Wednesday, 15 September 2021
Saincheisteanna Tráthúla - Topical Issue Debate
It transpires that the single malt tax shelter the Minister, Deputy Donohoe, thought he had closed down in 2018 appears to be still very much open for business. The so-called single malt allowed companies incorporated here to minimise their corporation tax bills by funnelling profits into low tax states, in this case Malta, with which we have tax treaties. We now know, thanks to Christian Aid, that at least one company, in this case, the pharmaceutical giant, Abbott, is still availing of a single malt-type tax avoid structure to avoid tax on profits from its rapid diagnostics division.
The Minister, Deputy Donohoe, attempted to close down the single malt structure in 2018 yet three new Abbott-related entities were set up here in 2019, purely with the intention of avoiding tax on profits. Thanks to what Christian Aid has described as the narrow drafting of the Ireland-Malta tax agreement, the deal that the Minister said in 2018 "should eliminate any remaining concerns about such structures" and which he said represented "another sign of Ireland’s commitment to tackling aggressive tax planning", it has turned out to be nothing of the sort. The Maltese operate a generous series of tax write-offs against intellectual property including licences, trademarks and so on. There is little that we in Ireland can do about that but, according to Christian Aid, it is the narrow drafting of the tax treaty that allows this abominable practice to occur in the first place. This is Ireland's problem. It is our problem. This elaborate game of pass the parcel might be lawful, bizarre as that sounds, but it is disgusting and immoral. The practice literally takes food out of the mouths of children in Ethiopia and Nepal, where Abbott sells Covid kits. Taxes on sales profits in those countries ought to be paid there. Christian Aid's analysis says that these structures will enable this entity to avoid paying corporation tax on nearly €500 million worth of profits attributable to intellectual property for its rapid tests, including its Covid-19 tests.
This is just the latest in a series of embarrassing tax controversies for the Government, although it comes at a particularly sensitive time in light of the ongoing OECD reform process. Ironically, it can be argued that the Abbott case has also come about due to the previous Government's failure to sign Ireland up to Article 12 of the OECD multilateral instrument despite warnings from Christian Aid and others at the time, including the Minister of State's ministerial colleagues, the Ministers, Deputies Michael McGrath and Darragh O'Brien, that this could lead to the kind of tax avoidance we have seen revealed by Christian Aid in the media today. Today's revelations prove yet again that standing on the sidelines of international agreements and taking a "whack-a-mole" approach to closing tax loopholes, as Christian Aid has rightly described it, simply does not work when the tax avoidance industry is always one step ahead.
Is it news to the Minister of State that these kinds of scheme still exist? What action will this Government take to close the loopholes exposed here? Are Abbott and its related companies the only series of firms exploiting such arrangements? Are there more? Are the Revenue Commissioners privy to this arrangement? Do they have knowledge of the arrangement operated by Abbott? Moreover, did they approve it at any level?
I thank Deputy Nash for the opportunity to address the report on behalf of the Minister, Deputy Donohoe, this evening. From the outset I must point out that, while the Deputy has mentioned the name of a particular company and has gone into its tax affairs in detail here in the Chamber, people will understand that it is absolutely not appropriate for the Minister for Finance to comment on the tax affairs of individual businesses. That is a basic law and understanding of how this Parliament should work. A Minister should not be going down the road of talking about the tax affairs of a named individual business or individual person.
Recent years have seen significant progress in global action to address the issue of aggressive tax planning by multinational companies. Ireland has fully engaged in the base erosion and profit shifting, BEPS, process since 2013 and we have proactively and diligently reformed our tax code in line with emerging new international norms. A lot has already been achieved. We must recall that, today, we have far more robust international tax rules and safeguards to prevent abuse, arbitrage, base erosion and profit shifting than existed a decade ago. Significant progress has been made.
In respect to the issues highlighted in the Christian Aid report, it is relevant to note that the Revenue Commissioners entered into a competent authority agreement with the Maltese competent authority, its Ministry of finance, to counteract so-called single malt arrangements that could otherwise result in double non-taxation. At this late hour of the night, people will forgive me for specify that when I mention "single malt", I am not talking about whiskey. The word "single" relates to a business that has single residency in an area. The word "malt" is short for "Malta" rather than having anything to do with whiskey, in case people thought that was what we were talking about here tonight. Specifically, this competent authority agreement addresses issues where there is a mismatch of residence and domicile provisions which could otherwise result in double non-taxation. I am advised that this competent authority agreement provision is operating as intended and companies should not be able to avail of double non-taxation on the basis of a mismatch of residence and domicile provisions.
The Minister is committed to taking action to ensure the Irish tax code is in line with new and emerging international tax standards as agreed globally. The January 2021 update to Ireland's corporation tax roadmap highlights the actions that have already been taken, and which will continue to be taken, in this process of corporation tax reform.
It is important to remember that in recent Finance Acts the Oireachtas has substantially progressed transposition of the anti-tax avoidance directives through: the introduction of controlled foreign company rules, anti-hybrid rules and a revised exit tax regime; the introduction of defensive measures against listed jurisdictions through enhanced controlled foreign company rules; the updating of transfer pricing rules; the introduction of legislation for OECD BEPS measures on mandatory disclosure rules; and a substantial widening of the scope of the exit tax regime with the result that, on the migration of a company from Ireland to another country of residence, the increase in the value of assets to the date of the company's departure will be chargeable to the full rate of corporation tax. It should also be recognised that Ireland has a long-standing general anti-avoidance rule which goes beyond the standard required by the EU anti-tax avoidance directives. Furthermore, in the upcoming Finance Bill, it is intended that we will complete the transposition of the anti-tax avoidance directives with the reintroduction of interest limitation rules and anti-reverse hybrid rules. It is intended that these rules will be effective from 1 January 2022.
I too understand the rules, conventions and protocols in this House but I have no difficulty in identifying, as the media have today, firms that may be practising tax strategies that, although lawful, are immoral. These are not the type of tax strategies or tax avoidance structures that should be facilitated in any way by this country. This is where we interrogate important issues of public policy in this Republic. We are elected representatives of the people and we have a constitutional obligation to interrogate and explore these issues, particularly when states such as our own and others across the European Union and the developing world are being deprived of resources that are rightfully theirs because of the arcane and elaborate structures that certain organisations are permitted to operate. It is bizarre that these are lawful, as I remarked in my initial contribution. We have seen the response from the firm involved to the media. It is predictable. It has said that it has done nothing unlawful so it is okay. That is its defence.
While I understand that the Minister of State does not want to make direct reference to this company, is he aware of any other schemes that are in place that may be similar to the single malt mechanism, which we had been told was closed down in 2018? The Minister of State has gone to some lengths to describe the kind of due diligence that the the Department and the Revenue Commissioners may engage in to identify shelters such as this where they crop up but has any recent assessment been undertaken by his Department in respect of the corporation tax liabilities of Irish-incorporated companies that are tax resident in other tax treaty partner countries since the residency rules changes in the Finance Act 2014 came into force last December?
I will make a final point with the indulgence of the Leas-Cheann Comhairle. This Abbott case again shows how taxable profits are being siphoned away from the poorer countries where sales are being made, in this case, Nepal and Ethiopia. I know that a spillover analysis was done by the Department regarding the impact of these kinds of measures on developing countries. Will the Minister of State undertake a similar analysis in light of these reports?
I thank the Deputy again. I must reiterate that it would be inappropriate for a Minister or Minister of State to comment on the tax affairs of an individual taxpayer here in the House. The competent authorities agreement that was signed came into effect in November 2018. This effectively brought an end to the single malt structure the Deputy has been speaking about.
The objective of the agreement was to counteract the arrangement that sought to take income out of the charge of tax in Ireland on the basis that the company was not tax-resident in Ireland but also out of the charge of tax in Malta on the basis the company was not domiciled there.
The Christian Aid report provides no evidence that the competent authority agreement was ineffective in achieving that objective. On the contrary, paragraph 18 of the report states that the 2018 competent authority agreement appeared to end the spate of new single malt structures that multinationals had begun to set up from 2015 onwards. Since November 2018, only four companies have been incorporated in Ireland with a place of business registered in Malta. The four were subsidiaries of one group, registered in 2019. One case is being discussed and the Revenue is keeping a close eye on that.
In effect, the Christian Aid report acknowledges the competent authority agreement has achieved its objective in preventing double non-taxation that would otherwise arise from a mismatch of the rules. The real story is why sufficient prominence was not given to the Christian Aid report in that regard. Within a short period, it was effectively eliminated and there is only one case outstanding. That is receiving close scrutiny. The purpose of providing opportunities for double taxation is set out clearly in the various reports and Ireland has a proven record of improvements in our international corporation tax regime. We have listed a number of the improvements that have happened year by year over the past couple of years. There will be further developments in the coming budget.