From top: Social Democrat TD Roisin Shortall and Taoiseach Leo Varadkar
In the Dail.
During Leaders’ Questions.
Social Democrat TD Roisin Shortall raised the Paradise Papers with Taoiseach Leo Varadkar.
Ms Shortall said:
“Taoiseach, I want to raise the issue of the Paradise Papers and the information which is now emerging in respect of Apple’s tax arrangements.
“The facilitation of these arrangements, by successive Irish Governments and the considerable negative impact which this is having on Ireland’s reputation.
“The central theme, running through the Paradise Papers, is the relentless quest of the wealthy and the powerful , the great and the good, to find ways of avoiding paying tax.
“We saw this most startlingly in the operation of the Double Irish and its use by Apple and the subsequent ruling by the European Commission that this favourable treatment constituted state aid.
“In that regard it certainly seemed that the facilitation of tax avoidance was an intentional strategy, adopted by Government, and its agencies, in 1991, and updated in 2007.
“It was very hard to understand why the Government in Septmeber of last year, with the full benefit of hindsight, could stand over the manner in which the sweetheart deals were done and vouch for their full compliance with the law.
“The public, generally, cannot understand why the Government should now be spending considerable, additional millions in appealing that ruling.
“Then Minister Michael Noonan’s position was very hard to understand.
“In 2013, he signalled that he intended to close down the Double Irish on which the tax avoidance arrangement was based.
“The impact of this was considerable for Apple’s tax liability. We know that there was much engagement between Apple and the Department of Finance around this time.
“We also know, thanks to the Paradise Papers, that Apple went on a jurisdiction shopping spree in search of another tax-dodging deal.
“We know that following the closing of the Double Irish that Apple restructured their companies, that they registered two of their Cork companies in Jersey and took up tax residency in Ireland where their remaining Cork company Apple Operations Europe.
“This combined with the changes made to the Capital Allowance regime in 2014 allowed Apple to sell their IP back to the Irish registered company and avail of the massive tax breaks which this measure facilitated.
“So, Taoiseach, the questions are: Was our Capital Allowance regime changed to allow Apple to keep it’s formerly stateless profits entirely untaxed?
“In other words, was it done to compensate Apple for the loss of the Double Irish?
“Had Apple, or their representatives, requested a change to the Capital Allowances regime?
“And how much has Apple benefited by this change?
“And how much as the State lost?”
Mr Varadkar said:
“The answer to your question is: No, or at least, not to my knowledge. It maybe a question that you want to put to the Minster for Finance who would have more information thanI do on those particular matters.
“I don’t have a detailed knowledge of any companies’ tax affairs or any individual’s tax affairs for that matter?
“Tax avoidance is very much an international problem. And international problems require international solutions.
“And, as we found, when it comes to dealing with tax avoidance, by large companies, once one country acts, the company just moves to another jurisdiction.
“That is why we need an international solution to this problem if we’re going to bring about a situation whereby companies pays their fair share of tax.
“In this regard, Ireland is an international leader. The OECD, the organisation for economic co-operation and development, based in Paris, is the international organisation that deals with taxation and deals with this area, making sure that companies aren’t able to exploit differences in tax law from one jurisdiction to the next.
“The OECD has designated Ireland as one of only 22 countries in a world of nearly 200 where we’re entirely tax compliant, or compliant rather with tax transparency
“And we’ve also signed up to information sharing. So we’re going to share information from one country to the next as to how much tax each company pays in different jurisdictions. That’s going to be very useful.”
…The Double Irish is gone. Stateless companies are gone as well. And also the current Finance Bill which is going through changed the way that we tax intellectual property.
“However we don’t accept at all that Ireland was involved in any special arrangement or state aid for Apple and that is why we are fighting that case.
“Because it’s simply not the case that Ireland was involved in State aid.”
Ausra shopping centre, Lithuania (top) part owned by Bono (above) in an elaborate tax avoidance scheme
Bono has expressed horror that a Lithuanian shopping centre business he invested in may have fallen foul of the country’s tax rules.
In a statement, the U2 frontman said he would be “extremely distressed if even as a passive minority investor … anything less than exemplary was done with my name anywhere near it”.
He reacted after Lithuania’s tax authorities said they were preparing to examine the details of the business over concerns that it avoided profit tax.
Yesterday: Mall That You Can’t leave Behind
— Liz Kershaw (@LizKershawDJ) November 7, 2017
Michelle Moran and Roughan MacNamara of Focus Ireland launching the charity’s campaign calling for legislation to fully protect Irish homes from vulture funds in August
First-Time Buyer writes:
Effective lobbying is done as quietly as possible behind the scenes, ensuring that you get the result you were looking for without anyone else being the wiser…
Back in September, Minister for Finance Michael Noonan proposed a number of changes to Section 110 of the Taxes Consolidation Act 1997 which contains the provisions for Ireland’s securitisation regime.
This was on the back of various concerns raised in the media that “investors” (foreign funds) were using the legislation to avoid paying tax on Irish property by using S110 Special Purpose Vehicles (“SPVs”) for their transactions.
The Irish securitisation regime is very generous in that it permits certain companies to deduct interest payments on profit participating debt (i.e. loans where the interest rate is directly linked to the underlying profits of the SPV rather than a set rate).
In effect, this means that these SPVS could wipe out all of their profits with interest deductions leaving only a very small taxable margin (usually €1,000). These SPVs were making tens of millions from Irish property, but effectively were only paying as little as €250 to Revenue.
The aim of the amendments to the regime were to ringfence profits arising from a property business and ensure that a deduction was not available for profit participating interest.
This would protect the Irish tax base by ensuring these SPVs would pay tax at 25% on all of its Irish property profits, rather than only on the token €1,000.
A property business was originally defined as one which is involved in the holding or managing of “any financial asset which derives its value, or the greater part of its value directly or indirectly, from land in the State”.
When interpreted this would include property loans and mortgages but also shares in a company which derive its value from Irish property (e.g a Limited company that holds property, also known as a “Propco”).
What nobody noticed though was that in the time between the publishing of the original legislation in September to the publication of the Finance Bill in October a very deliberate change was made to narrow the definition of ‘specified mortgage’.
Such a narrowing means this anti-avoidance legislation is now only confined to loans and specified agreements deriving their value from Irish land but not to shares in a Propco (more on why below).
At the same time of this deliberate change, the Government included another, seemingly unrelated, measure to restore 100% interest deductibility for landlords of residential properties. This generous tax break encourages Propcos to be highly geared, to ensure their rental profits are significantly reduced by interest deductions.
When you combine these two measures it means the ‘investors’ will warehouse their Irish properties into simple Propcos, rather than the complicated SPVs, QIAIFs or ICAVs that we’ve been reading about in the media.
The investors will own the Propcos, via their existing S110 SPVs. They will fully leverage the Propco with related party debt, maximising the new 100% interest deductibility rules. This will ensure that any income arising will be fully sheltered by tax deductions, thus a continuing ability to avoid tax on the Irish rental profit.
In addition, the investor can avoid capital gains on a disposal of the property by simply selling the shares in the Propco rather than selling the property asset directly.
The gain on the sale of the shares of the Propco will arise to the S110 SPV and because the definition of ‘specified mortgage’ does not include the sale of shares, the SPV can use profit participating interest to wipe out its gain on the sale.
You couldn’t make this up.
Previously: Mars Capital, Matheson And The €250 Tax Bill
A still from gas flaring at at Shell E&P Ireland’s Corrib gas plant in Co Mayo last New Year’s Eve
At Dublin District Court.
Shell E&P Ireland Ltd pleaded guilty to breaching two counts of the Environmental Agency Protection Act during “flaring” tests last New Year’s Eve.
It was fined €1,000.
Further to this.
Shell to Sea writes:
Yesterday, at Dublin District Court, Shell were fined €1,000 after pleading guilty to causing light and noise pollution from gas flaring at Bellanaboy refinery last New Years Eve. The prosecution was brought by the Environmental Protection Agency (EPA) following complaints from people living around the Bellanaboy refinery.
The €1,000 fine is estimated to be 65 seconds worth of current Corrib sales revenue after Vermilion, who have an 18.5% stake in Corrib gas, recently stated that Bellanaboy had reached “full plant capacity“.
It is estimated that Corrib Gas sales revenues have totalled over €240 million so far this year, while no tax has been paid.
It is widely accepted that no or minimal tax will be paid by the developers of the Corrib Gas Project to the Irish State.
Former Managing Director of the Corrib Gas project, Brian O’Cathain previously stated in 2010 “That Corrib will never pay tax“. While a Vermilion investor profile estimated it would be seven years before any tax is paid.
Shell to Sea spokesperson Maura Harrington stated “We’ve seen again lately how subservient the State has become to powerful corporations. Despite making almost ¼ billion euros so far this year from our natural resources, Shell will have a 0.000% tax rate for many years to come.”
Mary Honohan, President of the Irish Tax Institute
The Irish Tax Institute (read US Multinational tax Lobby Group) has an Op-Ed in today’s Irish Times [‘Irish income tax system is skewed, uncompetitive and too complex’ by the institute’s President Mary Honohan] looking at the role of Ireland’s personal tax system and its impact on our “global competitiveness.”
It goes on to make an absurd suggestion that Irish employees have no incentive to look for salary hikes or promotions due to “such high levels of personal tax“.
It also puts forward the notion that “skills and talent are in scarce supply” but the last time I looked we had an unemployment rate of 9.7%.
What is really galling though is that we give generous tax breaks for highly-paid executives of US multinationals or “globally mobile talent” as the ITI calls them.
It finishes by asking the whether “it is really sustainable to continue to draw on a small group of taxpayers who already contribute such a sizeable chunk of the income tax yield? We must also ask if it would be better to have broader participation in our tax system?”.
But the real question they are asking is whether the regular Irish taxpayer and those who earn the least in society are willing to INCREASE the amount of tax they pay in order that those at the top (the “talent”) who earn the most can benefit?
Pic: Irish Tax Institute
During Leaders’ Questions, Social Democrats TD Stephen Donnelly raised the case of a family – Sarah, Dominic and their two children – who are being evicted from their home in Kilkenny.
The eviction comes after the Government sold the family’s mortgage to US investment firm, Mars Capital.
Stephen Donnelly: “Sarah and Dominic live in Kilkenny with their two kids and they bought their home in 2007. The shop in which Sarah worked in Kilkenny closed and the couple were unable to service their mortgage fully, although they are getting back on their feet. Two years ago, the Minister’s Government sold Sarah and Dominic’s mortgage to a US investment firm, which is now evicting Sarah, Dominic and their two children. Last week, the journalist Niall Brady reported that the Government sold Sarah’s mortgage and that of thousands of others to the US investment firm at a 58% discount. That would have brought Sarah’s €350,000 mortgage to approximately €140,000, which is approximately the value of the property and a mortgage that Sarah and Dominic can afford. The firm is Oaktree Capital and Sarah and Dominic know them as Mars Capital, which is the company that Oaktree set up to buy thousands of mortgages in Ireland.”
“At the time of the sale, the Government refused to allow Sarah and Dominic, or any of the Irish mortgage holders, to bid on their own mortgages. Instead, it sold them to Mars Capital with a discount of 58%. Mars Capital structured the deal in such a way that the real discount it got was closer to 70%, which would have brought Sarah’s mortgage down from €350,000 to approximately €100,000. She cannot service the €350,000 so she is being evicted, which is bad news for her, Dominic and the kids but very good news for Oaktree Capital. Its accounts indicate that for its €80 million investment, it will get a return of €400 million.”
“It gets worse. An examination of Mars Capital’s accounts is a masterclass in tax avoidance. The accounts indicate that the interest income minus the interest costs for the year come to €4,559,904. Astoundingly, the figure for administrative expenses against that is €4,558,904, leaving exactly €1,000 in taxable profit. The company has three shares issued to three different charitable trusts. The finances are also structured to ensure all interest payments and mortgage payments from Sarah and Dominic and everybody else, as well as all capital gains, can be offset against costs, ensuring there are no taxes owed.”
“Why did the Government sell an asset that required just €80 million to buy and that one of the leading hedge funds in the world believes is worth approximately €400 million? What does the Minister and his Government say to Sarah, Dominic, their children and the many others being evicted by these foreign firms or struggling to pay their taxes? Does the Minister accept the State will receive almost no benefit in taxes, either on profits or capital gains from these companies? Will the Government launch an investigation into the tax affairs of all these funds that purchase these mortgages in Ireland to ensure not just tax compliance – as tax avoidance is legal – but that the real profits and capital gains that these funds make will be declared properly in Ireland and taxed accordingly?”
Richard Bruton: “…The Government is acutely conscious of the needs of vulnerable people who are in this situation and we are seeking to develop more effective services, both legal and otherwise. As Deputies know, under the insolvency courts, financial institutions can no longer block an agreement that has been developed by a practitioner in this sphere. The courts can be used to overturn resistance by a lender to giving approval to a reasonable deal.”
Donnelly: “With respect, my question was not about the crash mats the Government is putting in place for people it has pushed off the wall. My question is about tax. Tax avoidance is not an issue for the Revenue Commissioners because it is legal.”
“It would appear that this Government is guilty of facilitating wholesale tax avoidance by international investment firms making windfall profits in Ireland off the backs of ordinary, decent people trying to pay their mortgages, like Sarah and Dominic. We do not know where Mars Capital is sending this money. They are called “notes”. We do not know where they are going, but what we do know is that Oaktree Capital, if one looks at the SEC filings, holds multiple investment firms in the Cayman Islands.
An Ceann Comhairle Seán Ó Fearghaíl: “The Deputy is just out of time.”
Donnelly: “Ceann Comhairle. Let me ask the following questions. Was the Department of Finance, directly or indirectly, shown the tax avoidance structures that these firms, like Mars Capital, were going to use? Why was it not made part of any sale that all profits and capital gains accruing to these firms would be…”
Ó Fearghaíl: “The Deputy is now out of time. The clock applies to him…”
Donnelly: “…would be..”
Ó Fearghaíl: “…in the same way as it applies to everybody else.”
Donnelly: “Thank you.”
Ó Fearghaíl: “The time has elapsed, so will the Deputy resume his seat?”
Donnelly: “Thank you, Ceann Comhairle. Can I ask the Minister…”
Ó Fearghaíl: “No. I am not speaking for the sake of speaking. It is my job to enforce the Standing Orders. The time has elapsed. Will the Deputy resume his seat?”
Donnelly: “To reiterate the question, will the Minister consider an investigation and report back to the House on the extent of the tax avoidance we are seeing here?”
Bruton: “The Finance Acts provide for anti-avoidance measures and the Revenue Commissioners execute those. They have the powers to deal with them effectively. Those powers have been enhanced every year, in every Finance Bill over the years. If additional reform to the Finance Acts is necessary, it is open to the Deputy to bring forward such amendments, but in respect of the existing Revenue arrangements, they will enforce those.”
“If the Deputy has details of some new avoidance mechanisms that ought to be scrutinised by the Revenue Commissioners they will more than pleased to consider them and bring forward to the House measures to protect against them in time for the next Finance Bill. I do not have access to the information the Deputy has about the specific avoidance structures he describes but the Revenue Commissioners are there to enforce the rules. There are general anti-avoidance provisions in the Finance Acts and they are overseen and executed by Revenue.”
Transcript via Oireachtas.ie
Taoiseach Enda Kenny at the opening of a new €150million data centre at Google’s offices in Dublin yesterday
Dara Doyle and Stephanie Bodoni, of Bloomberg, report:
Near the top of the agenda [in Brussels] for investors continues to be the European Commission’s probe into Apple Inc.’s tax arrangements in Ireland, with both the company and the Irish authorities bracing for a decision that the Irish provided the iPhone maker with illegal state aid through a sweetheart deal.
In the first clues to a firm timeline for a decision on a probe which opened in 2014, Irish Finance Minister Michael Noonan told Bloomberg on Thursday in Luxembourg that the commission may publish a decision sometime in July, though “we don’t know that with certainty.”
…There’s a range of estimates out there. In a worst-case scenario, Apple may face a $19 billion bill if the government ultimately loses and is forced to recoup tax from the company, according to JPMorgan Chase & Co. analyst Rod Hall. Matt Larson of Bloomberg Intelligence puts the figure at more than $8 billion.
…Who gets the cash? Notionally, Ireland, even though the government says it doesn’t want it.
Why doesn’t Ireland want the cash, which after all could be equivalent to about all of the nation’s corporate tax last year? There’s a bigger picture, here, according to briefing notes provided to the incoming finance minister last month; a negative decision would hurt the country’s reputation and create uncertainty around it’s tax offering, which has been a key factor in drawing companies like Alphabet Inc.’s Google and Facebook Inc. to Dublin.
David F writes:
Got this today from Norwegian, the airline. State imposing a tax on the airlines, the airlines passing it on to the customers.
AND they’re imposing it retrospectively. So, you booked a flight in Jan for any time after June, you get pinged 80nok (about €10 euro)…
Fine Gael TD and junior minister Damien English launching the party’s Investing in the Early Years Plan in the CHQ Building, Dublin before the election in February
I was somewhat surprised to learn that Fintan O’Toole takes his policy views from US talk radio (I would have thought he was more a Guardian reader myself) but that probably explains why his view on foreign direct investment and Ireland’s industrial policy is so out of touch with reality.
The taxation of multinationals is based on the source principle. Countries tax the profits from operations located in their countries. Although some of the world’s largest companies have operations in Ireland, we can only tax them on the profit they generate from their activities in Ireland. This we do.
The issue being debated in the US at the moment, however, relates to a loophole in the US tax code which allows “deferral” of corporate income taxes, and allows US multinationals to delay certain tax payments until the profits are transferred to US-incorporated entities in their corporate structure.
Some companies (not surprisingly) are trying to defer payment for ever. We aren’t the problem. The US tax code is.
Indeed, the US treasury secretary has written to the European Commission stating that while the US does not collect the tax until repatriation, the US system of deferral “does not give EU member states the legal right to tax this income”.
Ireland’s 12½ per cent corporation tax rate is a key part of our offering to multinationals but it is not the only reason they come here.
We offer access to EU markets, a well-educated and a highly skilled workforce. Winning the war for talent is critical to our future success.
That is why my work as Minister of State for Skills, Research and Innovation was focused on making sure we continued to foster and develop Ireland’s talent pool through a new innovation strategy and a new skills strategy.
I look forward to hearing Fintan explain the real facts of the matter to Rush Limbaugh or the good folks who listen to the News from Lake Wobegon.
Damien English TD
Minister of State for Skills,
Research and Innovation,
Leinster House, Dublin 2.