Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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Question 88: To ask the Minister for Finance his views on the possible impact on the economy of legislation currently before the US Senate to restrict US companies' deferral of taxation on foreign earnings to revenues from products and services both rendered and sold or consumed in the foreign country in view of the fact that this legislation is predicted to have a dramatic impact on US foreign direct investment here. [10454/07]

Brian Cowen (Laois-Offaly, Fianna Fail)
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First and foremost, I would like to assure the Deputy that Ireland continues to be an attractive location for US inward foreign investment based on a number of well known factors. Furthermore, Government policy continues to ensure that our strengths are maintained and promoted through, for example, increased spending in education and training and in overall investment in infrastructure under the National Development Plan 2007-2013.

While I am, of course, mindful of any international developments that could potentially impact on the level of foreign direct investment here, the Deputy will appreciate that the interpretation of specific foreign legislative provisions is a matter for the relevant authorities of the country concerned. That said, my understanding is that the legislation referred to by the Deputy, which was recently introduced in the US Senate, is aimed at locations considered as secretive offshore tax havens and not countries which are US tax treaty partners.

In this regard the Deputy will be interested to note that the double taxation treaty between Ireland and the US provides for a full exchange of taxpayer information between both countries.

Finally, I would like to assure the Deputy that, as is the normal case in such matters, a close watch is kept on any such developments.

Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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Has the Government discussed these impending developments in US legislation with US authorities at any level? In the course of his recent visit to the United States did the Taoiseach refer to them in his conversations with President Bush or other key political players he met there?

The Minister has confirmed an awareness of developments in this regard in the United States and will keep a keen eye on them but are strategies to cushion the effect of the development described in my substantive question being considered by the Minister, his Department or Government? The Minister must agree that it is imperative we recognise the potential impact of such legislation and that we must not be unaware of the reality of the situation as it applies to many US based inward investors operating in this jurisdiction. In the region of 470 such employing entities exist in this economy with a workforce of approximately 92,000.

Will the Minister comment on some of the more negative views expressed by economists in periodicals and newspapers here regarding the expected effect of the passage of this legislation? Do such opinions encourage a proactive approach by Government to the matter to stave off the worst potential impacts of the legislation?

Does the Minister agree that the passage of this legislation will demonstrate that low corporation tax alone is a poor basis on which to promote this jurisdiction as an attractive location for inward investment from the United States and elsewhere? We need a broader basis to attract inward investment in the economy.

Brian Cowen (Laois-Offaly, Fianna Fail)
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I first wish to welcome Deputy Ó Caoláin back to the House and wish him well in his recovery.

Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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I thank the Minister.

Brian Cowen (Laois-Offaly, Fianna Fail)
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We have transparent tax arrangements in this country. We have positive rates of taxation, 44 tax treaties in place, a system of full exchange of information and the proper regulation of activities to the highest standards. We maintain a low general corporation tax rate by ensuring a wide tax base and the careful, prudent management of public finances. We collect €6.7 billion per annum in corporation tax. This tax arises from profits based on activity and substance. To take the international financial services sector as a specific example, the latest industry figures indicate that more than 19,000 people are employed in the three core sectors of banking, funds and insurance. Our system is transparent — deliberately — in order that everyone can see the attractions and benefits to the State. Other countries often have high nominal rates of corporation tax which mask the true lower rate in deductions through deals with individual firms. The Irish system does not operate in this manner and is transparent.

Ireland is bound by the same state aid code of conduct and rules of the European Court of Justice as all European Union member states. The EU treaty contains specific rules on the provision by member states of aid to industry. The European Union also has a code of conduct, a political agreement designed to curb harmful competition in business taxation, which is similar to the process at OECD level. Ireland is fully in compliance with the code and the OECD process. Our track record shows that we act swiftly to amend regimes to close down abuses and if similar circumstances arise in the future, we will do so again.

Ireland abides by the arm's length principle in these matters. We expect companies operating here to observe this principle and we have endorsed it in our tax treaties. As I indicated, there is no question of the legislation to which the Deputy refers having a "dramatic impact on US FDI here" for the reasons I gave in my primary reply because both Bills contain a list of countries drawn from the IRS filings and regarded as tax havens. Ireland does not appear on either list for the good reasons I have given in my secondary reply.

Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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Taking on board the Minister's comments and not wishing to join those who predict a worst case scenario, nevertheless, does he not agree that a responsible Government would recognise that, where a threat exists, it is incumbent on Government to exercise all the influence it can not only to cushion the effect on foreign direct investment in this jurisdiction and economy but particularly to take the initiative and create an impetus behind the indigenous player to level the playing field for the indigenous entrepreneur who comes up with an idea and will have a stake in the country through the most difficult times, as has been proven repeatedly, and will not opt at the first opportunity to move lock stock and barrel to a low wage economy overnight, many examples of which we have seen in the recent past?

Brian Cowen (Laois-Offaly, Fianna Fail)
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This is not a low wage economy.

Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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Of course it is not.

Brian Cowen (Laois-Offaly, Fianna Fail)
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The Ahead of the Curve industrial policy review provided confirmation that we have small and big businesses. More than 800,000 members of the 2 million workforce are employed in small and medium size enterprises, the great majority of which are indigenous. I introduced proposals in the most recent budget to comprehensively overhaul the business expansion and seed capital schemes to ensure investment is directed into areas that will create entrepreneurship and more jobs and increase skills. The research and development tax credit is applicable to small companies and other businesses.

Although an important factor and one I will continue to defend, our low tax rate is not the only reason foreign direct investment is attracted here. The question of what attracts FDI to a particular country is a complex one and a range of factors explain the reason Ireland is attractive. They include our English speaking, skilled labour force, on which we continue to work and have a strategy to improve, a flexible market, ease of access and proximity to the European mainland, membership of the European Union and access to its markets, membership of the euro area, a pro-business outlook, political stability and social partnership.