Mr. Seamus Coffey:

No, it is not part of that. It is somewhat separate. It is a choice that Ireland must make. Very few countries have a worldwide regime and some have moved from worldwide regimes to territorial regimes. It is about how much of the profit of companies would be placed in a tax base. For an Irish-resident company, we put its profits, no matter where they are earned, into our tax base. If those profits are earned in a foreign jurisdiction, they have already been subject to tax and we grant this double tax relief. The issues of royalties and changes in transfer pricing are slightly separate.

One concern is that if we move to a territorial regime, Irish companies might move their profits to lower tax jurisdictions and then bringing them back to Ireland, claiming these as foreign profits. To prevent that we need what is called controlled foreign corporation rules. We must look at what is happening in foreign companies and if they have the substance to justify the profit they might earn when those profits come back in. If it is counted as Irish rather than foreign profit, it would be subject to tax in Ireland. There are dangers in moving to a territorial regime but we must introduce these controlled foreign company, CFC, rules as part of the EU's anti-tax avoidance directive. If we introduced strong CFC rules, it would open the option to moving to a territorial regime.

If the concern is these low effective tax rates, as highlighted by the Comptroller and Auditor General, one way to remove them is to remove the foreign income from our tax base. We are including foreign income, on which tax has already been paid. There is no indication that these companies, particularly with foreign income, are generating company-wide effective tax rates of 1%. The Comptroller and Auditor General ignored the tax paid abroad and it just examined tax paid in Ireland. Taking out that income and removing the need for a foreign tax credit, the effective tax rate calculated would be based on the profit earned in Ireland. All the evidence from the Comptroller and Auditor General suggests that once taxable income is calculated for Ireland, the 12.5% rate is effective on that.