Tuesday, 10 October 2017
Financial Resolution No. 3: Intangible Assets
I am very glad to have a chance to speak on this motion because it reveals and confirms the hidden secret of the Irish economic story that only the socialist left have been talking about for the past five years and which remained hidden in much of the budget debate because there was a deliberate attempt to narrow the debate on what was possible in the budget to a debate on fiscal space and whether that might be €300 million or €900 million. We suggested there was billions of euro in untaxed corporate profits that, if taxed, would be available for the housing measures we did not get in the budget and for spending on health, education, infrastructure and tax breaks for hard-pressed workers. This motion gives a glimpse of the truth of our argument by revealing the enormous tax breaks given to the corporate sector in allowances and deductions. The scale of it is staggering.
People should read the report of Seamus Coffey to which the Minister referred. I do not agree with its conclusions but the stunning facts about the tax giveaway are very helpfully provided on page 120 of the report. It shows that pre-tax corporate profit jumped from €70 billion in 2010 to €149 billion in 2015, which is an increase of more than 100%. There are allowances for intangible assets and other items and deductions for all sorts of things, including company cars, management expenses and so on. Total deductions and allowances for the €149 billion profits in 2015 were an incredible €96 billion. Some of the choice deductions and allowances in that year included losses brought forward by banks, for example, of €2.7 billion. That is a tax giveaway to banks and the corporate sector.
A very shocking allowance or deduction is the €9 billion given back in 2016 for what are known as intra-group transactions. One would need to be an accountant to know what intra-group transactions are but €9 billion of tax was foregone in 2016 because of them. I am quoting figures from a Department of Finance publication on the cost of tax allowances, credits, exemptions and reliefs. Intra-group transactions involve a subsidiary of a company selling a product to itself and, magically, a profit becomes a cost. If a company makes €500 million in profit but its subsidiary charges that profit as a loan or cost then, for accounting purposes, the profit becomes a tax-deductible cost. It is absolutely unbelievable. Much of the €9 billion in intra-group transactions involved intangible assets, royalty payments, interest payments and loans.
The total cost of research and development tax credits in 2015 was €707 million. All Members believe in research and development but the €707 million given back to approximately ten or 15 multinationals could have been given to our universities. Would research and development be better served by giving that €707 million to ten or 15 major multinationals or to third level institutions for research and development in science, the arts, engineering and elsewhere? I would spend the money in our universities and not give it back to some of the wealthiest companies in the world, which do not believe in paying tax.
The total of all these expenditures is about €23 billion and this financial resolution goes a tiny way towards revealing that but in the overall context it is pathetic. It will reduce what is deductible on intangible assets and the interest payments on them from the current 100% exemption to 80% and the State will get a bit of extra money. However, companies will still get 80% relief on the purchase of intangible assets from themselves. That is brilliant accounting. Imagine if a Deputy tried to do that. Imagine if a worker tried to say that he or she made losses last year, owed a lot of money on his or her credit card and mortgage, had a lot of outgoings on public transport and feeding himself or herself so that he or she could go to work and he or she wanted a tax break on all of that. That is what the corporate sector gets. A worker would be laughed out of school if he or she asked for tax breaks on those things but the corporate sector gets them on everything. The scale of the tax breaks is staggering.
This minor measure recommended by Seamus Coffey opens the door very slightly on how our tax code facilitates billions of euro of tax being foregone. That needs to be exposed. I have been trying to do so in the House for five years. There would not even be a Coffey report if we had not been challenging this issue at the Committee on Finance, Public Expenditure and Reform, and Taoiseach for the past five years and talking about how the effective corporate tax rate is not 12.5% but, rather, 2% or 3%. We forced that debate and there is now a little bit of a tilt towards it in this budget. In so far as it gives the State an extra €100 million, I welcome it but we could have gotten billions of euro by getting rid of those reliefs and enforcing the 12.5% corporation tax rate by closing down all of these loopholes. The affected companies would still be fantastically profitable and wealthy. They would still make far more in profits in this country than they would in any other country in Europe because of our low effective corporate tax rate.
Members should not believe the lie the Government tells when it says it only has €300 million, €600 million or €900 million and the only debate we can have is about that miserable bit of fiscal space. The truth is in the Coffey report: profits are up 100% and the wealth of the top 10% is up 51% in the same period because they are the beneficiaries as they own companies or have shares in them or benefit from property-related tax breaks the Government gave to speculators and vulture funds. There is no time to go into that issue but it is the other big element of the tax giveaway or corporate welfare that our tax code facilitates. The spongers in the corporate sector are leeching billions out of Exchequer funds and revenues that could be used for housing, health and education.
We get not a single extra council house next year because we are not prepared to tax these guys. Yes, in so far as this is a tiny tilt in the right direction, we will support it, but it is the tip of the iceberg, and that iceberg is what we should bring into the light in order that the public can see it and we can ask the public whether it thinks a little more tax, or a lot more, should be imposed on these vast profits.