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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] They were expanded to include the introduction of exit taxes for all member states. The anti-tax avoidance exit tax regime is designed to ensure that where a taxpayer moves assets or migrates his or her tax residence out of a state, that state taxes the value of any latent capital gain accrued during the period of residence in that state. That is the point I make to the Minister. We are taxing the latent capital gain accrued during the period of residence in Ireland if people move their intellectual property out of Ireland even though that gain has not yet been realised at the time or point of exit. That is what is included in the discussions at EU level. We have to have some debate about the tax regime that should be applied. The notion the Government has decided it should be 12.5% and announced it tonight without any discussion or debate at the finance committee and without any grounding documentation or any chance for others to look at what is happening elsewhere and what is the tax applying in analogous EU countries is not the way to do it. It is wrong. The financial resolution should be withdrawn and the debate should be allowed to proceed in the discussions on the Finance Bill in the normal way.

Deputy Jonathan O'Brien: Information on Jonathan O'Brien Zoom on Jonathan O'Brien It is a bit disingenuous of the Minister to say we have to do it tonight before-----

An Ceann Comhairle: Information on Seán Ó Fearghaíl Zoom on Seán Ó Fearghaíl I am sorry but I cannot hear the Deputy.

Deputy Jonathan O'Brien: Information on Jonathan O'Brien Zoom on Jonathan O'Brien I will shout if the Ceann Comhairle wants me to.

An Ceann Comhairle: Information on Seán Ó Fearghaíl Zoom on Seán Ó Fearghaíl No. I wonder whether the Deputy's microphone is working.

Deputy Jonathan O'Brien: Information on Jonathan O'Brien Zoom on Jonathan O'Brien It is a bit disingenuous of the Minister to say the reason we have to do this tonight is because companies may reorganise their tax affairs. Companies know this is happening. They know a directive has been set down and that all EU member states must introduce an exit tax. They all know it has to be done by 1 January 2020. It is not coming as a huge surprise to companies. There is no reason we could not have had a debate, looked at the reports and all of the options available to us and then come down in favour of a particular rate. I believe 12.5% is too low. There has been no discussion about it. No supporting documentation has been given by the Department on why we are settling on 12.5%. I do not know why it is not being kept at 33%. What I do know is we are not doing business correctly here tonight by trying to force it through within the next ten minutes. It is irresponsible and I support the call from the Labour Party to withdraw the financial resolution tonight because if the Government does not do so we cannot support it, even though we are in favour of an exit tax.

Deputy Brendan Howlin: Information on Brendan Howlin Zoom on Brendan Howlin Of course.

Deputy Jonathan O'Brien: Information on Jonathan O'Brien Zoom on Jonathan O'Brien It needs to be put on the record that we are in favour of this particular measure but we cannot support it being rushed through tonight with a rate being set at 12.5%. It would not be responsible on our behalf and it is very irresponsible on the Minister's behalf. He needs to reflect on this.

An Ceann Comhairle: Information on Seán Ó Fearghaíl Zoom on Seán Ó Fearghaíl I am conscious of the fact we have an order to conclude by midnight and that the next resolution may require-----

Deputy Brendan Howlin: Information on Brendan Howlin Zoom on Brendan Howlin We have 40 minutes for this resolution.

An Ceann Comhairle: Information on Seán Ó Fearghaíl Zoom on Seán Ó Fearghaíl Yes, but the next resolution may require some consideration also. I ask the Minister to address the concerns the Deputies have raised.

Deputy Richard Bruton: Information on Richard Bruton Zoom on Richard Bruton The Deputies are presenting this as if we are taking a capital gains regime of 33% and cutting it to 12.5%. This is not the case. The old regime the Deputies have spoken about was designed to stop certain abusive behaviours. It was defined narrowly and it stopped those behaviours.

Deputy Brendan Howlin: Information on Brendan Howlin Zoom on Brendan Howlin The Minister is changing that now, even that narrow-----

Deputy Richard Bruton: Information on Richard Bruton Zoom on Richard Bruton This is now a broad-based tax. Deputy Howlin explained why it is being levied at 12.5% and not 33%. He explained very clearly that this is a tax not based on the realisation of a capital gain but simply an exit and movement of the intellectual property to somewhere else. This is not a realised gain that generates cash that can be used to deploy. The principle being applied here is that the same regime-----

Deputy Brendan Howlin: Information on Brendan Howlin Zoom on Brendan Howlin "Latent capital gain accrued" is what I said.

Deputy Richard Bruton: Information on Richard Bruton Zoom on Richard Bruton The same tax regime is being applied as if it continued to remain in Ireland, which is using the corporate tax rate that would have applied had its contribution to generating an income stream remained in Ireland. The income stream that would have been generated by that intellectual property if the company had stayed in Ireland would have been at 12.5%. This is the principle on which the 12.5% is being raised. It is the way in which the flow of income from the asset would have been taxed had it remained in Ireland. It is not realising a cash sum from which the company can pay out the money.

The Deputy is saying he is in favour of an exit tax but he wants to signal that an exit tax will arrive. The Oireachtas will not------

Deputy Jonathan O'Brien: Information on Jonathan O'Brien Zoom on Jonathan O'Brien Companies know that already.

Deputy Brendan Howlin: Information on Brendan Howlin Zoom on Brendan Howlin The Minister is saying it will accrue no money.

Deputy Richard Bruton: Information on Richard Bruton Zoom on Richard Bruton -----knowing that it is imminent, allow companies time to avoid paying their dues.

Deputy Jonathan O'Brien: Information on Jonathan O'Brien Zoom on Jonathan O'Brien Companies know it is imminent.

Deputy Richard Bruton: Information on Richard Bruton Zoom on Richard Bruton As the Finance Bill passes through the House this can be fully discussed with the Minister.

Deputy Brendan Howlin: Information on Brendan Howlin Zoom on Brendan Howlin After 2020.

Deputy Richard Bruton: Information on Richard Bruton Zoom on Richard Bruton To withdraw this now would be to clearly signal to companies that we are giving an open invitation-----

Deputy Jonathan O'Brien: Information on Jonathan O'Brien Zoom on Jonathan O'Brien It should never have been tabled in the first place.

Deputy Richard Bruton: Information on Richard Bruton Zoom on Richard Bruton -----to make arrangements to avoid the impact of this exit tax. That is what we would be doing. There will be opportunities for Deputies to seek to change the Finance Bill in due course. It is always open to the Oireachtas to reconsider its position but it would be highly imprudent for us to decide here, having signalled we will introduce it this evening, to withdraw it and give people the chance to plan their arrangements in such a way that they avoid the very thing everyone says they are in favour of.

Deputy Brendan Howlin: Information on Brendan Howlin Zoom on Brendan Howlin The Minister is saying they will accrue no money for doing it.

Deputy Richard Bruton: Information on Richard Bruton Zoom on Richard Bruton The reason we are not predicting a revenue stream on which we would set out spending proposals is that Revenue has advised it would not be prudent.

Deputy Brendan Howlin: Information on Brendan Howlin Zoom on Brendan Howlin So nobody is going to move.

Deputy Richard Bruton: Information on Richard Bruton Zoom on Richard Bruton That is the case. Deputy Sherlock understands that many pharmaceutical companies are on patent incomes that decline and do not rise in value. Much of what we have on the basis of intellectual properties here is not something on which Revenue would make an assertion of a planned revenue stream that we would use and dispose of in other areas. What we are doing here is correct. There will be opportunities for it to be discussed as the Finance Bill passes through the House but it would be highly imprudent for us not to proceed with implementing this measure by way of financial resolution and leave ourselves exposed to people removing assets in a way that would be unfair.


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