Dáil debates
Thursday, 20 February 2014
Topical Issue Debate
Corporation Tax Regime
5:20 pm
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I thank the Ceann Comhairle for selecting this issue for debate. I also appreciate that the Minister has come into the Chamber to participate. Between the Garda Síochána Ombudsman Commission, GSOC, and the Garda whistleblowers, this week may well go down in history as one in which attempts to cover up scandals were exposed. I certainly believe that what has been going on regarding the issue of Ireland's corporate tax rate and the real amount of tax that large corporations are paying amounts to a cover-up. This has been reinforced by the paper produced by Professor James Stewart of Trinity College within the past week, which suggested the real corporate tax rate being paid by large and hugely profitable firms is nowhere near the 12.5% headline rate or any of the rates the Minister, the Taoiseach and others regularly have claimed such companies are paying but it is a tiny fraction thereof. An astonishing figure of 2.2% is being suggested. When one recalls what Mr. Nyberg said about the banking crisis, groupthink and the lack of contrarians willing to question the consensus, nowhere has this been more apparent than in the Government's attitude to questions raised about the real corporate tax rate. Essentially, a tiny number of people, including myself, who have raised this matter over the past two years have been largely ridiculed and accused of cloud-cuckoo economics and so on, because we questioned the assertions that corporations were paying the 12.5% rate and suggested the entire issue of corporation tax should be questioned and examined thoroughly. However, an eminent professor of economics has now stated the situation is actually worse than even we had thought. I tabled a parliamentary question to the Minister and received a reply based on Revenue statistics which showed that multinationals earned €70 billion in pre-tax profits, according to the last available figures, and paid only €4 billion. This revealed an effective rate of 6.8%, rather than the aforementioned 12.5%. I thought that was bad enough, because at stake there is approximately €4 billion of potential revenue to the State. When one considers what that would do to alleviate cuts imposed on vulnerable sectors of society or what it could be used for to develop infrastructure, invest in job creation and so on, it constitutes a great deal of money. However, there appears to be an absolute dismissal of even a serious attempt to investigate and examine this issue, given the huge divergence in figures being bandied around for corporate tax. This also has been confirmed by the academic whose surname has escaped me but who is the consultant to the finance sub-committee on global corporate taxation. He has acknowledged there is a real issue in this regard and provided five different figures on what the corporate tax rate could be, including rates of 11.9%, 12.3%, 6.9% and 14.4%, to which one can add Professor Jim Stewart's figure of 2.2%. Whatever the Minister and I might think, given the billions that are at stake, does this issue not require serious investigation?
The Minister needs to give serious consideration to having a minimum effective corporation tax rate in order to clarify this matter and ensure we get a proper take from these hugely profitable corporations.
5:30 pm
Michael Noonan (Limerick City, Fine Gael)
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I have had detailed public discussions with the Deputy on this issue on a number of occasions, most recently at the Joint Committee on Finance, Public Expenditure and Reform on Thursday of last week. He will also recall that the issue of effective tax rates was discussed at length on Committee Stage of the Finance Bill last November. In view of the significant confusion around the issue, it was agreed at the time that my Department would prepare a report on the matter to be submitted to the Oireachtas finance committee by the end of the first quarter this year. This report is being prepared and will likely be published on completion.
It is important to clarify that there are two separate scenarios that are often confused in discussions on the effective rate of corporation tax. The first is the global rate of tax paid by multinational companies which operate across a number of jurisdictions. This is a blended rate which takes into account the amount of tax charged not only in Ireland but across all of the countries in which a company trades. The extremely low effective rate figures that have been quoted in the past week and attributed to Ireland are based on a flawed premise. They are estimated by dividing the amount of Irish tax paid by a total profit figure that includes substantial profits made by companies not tax resident in Ireland. They are running together the profits earned by group companies in Ireland and other jurisdictions and incorrectly suggesting Irish tax does or should apply to both. Ireland cannot tax profits properly attributable to other jurisdictions. The ability of some multinationals to lower their worldwide rate of tax using international structures reflects the global context in which Ireland and all countries operate. The best way to effectively address this issue is for countries to work together at the international level. Appropriate action is being considered in this regard by the OECD as part of its project on base erosion and profit shifting, in which Ireland is participating.
The second issue is the effective rate of tax applying in individual countries. Clearly, the domestic rate of tax paid in Ireland is within the control of the Irish tax system and Ireland is responsible for the amount of Irish corporation tax charged here. I re-emphasise that all companies operating in Ireland, domestic businesses and multinationals, are liable to corporation tax at the 12.5% rate on the profits generated from their trading activities here. A higher rate of 25% applies in respect of investment, rental and other non-trading profits, as well as certain petroleum, mining and land-dealing activities, and chargeable capital gains are taxable at the capital gains tax rate of 33%. Some other countries have a high headline rate of corporation tax which is then supplemented by a high number of tax reliefs which reduce the overall rate of tax paid. By contrast, the approach in Ireland is transparent in that we have a competitive headline rate of corporation tax which is applied to a broad base. We, therefore, have only a small number of corporation tax incentives in Ireland and ensure these are specifically targeted at and focused on the creation of employment and areas of innovation.
There are different ways of measuring the effective rate of corporation tax once account is taken of such reliefs and there is no single internationally agreed comparative measure in this regard. As the quality of debate on the issue shows, it could really be characterised as more of an art rather than a science. There are a range of independent studies on this issue and the Deputy will shortly have a comprehensive report that will set out an analysis of the different figures in the public domain. In the meantime, I see no benefit in repeating the same debate we have had, quoting different figures at each other. However, in response to the growing interest in the subject the Revenue Commissioners now publish an additional explanatory note with their annual statistical report. The 2012 revenue statistical report which refers to 2011 data indicates that aggregate net taxable profits, taking account of various deductions, allowances, charges and reliefs, amounted to €40.1 billion, while the total amount of corporation tax payable on these profits was €4.2 billion. This means that total corporation tax payable as a percentage of taxable profits was approximately 10.5% for 2011. While this percentage is lower than the 12.5% rate, this can be attributed to the availability of certain reliefs such as the research and development credit which was the subject of a comprehensive review last year and which was found to give value for money for the taxpayer.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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The one aspect on which I agree with the Minister is that assessing corporation tax rates is a more of an art than a science. There is plenty of artisty when it comes to covering up the reality of what firms are or are not paying in tax. I agree with the Minister that there are two separate issues involved. The first relates to the global profits of the multinational companies that are bestriding the globe. I do not accept that it is a false premise that we should assess their global profits. It seems that the problem lies in the unacceptable distinction between companies that are incorporated and taxable here and companies that are incorporated but not taxable here, despite the fact that they are all based here.
The Minister may have heard on radio today Professor Jim Stewart, to whom I spoke in the debate with the PwC spokesperson who tried to claim that these companies had real operations in countries such as Bermuda. Professor Stewart pointed out that they did not and that despite the fact that their address was Clarendon Street, Bermuda, they had no employees there and that all of their accounts were and the administration of their profits, sales and so on was being done in Dublin. However, because of a loophole in our system, they are not tax liable here and are managing to use Ireland as a place in which to avoid tax and we are allowing them to do so. This issue must be addressed.
Another issue concerns how the tax payable on profits of €70 billion, which becomes €40 billion following allowances and so on, amounts to only €4 billion. This raises concerns about the generous allowances which permit companies to write off huge amounts of tax. The EUROSTAT figures indicate that the implicit rates are far lower here than in any other country. I know that they all have different tax systems, but when one looks at the implicit rates, our implicit rates are far lower than anywhere else in Europe, however they are calculated. This issue needs to be addressed.
Michael Noonan (Limerick City, Fine Gael)
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I do not think the Deputy and I are going to solve this conundrum this evening because we have had this debate several times before. I acknowledge that there are different estimates of what the effective tax rate is in Ireland. We have gone through them on a number of occasions. The most fruitful way to advance this debate is to revert to the Committee Stage debate on the Finance Bill in November 2013., during which the Minister of State, Deputy Brian Hayes, agreed that officials of the Department of Finance would prepare a note for the committee. Among those in attendance at the meeting were Deputies Richard Boyd Barrett, Pearse Doherty and Michael McGrath. The purpose of the note is to clarify the issues around the calculation of the effective rate for Ireland, which is exactly the issue we are now debating. Confusion around this topic has led to a number of unhelpful statements being made publicly. The note will include a description of the complications in the calculation of an effective rate of tax for Ireland and explain the bases for calculating the numerous figures quoted internationally and attributed to Ireland, often on an incorrect basis. They will include the 2.2% rate quoted last week by Professor Jim Stewart and the 6.8% rate implicit in the EUROSTAT figures. The note will also explain the 10.5% rate indicated in the data published by the Revenue Commissioners and the 14.4% rate quoted by the European Commission for Ireland. Work in this regard is ongoing and the note is due to be presented to the committee by the end of March and likely to be published. We will talk about this issue further in committee when we will have a properly researched basis for our discussion.