Mick Wallace (Wexford, Independent)
Link to this: Individually | In context | Oireachtas source

To ask the Minister for Finance his views on a memorandum prepared for the US Senate Permanent Subcommittee on Investigations which states that Microsoft used Irish subsidiaries to reduce its US tax bill by $2.43 billion in 2011; and if he will make a statement on the matter. [42321/12]

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I am precluded from discussing the tax affairs of any particular individual or company, nor can I discuss the tax administration regimes established in other jurisdictions. However, I advise the Deputy in general terms that a recently published report of the United States Senate Permanent Subcommittee on Investigations of their hearings on offshore profit shifting and the US tax code gave prominence to the tax arrangements of two US multinational corporations, both of which have operations in Ireland. The report finds that US multinational corporations are able to reduce their tax liabilities significantly by legal international tax planning arrangements - there was no allegation of fraud or evasion - and makes recommendations on how US tax law could be improved.

Ireland is rightly not mentioned as a tax haven in the report. The international community does not regard Ireland as a tax haven. Ireland has a comprehensive taxation system covering income, capital and indirect taxes. Tax treaties with the United States and many other countries confirm our international standing. The January 2011global forum peer review report on Ireland's legal and regulatory framework for transparency and exchange of information found that Ireland had an effective system for the exchange of information in tax matters and was fully compliant with OECD standards.

Ireland is bound by the same rules on state aid, the code of conduct on business taxation and rulings of the European Court of Justice as all EU member states. Ireland does not support harmful tax competition. Ireland continues to participate fully in the EU code of conduct group, which addresses harmful tax competition, and in the OECD forum on harmful tax practices.

Mick Wallace (Wexford, Independent)
Link to this: Individually | In context | Oireachtas source

This is almost the same subject matter as that of the last question. The Minister is probably familiar with research conducted by Mr. Colm Keena. In The Irish Times last week, he showed that Microsoft reduced its US tax bill by more than €1.8 billion in 2011 by using Irish subsidiaries. The company has two branches in this country. Microsoft Ireland Operations Limited, which employs 650 people, showed a profit of $2.2 billion and paid an effective tax rate of 7.3%, amounting to $3.3 million per employee. Microsoft Ireland Research, which has 390 employees in Ireland, had a profit of $4.3 billion on which it paid an effective tax rate of 7.2%, amounting to $11 million per employee. According to Dr. Sheila Killian of Limerick, "[I]t is tempting for multinational firms which have a subsidiary there, and another in a high-tax country to use aggressive transfer pricing practices to shift income into Ireland, where it will face a lower rate of tax". THis makes Ireland a tax haven.

Problems are coming down the tracks. I do not know whether the Minister has time for bedtime reading, but a new book, entitled The Betrayal of the American Dream, makes for powerful reading. The situation will not stay the same. America is running into serious problems because of its tax laws. The Minister is correct, in that America will need to change its laws to stop significant tax avoidance. He pointed out that much of what is involved is lawful. I will quote from the book-----

Michael Kitt (Galway East, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

No, we cannot allow quotes. I will revert to the Deputy.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

This is undoubtedly an interesting topic, but both questions are based on a US report on US tax law. It is not a report on Irish tax law. The report notes that there is nothing illegal about this tax planning arrangement and does not identify any failing in Ireland's tax code. This kind of taxation arrangement is run from the US code, not the Irish code, and it is not for us to remediate. We cannot. It is America's tax code that allows for this tax planning.

It is a complicated practice, as everyone knows. For example, the transfer pricing rules of America's Internal Revenue Service, IRS, as well as the rules preventing the deferral of US tax and royalty payments and certain other incomes are relevant to non-US subsidiaries of US multinationals undertaking to share the cost of US research and development. This ensures that highly valuable intangible property is partly owned outside the US. Cost saving arrangements in respect of the development of new products typically enable non-US subsidiaries to sell the new products in non-US markets without triggering immediate charges to US tax. US tax on profits of foreign subsidiaries with such arrangements is deferred indefinitely until the profits are repatriated by dividends or otherwise to the US parent company. That is a US arrangement, not an Irish one.

Our arrangement is transparent. We have a low corporation tax rate to which Fianna Fáil, Fine Gael, Sinn Féin and the Labour Party subscribe. The 12.5% rate is an incentive to attract inward investment. It works. However, we are not operating a tax haven. No one has ever suggested that we are.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
Link to this: Individually | In context | Oireachtas source

I suggested it.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

We are a respectable, tax compliant country with a transparent arrangement. It is a part of public policy to have a low rate.

Michael Kitt (Galway East, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

Deputy Wallace is next, although I nearly called him "Minister".

Mick Wallace (Wexford, Independent)
Link to this: Individually | In context | Oireachtas source

The book to which I referred reads: "... the ruling class is defined by its ability to move money beyond the reach of government supervision. This has been accomplished in various ways, but the most important is arguably the establishment of a belief that government has no business in business". We need to change how the world works. The Minister believes that, as with the financial transaction tax, we cannot make a change unless the British do so as well.

The manner in which this world operates must and will change because the current process is not sustainable.

In 1945, the corporate tax take in America was 7.2% of GDP and it is now 1% of GDP. That country is falling apart so it will change the rules in a process that will have an impact on us. We must start preparing for that now by focusing more on the creation of indigenous industry. We are very reliant on the multinationals which will not stay here forever and we must start working towards the day when we can be a bit more independent of that income. The Americans will change the rules or their country will implode.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

This issue always arises in the run-in to American presidential elections, with both parties taking up positions on what might be done by them if their candidate is elected. Our embassy in Washington DC and the presence of the IDA in North America monitors these issues very closely and reports back the emerging position. One can take it that people here are aware of the current position, as it is watched very carefully. So far I have not come across any proposals along the line suggested by the Deputy, which would be immediately injurious to Ireland's 12.5% corporation tax rate.

Mick Wallace (Wexford, Independent)
Link to this: Individually | In context | Oireachtas source

The Minister should read The Betrayal of the American Dream. It is very good.

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

There are books about everything.

Michael Kitt (Galway East, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

I will allow brief questions from Deputies Doherty, Mathews and Boyd Barrett.

Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

The Minister has indicated that this has nothing to do with Irish tax law and American tax law is involved. Nevertheless, Irish tax law is at the centre of the issue. I indicated I would not mention a company but 1% of Google's sales were recorded in tax in Ireland in 2008. Where did the rest of it go? Some €5.4 billion of its profits were transferred to a Dutch holding company, and Irish tax law means that royalties paid from Google to the holding company in the Netherlands are exempt from tax. That is where Irish tax law fails. Some 98% of the royalties received by the Dutch company go to Bermuda, which is a tax haven. Irish tax law can deal with this by tackling the exemption that operates between Irish and European companies, which is what some of the big multinationals are using. They are transferring profits to other European countries and in turn to tax havens in Bermuda. It is well known and we can do something about it.

Peter Mathews (Dublin South, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I raised the question with the Department of Finance of the effect of an increase in corporation tax from 12.5% to 15% in a year. The answer was complicated but the figure given was approaching €700 million. I believe, and I hope the Minister agrees, that we should start considering this. International tax planning is a separate consideration but there is a corporation profit space in this country that must be addressed. Perhaps the rate could run for ten years. I remember when the corporation tax rate was 35% and there was export sales relief for companies with exports. A rate of 15%, if it could raise €700 million, is worthy of consideration and we should look into it.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
Link to this: Individually | In context | Oireachtas source

I strongly disagree with the Minister. Ireland has become Europe's version of the Cayman Islands. It is part of an international architecture for tax avoidance in multinationals. This system of tax avoidance, of which we form a critical part in Europe, is destabilising the global economy. As multinationals are increasingly not paying tax across the world - an act we facilitate - there is a destabilising effect on the world economy, meaning there is no money available to invest in social goods in the real economy or sustainable industry and enterprise.

We cannot just throw up our hands and indicate, as we seem to do with everything, that we are powerless to act on this. We should act because there will be a correction with this issue, as there was with other bubbles, and we should get in ahead of the game. To make low corporate tax rates the cornerstone of industrial policy, as this and previous Governments have done, is to make ourselves a hostage to fortune. Unless we prepare for what will happen, we will live to rue the day. Will the Minister consider the question of at least raising the effective tax rate to 12.5% in an effort to deal with our budgetary crisis?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

The Government is committed to the 12.5% corporate tax rate.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
Link to this: Individually | In context | Oireachtas source

What about the effective rate?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

We will maintain the 12.5% corporate tax rate during the life of this Government. If we come back to government, we will continue to maintain it. I understand the Fianna Fáil, Labour and Sinn Féin parties have a similar position. Some time ago Sinn Féin had a policy document arguing that the corporation tax rate should be increased to 15% but that has been dropped and the party is committed to the 12.5% rate. Last year was a record year for inward investment and this year will be another record. It is a big driver of high-level employment and we will not put that at risk by tinkering with corporation tax.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
Link to this: Individually | In context | Oireachtas source

We are not seeing much of an effect.