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

The manner in which companies can shift their profits from one jurisdiction to another, whether from Ireland to the Cayman Islands, Bermuda or countries with which we have a double tax treaty, such as Malta, the United Arab Emirates and many others, is an issue which comes up time and again. It is done through the mechanism of transfer pricing, intellectual property, IP, and related royalty payments.

I understood that through the OECD base erosion and profit shifting, BEPS, process we would have new rules around transfer pricing and it would be much more difficult to shift profits in the same manner. Instead of shifting profits to traditional tax havens where there is no tax, it appears that profits are now being shifted to countries, including those in Europe, which apply very little tax to companies and their activities.

We are always informed that expanding our network of double taxation treaties is a positive thing and good for trade and commerce between countries because it facilitates exports and imports and so on. However, the suggestion now is that double taxation treaties are, in effect, resulting in an extremely aggressive tax avoidance mechanism. The Minister needs to address that. The issue of the place of effective management and the management and control test, whereby an Irish company can be incorporated here but deemed to be resident in a country with which we have a double taxation agreement, comes back to the issue of profit shifting, something which companies seem to be able to do very easily using transfer pricing and IP.

I would like to know a lot more about how Revenue applies internationally accepted OECD transfer pricing rules governing how royalties are calculated in terms of payment for IP and how that can result in profits being transferred from one company in a group in one country to another company in a group in another country where there is much more favourable tax treatment. Companies seem to be able to move profits to wherever they want.

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