Michael McGrath (Cork South Central, Fianna Fail) | Oireachtas source

I welcome the opportunity to speak in this important debate and thank Deputies Maureen O'Sullivan, Joan Collins, Boyd Barrett and their colleagues for tabling this motion. While I agree with much of what is contained in this motion, Fianna Fáil cannot support it for a number of reasons. On reading through the motion that has been tabled, there is an implicit criticism of Ireland's corporation tax rate. That is not a position Fianna Fáil can support and, equally, there are calls for Ireland to move urgently to change its corporate tax regime and that would be of concern to me. Genuine issues have been raised in this motion that require careful consideration and must be addressed. Deputy Boyd Barrett and I served on a sub-committee of the Oireachtas Committee on Finance, Public Expenditure and Reform that examined this issue and held a series of hearings into it. I am sure we did not agree on everything but we learned a lot and the stand-out point I took from the sub-committee's analysis of the issue and from the hearings held with various interested parties was that transfer pricing plays a central role in aggressive tax planning by multinationals, particularly in the area of intellectual property rights and royalty payments. The practice that emerged and which is well documented was of profits ultimately being channelled to tax havens, and Ireland is not a tax haven, through the ownership of intellectual property in the tax haven and of that company, which invariably was a book or shelf company, charging extremely high royalty payments to other subsidiaries of the overall company abroad with the net result being the profits end up in the tax haven in which no tax in effect is charged. This was the key issue that emerged for me during the debate. One is talking about places like Bermuda, the Cayman Islands, the British Virgin Islands or Jersey, which are overseas dependencies or Crown territories of the United Kingdom. It is ironic that the United Kingdom is one of the G20, which is pushing for these changes, and its authorities might examine what influence they can bring to bear on many of these countries in which billions of euro in profits are ending up and where they are not subject to corporation tax. The United States of course feels especially aggrieved by this because, under its own laws, multinational profits cannot be taxed until the profits are repatriated. Consequently, the United States also has an issue in respect of its own legislation.

I believe any changes to Ireland's corporate tax system must be considered carefully given the huge contribution it has made to the creation of large numbers of high-quality jobs nationwide and any changes should be based on evidence. This debate takes place against the backdrop of the news Members received today that European Union Finance Ministers have agreed to exchange automatically information on tax arrangements reached with multinational companies, and it remains to be seen whether the sharing of confidential communications between Revenue and multinational investors in Ireland with its EU counterparts will have a positive or negative effect on Ireland's ability to attract inward investment. Ireland historically has used its corporate tax policy in a manner designed to support multinational investment. At the end of 2014, there were 174,000 people employed in IDA-supported companies, and while not all these jobs can be attributed directly to the impact of Ireland's corporate tax regime, it remains a vital part of our offering to prospective investors alongside other features such as market access, access to skilled labour and a stable regulatory environment. The people also have been clear about how important it is to them that Ireland retains this tool for job creation and in particular on the issue of the corporation tax rate. While I acknowledge this is not the central issue in the motion tabled, a core part of the debate in every European treaty referendum held in Ireland has been a discussion about the importance of it retaining control of our corporate tax policy, with the public insisting that Ireland's corporate tax system, and the corporation tax rate in particular, is a red-line issue that cannot be compromised in any way. Ireland has made clear consistently it will not accept any attempt to force tax harmonisation on it against its will. I am sure all Members can agree a one-size-fits-all tax system would neither work for Europe nor serve it well.

The question of corporation tax occasionally can become clouded in myth. One myth that often surfaces in debates such as this is that increasing the rate will lead to a pro rataincrease in corporation tax revenue. Fianna Fáil does not submit to that view. All Members must bear in mind that Ireland is now competing for international investment in a highly competitive global environment and the text of this motion is built in part on the myth that corporations contribute very little to the taxes collected by the Irish State. Recent Exchequer figures show, however, that corporation tax has brought in €3.9 billion in the first nine months of the year, which is €1.2 billion more than for the same period last year. Consequently, without changing its corporation tax rate or rules in any significant way, Ireland has benefited disproportionately well from the global economic upturn. The percentage of Irish tax revenue generated from taxes on corporate profits has been almost exactly on a par with the Organisation for Economic Co-operation and Development, OECD, average since 2007. From 1993 to 2006, Ireland was above the OECD average in its reliance on taxes on corporate profits, and this point is often not made when Members debate corporation tax. Most countries in the EU gather a smaller percentage of their overall tax revenues from taxing corporate profits than does Ireland. The list of those EU countries that place less of the tax burden on corporations includes large countries such as the United Kingdom, France, Italy and Germany, all of which are members of the G20, which is the driving force behind recent proposals to change the international approach to corporation tax. For example, Germany gathers 5% of its tax revenues from taxing corporate profits while in Ireland, that figure is far higher at approximately 9%. In comparison with GDP, taxes on corporate profits in Ireland are more than a third higher than in Germany and, in this context, one must be wary of corporation tax changes dictated by large countries of the G20. It is worth remembering that large countries such as the United Kingdom, Germany and others that criticise Ireland's corporate tax regime are themselves actively cutting corporation tax and are seeking to make their tax regimes more attractive. One should not lose sight of the fact that at the heart of this international debate is an envy to some degree of Ireland's success in attracting inward investment. Many other countries covet our jobs, investment and corporation tax revenue and Members must also bear this in mind.

Corporations that are drawn to Ireland, in part by its corporate tax system, also pay taxes other than corporation tax. One example is commercial rates, which are essential in funding local services. One technology company contributes almost €3 million per year in commercial rates to Dublin City Council for a cluster of buildings in the Grand Canal Dock area. In small companies, profits are taxed twice as the company pays corporation tax before issuing dividends to shareholders, who then pay income tax on them. As employers, multinational corporations pay employers' PRSI and their employees pay tax on their incomes. The model of Ireland's corporation tax system over recent decades has been focused on job creation with its corporate tax system becoming one of the main attractions of Ireland to multinational companies seeking a European base. Employment is created directly by multinational companies attracted to Ireland but also indirectly as they put huge sums of money into the Irish economy. This indirect increase in employment can be considerable. For instance, Apple employs more than 4,000 people in Cork but it also is believed to have created indirectly at least a further 2,000 to 2,500 jobs in the local area.

As an aside, I must state my concern regarding the ongoing delay by the European Commission in concluding its investigation into certain tax matters between Apple and the Revenue Commissioners. This issue has been hanging there for a considerable time and is a cloud, as such, over Ireland's corporate tax regime that must be dealt with one way or another. If the European Commission believes there is an issue in this regard, it should conclude its deliberations and make that known and we will deal with it. The Minister of State has made clear that the Government, having examined the files and having taken the advice of the Revenue, does not believe that Ireland has a case to answer.

It remains to be seen what will happen in that area but it needs to be brought to a conclusion. We very much support the investment by Apple, and many other companies, in Ireland.

The point must also be made that these are not brass-plate operations. In the debate regarding corporation tax and multinational companies, there is often a perception that these companies are simply book companies - in other words, they erect a brass plate beside the front door but no one actually works in the building. That could not be further from the truth in the case of Ireland, which has attracted many of the world's largest multinationals in the areas of information technology, pharmaceuticals, etc.

The original success of our corporate tax strategy was seen in the financial services sector, especially in the IFSC. That success has been followed by incredible growth in high-tech industries. While we all know the names of the Internet giants such as Google, Facebook and PayPal, which employ thousands of people in Ireland, we must also remember companies in other fields. For example, in the medical technology areas there is Medtronic, which has over 2,500 employees in Ireland, most of whom are based in Galway. Those seeking to bring prestigious international employers to Cork can now boast that EMC, Pfizer, GlaxoSmithKline, Eli Lilly, Amazon and Apple have chosen it as the European base of their global operations. These are real companies, not brass-plate operations, and that point should be to the fore in this debate. The examples to which I refer show how a critical mass of companies in a certain sector established in Ireland develops a world centre for that industry here, attracting other companies with similar businesses that are eager to benefit from the expertise of a highly-skilled local workforce. The spin-off businesses that are created and supported are vital to the indigenous sector as well. However, we must also be alert to the opposite effect. If some companies in a sector were forced to leave Ireland as a result of negative changes to our corporate tax system, others might also leave as Ireland's critical mass of expertise takes flight to other countries for tax reasons. That could have a profound effect on the knowledge economy clusters linked to the pharmaceutical industry and to the Internet companies located in the so-called silicon docks area of Dublin.

Rather than attacking our corporate tax system, it would be preferable to focus on looking for merging sectors that could create the next opportunity for jobs growth in this country. One area we have placed considerable emphasis on is the opportunity presented to leverage Irish expertise in Internet technology, namely, e-commerce and online payments technology, on the one hand, and financial services, on the other, in order to ensure Ireland becomes a world leader in financial technology.

Much focus has been placed on corporation tax systems in the international context by the OECD's publication of its recent report on base erosion and profit sharing, BEPS. This report estimates that base erosion and profit shifting can lead to a loss of between 4% and 10% of corporate tax revenues. The reforms it proposes would represent the most wide-ranging overhaul of relevant tax rules in many decades. My reaction to these proposals has been to make clear that Ireland should think very carefully before agreeing to any changes that would affect the offering we can make in terms of inward investment. Ireland punches significantly above its weight in terms of inward investment and any changes to our corporation tax system could ultimately cost jobs and reduce tax revenue to the Irish State. We must ensure that the net effect of these OECD proposals is not simply that corporation tax receipts end up migrating away from countries such as Ireland to larger economies like the G20 states, which have been driving the process.

Fianna Fáil believes that the corporation tax system for multinational companies must be transparent. It must be fairly applied to all companies and it must be underpinned by strict rules against aggressive tax planning. We strongly support a 12.5% rate and we believe that certainty in our corporation tax arrangements is vital. The primary duty of the Government is to protect our national interests. It must ensure that these changes are not implemented in a manner that will place Ireland at a serious disadvantage.

I am concerned by the fact that the proposals which have been put forward appear to leave much to the discretion of tax authorities in individual countries. We must be alive to the possibility that other tax authorities may not act with the same consistency and transparency as the Irish Revenue Commissioners when there is international competition for large employers. Such a lack of clarity is never helpful in taxation matters.

I welcome this opportunity to re-emphasise the importance of our corporation tax system as a key driver of job creation, especially in the knowledge economy. We must be vigilant in protecting our corporation tax system from external attack, in particular by large countries, which consistently place less of a tax burden on their own corporations while still criticising our low tax employment centred approach. There is considerable scope within all of that for improving the system internationally for greater transparency and disclosure, and we very much support that.

In an Irish context, I want to put some figures on the record. The total annual average corporation tax receipts in Ireland between 2008 and 2012 was in the region of €4.1 billion. The top ten companies paid 24%, or €1 billion, of that. The top 20 companies paid 32% and the top 50 companies paid almost half, namely, 46%. We need to bear that in mind. These are real operations providing much valued employment in this country and supporting indirect employment as well, and they are also paying a lot of corporation tax.

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