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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 Richard Bruton: Information on Richard Bruton Zoom on Richard Bruton] I hope that has helped to address the concerns.

Deputy Brendan Howlin: Information on Brendan Howlin Zoom on Brendan Howlin I am afraid it has not. The Minister basically told me what I told him. He says it replaces the current narrow provision and is not simply a replacement for the current exit tax. The current tax is capital gains tax, payable at 33%. There is no explanation of why the taxation of this intellectual property should be at a rate of 12.5%. That question was not answered.

Before the Minister replies, I have read the Coffey report and this evening I read the directive so that I would be up to speed on it. This is a very careful and calibrated discussion. The notion that there is an agreed approach that should be rubber-stamped this evening in a financial resolution that the House has only seen an hour or two ago is not true. Article 5 of the anti-tax avoidance directive requires Ireland, by 1 January 2020, to have an exit tax in four particular circumstances that are set out in the report. We currently have an exit tax, which will be replaced by this provision. What are the considerations that the Government has given in transposing Article 5 of the anti-tax avoidance directive? Is that not a reasonable debate to have? Why has the Government landed on a rate of 12.5%? Can we not have a debate about that? I know the Minister has been lobbied for this measure but it is a matter that should be debated in a democratic way in the Finance Bill, not passed by fiat. I cannot amend the rate the Minister has set in the financial resolution. Nobody from the Opposition benches can amend it.

In 40 minutes, it is proposed to significantly change the taxation of intellectual assets in this country. That is not the way we should do our business. If we have learned anything from the way we have done business in the past, it is that this is not the way to do it. The Minister has given me no reason it has to be done by midnight. He says that no money will accrue from this measure and very few transactions will be subject to it. In that case, why not wait the ten days or so for the Finance Bill to be published and debated properly?

Deputy Jonathan O'Brien: Information on Jonathan O'Brien Zoom on Jonathan O'Brien As Deputy Howlin stated, the Minister has not yet given us a reason for settling a rate of 12.5%. We know there was extensive lobbying of the Department to set it at 12.5%. I still do not understand why we are trying to push this measure through before midnight tonight in a 40-minute debate. It will have a profound impact, albeit not immediately because no income will accrue from it according to the Minister's estimates. However, we do not know what will happen next year, the year after or the year after that. The House is to push the measure through in 40 minutes on the basis that there is very little activity in this area. The estimates suggest it will be revenue neutral and will not generate income. That is the position as of now. We need a more in-depth and detailed explanation from the Minister. We have received no supporting papers from the Department, bar a couple of paragraphs about the BEPS report published in October 2015, and the need to transpose the relevant directive before 1 January 2020. There is very little detail.

It is a mistake to rush this measure. Once the financial resolution is passed, there is nothing we can do. The amendment which has been put forward calls for a report. If such a report were to find that we should have kept the rate at 33%, there will be nothing any of us can do because the financial resolution will have been passed. It would be more prudent to draw up the report before the Finance Bill. If we are given that information, we can make an informed decision during the passage of the Finance Bill. We seem to be doing it the wrong way around. We are making the decision and then we might have a look at a report. If the report indicates that we should leave the rate at 33% or set it at 25%, the horse will have bolted.

Deputy Richard Bruton: Information on Richard Bruton Zoom on Richard Bruton This is a new tax. It is the first time there will be a tax of this general nature applying to people who decide to move intellectual property but not realise those gains. This is a tax on exit, not a capital gains tax on a disposal. If a company exits, it has not realised the gain. It does not have disposal proceeds from which to pay a 33% rate. That is the reason it was thought reasonable to apply the corporation tax rate of 12.5%. We do not tax people on unrealised gains in our tax code. That is not the way in which capital gains tax applies. CGT applies when a disposal has been made and proceeds have been generated and tax is collected from those proceeds. In this case, what is being proposed is an exit tax on a company opting to move intellectual property out of the jurisdiction. It is being introduced as a new tax measure that is believed to be in accordance with the provisions of base erosion and profit shifting reports intended to help combat that sort of behaviour. It is an anti-avoidance measure.

Allow me to put this in another way. Suppose we did what the Deputies suggested and, having signalled the introduction of this tax, waited for several weeks and allowed companies to reorganise their affairs and not pay the exit tax. Would the Deputies not subsequently argue that it is a crazy approach to introduce an exit tax designed to change behaviour and the way companies move intellectual property around and then flag it and wait for people to decide whether to avoid the implications of this tax?

What the Minister is proposing here is prudent. The measure, which would be effective from tonight, will give certainty. It will not lead to gaming of the regime by people seeking to artificially move assets ahead of an anticipated rate. It is being set in a way that is reasonable, given that these are companies not realising cash from which to pay. This is an exit tax and it is being levied at the same rate as corporate tax. Other countries that have applied this exit tax are using their corporate tax rate as well.

This is a correct measure. It is part of the approach which has been outlined in Ireland's corporation tax roadmap, whereby we are progressively dealing with elements of our tax code that have been subject to aggressive tax planning by companies. Deputies are aware of the changes that have been made in respect of the double Irish, non-resident companies and so on. We are prudently and properly moving to ensure that our tax code continues to be robust, defensible and correct in the way it is applied. We do not want any suggestions that harmful tax competition is involved. This is a legitimate tax. We are taking steps in a timely way, rather than leaving it to the last moment. We are doing it in a way that is fair and reasonable and taking the precaution of moving and agreeing it tonight in order that we are not exposed to potential aggressive tax planning on this particular measure.

Deputy Brendan Howlin: Information on Brendan Howlin Zoom on Brendan Howlin The Minister made a presentation as if this was all new. He referred to the Minister for Finance's publication, Ireland's corporation tax roadmap, a copy of which I have with me. The roadmap, which was published on 5 September, states this would be done by 2020. What happened in the past few weeks that requires this to be done tonight? There is no indication in this document that this must be done by way of a financial resolution.

We talk about having a more transparent way of budgeting. We are all for making the House more responsible for budgeting but this is not the way to do it. The Minister referenced discussions at European Union level. I was involved in discussions on the BEPS process at EU level. Discussions on anti-tax avoidance measures at that level were not limited to the BEPS reports.

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