Introduction
In the motion before the House today, the Government is seeking Dáil support for its appeal of the European Commission’s decision that Ireland provided unlawful State aid to Apple. Both the Commission’s decision, and the Government appeal, represent landmark moments for Ireland’s tax policy and our place in Europe. It is only right that matters of such importance are debated on the floor of the House.
The motion also includes a commitment to the highest international standards in transparency in the taxation of the corporate sector. Ireland has consistently attained the highest international rating on transparency and has been an early adopter of many new reforms emerging at international level. My pledge today is that we will continue to do so.
Importantly, the motion asks the House to resolve that no company or individual receives preferential tax treatment contrary to the Tax Acts and calls on the Revenue Commissioners to continue to observe this principle. This speaks to core values that have been at the heart of our tax system since the foundation of the State. It is about the impartial rule of law and the fundamental integrity and fairness of our system.
Finally, the motions affirms the view that taxation is a competence for Member States as set out in the EU Treaties.
Together, these core pillars encapsulate the long-term direction for Ireland’s corporation tax policy. That direction involves competing successfully from a position of legitimacy.
The motion recognises that aggressive tax practices are neither sustainable from a tax point of view, nor acceptable from a societal point of view. The bringing of appeal proceedings is not in any way an endorsement of aggressive tax planning arrangements, nor is it a defence of the extremely low effective tax rates that can be achieved under the broken international tax system.
It is not accurate to characterise international tax reform as a binary choice between growing your economy and doing the right thing.
This balance is reflected in the Programme for Partnership Government commitments to:
maintaining the 12.5% corporation tax rate and
working with our international partners in tackling aggressive international tax planning through the OECD’s Base Erosion and Profit Shifting initiative.
The Government decision which led to this debate also affirms a commitment to policy choices that support real jobs and investment. These are legitimate policies that foster and reward innovation and which play to Ireland’s strengths. They include:
the 12.5 percent Corporation Tax rate,
the Research and Development Tax Credit and
the Knowledge Development Box.
Reputation is not only important to Ireland’s standing in the World and our ability to engage with other countries in a mutually respectful way. Reputation is also a proxy for certainty. By building our tax system around policies and principles that are recognised as best practice internationally, we can provide the stability and certainty that businesses at home and abroad are crying out for.
The reaction to the European Commission’s decision has, at times, painted an outdated and unfair caricature of Ireland’s position on tax. This is a caricature that is at odds with the evidence and which overlooks our proven track record in recent years. The facts show our constructive engagement at the international table, with matchless implementation of reforms ahead of many of our partner countries.
The European Commission’s decision
Before we debate the Government’s motion in respect of the appeal, I would like to provide some background to the circumstances surrounding the Commission’s decision.
I first learned of the impending Commission decision following a phone call from Commissioner Vestager on Tuesday 23rd August. In that conversation I was given to understand that the Commission would issue a negative decision early the following week. I was given no confirmation of the date of the decision, no indication of the size of the recovery amount, nor was I provided with any information on the grounds for the Commission’s decision.
Until that point I had been working on the basis of intelligence gathered by my officials that the Commission was likely to issue a decision in September or October, but I had not firm indication of the timing or content of the Commission’s decision.
Following further contacts with my officials, the Commission indicated that the recovery amount would be large, and in the billions.
It was not until the morning of the decision that the recovery amount and other details of the Commission’s decision became available to Ireland.
As things stand, the Commission has yet to publish its final decision. Both Ireland and Apple are being given an opportunity to identify material within the decision which is subject to commercial confidentiality, and which must therefore be redacted. Ireland is offering every assistance to the Commission under this process. However, it must be noted that the company also has the opportunity to exercise its rights in the matter. This procedure mirrors that which was used for the cases against the Netherlands, Belgium and Luxembourg, where it took several months for the Commission to make a copy of the decisions publically available. This approach is also consistent with the process that was followed for the Commission’s opening decision in the Apple case in 2014.
In the circumstances, and to assist Deputies, I have asked my Department to make an explanatory memorandum on the case available, which has been circulated to all Members of the House.
I think it is important to clarify that no other companies are subject to this decision by the European Commission and there are no other impending State aid cases against Ireland. As Commission Vestager has stated clearly: this decision does not call into question Ireland's general tax system or its corporate tax rate”.
Government position on appeal
The Government’s position throughout this process has been that the full amount of tax was paid in this case and no State aid was provided. Ireland did not give favourable tax treatment to Apple. Ireland does not do deals with taxpayers.
On Friday, the Government authorised me to appeal the Commission decision to the European Courts. This is necessary:
to defend the integrity of our tax system;
to provide tax certainty to business; and
to challenge the encroachment of EU state aid rules into the sovereign Member State competence of taxation.
Given that we are now facing an important Court process, in which Ireland will articulate a robust challenge to the Commission’s position, I am mindful of the need to avoid cutting across Ireland’s legal case in my contribution here today. That said, I feel it is important for this debate that I outline, in high-level terms, what I believe are the key persuasive arguments for taking an appeal.
First, it is simply untrue that Ireland provided favourable treatment to Apple. The Chairman of the Revenue Commissioners has stated emphatically that:
there was no departure from the applicable Irish tax law by Revenue;
there was no preference shown in applying that law; and
the full tax due was paid in accordance with the law.
The motion before the House today resolves that preferential treatment has no part to play in the Irish tax system and calls on the Revenue Commissioners to continue to observe this principle.
It is very damaging for our reputation to be called into question. This reputational damage can have very real consequences. It affects how Ireland could be treated by other jurisdictions in tax treaties, controlled foreign company rules or listings. Furthermore, it damages Ireland’s credibility in the international tax debate and inhibits Ireland in pressing arguments that serve our national interest.
A further concern is that the Commission is undermining the fundamental principle of international tax: that tax should be paid where the value is created. Everyone knows that the iPhone and other well-known Apple products were developed in the US, not Ireland.
A central aspect of this case is that the companies concerned were not tax resident in Ireland. And under Irish tax law, non-resident companies are chargeable to Irish corporation tax only on the profits attributable to their Irish branches.
This means that profits of such companies that are not generated by their Irish branches cannot be charged with Irish tax under Irish tax law. Examples include profits from technology, design and marketing that are generated outside Ireland.
The US Treasury has expressed a concern that in such cases the recovery sum could be creditable against a company’s US tax bill. If so, the company’s U.S. tax liability would be reduced dollar for dollar by these recoveries in the event that their offshore earnings are repatriated or treated as repatriated as part of possible U.S. tax reform.
This would effectively constitute a transfer of revenue to the EU from the U.S. government and its taxpayers. The US Treasury has described this outcome as ‘deeply troubling’.
The European Commission has stated that the sums to be recovered by Ireland would be reduced if other countries were to require Apple to pay more taxes or if the US authorities were to require Apple to pay larger amounts of money to their US parent company.
This points to a clear contradiction at the heart of the European Commission’s decision. While requiring Ireland to recover the tax sums, the Commission is also acknowledging that the sums may in fact be taxable in other jurisdictions.
Taxation is a core Member State competence, which is enshrined in the EU Treaties. This decision encroaches on Member State sovereignty in the area of tax, by extending competition rules into the tax area to an unprecedented and unjustified extent. By doing this the Commission creates uncertainty for business and investment in the European economy, both in its novel interpretation of longstanding rules and their unfair retroactive application.
Recovery
Notwithstanding the appeal by Ireland and the separate appeal by Apple, we are required to recover up to €13bn plus interest from the company. This will be placed in a ring-fenced escrow account pending the outcome of legal proceedings.
Some of the public debate on the case has focused on an attitude of ‘take the money and run’.
The Government disagrees with that position.
First of all, the European Commission has stated that the sums to be recovered by Ireland would be reduced if other countries were to require Apple to pay more taxes or if the US authorities were to require Apple to pay larger amounts of money to their US parent company.
This means that the final figure is by no means certain and may be the subject of complex, drawn-out engagement with other countries for many years to come.
I should be clear that the Irish position all along has been that we have no right to this money based on Irish tax law. Therefore, the ultimate entitlement of Ireland to this tax revenue in the face of competing claims from other jurisdictions is highly uncertain.
Furthermore, the figures remain subject to legal proceedings by Apple. Regardless of any Irish appeal, if Apple were to be successful in their appeal the full amount would have to be repaid to the company.
I can accept that not everyone in the House will agree on the decision to appeal. But we should have a debate that acknowledges the reality surrounding this enormous sum of money.
Review of the corporation tax code
Today’s motion is an opportunity for a wider debate on our system.
It is good practice to undertake periodic reviews of key areas of Government policy. The last review of corporation tax policy took place in 2014. Since then a wide range of new developments have emerged in international taxation, such as the OECD Base Erosion and Profit Shifting Project. We need to ensure that Ireland’s corporation tax code meets these new standards while remaining competitive as the economy continues to grow.
For this reason, he Government has decided on a review of the corporation tax code, which is to be done by an independent expert. The review will exclude any possibility of a change to the 12.5% corporation tax rate.
My immediate focus at the current time is on the forthcoming Budget, but I expect to make a decision on the terms of reference for the review and the appointment of the independent expert over the coming weeks with a view to an announcement around Budget time.
Transparency and tax fairness
Transparency and fairness are also key notes in Ireland’s corporation tax policy.
Ireland has a strong track record in this area and we have received the highest ratings for the transparency of our system from the Global Forum.
We have also undertaken a spillover analysis of the impact of Ireland’s tax system, including the tax treaty network, on the economies of developing countries. Ireland is a thought leader in this area of research: only one other country -- the Netherlands -- has previously carried out a similar spillover analysis project.
On Friday the Government made a range of further important commitments in the area of transparency and tax fairness:
Ireland will ensure full implementation this year of the so-called ‘DAC’ Directives which provide for the sharing of important information between revenue authorities across Europe, including in relation to tax rulings;
We will engage constructively with EU proposals to amend the Accounting Directive to provide for public country-by-country reporting, while critically analysing proposals that may not be in Ireland’s long term interests;
We will ensure full implementation of country-by-country reporting in line with BEPS Action 13 in a way that ensures cooperation with other jurisdictions, including developing countries;
We will help to build developing country capacity to benefit from enhanced global tax transparency;
We will convene a high level event, to be hosted by the Department of the Taoiseach, bringing together the Government, senior management from the multinational sector, tax experts and civil society as a multi-stakeholder dialogue to understand the challenges and opportunities around tax and corporate responsibility; and
We will support the forthcoming European Commission proposals on mandatory disclosure rules for aggressive or abusive tax practices in line with Action 12 of the OECD BEPS project.
Section 110 change
In addition to change on the international front, I am also keen to address any concerns regarding our domestic system.
A number of issues have been raised recently about the possible use of aggressive tax practices by some section 110 companies to avoid paying tax on property transactions. Yesterday I published draft legislation to amend section 110 of the Taxes Consolidation Act 1997.
The draft legislation targets the issues that have been raised and will ensure that the tax base is appropriately protected. Further targeted proposals in relation to the use of funds in the Irish property market are also being considered.
As this is draft legislation, for inclusion in the forthcoming Finance Bill, I will evaluate and give due consideration to any amendments that are proposed by Deputies.
If any further abuses of the section 110 regime are identified, further measures may be brought for my consideration for the Finance Bill.
Once enacted this new amending legislation will come into effect from 6 September 2016.
Revenue changes re tax rulings
In addition to action by the Government, the Revenue Commissioners have confirmed that they will make some changes:
Revenue will amend the relevant guidance and instructions to provide that tax rulings will not remain valid beyond 5 years without a full review, and
to facilitate accountability, Revenue will publish in their Annual Report the number of opinions issued each year, in a way that fully respects taxpayer confidentiality.
I very much welcome these moves by the Revenue Commissioners.
Conclusion
In conclusion, this motion seeks the support of the Dáil on an appeal of the European Commission’s decision and other important pillars of our corporation tax system.
For the Government, there is a clear and pressing case for taking an appeal.
Ireland has done nothing wrong here. We have a proven track record in international tax reform and a matchless commitment to meeting the best international standards.
We should not see ourselves through the eyes of our detractors: those who would paint a cartoonish and negative image of Ireland.
Ireland is a long-standing and proud member of the EU. We have helped to shape the EU as it is today. We are also a founder member of the OECD, the international thought leader in tax reform.
It is time to move on from myths and generalisations, to look at what Ireland really stands for on this issue. The Government’s position is clear.
The Government motion is seeking Dáil support on a wide range of issues. We certainly compete for FDI, but do so from a position of legitimacy. Our corporation tax code is founded on fairness, transparency, consistency, and the rule of law.
I look forward to listening to Deputies’ contributions on this important debate and I commend the motion to the House.