Maureen O'Sullivan (Dublin Central, Independent)
Link to this: Individually | In context | Oireachtas source

To ask the Minister for Finance if he will explain the recent tax figures released regarding a company (details supplied) paying only €35,000 in Irish taxes since 2005 while paying €5.7 million in royalty and licensing fees to its parent company; his response to the fact that companies like these can cut their income tax by paying fees to its parent company making it look like they are at a loss and are therefore not obliged to pay income tax; if he will consider measures to prevent this even though they are currently legal activities; and if he will make a statement on the matter. [46828/12]

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

I am precluded from commenting on the tax affairs of any taxpayer, as these are confidential between the taxpayer and the Revenue Commissioners. However, I am aware of recent media reports which refer to the ways that some companies structure their international tax affairs to minimise their tax costs. The ability of entities to reduce their tax liabilities using international structures reflects the global context in which Ireland and indeed all countries operate. In general, companies are required to pay corporation tax in the country where they carry on the economic activity, not necessarily where their customers are located. It is important to state clearly that all companies in Ireland pay the standard 12.5% rate on their trading profits which are generated in Ireland.

I wish to advise the Deputy that the Taxes Consolidation Act 1997 requires a company’s trading profits to be computed in accordance with generally accepted accounting practice subject to any adjustment required by tax law. In computing such profits, expenses that are incurred wholly and exclusively for the purposes of the trade, including royalties or licence fees paid for the use of intellectual property, are deductible. Subsidiaries of multinational groups, whether located in Ireland or other countries, will necessarily incur certain bona fide expenditures including, for example, royalty payments to group companies in foreign jurisdictions for the use of intellectual property rights. Such payments represent the required remuneration of valuable intangible assets funded and owned outside the State. Ireland cannot expect to receive or retain the remuneration of these assets. Nevertheless, Irish resident companies are chargeable to corporation tax at the standard 12.5% rate on the full trading profits that are generated from their economic activities here.

The tax code contains transfer pricing rules that apply the OECD’s arm’s length pricing principle to trading transactions between associated companies. This ensures that the profits chargeable to corporation tax in Ireland fully reflect the functions, assets and risks located here by a multinational group. As with any other rules in relation to the computation of income for tax purposes, the transfer pricing rules include provision for any adjustments to income and tax payable to be made if required. I would emphasise that Ireland is fully supportive of international efforts to ensure fairness in taxation. Ireland participates fully in the EU Code of Conduct Group, which addresses harmful tax competition, and in the OECD Forum on Harmful Tax Practices.