Dáil debates

Tuesday, 12 June 2012

Companies (Amendment) Bill 2012 [Seanad]: Second Stage


5:00 pm

Photo of Fergus O'DowdFergus O'Dowd (Louth, Fine Gael)
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I move: "That the Bill be now read a Second Time."

Tá mé ag tógaint an Bhille seo thar cheann an Aire Post, Fiontar agus Nuálaíochta, an Teachta Richard Bruton. I thank the Deputies for facilitating the debate on this urgent issue.

The Bill, which has already passed all Stages in the Seanad, is compact and focused in nature and proposes a small number of changes to an existing company law measure. The Bill is proposed in the interests of maintaining a dynamic and flexible operating environment for the commercial enterprises in question. To ensure its continued relevance, legislation must be regularly appraised and adjusted as necessary. Company law meets these criteria for relevance, and can take pride in its spirit and tradition of responsiveness to continuously evolving corporate circumstances. The body of company law at this time comprises some 15 Companies Acts and it is not standing still. The Department of Jobs, Enterprise and Innovation is currently progressing a major legislative project on the reform and consolidation of company law from the seminal 1963 Act onwards. I will address this later in my contribution.

The Bill amends those provisions of the Companies (Miscellaneous Provisions) Act 2009 which permit the use of US accounting standards - referred to as US GAAP - in the preparation of the accounts of the category of company specified there, and which allow for the prescription of the use of other internationally recognised accounting standards. The Bill extends both the timescales relating to the availability for use of US accounting standards and the period for which an individual company can avail of this provision without changing the eligibility criteria. It also correspondingly extends the periods in respect of the provision in that Act for prescription of other internationally recognised accounting standards also based on the 2009 Act.

The general context in which the proposal can be viewed is that of the Government's policy of stimulation and facilitation of foreign direct investment. FDI continues to be a key element of our economic regeneration strategy. The statistical data testify to its vital contribution to the economy, where it accounts for a total of 250,000 jobs which equates to one in every seven of our people at work. This performance is holding up despite the general international economic downturn and the immediate outlook for Ireland's foreign investment portfolio is positive. Up to the end of May, IDA Ireland had made 44 announcements in 2012 with the potential to create over 5,000 jobs. We can take encouragement from this vote of confidence in Ireland's economy, reaffirming our attraction as a foreign direct investment location. In accordance with the Government's action plan for jobs, IDA Ireland is working to target another 144 new FDI investment projects in 2012, which are expected to create 12,500 new jobs with an associated 8,750 in the wider economy, giving a total impact of 21,250 this year.

Since taking office, the Government has made a priority of addressing the major task of repairing our economy and restoring our international reputation. This has required us to take action on a variety of fronts. We are engaging with our European colleagues, the United States and many other countries to demonstrate that Ireland is squaring up to its economic difficulties, and has the intent, resolve and imagination to overcome them. The restoration of our fortunes is an incremental process to be attained by the accretion of a large number of measures which of themselves may appear small, but which, in aggregation, develop substance and significance. Accordingly, there is scope for the population as a whole to contribute, in their own way, to the process of national recovery. The part the Minister, Deputy Bruton, has played has occupied much of his time since taking office last year. I understand the Minister has undertaken eight major trade investment missions involving either IDA Ireland or Enterprise Ireland, in the course of which he met companies from one coast of the United States to the other, and from Saudi Arabia, India, China and elsewhere. The Government has seized these opportunities to promote Ireland's many inherent strengths and its strategic location as a gateway to the European market. This has generated keen interest in all aspects of what Ireland has to offer, including our skilled workforce, our pro-business environment, our tax offering, the strong base of multinationals already here and our embedded links with Europe. Ireland is open, ready and eager for business and investment, and our hope is that this will lead to further jobs being created here in the near future.

Ireland's approach to capturing FDI has undergone significant adaptation over time to achieve the optimum advantage and effect, with the result that the FDI landscape has continually undergone a transformation, scanning the horizons of enterprise focusing on and securing FDI using novel technologies, innovative business models and new markets. Ireland's economy has been the beneficiary of these agile approaches and techniques, evolving in various phases from that of a location based originally on manufacturing to a rebranding of ourselves as the "young Europeans", through to the model of the smart economy built on the dual strengths of our innovativeness and entrepreneurship. On a global scale, Ireland scores extremely well in many of the key areas of importance to investors, helping drive FDI. The IMD World Competitiveness Yearbook 2012 ranks Ireland's overall competitiveness at 20th, up from 24th last year. It also ranks Ireland first in the world for investment incentives, first for the availability of skilled labour and first for flexibility and adaptability of people. The same report also ranks Ireland second in the world for foreign investors, third for labour productivity, third for exports of commercial services and fourth for corporate tax rate on profit.

As a member of the European Union, Ireland offers international investors a stable political and economic environment and a sophisticated, well-developed corporate, legal and regulatory environment. The quality of our economic regulation is a significant factor in our competitiveness and growth. It is critical, therefore, that we have the capacity to respond to economic circumstances as they unfold in a way that is both strategic and reflective of the evolving needs of business and investors.

Those companies with a presence in Ireland and availing of the US GAAP facility under the 2009 Act provide significant employment here which the Bill should help to consolidate, with the possibility of further jobs being created, particularly in the event of an improvement of the economic situation in export markets over the coming time. These companies are involved across a range of industry sectors, including health care, technology and services. This is the broad policy context for the US GAAP measure contained in the Bill.

As I have already mentioned in outline, the Bill allows for the so called US GAAP facility and the provision for prescription of the use of other international accounting standards as provided for in the Companies (Miscellaneous Provisions) Act 2009 to be extended from the financial year ending on 31 December 2015 until 31 December 2020 with a removal of the restriction of a four-year maximum period for the use by a beneficiary company of either of the provisions. The Minister is introducing this proposal in response to a strong approach to him from a number of US multinational companies, most of which have a significant operating presence in Ireland, requesting a prolongation of the US GAAP facility provided for in the 2009 Act. High-level transatlantic initiatives have been afoot for some years to converge, or at least significantly align the International Financial Reporting Standards, known as IFRS which are used in the production of company accounts in the EU, with US GAAP accounting standards which are used in the US. This would lend greater comparability to the financial performances of listed companies in the two jurisdictions because the ingredients used to produce these financial reports were similar or practically identical.

The request that has persuaded the Minister, Deputy Bruton, to introduce this measure has a basis in delays in the process of international convergence of the US GAAP and IFRS accounting standards which is lagging behind the expectations of 2009. In addition, the 2009 Act imposed a restriction on the time period allowed for use by a beneficiary company. The current situation as regards the US Administration's attitude to this standards-convergence process or to a move to permitting this category of company to list in the US using IFRS accounting standards continues to be inconclusive. While the attitude of the US Administration on this issue is likely to clarify over time, it is difficult to predict with accuracy when this may occur.

The four-year maximum period allowed to companies to use US GAAP under the existing legislation means that a number of the companies seeking the extension would be faced with having to put measures in place, as of the present time, to provide for the move by them to preparing accounts under IFRS. Certain companies' entitlement under the 2009 Act expires at the end of this year. If these companies were to be required to take on IFRS, which is a very different set of accounting standards, a considerable lead-time would be required for the necessary groundwork to be undertaken to provide for such a transition. These companies, which are listed on US exchanges, need legal certainty now as to whether the time extension for the use of the US GAAP is being permitted. This clarity is required from a number of perspectives, including considerations of corporate risk and corporate obligations relating to the US Securities and Exchange Commission and companies' shareholders.

To deny the requested facility would entail significant costs and resource implications for the companies in question. Appropriate mechanisms would be required to be in place to provide for the preparation of accounts under IFRS, and subsequently applied in the production of the accounts of these companies. It would be particularly onerous and expensive for a company to convert to IFRS if the obligation to do so were to arise over a relatively short period. Additionally, these companies would be still required to produce accounts using US GAAP and report to the US Securities and Exchange Commission, to remain compliant in the US. This would mean these companies would be required to produce two sets of accounts, which would be costly and burdensome on them. The legislation is designed to facilitate multinational companies that have operations in Ireland to consolidate, and if possible, add to their activities here. Such developments would contribute to further economic activity by them in Ireland and provide additional valuable employment opportunities.

The legislation, therefore, provides for the extension of the use by this very specific category of companies of US GAAP as provided for in the Companies (Miscellaneous Provisions) Act 2009 until the financial year ending at the latest on 31 December 2020. The restriction on the use by the relevant parent undertaking of this facility to a maximum of four years is removed. In the interests of maintaining the flexibility provided for in the 2009 Act in this area, the Minister is extending the enabling provision for ministerial prescription of other specified internationally recognised accounting standards if such a demand arose, and it was considered appropriate to do so. This term of this extension will parallel that for US GAAP. A point of prudential significance to make is that companies will continue to be subject to Irish company law generally, including, of course, all the provisions which relate to accounts. In fact, Irish company law will override any provision of US GAAP which may be in conflict with the Companies Acts.

Allowing these companies to prepare their Irish accounts using US accounting standards for a further period of time would eliminate the significant duplication of cost and effort of preparing two sets of accounts under two different accounting standards. It will also create a bridge to span the period during which significant international developments may occur with regard to the international harmonisation of accounting standards.

I will now turn to the details of the Bill. Section 1 is the interpretation section. Section 2 provides for the extension of the use of US GAAP as provided for in the Companies (Miscellaneous Provisions) Act 2009 by certain parent undertakings which are defined in the section. This is subject to the proviso that the use of those principles in the preparation of the undertaking's accounts does not contravene any of the provisions of the Companies Acts or any regulations made thereunder. The accounts in question are the company's group accounts and the individual accounts.

As heretofore, this arrangement will be limited to a specified category of companies. In addition to existing beneficiary companies, the specified category of companies also comprises parent companies incorporating in Ireland for the first time whose securities are not traded on a regulated market in the European Economic Area, EEA, whose securities are registered with or who are subject to reporting to the US Securities and Exchange Commission and who, on the date that this Bill passes into law, have not already incurred an obligation to file their first accounts with the Registrar of Companies. The section also provides for this arrangement to apply from the financial year ending at the latest on 31 December 2015 until the financial year ending at the latest on 31 December 2020, with the four year restriction for a beneficiary company removed.

Section 3 extends the Minister's power to make regulations to prescribe other specified internationally recognised accounting standards under which specified categories of companies may prepare accounts from the financial year ending on 31 December 2015, as provided for in the 2009 Act, up to and in respect of the financial year ending on 31 December 2020 at the latest, with the four year restriction for a beneficiary company removed. The criteria applied under the 2009 Act remain. These require that any such regulations shall specify the accounting standards, which shall be internationally recognised, and generally accepted accounting principles or practices of a jurisdiction where a majority of the subsidiaries of the parent undertaking have a substantial connection or where the market is situated in which the shares of the parent undertaking are primarily admitted to trading. In preparing accounts using other internationally recognised accounting standards companies must not contravene any provision of the Companies Acts or any regulations made thereunder.

Section 4 is a standard provision and simply contains the Short Title and provides that the Bill and the Companies Acts shall be read as one.

I referred earlier to the ongoing major review and consolidation of the Companies Acts being undertaken in the Department of Jobs, Enterprise and Innovation, and I welcome this opportunity to brief Deputies on the status of this major undertaking. The Companies Bill will consolidate existing Irish company legislation dating from 1963 and introduce several reforms. It will consolidate the existing 15 Companies Acts, or 16 when the Bill currently before the House becomes law, dating from 1963, as well as other regulations and common law provisions relating to the incorporation and operation of companies, into a single Act, which is expected to comprise some 1,400 sections.

Parts 1 to 15 of the Companies Bill, which correspond to "Pillar A" of the general scheme, were published in soft copy format on the Department of Jobs, Enterprise and Innovation website in May of last year. Parts 1 to 15 contain all of the law relating to the most common company type in Ireland, the private company limited by shares. These parts comprise some 952 sections, together with six Schedules, and represent more than two-thirds of the entire Companies Bill. The decision to publish Parts 1 to 15 in May 2011 was made to afford stakeholders, including business owners, practitioners, advisers and representative bodies, an opportunity to become familiar with the proposed new legislation.

In summary, the provisions of the Bill cover the incorporation of companies, corporate governance duties of directors and secretaries, financial statements and auditors, receivers, reorganisations, examinerships, windings-up and compliance and enforcement. The provisions are brought together in a coherent structure which will facilitate business people in incorporating and operating companies on a day-to-day basis. The Bill also modernises company law to reflect modern business practice. Given that almost 90% of companies in Ireland today take the form of a private company limited by shares, the Bill sets out all of the provisions relating to that type of company in sequential Parts. In subsequent Parts the provisions for the private company limited by shares are modified for other company types such as public limited companies, PLCs, and guarantee companies.

Furthermore, to promote compliance with the law and to protect members and creditors, the Bill also sets out clearly the duties of, for example, directors, company secretaries and auditors, including corporate governance duties. The Bill also sets out the functions of the Companies Registration Office, the Office of the Director of Corporate Enforcement and the Irish Auditing and Accounting Supervisory Authority in ensuring compliance with the law and brings together the provisions relating to compliance and enforcement, such as company investigations, compliance and protective orders, disclosure orders, disqualification and restriction of directors and prosecution, offences and evidential matters. I can also confirm that drafting of the remaining Parts of the Bill - those corresponding to "Pillar B" - is at an advanced stage and the Minister hopes to be in a position to publish and introduce the Bill into the House towards the end of this year.

In conclusion, the extension of the timelines both in the US GAAP provision and in the scope to designate other internationally recognised accounting standards is a facilitative measure which signifies the Government's practical and active approach to industrial promotion and stimulating foreign direct investment. I commend the Bill to the House.

Photo of Joanna TuffyJoanna Tuffy (Dublin Mid West, Labour)
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The next speaker is Deputy O'Dea, who has 30 minutes.

Photo of Willie O'DeaWillie O'Dea (Limerick City, Fianna Fail)
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I do not believe I will need 30 minutes. I thank the Minister of State for his contribution. When considering any legislation, Members must consider it in context and against the backdrop against which it is being introduced. In this case, one part of the backdrop is persistent and devastating unemployment and emigration, as outlined in the recent report by the Central Statistics Office, which is a problem that appears to be worsening steadily. Another part of the backdrop is the uncertainty, despondency and - it is not too strong a word to use - despair that has been visited on the Irish people by the political leadership or rather the lack thereof by some people from outside this country. The latest example in this regard was the recent slapstick performance in Brussels in which €100 billion, that is, 100,000 million euro, changed hands to calm the markets and succeeded in so doing for all of two hours. This is the backdrop against which this legislation is being introduced. Against such a backdrop of high and persistent unemployment, as well as debilitating uncertainty, one point stands out. Approximately 1.75 million people are employed gainfully in this country and economy at present and as the Minister of State observed, one in seven of them is employed as a result of foreign direct investment. My part of the country has considerable experience of foreign direct investment and I can state, without fear of contradiction, the vast majority of jobs provided as a result of foreign direct investment are well-paying and have contributed enormously to the surrounding economy.

The purpose of the Bill before the House is to consolidate certain aspects of the aforementioned foreign direct investment in the hope of expanding on it and from that perspective, I certainly am supportive of the Bill and find it difficult to argue against it. Many of the foreign companies and multinationals that have invested in this country undoubtedly have done so to make profits for themselves and their shareholders. They have made a decision to locate here for reasons that have little to do with feelings of love or sentimentality towards Ireland and everything to do with their own interests. Nevertheless, as I have stated, the other side of that coin is they are providing much-needed, gainful and productive employment in Ireland and are helping the Irish economy to survive through a traumatic period. Consequently, my party and I can understand fully the necessity for this Bill. I will take this opportunity, in passing, to congratulate the Industrial Development Authority, IDA, on its continuing success. However, I note that in so far as attracting industry or investment into Ireland is concerned, the authority is heavily focused on Europe and North America. For example, of the 61 new investments announced by the IDA last year, only four or five came from outside of the aforementioned two areas and it will be necessary to broaden our horizons in that regard.

In so far as the details of the Bill are concerned, the accounts of a company are meant to show its financial health. This phenomenon of the financial health or financial status of a company can be measured in different ways and there is no uniform method of measurement. The position in Ireland at present is that the Irish generally accepted accountancy principles, GAAP, are in use. These are practically identical to the generally accepted accountancy principles of the United Kingdom. As the Minister of State mentioned in his speech, there is an international standard, namely, the international financial reporting standards, IFRS, which is generally applicable to countries within the European Union. All the different member states, such as France, Germany, Ireland, the United Kingdom etc., have accounting systems which are slight variations of the IFRS. Were one to apply the pure international IFRS system to any particular company in any particular period, while it may throw up a different result for the first year or two to the national standard in use here, this would be a temporary phenomenon. On the other hand, my understanding is an attempt is being made to extend the IFRS system to Irish companies. While it appears to be confined to major companies at present, my understanding is some variation thereof is being applied to middle-ranking companies in Ireland. In any case, it is a particular system that one can co-ordinate and apply to different European Union member states because the systems are so similar. The ambition had been to bring about a convergence between that standard, which for convenience I will refer to as the European Union standard, and the American way of producing accounts or measuring the financial health of a company. It had been hoped to achieve a form of convergence or alignment between the two systems that would allow the present exemptions in the 2009 Act to be phased out. Unfortunately, as the Minister of State has indicated, the timetable within which this could be done has proved to be wildly optimistic and from what I have read recently, there is a certain element of uncertainty as to whether this goal ever will be achieved, which would be unfortunate.

However, were the Government not to proceed with such legislation and to impose the requirement immediately, it would result in negative consequences for those companies that are investing in this country and are providing gainful and well-paid employment for the people. The Minister of State has outlined some of these consequences, such as, for example, the cost of putting in place this system quickly. I do not refer simply to the financial cost as the amount of red tape would be enormous for companies that would be better employed expanding their businesses and providing more employment, hopefully here in Ireland. In addition, my understanding is even if the American multinationals to which this legislation applies were obliged to produce accounts here under the Irish accounting system, they also would be obliged to produce accounts under the American accounting system because to remain compliant in that country, they must still report to its Securities and Exchange Commission. One need not emphasise how difficult that would be and how much red tape would be involved. While unnecessary costs would be involved in so doing, there is a more significant consequence, which is that the accounting system in the United States is very different to that which pertains in Europe and this can lead to very different results for the same company within the same accounting period. For example, I read recently about the example provided by Daimler-Benz, which is a major German public company. When applying the European accounting system to a recent period, it showed a profit of DM 615 million, whereas applying the accounting system of the United States to the same period for the same company showed a loss of DM 1,800 million. The two systems are very different and forcing a company to produce two different set of accounts showing wildly different results for the same period has profound consequences. It has consequences for the confidence of investors and potential investors in the company, as well as to that of those who would trade with the company. It would not be going too far to state it has the potential to have a highly destabilising effect on such companies, which surely is the last thing Members wish to do to enterprises that, for whatever reason, are providing gainful employment and are helping to sustain Ireland's economy through a rocky period.

Consequently, I supported the Bill and recognise its necessity. I note the Minister of State's reference, in his concluding remarks, to the new companies legislation, which I believe contains 1,400 sections. I cannot wait to begin debating the aforementioned 1,400 sections.

One of the matters the Minister mentioned would be dealt with in the first part of the new companies legislation, which is germane to the topic we are discussing, is the responsibilities and duties of auditors. I will not delay the House unduly but we are all aware of the shortcomings and difficulties that have arisen in regard to how auditors of major companies and financial institutions in this country have fallen short, in recent times, of what I would regard as a proper standard for auditors. The test for what an auditor's responsibilities are was laid out by the House of Lords more than 100 years ago, acting in its capacity as supreme court of the United Kingdom. The court stated:

An auditor is not bound to be a detective or approach his work with a suspicion or a foregone conclusion that there is something wrong. He is a watchdog but he is not a bloodhound.

I do not believe anybody could accuse some of the auditors I have in mind, who have produced some of the results I have in mind, of being bloodhounds and it would be stretching the English language to breaking point to describe them as watchdogs. If I could take the canine analogy to its logical conclusion the word "poodle" springs to mind. The fact is-----

Photo of Peter MathewsPeter Mathews (Dublin South, Fine Gael)
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Sleeping dogs.

Photo of Willie O'DeaWillie O'Dea (Limerick City, Fianna Fail)
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-----the person who pays the piper seems to determine the tune. I urge the Minister of State and his colleague, the Minister for Jobs, Enterprise and Innovation, Deputy Bruton, to take this on board. I know there are certain movements within the profession to deal with this sort of situation. It is difficult, for the reasons I stated, but the Government should use the opportunity of the new companies legislation to deal with the duties and responsibilities of auditors. This was brought to my attention in respect of a certain company that collapsed recently because of a major hole in its accounts, an event that was newsworthy all over the country. When I looked at the accounts and was satisfied as to what had been done, it is bewildering how it was passed by the auditors. I will not be more specific.

My party supports this legislation and we wish it a speedy passage. We know representations were made to the Minister and we know why they were made. The Minister was right to accede to those representations but in regard to the particular topic of accounting, accounting standards and measurement of profits the Government should deal as comprehensively as it can with the responsibility of auditors in the new companies legislation.

Photo of Joanna TuffyJoanna Tuffy (Dublin Mid West, Labour)
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Deputy Tóibín has 30 minutes.

7:00 pm

Photo of Peadar TóibínPeadar Tóibín (Meath West, Sinn Fein)
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Go raibh míle maith agat, a Chathaoirligh. Is rud iontach tabhachtach í infheistíocht ó thar lear agus braitheann an tír seo uirthi. I mo thuairim, braitheann an geilleagar an iomarca ar infheistíocht ó thar lear. Foreign direct investment is extremely important to this State and brings massive positive benefits in regard to jobs, output, GDP and taxation and also in respect of bringing skills, cross-fertilisation of ideas, management styles and knowledge into the economy. It also offers, as it should, opportunity for the supply side of the domestic side to meet the needs of the foreign direct investors. As was discussed in the Chamber, there are major benefits in regard to the figures. They include 146,000 people who work in the area, in some 1,004 foreign businesses operating in Ireland. It is also a key instrument from the Government's current perspective, given the fact that the domestic economy is sinking. In an effort to try to keep the totality of the economy afloat a large level of effort has gone into creating more foreign direct investment in this State.

As I have stated repeatedly in this Chamber, what we see, however, is a tale of a two-tiered economy. On one side, the FDI side, there is quite a bit of activity but the domestic economy, which provides six out of seven jobs, is under major pressure. It is important that when we have these debates we do not overstate the importance of foreign direct investment and that we realise it is not a panacea or a silver bullet that will solve the economic problems we face. Yesterday I watched the RTE programme, "Reeling in the Years", which, looking at a year in the mid-1980s, carried a report about the shocking emigration figures in the period it covered, stating that 30,000 people had left the shores of the State during that period. The Central Statistics Office will tell us that 76,000 people left the shores last year. On this side of the House, we have stated that figure means nine people every hour for every day of every week of every month, making up all those people who left Ireland last year. It is a shocking indictment of the employment situation. No matter what way we try to scrub up the spin, the CSO also showed last week there is 14.8% unemployment in this State, some 3% off the percentage maximum figure there was in the mid 1980s. The actual figure, not the percentage figure, is one of the highest figures the State has ever seen. There has been a steady decrease in the number of people at work and a massive increase in the numbers of those who are considered long-term unemployed. We talk about a possible 5,000 jobs coming though the foreign direct investment system. That is to be welcomed but that 5,000 is the equivalent of three weeks emigration from this State. The size of the problem and the proportionate response by the Government are out of kilter.

On this matter the IMF has stated that foreign direct investment operates as an enclave in the Irish economy. By that I mean there are not nearly enough organic links between domestic economy and foreign direct investment. If one looks at the chemical and pharma sections they account for 60% of material exports of this State but that sector imports 80% to 90% of the components it uses to make those exports. Its reliance and impact on the natural domestic economy is extremely low, shockingly so. Those types of figures are not seen in FDI statistics across the rest of Europe. We have seen that foreign direct investment is extremely capital intensive. There has been a large upscaling of production in many FDI firms over the past ten years without any increase in employment in those companies. In addition, foreign direct investment is very light on taxation contributions, much more so than the domestic economy.

I highlight these issues not to lessen the good work that is done in regard to attracting foreign direct investment into this State but to try to put it into perspective and motivate the Government in regard to the necessary steps to take to develop the channels that will allow the domestic economy to start to supply into foreign direct investment companies. I do it also to motivate the Government to increase its efforts to focus on the domestic economy which employs more, contributes more and has a bigger impact on this State but is strangled due to the fact there is no credit going into it and because demand has fallen off a cliff, both here and in Europe.

In addition, I am disappointed in the regional delivery of foreign direct investment. I come from County Meath which has one of the biggest populations of any county within the State yet we receive a fraction of foreign direct investment compared to what County Kildare, for example, receives. Kildare gets 12 times more investment and jobs from IDA Ireland and Enterprise Ireland than Meath does. In many ways, Meath has been relegated to commuter county status. Most of the jobs are located outside the county; we have the highest commuter distances to travel, the greatest number of people leaving the county every day to go to work. There is the danger, when enterprise organisations and authorities are organised on a regional basis, that they will prefer one county over another.

Most of the jobs that came to County Meath during the boom times related to the construction industry. Those jobs are now gone. This creates major difficulties in counties like my own. When jobs are not there, not only does it mean that people's quality of life is reduced because they have to travel such distances to go to work, but it also means that local authorities receive less income and consequently are less able to deliver services. That is especially the case in County Meath. We have the lowest per capita number of local authority jobs in the State and the lowest per capita local authority spend in the State, which can mean that young people who leave to go to third level colleges do not get to come back to their local areas to live near their families. It is important for us to organise our enterprise development authorities in a way that allows for a fair spread of jobs and investment. I am worried that as the county enterprise boards morph into the local area enterprise offices, they will become more regionally focussed and their delivery will be uneven as a result.

I would like to ask the Minister about another important matter. In recent years, EU regulations have determined the level of grant contributions that can be offered to foreign direct investment as it comes into Ireland. The BMW region is allowed to offer far more than the mid-east region, which is considered to be wealthier than the BMW region. There is a logic to that. As I have stated previously, Meath gets much less than the rest of the mid-east region. It is time for the grant contribution regulations, which were initially negotiated at the height of the boom, to be renegotiated now that we are living in a completely different space. It is wrong that businesses in Navan cannot receive the full level of foreign direct investment grants that can be given to businesses 17 miles up the road in Drogheda. I appreciate that might be to the advantage of the Minister of State, Deputy O'Dowd. It is time to reorganise and reappraise the determining factors that allow us to offer foreign direct investment grants in each area.

I am broadly supportive of the thrust of this Bill, particularly in so far as it pertains to the functioning of the foreign direct investment sector in this part of Ireland. In the absence of a greater degree of international convergence in the sector, it is important to avoid the unnecessary costs that would have to be borne by companies if they were forced to recalculate their financial statements under different systems. We should work with foreign direct investors to make life easier for them, albeit at no major cost to the State. I am conscious that section 3 of the Bill, which is an enabling provision, will allow other international codes to be used in the future. As Deputy O'Dea said, there is no doubt that different codes will give different results. He mentioned the difference in deutschmarks in the profits and losses made by Daimler-Benz, depending on the code that is used. It is important to give complete confidence to the House that any standards that are used will not have a negative financial impact in this State. I ask the Minister of State to comment on that. Equally, the standards that are used should not cloud people's understanding of the functionality of a particular business. When different codes are used - like different languages - some people are able to understand one better than another. The financial health of a company, as indicated on its balance sheet, should be properly understood.

I note that the State is engaging in a selective incorporation of standards. I would like to refer to an issue that is quite similar to the one we are discussing. The White House recently said it would introduce measures to discourage accounting games that allow companies to shift profits abroad in the absence of actual relocation of production overseas. It is understood that one of the accounting games the White House has in mind is the notorious "double Irish" tax avoidance scheme, which is said to be used by some American firms in this State. Under the scheme in question, multinational companies use subsidiary companies to route their overseas profits through Ireland and onto a tax haven like the Cayman Islands or Bermuda. If they do so by means of royalty payments, they can reduce or negate the taxation exposure they might experience. The reality is that such routing does not have a material impact on job creation or wealth creation in this State. In fact, it unfairly inflates the income of the State. At a time when we are talking about working towards international taxation convergence, I suggest we should be trying to ensure such loopholes do not exist and firms cannot take advantage of Ireland's taxation policies in this way.

I have similar concerns about potential abuses of Ireland's research and development tax credit system. Although that does not relate directly to the legislation before the House, it is relevant to the broader context of the foreign direct investment sector and transfer pricing. We support the facilitation of those involved in foreign direct investment who have asked to be allowed to trade in a fair and equitable manner. The Government needs to ensure that short-term gains with regard to tax loopholes do not have the effect of corroding long-term international relationships.

Photo of Shane RossShane Ross (Dublin South, Independent)
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I would like to share time with Deputy Healy-Rae.

Photo of Seán BarrettSeán Barrett (Ceann Comhairle; Dún Laoghaire, Ceann Comhairle)
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Is that agreed? Agreed.

Photo of Shane RossShane Ross (Dublin South, Independent)
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I think I welcome this Bill. I do not want to disturb the unanimity that exists in this House on it. My reservations in this regard are partly based on my ignorance or lack of experience of the difference between the International Financial Reporting Standards and the US GAAP facility and partly based on my in-built suspicions about any legislation that introduces deregulation of any sort at this time. There are obvious historical reasons for my difficulties in that regard. Questions should be asked about the accounting standards that were used at the time of the banking crisis and the collapse in the property market. I refer particularly to the process that led to various debts and property values being written off or provisioned and to the discretion that is used by accountants and auditors.

We heard a good illustration of the difference between US accounts and Irish accounts from Deputy O'Dea when he mentioned a company that had massive losses under the US system but could produce a large profit under the Irish system. I suppose it makes one particularly suspicious of accountants or auditors using their discretion. It is alarming and revealing to those who are not conversant with the accountancy profession and its methods that different accountants can produce such extraordinarily contrasting results. One has to ask where the truth lies in such cases. Why are US companies looking for this concession, which has so readily been given to them by the Government? According to the Government - the Minister of State will correct me if I am wrong - it is a straightforward question of introducing measures to encourage multinationals to come here and stimulate foreign direct investment. The Government claims that this Bill is not fundamental, but that the thrust of it is to make concessions and give it the right to extend US GAAP accountancy standards to these companies, rather than giving such companies an absolute right.

It is obvious that the US Chamber of Commerce and others have put a great deal of pressure on the Government to make this concession. There is nothing wrong with that per se. Every speaker, including the last one, has conceded that US companies have played an extraordinarily valuable role in the economy. I remember when a Minister in the last Government told me he was very worried about the economy because it was depending on the construction sector and on multinational companies. It was a prescient warning. I will not identify him because it was a private conversation, but he was right. The second of those pillars is the only one that survives now. His analysis might not have been particularly sophisticated, but it was a pretty rough estimate of two parts of the economy that were vibrant at the time.

I was interested in Deputy Tóibín's point that indigenous business should be encouraged, as it should be. The easy part, in some ways, is what we are doing with multinationals. I wish to applaud the Government for its encouragement of multinationals and its successes in bringing multinationals into this country at a time of great difficulty. I am a great supporter of multinationals. Nonetheless, it sometimes amazes me the success the Minister, Deputy Bruton, the Minister of State, Deputy O'Dowd, and others have had in continuing to attract multinationals with household names to locate their headquarters here at a time when Ireland is getting such a bad press around the world. That is a great success story at a very bad time. God knows what we would do without them at the moment. It should be recognised that the concentration, encouragement, effort and energy which has gone into this has been successful. Some are leaving and some, tragically, are laying off some of their workforce, but others are coming here and are still recognising Ireland as a good place in which to locate and develop.

This measure, if it is part of a concession to those particular demands, is prima facie a good idea. I would issue a caveat in saying that we should be careful about deregulation and about allowing the rules to loosen because they can be exploited in a way which might come back to bite us. The multinationals are employment driven and I understand there are some 250,000 employees in the multinational sector here. They have to be encouraged and kept at work as we cannot afford to lose them. Therefore, we have to give them reasonable concessions when they want them. If this is one of their reasonable demands, which I understand it is, it is right that we should do it for them.

We must also look towards the future for multinationals here, and let us hope they are here for many years to come. The reasons they are here are taxation-based, and this Bill is related to that matter. They are here because there is a 12.5% corporate tax rate and because there is a young, well educated workforce. All of those reasons still stand.

On the corporate tax rate, I suggest the following, not as a way-out idea but as one which the Government should consider at some stage. We have had a lot of flak from France, less from Germany and other countries, about harmonising our tax. We have also had a lot of flak from several countries, including the US, about some of our practices such as transfer pricing. This is such a success story. Can we not learn the lesson from the 12.5% tax rate and say that we will consider lowering it? I do not know how much less tax would be raised although, when capital gains tax was lowered, this country boomed and revenue boomed as well. Were we to lower corporate taxes even further, there is very little doubt that we would offend our European colleagues but, God knows, we do not owe them much in the present climate and they are not showing any signs of giving us anything else we want at the moment. Therefore, were we to lower it to a psychologically powerful and pivotal place like 9.9%, does the Government not agree this would send a message around the world that Ireland was open for business, including multinational business, and that it was multinational friendly? If we were to combine that with the audit concessions we are giving them in this Bill, I believe we could become a focus of even greater attention from multinationals, not just from the US but from elsewhere in the world.

I want to issue a word of warning which I have issued in this House before. One of the core aspects of the success of the multinationals here has been the tax position and one of the great beneficiaries has been the International Financial Services Centre, IFSC. While I do not know what are the Government's intentions, there is a real danger to the IFSC by the financial transaction tax which is proposed and is lurking around the high tables of Europe. It seems to have got very little publicity here but if one reads what is happening in Germany, one will see that the fiscal stability treaty is about to go through the German Parliament at some time in the next six weeks. A deal is being concocted in the German Parliament and the treaty will go through, but the price that is being paid for it going through is a concession to the opposition - the Greens and the SPD - and that concession is the financial transaction tax. It is about to become part of German Government policy that a financial transaction tax should be introduced in Europe. How far that is going to be extended and how far they will push it, I do not know, but it is lurking on the horizon and it is a very strong threat. It is also likely to get the support of France and many other countries.

If it were to be introduced, nobody in this House needs the consequences explained to them. It would provide a threat to the IFSC because it might well not be introduced in the UK as the UK would not be subject to the same compulsory imposition of this tax by the other nations. If that were to happen, the danger is that many of those companies which are located in the IFSC would move over to the UK and others would not come here. We would be sending out a signal that Ireland is not as attractive a place to do business as it was because there would be a financial transaction tax on transactions that take place in the IFSC. This would be dangerous to companies coming to locate here and because a large number of them are, if not brass-plate organisations, somewhat inactive organisations in terms of cerebral activity, they can relocate very easily. The revenue we would get from that would presumably not be adequate but there is also the danger that the many thousands of people who are located in the IFSC would suffer and there would be unemployment as a result. Let us watch this carefully while we are trying to encourage multinationals.

I will focus my final words on the auditors. I sometimes wonder when we are discussing auditors, GAAPs, US-GAAPs, IFRSs and all of these complicated formulae which nobody really understands, why we put these people on such an extraordinary pedestal and why we believe very much of what they say. So many of them, whether they are Irish auditors or US auditors - many of them are the same firms - dominate the companies which they audit in this country and the US, and produce accounts which are very little short of fictional.

One of the problems in this country is that we insist on using the "big four" auditors-accountants for nearly all the business which is given by the Government. That is very difficult to understand. The "big four" auditors gave the all clear to the banks up to 2008 and later, which gave an extraordinarily unclear and inaccurate picture of what was actually happening inside the banks. One of the problems with the auditors was that they missed everything. They seemed to be unable to spot things happening that they ought to have spotted. As Deputy O'Dea said, nobody wants to suggest they should necessarily be bloodhounds. However, if they cannot insist that the big banks make proper provisions and produce accurate accounts or if they allow the banks produce accounts that are misleading, one would have to wonder why we put them on such a pedestal and why we believe they are producing a true and fair view of what is going on inside the company they are auditing.

With regard to auditors' fees, I do not know what is happening in the US in comparison to here, but fees are significant here. PricewaterhouseCoopers got over €100 million over ten years and KPMG got over €40 million for three years, just for auditing the Bank of Ireland. The accounts they passed as true and fair are questionable and in such a case we must ask why we are paying auditors so much and why we regard them as some kind of icons with particular skills. We must also ask whether they are so cosy with the banks and companies they audit that the value of what they do is only of value to themselves and the banks, but of no use to shareholders, the nation and employers.

Photo of Michael Healy-RaeMichael Healy-Rae (Kerry South, Independent)
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I thank Deputy Ross and the Technical Group for allowing me some of their speaking time and I acknowledge the presence of the Minister of State. I was glad to get the opportunity a couple of months ago to raise the issue of the Companies (Amendment) Bill with the Taoiseach because of specific issues I wanted to raise. We have had an interesting debate on this Bill this evening, with bloodhounds and poodles being mentioned. The debate has been wide-ranging and interesting.

There is a welcome growth in the diversity of cultures, lifestyles and backgrounds in our country. It is only by being tolerant of something that is different that respect for the diverse cultures that make up present day communities can grow. This diversity has been a great learning curve for me as a public representative and I have learned that with drive and determination all things are possible. I have seen projects that were just an idea a few years ago come to fruition, despite the downturn in the economy. This has been achieved through the consuming passion that drives communities upwards and onwards. I have learned of the many obstacles that come in the way of communities when they attempt to improve their respective areas or when they try something that is totally new. However, these people drive on and find some imaginative way of circumventing problems. We in this House must put up our hands and admit we are guilty of creating a few problems for these community groups. The Government must also raise its hands in this regard and admit that sometimes some of its decisions are not in the best interest of these groups. There can be no doubt that the wheels of bureaucracy grind ever so slowly, which can be very frustrating for voluntary groups. We must work together to come up with innovative and imaginative ways to deal with problems more speedily.

On the positive side, local authorities must be complimented done by community and enterprise departments, chiefly through the community and voluntary forum. The initiative on insurance has been a resounding success and has saved community groups up to 50% on their insurance costs. The recent proposed changes in charity legislation and the fact that most, if not all, community groups are registered companies with limited liability mean that all groups are now subject to an annual audit to comply with both company and charity legislation. This can prove a financial burden on small not-for-profit groups. I intend to request the Minister to examine the feasibility of setting up a scheme, through the community and voluntary forum, whereby community groups will be able to access audit on a competitive pricing structure. This would be of enormous benefit to the many groups registered with the community and voluntary forum. The Minister may look at ways to allow exemptions for community groups registered with community and voluntary forum whose total turnover is less than a set figure or groups which have no financial transactions but are limited companies for insurance purposes only.

I have a concern also with regard to company law. There should be some system in place to protect small sub-contractors. There have been situations where the State has issued contracts to contractors who have then hired sub-contractors but have not paid them, despite having been paid themselves. Many small businesses have had to close as a result. These contractors walked away with money paid by the State and the taxpayer for public contracts, such as the building of schools or hospitals. I am aware personally of some such situations. I am aware of a particular school that was built where the small sub-contractors working for the lead company did not get paid. This has put those small businesses to the wall. They were glad to get the work at the time but they now find themselves in the situation where they would have been better off if they had not got it. There must be some imaginative way for company law to provide protection for all those who work for lead companies awarded contracts, particularly in the case of public contracts.

Multinational companies have had an enormous impact in Ireland over the years. The Liebherr crane company in Killarney is one such example. Hans Liebherr came to Killarney in the late 1950s or early 1960s and has made an enormous contribution to County Kerry, up to the present day. I was glad to see a two-page article in The Examiner last week which tracked the company's huge success and the huge contribution it has made to Kerry over the years. That has brought a spin-off throughout the country because the company sub-contracts a significant amount of its work. It is amazing that despite the fact it has a big facility in Fossa, it must still outsource much of its work. We must ensure that we create at all times the proper environment to attract people like Liebherr, people who will come in and make enormous changes for the good of the country.

The Minister has said this Bill is proposed in the interest of maintaining a dynamic and flexible operating environment for the commercial enterprises in question. The only objection anybody could have in this regard would be one such as I raised with regard to community groups and that it may need tweaking here and there. Broadly speaking, everyone would support this Bill.

I enjoyed Deputy O'Dea's contribution, but I take issue with him with regard to praise for the IDA. I will not praise people here who only visited my county twice in 12 months with people potentially interested in starting up new businesses. I want to see the IDA being more proactive in County Kerry and would like to see it bring in more people interested in setting up businesses. It is like fishing. If the IDA only brings two in 12 months, it does not have much hope of landing one. However, if it brings ten, 20 or 120, it will surely land a few. Therefore, I will not praise the IDA for the work it is doing on our behalf but will encourage it to be a lot more proactive and workmanlike. While I am pleased to see jobs coming to other parts of the country, I want to fight for my corner and want to see some new start-up businesses coming to it. However, they will not come if the IDA does not bring people to the area. I broadly welcome the Bill and thank the Minister and his officials and all who have worked hard to bring it forward.

Debate adjourned.