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Financial Resolution No. 4 - Corporation Tax: Motion (Continued)

Tuesday, 13 October 2020

Dáil Éireann Debate
Vol. 999 No. 2
Unrevised

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  10 o’clock

(Speaker Continuing)

[Deputy Richard Boyd Barrett: Information on Richard Boyd Barrett Zoom on Richard Boyd Barrett] If the sales and revenue of a company such as a pharmaceutical or IT company amount to €1 billion, it can decide that one of its own subsidiaries will charge it €900 million for the use of that patent, thus writing down its tax liability to virtually nothing. It is essentially a way in which big multinationals are allowed and facilitated to write their own tax bills. It is why the 12.5% tax rate, itself one of the lowest corporate tax rates in the world, is a complete joke. The big multinationals do not pay anything close to that because of their exploitation of this category of intangible assets.

I recommend that any economics nerds take a look at the table produced by Revenue every year with regard to corporate tax deductions, reliefs and allowances. The table covers approximately two pages in very small print and lists approximately 100 tax reliefs. Buried in this tiny print is a line on intragroup transactions. The intragroup transaction relief granted in the latest available figures totalled €16 billion. This is an increase from the previous year's figure of €9 billion and that of the year before, which was approximately €6 billion. One can see exponential growth in the tax reliefs being claimed in respect of intangible assets through these intragroup transactions, which is to say transactions between different subsidiaries of the same multinational corporation designed to write down taxable profits to negligible levels in order to pay no tax.

How does this measure in the budget book, which is very ill-explained, fit in to that scandalous picture? I invite Deputies to look at the briefing note in the Estimates book. It is three lines long and tells one absolutely nothing. We do not know what this measure does. It relates to balancing charges in some way but we do not know which way it will balance matters. Does it balance them in favour of the multinationals and allow even more assets into this category in order that already negligible tax liabilities can be written down even further?

This is the scandal of budgets and of economies in the modern world, including the Irish economy. While we spend all of our time discussing the crumbs, some of which we have to beg for such as the pandemic unemployment payment or additional expenditure on health or education, the cake is in this little document produced by Revenue, namely, its list of tax reliefs.

People need to understand the scale of this. In the last available figures, one can see that €189 billion was accumulated in pre-tax gross profits, the tax liability in respect of which amounted to approximately 5%. To put that figure of €189 billion in pre-tax gross trading profits in context, it is up from approximately €79 billion in 2010. Pre-tax corporate profits have more than doubled over the last ten years. That is absolutely extraordinary when these companies are paying approximately 5% tax on average. Of course, the big corporations that can exploit the category of intangible assets to avail of tax deductions or allowances to write down their tax liabilities are paying far less than 5%.

It is an utter scandal. They are not only robbing the people of this country but ordinary people all over the world. It is the major contributor to growing global inequality between rich and poor and the staggering, astonishing and shameful concentration of wealth in the hands of a tiny number of corporations owned by multibillionaires whose wealth is beyond the imagination of normal human beings. We are a major facilitator of such activity. The category of intangible assets is the key facilitator allowing these companies to do this. This motion has something to do with that although, interestingly, it has been explained in three lines that tell one absolutely nothing. I am deeply suspicious. I wonder who knows about this. Does the Minister who introduced the motion even understand it? It would be helpful to get an explanation of what it actually does. I am suspicious and, unless I hear a good explanation from somebody, I am inclined to vote against it.

Deputy Paul Murphy: Information on Paul Murphy Zoom on Paul Murphy I would like the Minister to come back and explain what is happening here in some detail. The explanatory note we were sent, to which Deputy Boyd Barrett referred, simply says that the resolution amends the balancing charge rules in section 288 of the Taxes Consolidation Act 1997 to ensure that Ireland's tax regime for intellectual property is fully consistent with international best practice. That is just not good enough when asking people to vote on something important tonight. We get this note and are then expected to vote on the measure.

The resolution relates to the section in the Taxes Consolidation Act 1997 on balancing charges. Balancing charges are effectively the opposite of a capital allowance. They reduce the amount of tax relief of which a company can avail. The section, before being amended by this proposal tonight, says "a balancing charge shall not be made by reference to a wear and tear allowance made to a company [...] in respect of capital expenditure incurred on the provision of a specified intangible asset" within certain meanings. This is to be changed to "in respect of capital expenditure incurred before 14 October 2020 on the provision of a specified intangible asset". It draws a line and prevents the future operation of this effective exemption to balancing charges being made.

From my reading, it probably does cut off a certain tax loophole, although I would like the Minister to explain and clarify exactly how this measure works. If, however, it is to do what it purports to do, it would probably have significant financial implications so I wonder why a figure is not attached with regard to the money to be raised by it. It would be helpful to get some detail as to how this is to work.

Deputy David Cullinane: Information on David Cullinane Zoom on David Cullinane I do not have the same concerns as the previous two speakers with regard to Financial Resolution No. 4. I see it as an anti-tax avoidance measure. In fact, a balancing charge is a means of making sure a company does not claim tax relief on the costs of an asset. It is a clawback mechanism and so is a good measure to put in place to ensure that multinational companies do not use tax avoidance or similar measures to offset against the taxes they should pay. To use the words of the Minister for Finance, it "will ensure that our tax regime for intellectual property [...] remains competitive, legitimate and sustainable".

What I do find interesting about this measure, however, is that it comes a number of days after my colleague, Teachta Doherty, was attacked by the Tánaiste for recommending exactly the same thing. Teachta Doherty proposed a very similar measure, which came from the same expert review panel set up by the former Minister for Finance, Michael Noonan, in 2017. The Tánaiste got a rush of blood to the head when he saw Teachta Doherty talking about corporation tax and, instead of trying to understand what was being said, went into attack mode, which backfired. I do, however, welcome that Fine Gael has recently had some sort of conversion with regard to the introduction of anti-tax avoidance measures. If it was not for Teachta Doherty, some of the previous speakers and others, measures of this kind would not be looked at. These measures are important. The measure Teachta Doherty proposed would have raised an additional €720 million.


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