Ruth Coppinger (Dublin West, Socialist Party)
Link to this: Individually | In context | Oireachtas source

9. To ask the Minister for Finance the purpose and function of the income tax exemption for non-resident holders of Irish Government securities and the reason the cost of this tax expenditure has increased from €240.8 million in 2007 to €619 million in 2012; if he will provide a breakdown of the number of beneficiaries each year and the benefit per person; and if the latter information is not available, the reason why. [41765/14]

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

Under section 43 of the Taxes Consolidation Act 1997 the Minister for Finance may issue certain Government securities with a condition that both the capital of and the interest on any such security is exempt from income tax or corporation tax. This exemption applies only where the security is in the beneficial ownership of a person or persons who is, or are, not resident in the State. Up to 3 February 2010, this exemption applied where the security was held in the beneficial ownership of a person or persons who were not ordinarily resident in the State.

The functions of the Minister for Finance relating to borrowing and debt management were delegated to the NTMA by order of the Government made under the NTMA Act 1990.

The exemption does not apply to securities acquired by a company after 29 January, 1992, regardless of when such securities were issued, where the securities are held by or for an Irish branch or agency of the company and the trade or business being carried on through that branch or agency is a financial trade or business. The securities must be held by or for the Irish branch or agency. If they are held by the foreign company separately from its Irish branch or agency, the exemption continues. 

The provision is meant to incentivise persons abroad to invest in Irish securities. If the bonds were taxed at source, non-resident investors would almost certainly make it more expensive and adjust the price they are willing to pay to reflect the tax, so the tax gained would largely be offset by higher funding costs for the State. The exemption avoids persons that are not resident in this State and holding a beneficial ownership in securities issued by the NTMA on behalf of the Minister for Finance, being liable to taxation in both their home State and in Ireland. In the absence of the provision - which has been on the statute book in one form or another almost since the foundation of the State - such persons would be liable to be taxed in their own jurisdiction and in Ireland on the capital and/or the interest.

While the percentage of Irish Bonds held by non-residents declined during the financial crisis, the fact that the State's sovereign borrowings increased substantially in the period resulted in an increase in the tax foregone figure from €240.8 million in 2007 to an estimated €615.9 million in 2012. This is borne out by the CSO published figures on national debt interest payments to non-residents which increased from €1,347 million in 2007 to €4,635 million in 2013, an increase of 244% over 2007. It is of course important to remember the benefits of this exemption in terms of incentivising foreign investors to invest in Irish securities.

The register of holders of Irish Government bonds is maintained at the Central Bank of Ireland. The register is almost entirely made up of Euroclear Bank, the clearing and settlement platform. Due to the nominee account structure in Euroclear Bank it is not possible to identify the number of beneficiaries under the exemption provided for by section 43 of the Taxes Consolidation Act 1997.