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Financial Resolution No. 2: Capital Gains Tax

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Financial Resolution No. 2: Capital Gains Tax

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Financial Resolution No. 2: Capital Gains Tax

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2

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Deputy Brendan Howlin

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Brendan Howlin

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Snippet Contents:

I move amendment No. 2: I have been dealing with budgets for a long time in this House. When I saw the financial resolutions there was something unusual. They are normally in the ministerial pack which is circulated during the course of the Minister's speech. They were not but I found them later. Two of the resolutions, this one and the next one, are unusual in that they do not need to be passed tonight. The idea of the financial resolutions is that there is usually a degree of urgency about a matter, such as a tax increasing from midnight for a particular and urgent reason.
Serious questions must be asked as to why this measure is tabled for tonight and not, in the normal way, in the Finance Bill, where there would be reports, teasing out, Committee Stage debate and all of that. That is not happening on this resolution. The capital gains exit tax is being reduced in this proposal from 33% to 12.5%. The Minister's own budget book tells us that this will actually not raise any money. If we look at the financial tables, it says zero for this tax. If this is not really used and there is no impact on revenue, as the Minister is telling us in the published tables accompanying his budget speech, then leaving the rate at 33% would not impact on revenue unless there is something we are not being told.
This tax measure is aimed at ensuring patents, intellectual property and other assets cannot be moved abroad to no tax locations so as to avoid tax. That is good. The budget document states that this change is part of Ireland's commitment to implementing the anti-tax avoidance directive. We have no issue with that. We support it and these rules are long overdue. The Labour Party has called for a standing commission on taxation for exactly these reasons. The question should be asked as to why the rate is being cut by nearly two thirds. There is no explanation for that. If this is never used, as would be implied by the zero impact on revenue, it has no impact and will not raise any additional money, as the budgetary documentation seems to imply, then why should the rate not be set at 33%? I refer to it not just being set but maintained because that is the rate.
Chartered Accountants Ireland published a useful note on its website on 1 October last. It says regarding the exit tax that Ireland currently has rules that provide for an exit tax. To give people an understanding of what we are talking about here, that is where the Irish tax-resident company moves its tax residence away from Ireland, broadly, and that exit event triggers a deemed deposal of assets at market value for capital gains tax purposes, resulting in the potential normal capital gains tax of 33% applying. There are some exemptions to the rule and in practice it is not a significant issue for most Irish tax-resident companies. That is what the Chartered Accountants Ireland publication says. Under the EU's anti-tax avoidance directive, the existing rules will be tightened significantly, making it more difficult to escape the Irish tax charge on migration of tax residence. This could be assessed as making it more difficult to move valuable assets such as intellectual property out of Ireland but will possibly encourage existing groups to stay. That could be seen as a positive move.
In reality, anything that reduces flexibility for existing groups or potential groups of new investors is not a good thing. All EU countries, however, will be obliged to introduce similar rules by January 2020 at the latest. There we have the nub of it. Under Article 5 of the anti-tax avoidance directive, we are obliged to have a measure compliant with the directive by January 2020. We have plenty of time to do this. We could do it in the convenience of the Finance Bill when we can go through this in some detail and not deal with it in 40 minutes with no notice and no background papers. That is why I have tabled the amendment seeking at least, if it is passed tonight, a report on it within a month. I am conscious of time but I want to say a few other things about it.
First, it begs the question of why the urgency. The Minister might give us some indication of why this midnight stroke of a pen approach to this long debated, and long in gestation, but distant timeline of January 2020 needs to be done suddenly and urgently tonight. It is unusual for such a major tax change, that apparently according to the documentation will have no impact on revenue, to be rushed through via budget resolution. In my long experience here, the normal way to deal with this matter would be by way of a proposal in the Finance Bill. The original sections 627 and 628 were anti-tax avoidance measures. They set a tax rate of 33% for capital gains that will accrue because this is, by the definition of the current law, a capital gain that will accrue. It is now envisaged that capital gains would not be taxed at the capital gains rate of 33% but would actually be taxed at the corporation tax rate of 12.5%. Why is that? Why is that neutral in respect of the volume of money that it will generate?