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Financial Resolution No. 2: Capital Gains Tax (Continued)

Tuesday, 9 October 2018

Dáil Éireann Debate
Vol. 973 No. 2

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(Speaker Continuing)

[Deputy Brendan Howlin: Information on Brendan Howlin Zoom on Brendan Howlin]   Why has the Department of Finance not published a tax expenditure report? What is proposed is a major change and it requires a budget resolution. Will we be sitting here in the future wondering why there was a windfall or a loss associated with this particular measure in respect of which we have no background information? I imagine most people in the House are not that familiar with it. Does the Minister know why this measure must be adopted tonight? Will he tell us? Are large technology companies planning to bring intellectual property into Ireland? Are they planning to do so tonight and is that the reason for this being done now? We need to know the answers to those questions before we are asked to vote on what is proposed. The industry has been lobbying for a reduction in capital gains tax to 12.5%. These are matters that should be dealt with properly in the context of the Finance Bill.

  A Department of Finance report published last month states:

Specifically, the ATAD exit tax regime seeks to tax unrealised capital gains where a taxpayer transfers its residence, transfers assets from its head office to a permanent establishment, or vice versa, in another territory, or transfers the business carried on by a permanent establishment to another territory, to the extent that the country from which the assets or business are transferred loses the right to tax the transferred assets or business following the transfer.

Member States must introduce the ATAD exit tax, or bring existing exit taxes into alignment with [that particular] tax where relevant, no later than 1 January 2020.

Why is this being done tonight? I have many more questions to ask, but I want to allow other people to come in on this. Perhaps the Minister can give a very simple, straightforward explanation that will avoid the need for me to ask further questions.

Deputy Mattie McGrath: Information on Mattie McGrath Zoom on Mattie McGrath I also want answers to the questions Deputy Howlin asked, so I will not labour the point. Why is there a panic to introduce this tonight if the implementation date is January 2020? We normally vote on issues which take effect at midnight and which , for various reasons, cannot be changed or moved. Why is the rate changing from 33% to 12.5%? Perhaps the Minister will be able to put us at ease and explain the panic and the changes to the rates.

Deputy Jonathan O'Brien: Information on Jonathan O'Brien Zoom on Jonathan O'Brien Deputy Howlin covered most of what I wanted to say. It is very unusual to have a financial resolution such as this when there is no necessity for what is proposed to be done before midnight. The only reason I could find for the rush is in the note from the Government that accompanied the financial resolution. It states the measure is being implemented on budget night to provide certainty for businesses currently located in Ireland and for those considering investing here in the future. It also states that the rate will be 12.5%. The only reason we have been given is that it will provide certainty tonight, even though it does not have to be implemented until 1 January 2020. We have been given very little information about this measure. It would be better to deal with it during the passage of the Finance Bill, when we can have a more detailed discussion on the reasons we are not looking at the tax rate of 33%, or even the non-trading corporation tax rate of 25%. Why is the rate being reduced to 12.5%? We have been given no reason for that. We know that certain sectors of the industry have been lobbying very hard for the 12.5% rate to be applied. For that reason, we will be supporting the amendment tabled by the Labour Party. If the amendment is not accepted and there is a vote on the financial resolution, Sinn Féin will oppose it because we do not believe it is appropriate that this be done before midnight. There is no reason or rationale for rushing this through. It should be dealt with during the debate on the Finance Bill, for example, on Committee Stage, when we can look at all of the evidence and some of the supporting documentation. I am sure the Department has such documentation, but it has not been shared with opposition spokespersons. Without that, we cannot support the financial resolution, but we will certainly support the amendment being put forward by the Labour Party.

An Ceann Comhairle: Information on Seán Ó Fearghaíl Zoom on Seán Ó Fearghaíl Can the Minister allay the concerns of the Deputies?

Minister for Education and Skills (Deputy Richard Bruton): Information on Richard Bruton Zoom on Richard Bruton The existing provision is very narrow. It was introduced solely as an anti-avoidance measure to prevent certain behaviours where abuses where occurring in the transfer of assets while seeking to avoid paying capital gains tax. That anti-abuse measure has been successful and Revenue is not aware of any revenue stream that has been generated by this tax. The behaviour changed so the tax did not generate revenue. This is not simply a replacement for that exit tax, which was a specific measure designed to stop a certain type of behaviour. This will be a new tax measure, effective from tonight, and will apply to the removal of assets from Ireland. These will be intellectual property assets rather than immovable assets such as land or buildings because they would still be liable for corporate gains tax in Ireland when sold. This measure would apply to assets moved out of Ireland which, unless this tax was introduced, would not represent a disposal and therefore would not be liable for any tax.

This measure was agreed with the European Union and is part of a broad range of anti-avoidance taxes we are introducing, including measures against controlled foreign companies, measures against hybrid transactions or entities and measures against interest abuses, which were advocated as being in conformity with the base erosion and profit shifting, BEPS, measures developed by the Organisation for Economic Co-operation and Development. These are measures the EU is taking which we have also agreed to take. It is being introduced now so that it will be effective from tonight. It is obviously prudent, when a tax of this nature is introduced, that it is introduced and implemented rather than introduced and then left for a large period of time. Such a measure could lead to transactions being executed specifically to avoid this impact. By introducing it in this way we avoid the possibility of gaming the regime. We need certainty in this area; the Coffey report on corporation tax advocated that certainty should prevail.

Deputy Howlin asked why we are not projecting significant revenues from this measure.

Deputy Brendan Howlin: Information on Brendan Howlin Zoom on Brendan Howlin No revenue is projected.

Deputy Richard Bruton: Information on Richard Bruton Zoom on Richard Bruton It is believed that most of the intellectual property now located in Ireland is not rising in value. Most of the intellectual property situated here includes items such as patents on pharmaceutical products. The value of this type of item declines as the patent runs out. Revenue does not anticipate that much of the intellectual property located here will raise revenue because capital gains will not generally accrue. There are international trends which show that intellectual property is moving from jurisdictions.

This is a measure we should have in our tax code. If we are going to have such a measure, we should have it and introduce it cleanly. Revenue did not predict an amount of revenue to be raised through this tax because most of the intellectual property located here is not of the sort that would be expected to raise revenue. In terms of budget arithmetic, it would not have been prudent to add a sum of money on which we would be building other spending commitments when there is no prediction of a yield at this point. However, depending on other assets being in place, this tax is expected to raise revenue in the future.

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