expressed an interest in encouraging credit unions and post offices to join them in providing for a community banking model, which I favour. They told us that the bank offers mortgage rates of 1.2% and that it is still offering tracker mortgages. It is a possibility. I am wondering what encouragement Mr. Hayes can give or are there obstacles within the European Union that make it more difficult for the bank to set up and credit unions to perform.

Mr. Brian Hayes:

I have already answered that question. I have set out what the obstacles are, but they are obstacles member state governments put in their way. If we had a common solvency directive, a common directive on the valuation of properties and a common competition and consumer directive, as Deputy Joan Burton said, to allow the institutions of the European Union to investigate where a bank does not offer customers a product that is requested, a lot more could be done, but too often, as Mr. Carthy said, it is member states that are preventing this from happening. That is where there is protectionism. There is no reason the bank should not come to Ireland and no reason the small lander bank in Germany which is doing such good work in the provision of social infrastructure should not come. It is not the European Union that is preventing it from happening.

Mr. Matt Carthy:

Likewise, domestically we can put the supports in place that are necessary to encourage co-operative, local, small-scale banks to flourish. Given the history of the credit union and co-operative movement, our very strong community ethos in many parts of the country, I see no reason the model would not be successful here if the proper supports were put in place, especially considering the abandonment of so many towns by the larger banks. I represent 15 counties, in every one of which there are a number of small and medium-sized towns that have no bank whatsoever, which is absolutely scandalous.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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I have two points to put to the delegates that have absolutely nothing to do with this committee.

First, on trade between the European Union and Taiwan, in Taipei there is a European Union office, from which the larger countries work. They include Germany, France and some of the others, but Ireland has to observe the one China policy, which we and everyone else does. It does not interfere with their trade, but smaller countries are afraid to engage. The European Union office is staffed by different member states who are trading there. I would like to see the European Union deciding as a collective to support that office in order that Ireland could work through it and to protect everyone. It is an initiative the European Union could certainly take. There are 24 million people living in Taiwan and it would be a worthwhile trading partner once the one China policy was overcome. It is a gateway to China, Asia and so on. I ask the delegates to consider that suggestion.

Second, an unrelated issue, this week saw the death of Ms Mary Phelan, a sister of Jo Jo Dullard, the lady who has been missing for the last 21 years. I appeal to both of our guests, in the context of a recent visit to the Parliament by the late Ms Phelan, Ms Lucia O'Farrell and others who have cases they are pursuing through the State and not getting the support of the State. They want to have their rights vindicated and have gone to the European court. Will our guests, please, not forget them?

Mr. Brian Hayes:

Yes, on both fronts.

Mr. Matt Carthy:

Absolutely. I will have to look at the issue of trade with Taiwan more. I engage very strongly on trade issues and if the Chairman had referred to the United States, Canada, Mexico, Singapore, Colombia or Ukraine, I have done a huge amount of work on our trading policy, but I have not done anything in the case of Taiwan.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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Mr. Carthy should look at it. It would be very worthwhile.

Mr. Matt Carthy:

I will. The Chairman makes a very good point. Ms Mary Phelan was a member of a delegation we all met. It was hosted by Ms Lynn Boylan in the European Parliament. I am thinking of Ms Lucia O'Farrell whom the Chairman mentioned.

It is not just the case that they are not getting the support of the State. They are up against the forces of this State in many respects-----

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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Up against the forces of the State.

Mr. Matt Carthy:

-----that are putting obstacles in place preventing them from finding truth and justice for their loved ones.

Photo of John McGuinnessJohn McGuinness (Carlow-Kilkenny, Fianna Fail)
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I appeal to the witnesses to make the voices of the late Ms Mary Phelan and Ms Lucia O'Farrell heard. They are being blackguarded by this State and they are looking to the witnesses for resolution. I thank both MEPs for coming along this morning. I appreciate their input. I should have put apologies from Ms Marian Harkin, MEP on record earlier. I forgot to do that. We note that now and the committee will adjourn.

The joint committee adjourned at 12.30 p.m. until 2 p.m. on Tuesday, 1 May 2018.