Mr. Fergal O'Brien:

I will respond to the questions on corporate taxation and research and development. The corporate tax trends in the last couple of years have been by the far the most significant phenomenon in the economy. They are probably more significant than the challenges posed by Brexit. I will give a potted history. Ireland has a longstanding tradition of offering a competitive corporate tax rate. This has been successful as an economic model driven by foreign direct investment, FDI. There was a fundamental shift in the nature of that model. Mr. Lucey mentioned the cranes that we observe in Dublin. This is all connected. In 2015, the OECD introduced the BEPS 1 reform which fundamentally changed how companies structure themselves and where activity sits in the global economy. BEPS 1 meant that corporates had to fully align substance and profits. Ireland has a long history of substance and has always had the substance. Intel and its predecessors have always done significant research and development, evolving their business model and reinventing what they were doing here. Some companies have been here for 50 years but they are doing something completely different now than they were 50 years ago. We have always had that model. There is real substance in the Irish FDI sector but other countries did not have substance. Many other islands offer a tax rate but not much else, whereas there has always been substance in the Irish economy. In 2015, when we drew up the BEPS 1 reform, we saw a significant increase in the nature of the roles and the decision-makers coming into Irish businesses because they were the new rules of international tax. The decision-makers had to be sitting here.

We are now seeing many more European and the Middle East and Africa, EMEA, headquarters here, who predominantly are the people behind those cranes. It is not Irish debt or, by and large, Irish banks funding housing when we observe those cranes. It is this hyper-globalisation of the Irish economy, very significant investment and a long-term commitment to the economy from largely Irish international global corporations. What they are doing here is cutting edge and world leading.

Many countries are not happy with the success of the Irish economy. Predominantly, they are European countries. It seems to us now that some of the major international blocs are coalescing around a new reform of this global tax. They do not like the answer they got the last time in base erosion and profit sharing, BEPS 1. They are going back again and their core objective will be to shift some of that tax revenue not to where the value is created or to where the substance is happening in Irish operations, pharmaceuticals, medical devices and technology but to where they have the consumers. This is a global war for tax revenue and the countries that are big have the might. They have the consumers. They want more of that revenue because they are arguing effectively through the OECD that the value in many of these corporations is created where the consumer interfaces with the product that is being developed. This is not a digital or technology issue. It is happening in respect of the value of brands and other intangibles. They want to redesign the global corporate tax system. They want to put that revenue in the countries where the consumers are, not in the countries where the innovation is happening and the value is being created.

We have a good deal of merit in terms of what we are arguing for but I agree with the Deputy. I believe there is a global momentum here in that we will not have the same competitive advantage on tax in the future. We have to prepare for that transition. To prepare for that transition we have to use the opportunity we have now and the proceeds that are at our disposal to invest in the innovation and the education. I sat in for part of the last session and I heard some of the numbers discussed around our innovation spend. It is pitifully low. We do not have a world-class infrastructure. Colleagues from the CIF will talk about that in terms of the blockages and how that is impacting on the wider business community. We do not have a world-class education system. Of the €14.3 billion we got in the surprise, €11.5 billion of that went on Supplementary Estimates in just four and a half years. Almost all of it went to day-to-day spending.

We could look at the past four years and say that we have blown a golden opportunity but this is not done yet. We could still have some upside. I am saying we have to reset the entire budgetary process. We must be absolutely clear that the upside we get from here on is put into those strategic investments. That is what protects the model for the future. If we lose our corporation tax advantage today, we have not put the building blocks in place to be competitive on issues like the skills, the innovation and the infrastructure. We are not at world standard on those so we will not prosper. We need to use this transition opportunity but invest in the future.

I might ask Mr. Brady to speak about the research and development tax credit because that is an example. The latest figures are approximately €500 million, which is worrying for us. Companies are doing less research and development from the position a couple of years ago, which is a concern. It is well proven that that scheme has brought additional and mobile research activity into Ireland, with a significant return to the State, that would not have happened otherwise. Mr. Brady has conducted a fairly extensive study on this particular scheme so I might ask him to give some of the findings on the economics on it.