Brendan Smith (Cavan-Monaghan, Fianna Fail)
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88. To ask the Minister for Public Expenditure and Reform if his attention has been drawn to the increasing concerns of contractors within the construction sector here regarding to the procurement of public contracts due to unfair competition from contractors, particularly from Northern Ireland, which have a lower cost base and continue to gain further advantage with the procurement of building materials and labour in Northern Ireland due to the weakness of sterling; if contractors regardless of their base are obliged to pay the statutory labour rates here along with other statutory taxes and levies; and if he will make a statement on the matter. [31441/17]

Brendan Smith (Cavan-Monaghan, Fianna Fail)
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89. To ask the Minister for Public Expenditure and Reform his plans to protect businesses in the construction sector which are facing unfair competition from contractors, particularly from Northern Ireland, which have a lower cost base and are tendering and gaining public contracts at costs below those viable for contractors based here that meet all their statutory obligations in terms of their business and employees; and if he will make a statement on the matter. [31442/17]

Paschal Donohoe (Dublin Central, Fine Gael)
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I propose to take Questions Nos. 88 and 89 together.

Public procurement is the acquisition, whether under formal contract or not, of works, supplies and services by public bodies.  National rules governing public procurement must comply with the relevant EU, WTO and national legal requirements and obligations.  Under EU law, public contracts above a certain value must be advertised EU-wide and awarded to the most competitive tender in an open and objective process. The aim of European and national rules is to promote an open, competitive and non-discriminatory public procurement regime which delivers best value for money. It would be a breach of the rules for a public body to favour or discriminate against particular candidates on grounds of location or nationality and there are legal remedies which may be used against any public body infringing these rules.

Public procurement procedures require applicants to meet certain standards when applying for public contracts.  In this regard applicants are required to make declarations in relation to their financial standing, their legal standing and in relation to payment of taxes and social contributions.

Prior to the award of a public works contract, the successful applicant is also required to produce a current Tax Clearance Certificate from the Revenue Commissioners.  Under our national rules, any non-resident contractor being awarded a public contract must provide a Tax Clearance Certificate issued by Revenue confirming that the firm’s tax affairs are in order and that it has complied with its tax obligations in this jurisdiction.

I am informed by the Revenue Commissioners that non-resident contractors are obliged to register for and pay relevant taxes for activities carried out in the State. This includes Value Added Tax, Relevant Contracts Tax, Employers PAYE and, depending on the circumstances, Income Tax or Corporation Tax.

- VAT - all non-resident principal contractors (individuals, partnerships and companies) who are engaged in Relevant Contracts in the construction industry in the State must register for VAT and account for VAT under the VAT reverse charge rule.  Contractors based in Northern Ireland do not have any advantages over contractors based in Ireland.  Full VAT recovery applies to all purchases wherever sourced and VAT is charged and accounted for on their supplies in Ireland.

- Relevant Contracts Tax (RCT) applies to payments to subcontractors on construction, operations carried out within the State.  RCT applies irrespective of whether the Principal or subcontractor or both are resident outside the State. If the work is being carried out in the State, RCT must be operated.

- Employers PAYE - all employers, including non-resident employers, must register for PAYE as an employer and operate PAYE/PRSI/USC in respect of income attributable to the performance in the State of an employment.

- Income Tax/Corporation Tax - a non-resident contractor which has a permanent establishment which lasts for more than 6 months is liable for Income Tax if a sole trader or Corporation Tax if a company, on the profits arising from the Permanent Establishment.  Under Ireland’s Double Taxation Agreements the term “Permanent Establishment” expressly includes a building site or construction or installation project.

The management of the tendering process for a public contract is a matter for each contracting authority.  It is the responsibility of each contracting authority to ensure that tenderers comply with all the requirements of the process.

Once awarded, the conditions of the public works contracts require the contractor to certify compliance with employment law, to maintain records of all those employed on the site, regardless of whether they are employees of the contractor or their subcontractors, and the hours worked by them.  Where requested, the contractor must also provide details of the payments made to those employed on the site.

Where the contractor fails to comply with their obligations under the contract or employment law, deductions may be made from payments due under the contract until the situation is rectified.

Enforcement of tax, social welfare and employment law are matters for the relevant State authorities.

All contractors in assessing the viability of a particular contract have to consider their input costs, these include such things as proximity to the works site, availability of skilled labour and material, etc.   Exchange rate fluctuation is a risk to be considered when tendering for contracts where payments are to be made in a different currency.  Since both domestic and Northern Ireland (N.I.) contractors can source materials in either jurisdiction they are equally able to exploit currency fluctuations to their advantage.  Therefore domestic contractors are not necessarily at a competitive disadvantage vis-a-vis the cost of materials.

Competition can work both ways and it is also important to remember that open tendering is a two-way street and that it provides Irish companies with opportunities to compete abroad. The public procurement market in the European Union is estimated to be valued in excess of €1.94 trillion per annum. The open market regime offers opportunities for Irish companies to win business abroad. EU studies indicate that many Irish businesses are successful in this regard.