Written answers

Tuesday, 27 March 2007

Department of Communications, Energy and Natural Resources

Tax Code

11:00 am

Photo of Ciarán CuffeCiarán Cuffe (Dún Laoghaire, Green Party)
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Question 142: To ask the Minister for Communications, Marine and Natural Resources if his attention was drawn in advance of the practice by three State companies of channelling revenues through operations in the Netherlands in order to avoid corporation tax; and his views on such a practice in State companies. [11485/07]

Photo of Noel DempseyNoel Dempsey (Meath, Fianna Fail)
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I understand that two of the companies alluded to by the Deputy come under the aegis of my Department, namely ESB and An Post.

In accordance with legislation, the body's articles of association and the Code of Practice for the Governance of State Bodies, ESB and An Post must seek Ministerial approval for all large projects.

The specific tax structuring of each transaction is a commercial matter for the body itself as long as it is in full compliance with tax legislation and also the "Code of Practice for Governance of State Bodies" as set out by the Department of Finance.

I receive an annual statement from the Chairman of each semi-State body confirming that the company is in full compliance with:

a. Tax Legislation

b. The Code Of Practice

And that the company:

a. Does not engage in any "offensive" tax avoidance schemes, and engages in communications with the Office of the Revenue Commissioners in an open and honest manner and that full details of any material transaction, where doubt is cast over the tax treatment, is brought to the attention of the Inspector of Taxes.

This statement was duly received by me from ESB and An Post for the periods in question. The vast majority of multi-national companies, including Irish based companies, use Dutch holding companies to structure their international operations.

Dutch holding companies are popular with multi-national companies from around the globe primarily because of generous provisions in the Dutch tax regime (regarding dividends, capital gains tax and loan interest) and its network of double taxation agreements. This provides a legal tax efficient way of structuring investments by Irish companies and other multi-nationals abroad.

The ESB and An Post transactions, which involve a Dutch holding company, are bone fide commercial transactions. These are transactions to purchase, build or operate power stations, in the case of ESB and other corporate entities, in the case of An Post abroad. They are not created specifically to avoid tax, they are created in the normal course of business by ESB and An Post. I am advised that The Office of the Revenue Commissioners has not sought to unwind any of these transactions.

The structuring of investments so as to minimise a tax bill clearly makes an investment more profitable and thus allows Irish companies to compete on a level playing field with their international counterparts who structure their investments in the most tax efficient manner legally permissible.

It is legitimate and makes full commercial sense for ESB and An Post to structure and finance their international projects in a tax efficient manner. It ensures that they are competitive in bidding for business. Otherwise their cost of funds would be inevitably higher than that of their competitors.

In addition, all value created by ESB and An Post from their international activities (including any theoretical "tax foregone" by the Office of the Revenue Commissioners) is not lost to the State as it is retained within the bodies and ultimately the State as shareholder.

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