Speech by Minister Michael Noonan at the IIEA Tax Conference
International taxation – learning from the past and preparing for the future
Introduction
I would like to thank The Institute of International and European Affairs for
inviting me to speak at today’s conference.
The world of international taxation is changing rapidly. We are now living in a
time where tax is no longer relegated to the business pages, it is now front page
news, where multinationals’ tax affairs are scrutinised and where each country’s
taxation regime is analysed in detail.
In short, tax is no longer a minority sport!
It is for this reason that conferences such as today’s event are so important as
they provide an excellent forum for exchanging views between stakeholders and
policy makers.
For my part today I would like to take a few minutes to discuss where I see the
world of international taxation today, the OECD BEPS project and the current
State Aid investigations being undertaken by the EU.
International Tax Reform
In an increasingly globalised world, the differences in tax laws between
countries have inevitably led to mismatches which can be exploited by
corporations with an ever increasing global footprint.
The way in which countries choose to tax their resident companies will,
inevitably, impact competitiveness. In a global setting the rules regarding the
taxation of foreign subsidiaries can be a significant factor in competitiveness
abroad. It is the differences between these rules in the US, in relation to taxation
deferral, and those in place in some of Europe’s biggest economies that has led
to some tension in the international tax arena.
It is no coincidence that the majority of EU State Aid investigations that are taken
from a taxation perspective have been directed at US multinationals.
And while I would not like to get into the specifics of this debate I think it explains
why we in Ireland, as a mid-Atlantic economy, are sometimes caught in the cross
fire.
That said, in my view, it is not right or fair that only US companies should be
targeted in the international debate on the appropriateness of global tax laws.
All countries and all companies throughout the world should have a stake in
ensuring that international tax rules are fit for purpose.
Lessons Learned
In Ireland, we like many others, have made mistakes in the design of our
domestic taxation system in the past, and it is these mistakes that we must
learn from as we prepare for the future.
We have, I hope, learnt lessons from the property based tax reliefs that were
allowed to continue for too long with no clear rationale behind their
maintenance. Lessons such as these must be applied domestically in designing
the Irish tax code for the future. In this regard, on Budget day I published new
Guidelines for the evaluation of tax expenditures and these have now been
sent to all Secretaries General in all relevant Government Departments. But
these lessons learnt must also be borne in mind when determining our
international tax strategy.
The so called “Double Irish” tax regime was never part of Ireland’s tax code.
What’s more it was not a sustainable way to build a thriving foreign direct
investment sector for the long term. As we have learned from the past, any
regime that is built on unsure foundations will ultimately be shown to be not
fit for purpose. It was for this reason that I made changes to our company
residency rules in the recent Budget. These changes have further enhanced
both the tax reputation of our country and the reputation of those companies
that wish to do business here.
You will have noted that the main industry bodies welcomed the changes as
they give certainty to investors over the medium term and having held
discussions with numerous stakeholders down through the years I am more
than aware of how important certainty is in international business.
However, what I have consistently stated from a tax policy perspective is that
Ireland will play fair but we will also play to win. This belief led me to make a
number of enhancements to our tax regime to best position that regime for a
post BEPS era. These changes, announced on Budget day, were accompanied
by a new Road Map for Ireland’s Tax Competitiveness.
This Road Map updates last year’s International Tax Strategy and contains a
comprehensive package of competitive tax measures which will provide the
foundations for Ireland to maintain and expand our position as a thriving hub
for Foreign Direct Investment well into the future.
The enhancements included changes to the R&D tax credit, expansion of our
intangible assets amortisation provisions, broadening of the special assignee
relief programme and increased resources for the Revenue Commissioners’
competent authority function. The last of which we feel will become increasingly
important in a post BEPS world.
I have also signalled my intention to introduce a Knowledge Development Box
in Budget 2016. However, as I stated it will be necessary to ensure that such a
regime meets with the standards to be agreed both by the EU and the OECD
BEPS process.
Luxembourg Leaks
I welcome the role that the International Consortium of Investigative Journalists
have played in uncovering the information behind the recent Luxembourg tax
leaks stories.
Ireland’s 12.5% rate is one of the lowest in the OECD and we do not hide it, in
fact, we broadcast this rate as the defining element of our corporate taxation
system.
The Irish tax regime is fully transparent as our rules are clearly laid down in
statute. We have a proven track record of supporting transparency as we are
early adopters of Automatic Exchange of Information, were the 4th country to
sign up to FATCA and are vocal supporters of the Common Reporting Standard.
Furthermore I note that a recent independent report carried out by PwC and the
World Bank has designated Ireland as having the most efficient corporate tax
system in Europe.
Joint German, French, and Italian Tax Letter
Some newspapers this morning outline the details of a letter that was sent by
the Finance Ministers of Germany, France, and Italy to the European
Commission urging that certain actions be taken to counter aggressive tax
planning in the EU.
French Finance Minister Michel Sapin was in Dublin last Friday and we discussed
this letter, and I informed him that Ireland welcomes it as a positive contribution
to the wider ongoing international debate regarding how best to tackle
aggressive tax planning.
Ireland supports all moves to increase tax transparency. As outlined in our
Roadmap for Tax Competitiveness Ireland is maintaining its commitment to
ensuring an open, and transparent tax regime.
The main thrust of the letter is the call for a new EU Directive that will counter
aggressive tax planning in the EU. Such a directive will take some time to design,
to discuss and to develop, and of course tax remains a matter for unanimity at
EU level. However Ireland will contribute constructively to these discussions in
the EU, as it always does, while simultaneously holding a firm line that matters
of direct taxation remain a Member State competence.
OECD BEPS
Ireland is fully supportive of the OECD BEPS project and is actively involved at all
levels of the discussions. The work that has been undertaken is unprecedented
and I would like to congratulate Mr Saint Amans on so far delivering on what are
very ambitious time frames.
Furthermore the quality of the output to date is a credit to all the countries
involved and also the OECD secretariat for their tireless work.
The goals of the project, as I see them, are twofold. The first goal is to eradicate
double non-taxation and the second is to ensure that there is better alignment
between substance and taxing rights. These goals are critically important and
they are aligned with Ireland’s international tax strategy.
While I remain overwhelmingly positive about the OECD BEPS project, there are
inevitably a couple of concerns that I have with the BEPS process and I will
discuss them in turn.
My first concern is that BEPS must not be about advantaging big countries over
small countries and equally must not be used to single out US multinational
entities. If BEPS took this course it would merely be playing to the gallery and
not be focussed on real tax reform. It is agreed that the BEPS process must strive
to provide a level playing field for all but it must not become a tool used to
increase the comparative competitiveness of larger nations at the expense of
small countries. On this level playing field small countries must also be able to
play fairly but play to win as we, in Ireland, have always tried to do.
As I mentioned, I am opening a consultation on the Knowledge Development
Box before the end of the year and the recent joint announcement by the UK
and Germany brings the design of such a box into focus. The UK/German
proposal calls for a modified nexus approach towards determining whether the
activity in such a box would be deemed to be substantial and therefore not
considered a harmful regime. In a nut shell it appears to me that the determining
factor will be based upon whether any given entity, looking to access the
benefits of the box, meets the required percentage of total R&D workforce in
the group as a whole. This approach, on the one hand fits within Ireland’s core
value of attracting substance based investment however on the other hand I do
have concerns that such an approach, if designed too tightly, could have the
potential to limit the scope for use by some smaller countries.
Would this represent a fair reform? Further discussion is both planned and
necessary in this area and I would encourage stakeholders to join the debate
either through our public consultation or through the many avenues open at the
OECD.
My other concern in relation to the BEPS process is that it cannot just be a
dialogue of the privileged. It would be a missed opportunity and morally careless
if we let the excellent work being undertaken by the OECD to not be heard in
the developing world. In Ireland we are coming towards the end of our own
“spillover analysis” which I will be publishing in the coming months and which
will highlight how our tax system impacts with the developing world. We believe
that such research is critically important to ensure that the playing field that I
have mentioned is both level but also open to all.
I am aware that the OECD are actively trying to involve the developing world in
the current discussions, however I think that, in order to show full commitment
and foster a trusting relationship between the developed and developing world,
the OECD should adopt at least in spirit a 16th action in the BEPS project that
insists upon all countries undertaking spillover analyses of how their taxation
regimes impact the developing world.
EU State Aid
I would like to take this opportunity to also welcome the recent comments of
EU Commissioner Vestager in which she stated that the current state aid
investigations would reach conclusion by the middle of next year.
In relation to the one case in which Ireland is involved, while for legal reasons I
am unable to discuss any specifics, my advice is that the case against us is weak
and therefore I think that an early resolution would be in the best interests of
everyone.
As I have stated before, in the unlikely event that the European Commission
does find against Ireland in this matter we will use every legal avenue open to
defend our position.
Conclusion
To summarise the number of different aspects of my speech today I would
remind everyone of the importance of evidence based policy making, the
increasing requirement for international cooperation to steer a just and
equitable course towards international tax reform, to learn from lessons of the
past and finally the critical need to consider our impact on the developing world.
Thank you.
End