PAC Meeting | July 2, 2015

Revenue Commissioners called and examined

[Extract]
Deputy John Deasy: I have a question which is a follow-on from what Mr. Cody said. I refer to the World Bank grading system as far as ease of paying taxes is concerned. This has come up previously, and it is something I know is taken very seriously by companies located here. 

If we are the best in the European Union and the sixth best in the world when it comes to ease of paying taxes, are there any measures we still need to introduce that would increase that number? It has come up, and if one reads surveys of companies that are here, American companies in particular, it is certainly a big issue, more so than some people would think.

Niall Cody [Chairman Revenue Commissioners]: The Deputy is right. We take it very seriously. We talked earlier about proposals that we will make to the Department for changes in systems, but technology is critical. Our Revenue online system is the vehicle through which it is easy to pay and easy to administer, but we are not complacent about it. 

We have processes in place. We are introducing shortly an electronic tax clearance system which will be available online, for which one will not have to apply. One will be able to look at it. Every year-----

Deputy John Deasy: Will that reduce time?

Niall Cody: One will be able to see one's tax clearance virtually there and then.

Deputy John Deasy: Right.

Niall Cody: In 2012, we fundamentally reorganised relevant contract tax to an electronic platform, which took over 1 million pieces of paper out of the system. We have a schedule of developments to make it easier to pay. To move up from best in Europe will present particular challenges because a number of the countries ahead of us do not have-----

Deputy John Deasy: I know where Mr. Cody is going with this. It might be impossible to get beyond five or six.

Niall Cody: It is really difficult. Some of it is the Gulf states, and short of abolishing certain taxes-----

Deputy John Deasy: So the World Bank probably should have a different scale for-----

Niall Cody: I think it is comparable. People understand perfectly the ease of paying tax in the European Union. That is the kind of standard. Similarly, a provision that is overlooked in some of the comparisons is the ease of carrying out customs transactions. We are up there on that one, which is really important. 

We have spent a lot of money on an electronic manifest system which allows the electronic reporting of the manifest to facilitate the movement of goods. The Chairman talked about speaking with the trade. 

We engage heavily with the trade, advisers and business interests on improving the system of doing it. We are quite proud of our record. We were an early mover in electronic filing, and we are constantly looking at enhancing the system.

Deputy John Deasy: The Chairman should stop me if I am repeating what he or anyone else has said, but I wish to ask a question about what members have been dealing with in recent weeks, which is Ansbacher... 

The only question I was going to ask was whether the chairman of the Revenue Commissioners has received any information since his last appearance that would lead him to believe that Revenue missed anything in its initial or historical investigations?

Mr. Niall Cody: -----certainly, while I obviously knew we would not be going into it in any detail, in the past week I reviewed the transcript of Josephine Feehily's attendance in December. 

In her preparation for that, because obviously she was retiring, I attended the various briefing sessions on that subject and, just as she was satisfied, I am satisfied that we followed through just as we would follow through on any other information we get. 

Moreover, as I noted in respect of the HSBC stuff, with regard to the principal officer who has led our investigation of that portfolio, and his predecessor, I certainly would not like to tell him he should not follow through on that. 

Were I to do so, he probably would be writing to members himself. It is really important to state that the professionalism of the people who are dealing with this has been lost a little bit in some of the discussions. I note that Ms Feehily did state she had never experienced any interference in doing the job, and I believe her.

Chairman [Deputy John McGuinness]: Yes, but arising from that, some of the questions that are asked here are asked of the Chairman out of a desire to be reassured or to reassure the taxpayer.

Niall Cody: Absolutely.

Chairman: That is an important part of it as well.

Niall Cody: I agree completely.

Deputy John Deasy: Neither Mr. Cody nor his organisation appears before the committee very often, but this is talked about on a constant rolling level both in the media and in here. Once the chairman appears before the committee, it is important to have clarity, a real definite view and a standpoint when it comes to the investigation about which members seemingly are talking constantly.

Niall Cody: Earlier, I outlined the legacy special investigation and the €2.74 billion that we followed through on. All those leads and pieces of paper were examined with the same rigour and have been followed through.

PAC Meeting | May 14, 2015

Department of Finance called and examined

[Extract]
Mr. Derek Moran [Secretary General]: With me today are Ms Nolan, second Secretary General and head of the banking directorate; Mr. John McCarthy, chief economist; Mr. Declan Reid, shareholder management unit, and Ms Cep Carty, finance unit.

Deputy John Deasy: I welcome Mr. Moran and his officials. I understand he was only appointed in July 2014, but I wish to refer to some historical issues on which we need answers because this is the first opportunity Department of Finance officials have had to respond to parliamentarians directly on these issues - Siteserv, in particular - the timelines involved and the issues that have arisen. 

Mr. Moran may delegate as necessary to provide responses to the questions. Although he may not have been the person involved in the meetings, we need clarity on the issues involved, notwithstanding the written responses we have received from the Department in recent days.

I will start by asking questions about the Siteserv shares. Media reports in the past couple of months have suggested there was a sudden spike in Siteserv share activity between November 2011 and February 2012. 

I find it curious that it took a request from a Member of the Dáil to the Office of the Director of Corporate Enforcement to initiate a potential investigation into issues that might have arisen from the sudden spike in share activity. 

When the Department read media reports on an organisation, of which it had oversight through IBRC, which was in effect sold by the State, what did it do? Did it make inquiries about the share prices and activity reported in late 2011 and early 2012?

Derek Moran: I have brought with me Ms Nolan and Mr. Reid who are more familiar with this issue. I would preface any comment by saying I am anxious to assist the committee on this issue and that we provided a comprehensive background document for the committee on Tuesday evening. 

I am also conscious of the review of the transaction being carried out by the special liquidators, assisted by Mr. Justice O'Neill, which needs to take its course. Therefore, we will stay away from the transaction and its details and talk around the framework and the relationship.

On the alleged spike in share transactions, the monitoring of share transactions is a matter for the Stock Exchange which does not fall under the aegis of the Department. Where there is suspicion of anything happening along the lines the Deputy has described, the Stock Exchange is obliged to communicate with the Office of the Director of Corporate Enforcement.

Deputy John Deasy:  Let me stop Mr. Moran. The public is listening to us and everything in the country has supposedly changed. However, while we have not concluded our banking inquiry into what happened seven or eight years ago, we are now finding that we are conducting another inquiry into a bank we own. 

Somebody might ask the question: "What is worse governance wise?" Was what happened in the 2000s in banks we did not own and of which there was no oversight and regulation worse? The answer is that that was worse, given the devastation caused to our country and people. Technically, though, what is worse in governance terms is that we are holding an inquiry into a bank that we owned. That is how I will premise my comments. 

If the Department of Finance technically does not have a remit over the investigation of alleged insider trading, I am not sure whether it is sufficient to assert that that was not the Department's job. The Department had oversight of IBRC. The State owned it. 

When the media reported an alleged spike in share activity, did anyone in the Department contact the Stock Exchange, the Garda or the Office of the Director of Corporate Enforcement, ODCE? If the answer is "No", we have a problem. If someone robs my house, I go to the Garda and make a statement. 

A Deputy has made a request of the Director of Corporate Enforcement. His office's answer was that it wondered whether it had a remit in this area. We have an issue with the process when it comes to the investigation of alleged insider trading. The answer to my question is that the Department did not contact anyone about an alleged spike in share activity. Is that the case?

Derek Moran: It is important to get the timelines right. My understanding is that the alleged spike happened several months before the transaction was executed or during the run-up to the transaction. The Department had no visibility of that transaction until after it had happened.

Deputy John Deasy: I know that. That is fine. I am talking about what has been reported on in recent months. Does Mr. Moran have any opinion at all about what has been reported?

Derek Moran: Opinion does not matter. We are talking about a spike in a transaction-----

Deputy John Deasy: Yes.

Derek Moran: -----that happened before the Department had any sight or knowledge of that transaction. This was an issue to be monitored by the Stock Exchange and reported to the ODCE if the former saw a problem. It is alleged. I do not know what the evidence is.

Deputy John Deasy:  Does Mr. Moran know what? I am talking about the process. We have a problem. Compare this with the US Securities and Exchange Commission, SEC, which is a law enforcement commission, has an enforcement division and prosecutes civil cases before courts. 

It is unclear what happens in Ireland where there is an allegation or report, but the SEC acts on media reports. If it reads something about the industry in The Wall Street Journal, it acts on it. The Director of Corporate Enforcement's response in a news article was that his office "did not receive any requests from any other regulatory authority asking us to commence an investigation" into Siteserv share trading. 

This begs the question of what the office needs. Is it a papal bull from the Vatican? I do not know what initiates an investigation. If the Department of Finance has no interest, we have a serious problem.

The problem with the Stock Exchange is that it is owned by stockbroking firms. Someone might ask whether it is in the public's interest for them to have responsibility and remit for initiating an investigation. Is this a fair analysis or point to make? 

It is unbelievable that, if something like this is reported in the press, the Department of Finance does not have an opinion or will not ask even basic questions of the bodies and agencies that have a remit for alleged insider trading. Is this not even remotely reasonable?

Ann Nolan: I would absolutely not agree with Deputy Deasy. The independence of the banks was an absolute prerequisite of DG Comp. It remains the issue that the responsibility for the running of the banks is a matter for the boards of the banks and we appointed a board chaired by Alan Dukes, a former Minister for Finance, a very capable man. 

I have no evidence, to this day, that any of the transactions were wrong, but I accept that there are many questions about Siteserv. We had questions ourselves about Siteserv. We do not know the outcome of the inquiry. We have set up an inquiry to look not only at that but all of the other deals that that board did.

Deputy John Deasy: Ms Nolan's word choice is interesting - she has no evidence that any transactions were wrong. The Department of Finance would have a very clear opinion with regard to the amounts of money that were recovered from the sale of Siteserv, and the opinion of the Department of Finance was that it was not enough and that the State did not achieve what it should have. 

That was, in effect, the opinion within the Department of Finance and that is why things changed. So when Ms Nolan says that there is no evidence of anything that went wrong, there is a clear opinion that came from the Department of Finance that things were not as they should have been.

Ann Nolan: No, I think the opinion within the Department of Finance at the time, and as reflected in those documents, was that there were aspects of that transaction that it was not happy with. There were aspects of it where we felt it was possible that a different set of actions could have brought a better solution. 

The board told us and assured us and the Minster that that was not the case, that this was the best possible transaction. We have now asked the special liquidators under Mr. Justice O'Neill to inquire into that and look at all of the facts and establish whether or not they agree with the board. 

Certainly, there were aspects of that transaction we were unhappy with. There is a big difference between that and suggesting that everything that that board did was wrong-----

Deputy John Deasy: I am not suggesting everything the board did was wrong.

Ann Nolan: -----or that there was huge-----

Deputy John Deasy: That is very unfair. Did I say-----

Ms Ann Nolan: Deputy Deasy said that the entire position-----

Deputy John Deasy: Did I suggest that everything that the board did was wrong?

Ann Nolan: No, what the Deputy suggested was that everything that happened between the-----

Deputy John Deasy: No. Do not put words in my mouth.

Ann Nolan: I am sorry. I withdraw that completely. I apologise to the Deputy. I was not trying to challenge him in that way.

Deputy John Deasy: KPMG and former Justice O'Neill are looking into all transactions that took place over €10 million. We are aware of that. What we are delving into here is how quickly a Department acts when it actually raises concerns itself. 

The answer is - not very quickly.  Regardless of the regulatory body dealing with this, there was an awful long time between the raising of the initial concerns and the establishment of the revised framework document.

Ann Nolan: I do not understand. The revised document was put in place in April 2012.

Deputy John Deasy:  It was March.

Ann Nolan: Sorry, it was March 2012. That was before concerns were raised.

Deputy John Deasy:  My point is that concerns were raised within the Department on the operation of the bank, which led to the revised framework document. Is that a fair point?

Ann Nolan: Yes.

Deputy John Deasy:  I am saying that that took too long.

PAC meeting | Feb 12, 2015

IDA Ireland and Enterprise Ireland called and examined

[Extract]
Deputy John Deasy: I want to ask Mr. Shanahan about our competitiveness and issues that derive from this building, what the Legislature is doing, how it affects our competitiveness and how he does his job, and our attractiveness or lack thereof when it comes to potential investors in the country.

It is a while ago now, but it was announced in the budget that the double Irish taxation scheme was to be ended, ultimately, at the end of 2020 and, for new entrants, this year. As Mr. Shanahan will be aware, it would require all companies registered here to be tax resident also. I will not go into the rights and wrongs of ending the double Irish. I presume that there were opinions given within IDA Ireland. 

I have a strong opinion on the ending of the double Irish. I do not agree with it, and I never have. It worries me when law makers in the United States are now talking about further legislation that needs to be enacted, such as the anti-inversion in Congress which would allow addresses to be changed if there was a takeover to allow a company to avail of a low-tax regime. 

Everybody thinks this is great, we are civically minded globally and it is a wonderful step forward, etc. I am not so sure this economy is in a place to be so generous with regard to giving up what Mr. John Sculley, former CEO of Apple, referred to as our "edge" when it comes to attracting businesses. I agree with him.

What I am asking Mr. Shanahan is how, from this point on, he will gauge what effect the ending of the double Irish will have on companies that potentially would be investors in this country. How will he find out how disastrous or otherwise this could be? 

What kind of a system of communication does he have in place with these companies and potential investors to ascertain the effect that something like this could have on the economy because, potentially, it could be quite damaging? I will ask Mr. Shanahan that first and maybe get into other competitiveness issues that arise.

Martin Shanahan: I thank Deputy Deasy for those questions. To start with, I will comment on our overall competitiveness and tax, and, if there are other questions, on competitiveness.

Ireland's competitiveness has improved dramatically in the past number of years. It declined dramatically in the 2000s and it was more challenging to attract foreign direct investment as a result. Costs were too high. Resources were being supplied to areas which were unsustainable. Obviously, we know what the result of that was. Our competitiveness has now improved. I would say that, at all costs, we need to protect our competitiveness.

Our competitiveness is not just around taxation. There is probably, in the international debate and sometimes in the Irish debate, an undue emphasis on taxation in that competitiveness is about everything. It is about the costs, infrastructure, the availability of talent, the attractiveness of the locations to which we are trying to bring companies, etc. 

All of the international rankings, as I said in my opening statement, show that Ireland's competitiveness is improving. The difficulty with international rankings is that they typically lag and they are telling one something after the fact, and we need to be mindful and ensure that they continue to increase and that we stay there.

In relation to the changes that were made in the 2015 budget regarding tax, first, the changes to the residency rules that Deputy Deasy is referring to were not made in isolation. They were made in a context where other parts of our tax code were improved, particularly - I mentioned some of them in my opening statement in relation to the amortisation of intellectual property - in relation to SARP and, indeed, to personal taxation rates. 

Obviously, the budget also announced that the Government intended to introduced a knowledge development box. I would put all of those in the plus category of making Ireland more attractive to foreign direct investment.

In relation to the change to residency rules, I believe that over the long period that will also be a positive because it was something that was being used to point to Ireland, and causing damage to our international reputation. 

The change was well handled. We had engagement with our clients prior to the changes in the run up to the budget - obviously, nobody knows what the changes will be until budget day but we obviously plan for all eventualities. Once the budget was announced, we had engagement with our clients about it. I wrote to every client of IDA Ireland on the day the budget was announced. 

We followed that up with engagements through all of our executives on the ground in market, at corporate and in Ireland, and we also had a number of investment marketing missions directly after the budgetary process in order to speak to our clients directly in market.

There are a number of ways one gauges what the impact will be over time. First, one speaks to the clients and asks them what their response is, and for the most part that response has been positive. It is not universally positive, as Deputy Deasy would expect, but for the most part it has been positive.

It impacts on different IDA Ireland client companies in different ways. There is a small number who may have availed of structures. They now have to find an alternative to that structure. For those that are operating already, they have over six years in which to do that from the point it was announced. 

There are those who may have believed that the existence of such structures was doing damage to Ireland's reputation and was causing them a difficulty in terms of their investment in Ireland, and would have very much welcomed the changes. There are those for whom this has no bearing at all, which would be a large part of the portfolio, including emerging companies who are still in ramp-up stage and for whom tax does not feature. There is a whole-----

Deputy John Deasy: That is fair enough. I accept where Mr. Shanahan is coming from - that competitiveness has improved and it took a dip - and I take what he is saying with regard to these companies. 

My opinion is that in talking about tax avoidance, which, effectively, is what this scheme was, I am not bothered too much about what others think of our international reputation when it comes to attracting companies to our shores because other countries do other things to attract companies into their jurisdictions and have been doing so since the year dot. 

When one asks a CEO of a company about a tax avoidance scheme, which it has availed of and which brought it to this country in the first place in many respects, he or she may not verbalise the impact of this entirely.  Moreover, my personal experience has been that while it is something of which such people will avail and use to the full, they will not talk to a journalist and agree it absolutely was why they came here and why they are staying here. 

The ESRI carried out a pretty good study on this issue and the analysis it came up with, having surveyed the companies, was that had Ireland a European Union average rate of 22.5%, and the number of multinationals between the years 2005 and 2013 would have been 60, not 130. The ESRI considered four measures of Ireland's corporation taxation, namely, the policy rate, the mean effective average tax rate, EATR, the total tax rate and the cross-border EATR. 

Ultimately, the ESRI's analysis was that even were one to bring the rate down to 15% as opposed to 12.5%, some 20% of those companies that had been attracted here previously under the old regime would not have come. I do not state that we have a problem and am not getting into the rights and wrongs of it. 

I do not really care if commentators say it is wonderful, Ireland is very fair, it is good and so on. The potential impact here worries me because companies will not verbalise this, although they may do so behind closed doors to a certain extent. I believe we have a problem and if we identify a problem in the coming months with regard to potential investors, we need to do something about it.

Martin Shanahan: I will respond on a couple of things. First, I had intended to say there are a number of ways. One way is to ask them. Second, one looks at what they do next and where they put their next investments. Moreover, one looks at where potential investors are putting their investments. 

As one of the more obvious items of evidence that this has not had a detrimental impact, I would point to the pipeline of investments since the budget was announced. I also note that even in advance of the budgetary announcement, there was a high degree of expectation among the international investment community that Ireland would do something in this area and still, we see very large investments coming through the pipeline.

I absolutely agree with the Deputy and equally and obviously, my only interest is in how do we remain competitive. The statistics the Deputy used with regard to how tax has been an attractive and compelling reason for people to come to Ireland are absolutely correct. It also was right for the time. 

However, if our competitive advantage increasingly is being used against us and is causing other companies not to invest here, this may have been an issue. It is also more of a question of timing, in that a number of international processes are under way of which the committee would be aware, such as the base erosion profit shifting, BEPS, project through the OECD or initiatives through the European Union and the United States. 

One point that is clear from all those processes is the thrust of them is that substance and tax liability will be ever more closely aligned. Ireland has set out a clear roadmap and has stated what it is going to do over the years ahead. This has given investors a lot of confidence and clarity, which is not evident in all countries. 

It has removed one of the structures that may be causing us a difficulty from a reputational perspective. I am not just talking about causing Ireland reputational difficulty but about causing difficulty to potential investors. 

The Minister reiterated on the day of the budget that our 12.5% rate was not up for discussion and one should remember that the more that these two things, substance and tax liability, become aligned, the more attractive the 12.5% rate becomes.

Deputy John Deasy: I take Mr. Shanahan's point about the pipeline and the volume within it increasing. However, to a certain extent this is conjecture and theory with regard to the impact this will have on the existing multinationals between now and 2020. We do not know yet.

Martin Shanahan: It is all a judgment and all we can do is what we do currently. We are engaged with companies every day of the week trying to work out what will differentiate Ireland. Increasingly, given the global changes I have outlined, tax will continue to be part of our competitive offering and we should make it as competitive as we can. 

For instance, in the context of introducing a knowledge development box, the Minister used the phrase that it will be best in class and aligned with international best practice. We should go to the very extremes in all of what we do to attract investment. 

However, we also need to do the other things that would give us even greater differentiation and more competitiveness in respect of the availability of talent - which is where all the actual differentiation will come in future - having the available infrastructure, having the property solutions and having attractive places in which to live and work. 

They are equally important and for a lot of the cohort of companies we are attracting, they want to know that they actually can do things in Ireland. They want to know that they can set up and they want to scale up quickly before they ever get to the point where they are talking about paying taxes.

Deputy John Deasy: That is fair enough. Mr. Shanahan has answered the question. IDA Ireland is obviously thinking about this in terms of communication with the companies involved.

On a similar theme, I have a concern about Ireland's economic position in respect of what happens within Leinster House and what is passed that potentially could affect our competitiveness. Within the next couple of months, collective bargaining legislation will be introduced in this House. It is probably good that none of my Labour Party colleagues are present.

Chairman: They probably will hear about it.

Deputy John Deasy: It would not be the first time. I am unsure how wise it is to pass legislation that potentially will have an impact on, for example, a company from the United States. 

If such a company did not recognise a union - I acknowledge that mandatory union recognition is not being proposed - it certainly would allow a union to drag a company to the Labour Court. This is a position that has not existed since the Industrial Relations Act was ruled unconstitutional by the Supreme Court back in 2007. 

The general feeling from people who deal with labour law is this probably is not necessary and that the existing laws are pretty robust when it comes to employer-employee relations and in negotiations in the matrix that is there already. Personally, I do not believe this is the right time for such legislation. 

When it comes to something like this, obviously the American Chamber of Commerce Ireland has been involved in negotiations and has an opinion. It believes - it is not alone in this belief - that in respect of dealing with the Government on this, the process has been good. Did IDA Ireland give an opinion on the timing of this legislation? 

Does it have an opinion with regard to legislation like this and on this legislation specifically, as well as on its timing? As we have just ended the double Irish, we do not really know what will happen. 

The last thing we should be doing is passing more legislation that could put a doubt in the mind of any investor from the United States about coming to Ireland. It is not rocket science. I believe the timing is bad and that we should hold off until this economy recovers to the point where consideration can be given to such legislation.

Mr. Martin Shanahan: I thank the Deputy. At a high level, I should state, first, that anything the Houses do in respect of legislation should always have an eye to competitiveness. 

As people who market Ireland as a location for investment on a daily basis, the more positive things we have in our tool bag and the fewer negative things, the better. It is important to note that in respect of labour market flexibility, Ireland scores really highly on all international barometers. 

It is important to note - so that this is not taken out of context - that we really do well in this regard and I believe it is a tick in the favourable column for companies. In respect of the specific proposed legislation mentioned by the Deputy, my understanding of it is that it tries to strike a balance between protecting the competitiveness of Ireland as a location for multinationals and indigenous companies and protecting the rights of employees to engage in collective bargaining. 

There has been significant engagement with both employers and employee representative groups during the course of developing the proposed legislation. The American Chamber of Commerce, AmCham, IBEC and the trade unions have all engaged with the Department of Jobs, Enterprise and Innovation and bilaterally. 

The legislation continues the tradition of the voluntarist nature of collective bargaining while seeking to protect employees. It tries to seek this balance and if it succeeds, well and good. We have yet to see the drafts.

Deputy John Deasy: It comes back to finding out what the potential impact of this is. We need to keep an eye on it. If it is passed this year, we must be cognisant of the effect it might have on any multinational that might consider Ireland. This is just one of many issues.

Chairman (Deputy John McGuinness): It is more of a policy issue.

Deputy John Deasy: Yes, but the IDA will deal with companies that might potentially invest in Ireland. My concern is that we are lining up reasons for them not to come here, and doing so at the wrong time. 

It is not the IDA's fault but is done because of political agendas. I met groups that are involved in these negotiations and they are very clear that in their opinion it is not needed. 

Although the process has been good and they have been pleased with the Department and other people involved, everybody to whom I speak asks what we are doing. While the IDA and Enterprise Ireland are doing an amazing job, the legislation we pass must correlate what their work is about. 

There is a danger that we are putting impediments to investors where we should not be.