Brian Hayes (Dublin South West, Fine Gael)

I move amendment No. 2:

To delete all words after "Dáil Éireann" and substitute the following:

"— recognises that the Programme for Government clearly states that the Government will "Keep the corporate tax rate at 12.5%";

— recognises that the 12.5% corporation tax rate will support Irish economic recovery and employment growth by attracting foreign investment;

— recognises that the Government, alongside other European member states, remains highly sceptical about many aspects of the Common Consolidated Corporate Tax Base proposal (CCCTB) but that the Government believes that a constructive and forthright engagement with all of our European partners on this issue will result in the best outcome for Ireland and for the European Union as a whole; and

— notes that, in particular, as confirmed in the Pact for the Euro, direct taxation is a matter of national competence and, more generally, that unanimity is required in respect of decisions on tax issues."

With the permission of the House, I will share my time with Deputies Peter Mathews, Joe McHugh and Joe Costello.

I thank Deputy Calleary for his kind remarks concerning my appointment and recognise the work he did in the previous Government, particularly on the issue of public service reform.

This discussion affords the House the opportunity once again to send a clear signal to our European partners and business that there is consensus on Ireland's corporation tax policy. Deputies opposite will recall that when in opposition Fine Gael tabled a Private Members' motion last November calling for cross-party support for the maintenance of the 12.5% rate of corporation tax as an indispensable tool for growth, job creation and economic recovery. The overall message is clear and unambiguous. Our commitment in the programme for Government to the 12.5% rate will be upheld. That is not to say, however, that we will not live up to our responsibilities and engage with our European partners on any tax proposals brought forward by the European Commission. The CCCTB proposal has been brewing for some time and the publication of the directive will, if anything, finally enable a constructive and forthright engagement to begin on the issue. The Member for Limerick East, Deputy Willie O'Dea, said earlier that he did not want to hear from the Government that it would engage constructively on the common consolidated corporate tax base, CCCTB, proposal. As Members are aware, the Commission can make a proposal and it is then a matter for the member states to engage with that. Not to engage with that matter would be a gross act of betrayal of national sovereignty. As a State, we have solid vested interests in ensuring this position is upheld and in ensuring that our case is put. To actively disengage from a process that is under way, at least in terms of the discussion that will occur, would not be in our national interest and would not serve the interests of this Parliament or of the Government that has been elected by it. We need to be mindful of this as the debate continues.

We have very solid data to support our scepticism of the proposal. With that data, we will ensure all of the arguments are brought to the table on what is a key issue, not just for Ireland but for Europe as a whole. Were engagement to occur, it might well be positive in that a very bright light could be shone on this matter in all of the member states, particularly in the eurozone countries, which would show the fundamental difference between the headline tax rate and the effective tax rate that applies in those states. The debate around tax harmonisation in Europe has been around for decades and we can anticipate many more years of debate before any final positions will emerge.

Since the 1950s, Ireland has used its corporate tax strategy to encourage the growth of domestic business and attract foreign direct investment. The 12.5% tax rate is critical to supporting our economic recovery and employment growth. Any move towards converging or harmonising the rate of company tax would substantially damage Ireland's ability to attract foreign direct investment and hence our ability to grow our way to economic recovery. Furthermore, certainty is a key element desired by investors and to abandon the commitment to the 12.5% rate would be seen as a major change in policy.

Estimating the behavioural effects of a corporation tax rate change is difficult but they are significant. An OECD multi-country study found a 1% increase in the corporate tax rate reduces inward investment by 3.7% on average, a point referred to by other Deputies. Research by the OECD also points to the importance of low corporate tax rates to encourage growth. In ranking taxes by their impact on economic growth, corporate tax was found to be most harmful.

It is important to remember that Ireland is geographically and historically a peripheral country in Europe. A low corporate tax rate is a tool to address the economic limitations that come with being a peripheral country as compared to a core country within the heart of Europe. Based on discussions with multinational corporations, it is likely that if much of the foreign direct investment that comes to Ireland went elsewhere, it would be lost to Europe entirely. Ireland's 12.5% corporate tax rate is critical to supporting our economic recovery and employment growth. It is central to our industrial policy and is an integral part of our international brand.

While much has been said concerning the fairness of the 12.5% rate, Ireland's corporate tax system is open and transparent. The clear headline rates of 12.5% for trading income and 25% for non-trading income make our corporate tax system extremely transparent to those international companies wishing to establish here. Ireland's low corporate tax system does not discriminate based on company size or ownership, and it features a low tax rate applied to a wide base. While the effective rate of corporate tax is difficult to calculate or compare across countries, studies indicate that Ireland is one of the few countries in the European Union with an effective rate in or around the statutory corporate tax rate. This cannot be said for other countries within the Union.

It is also important to note that the level of corporate tax revenue raised in Ireland is similar to other EU countries. Corporate tax revenue in Ireland in 2008 was equal to 2.9% of GDP, just above the average of 2.7% for the EU as a whole, and has been consistently higher over the past decade.

Ireland is a small open economy with a heavy concentration of foreign direct investment. There are many reasons foreign multinationals decide to locate to Ireland, with which we are all familiar. There is the access to mainland Europe, our well-educated young population and the cultural and economic links with our key trading partners. Our tax regime is crucial, as it gives certainty and confidence to business. This is why we need to get the message out, now more than ever, that there is nothing on the table that threatens our corporate tax regime.

We are committed to doing everything possible to attract and assist foreign direct investment to Ireland. Foreign direct investment in the corporate sector in Ireland is significant and substantial. Despite a relative decline since the beginning of the recession in 2008, Ireland was ranked fifth in the OECD in terms of inward investment stock as a percentage of GDP. Equally important, Ireland ranked seventh in OECD in terms of the relative size of its outward investment.

Foreign investment in Ireland is substantial in nature. A recent report ranked Ireland as the top creator of employment from foreign direct investment, relative to population size. IDA supported companies alone sustain more than 135,000 jobs in the economy. Multinational businesses, Irish and foreign owned, account for around 75% of corporate tax revenue paid in Ireland and this share has been rising during the recession as the domestic focused companies are more severely affected by economic conditions in Ireland.

In 2010, the foreign owned sector was the key growth engine of the economy. Real exports jumped by 9% year-on-year in the first three quarters of 2010. Data from Forfás show that 90% of exports from agency supported firms are from foreign owned companies, which also directly employ around 140,000 workers on a full-time basis.

We have made it clear that we would not accept any reference to the harmonisation of corporate tax rates or agree to any range of rates or minimum rate level being included in the pact for the euro which would necessitate or imply any movement away from the 12.5% corporation tax rate. Ireland could not accept any agreement or commitment in the pact to the introduction of an EU CCCTB, as this would effectively negate the value of Ireland's 12.5% rate given it would lead to effective harmonisation of rates. We would also be highly sceptical of any proposal for a common tax base without consolidation, as it cuts across national sovereignty in taxation matters, could impact negatively on certain specific sectors of the economy and would severely limit national discretion in terms of being able to change the tax base at any future date.

However, it is important, for several reasons, that our response to the publication of the CCCTB proposal would be measured. The European Commission has the right of initiative for bringing legislative proposals to the European Council and there is nothing in the treaties that precludes the Commission from coming forward with such a proposal. The proposal has been flagged for some time in the Commission's legislative proposals. In addition, the publication of the draft directive is only the beginning of a very long process. The question of harmonising company tax in the EU has been around for decades and we can anticipate many more years of work before any final proposals will fall for consideration.

The current policy environment on the issue is fluid. Many member states have become increasingly sceptical of the proposal, with very few apparently in favour of a consolidated corporate tax base where corporate profits are combined in a single pot and re-allocated based on a formula. A further key policy consideration for the Government is that we want to ensure there is a full and frank debate on the proposal among all 27 member states, as required under the treaties, before there is any suggestion of the proposal proceeding by way of enhanced co-operation among a group of nine or more member states. Accordingly, we propose to make it clear that while we are very sceptical about many aspects of the CCCTB, we are willing to work constructively with the Commission and other member states on the issue so long as the principle of unanimity on tax matters is fully respected and understood. Regarding the CCCTB proposal, we have always been aware of the Commission's intention to bring forward a proposal of this type so it came as no surprise when it published its proposal last week. A CCCTB would essentially introduce new common rules for calculating company taxation across the EU and replace the universally accepted separate accounting with arm's length pricing method for allocating group profits across borders with a rule of thumb based on each member state's share of the assets, payroll, employees and sales of any group. Each member state's share of the profits would be taxed at national tax rates, thereby preserving national sovereignty over the rate of taxation.

Although common rules across the EU would impinge on national sovereignty in taxation, it is the consolidation element of the proposal that presents the greatest threat. It proposes that the individual taxable profit or base of each company within an international group would be aggregated or pooled to form a consolidated tax base and that consolidated tax base would be reattributed to those same companies based on their presence in any member state, that presence being measured by the scale of assets, employees, payroll and sales in other member states compared to the group as a whole. This is referred to as the shared mechanism under a system known as formulary apportionment.

The proposal, as drafted, insists that each member state would preserve its right to tax that part of the tax base allocated to companies within its jurisdiction by applying its own tax rate and consequently it does not infringe national sovereignty over the tax rate. However, maintaining sovereignty over the tax rate would be rendered meaningless should our tax base be depleted under the new shared mechanism proposal. Furthermore, the proposed shared mechanism would lead to the effective harmonisation of rates as the group's total taxable profits would be subject to a basket of EU tax rates based on the locations of its operations.

Our strategy for the future will be to seek to express our scepticism of this proposal. Our arguments will be based on the results of our economic impact assessment which points to an overall reduction in employment and foreign direct investment in the EU under both a voluntary and mandatory proposal the Commission might bring forward. This Government's corporate tax strategy was given an overwhelming mandate by the Irish people in the recent general election. The Irish are clued in enough to know the importance of that strategy to our economic development and recovery. They also appreciate the need for us to engage with our European partners to address the massive challenges that confront not just Ireland, but Europe as a whole. For that reason our Taoiseach's message in Brussels at the last summit was clear and unambiguous as will be his message this week. Corporation tax remains a national competence and although we will engage in structured discussions on tax policy issues, we expect our national sovereignty will be fully respected.

I look forward to a constructive debate in the House on this issue which should serve as a useful addition to the Taoiseach's armoury in his discussion with colleagues later this week.

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