Taxation, Development and Policy Coherence: Discussion with Irish Aid, Department of Finance and Revenue
Wednesday, 26 May 2010
Joint Committee on Foreign Affairs DebatePage of 4
Chairman: I welcome to the meeting from Irish Aid Mr. Michael Gaffey, deputy director general, who has been with us on a number of occasions, Mr. Donal Cronin, development specialist in policy planning and effectiveness, Mr. John O’Grady, assistant principal in the multilateral section, and Ms Carol Hannon, development specialist in the multilateral section. I welcome also Mr. Gary Tobin, principal officer, and Ms Niamh Campbell and Mr. Finian Judge, assistant principal officers, from the Department of Finance, and Mr. Eamonn O’Dea, assistant secretary, and Mr. Norman Gillanders, assistant secretary, in the Revenue Commissioners. If members wish to raise constituents’ problems, they will have 15 minutes after the meeting to speak to the Revenue Commissioners. I thank our guests for attending.
Ireland’s development assistance programme, Irish Aid, is a key component of Ireland’s foreign policy and has repeatedly been recognised as a leader in its field. This committee invests significant time in considering development issues and policy and many members have visited a number of Irish Aid programmes in recent years. We have focused on questions of aid effectiveness, in particular at a time of diminishing budgets. The question has arisen a number of times about the coherence of the expenditures being made under the Irish Aid budget and other Government policies that have an impact on the developing world. For this reason, I welcome the initiative taken in 2007 to establish an interdepartmental committee on development to ensure coherence across Departments.
A number of members of this committee met representatives of Christian Aid to discuss its recently published report, The Tax of Life: How tax dodging undermines Irish support to poor nations. That report sets out in stark terms the loss of revenue suffered by developing countries due to tax avoidance and evasion by international companies and through lack of capacity in revenue collecting. As a result, the ratio of tax to gross domestic product in poorer countries is approximately half of what it is in the developed world. Christian Aid estimates that €82 million was lost in tax revenue between 2005 and 2007 between six of the seven Irish Aid countries in sub-Saharan Africa. The joint committee is keen to know what consideration the interdepartmental committee on development has given to the important interrelationship between international tax policy and development assistance.
Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable. By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of the evidence they are to give this committee. If they are directed by the committee to cease giving evidence in respect of a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable. This is the first time I have read out this part. It means that witnesses will have absolute privilege in most circumstances. If asked by the Chair to desist and they refuse to do so, they will lose their absolute privilege. I take it that Mr. Gaffey of Irish Aid has worked all of this out in his mind, so I invite him to address the committee.
Mr. Michael Gaffey: I thank the Chairman and the members of the committee for this opportunity to examine the overall coherence of Ireland’s development programme and international development policy. I also recognise the importance of the report produced in recent weeks by Christian Aid which has focused attention on the crucial relationship between taxation and development policies and on the broader areas referred to internationally as policy coherence for development. The complex series of policy relationships involved is reflected by the presence of representatives from the Departments of Foreign Affairs and Finance and the Office of the Revenue Commissioners.
As the committee is aware, we are preparing to participate in the review summit in New York in September on progress towards the millennium development goals, MDGs. The Government is preparing nationally, in co-operation with non-governmental organisations and within the EU and the UN. With the Obama Administration, we are preparing a bilateral initiative in the context of the summit on hunger. The environment in which international development policy is formulated and implemented has altered radically, even since the International Conference on Financing for Development held in Doha in November 2008 at which Christian Aid and Christian Aid Ireland were represented. We are working with our partners for a reaffirmation of our shared commitments to the achievement of the MDGs by 2015 on a clear and credible basis.
We must recognise that the global economic crisis has hit the least developing countries severely, affected different developing countries in different ways and its course for many developing and other countries remains unpredictable. We must also recognise that, at a time when resources are most needed for the poorest communities, aid budgets across the developed world are under sustained pressure. The onus on us as development partners is to focus clearly on key priorities, both thematic and geographic. In the Government’s participation in New York, our clear priority will be to highlight the need for real progress on the global hunger crisis, MDG 1, and on the situation in the poorest of regions, sub-Saharan Africa, which is also the main focus of our development programme.
We need to re-energise international efforts to build the effectiveness of aid, recognising that overseas development aid, ODA, while an essential element in the process of development, is only one element. We also need to consider what is meant by policy coherence for development. At a minimum, it must be concerned with ensuring that actions in favour of international development are not undermined by policies and actions at national and international levels in other key sectors.
Taking up this last point and as the Chairman has stated, the interdepartmental committee on development was established in 2007 on the recommendation of the White Paper on Irish Aid in 2006. The interdepartmental committee has established itself as a key forum for sharing information and discussing development issues across the Civil Service and the wider public service. The Minister of State, Deputy Peter Power, chairs every meeting of the committee, which has had discussions on global hunger, climate change, our engagement with the World Bank and last year’s peer review of the aid programme.
The concept of policy coherence for development is a new one and is still developing. The committee has spent some time learning from the experiences of other countries, including the Netherlands, with input from civil society and academia. A point that has become clear, especially as we follow the issue up in the OECD, is that there is no one-size-fits-all model to ensure coherence in a country’s development policy. We have made important progress in our work across Departments, not least in raising awareness of development issues and embedding a commitment to the effectiveness of the overall Irish effort in the fight against global poverty and hunger. We have established subgroups to focus on encouraging a greater engagement by Ireland with multilateral organisations and on how to take a more systematic approach to the recruitment of Irish nationals into the United Nations system. We have also engaged the Government more broadly in achieving our development objectives by building awareness of development issues across Government and identifying how skills and expertise in the public sector can be harnessed for development. In this regard, we can follow up certain issues in respect of what the Revenue Commissioners are doing in Rwanda.
Under the committee, relevant Departments are in the process of drafting departmental statements outlining the contribution they can make to advancing policy coherence for development. We hope these can identify clearly what steps individual Departments can take to increase their contribution, including actions to reduce incoherence or inconsistencies in policies with a view to integrating commitments to policy coherence for development into future departmental statements of strategy.
Inevitably, discussions on policy coherence have focused primarily on trade and agriculture which traditionally have been seen as having the biggest impact on the economies of developing countries. More recently, there has been increasing attention given to the issue of taxation. With globalisation and as multinational companies increasingly extend their areas of operations, where tax is paid has become a key issue in terms of development.
The importance of domestic tax mobilisation to development should not be understated. Currently, domestic revenue accounts for around ten times more of the finance raised for Africa than development assistance. Of the total development finance available to sub-Saharan Africa in 2008, $433 billion came from domestic revenue, $37 billion from private flows and $44 billion from aid or official development assistance. However, the ratio of tax to GDP in poorer countries is only about half of what it is in the developed world. The majority of Ireland’s nine programme countries, in respect of which we have a long-term commitment to providing strategic assistance, have a tax to GDP ratio of only between 11% and 13%. Maximising domestic resource mobilisation is, therefore, vital to building the ability of developing countries to finance their development. This requires both an efficient and fair domestic tax system, as well as a transparent and fair international taxation system.
At the domestic level, developing countries often lack the resources and capacity to build an effective tax administration. Citizens may be unwilling or unable to pay tax. It is also difficult to collect tax in low income, agrarian economies which have large informal sectors. Elites are also very hard to tax, as they avoid, evade or take advantage of weak tax enforcement. Multinationals may also take advantage of low or nominal tax jurisdictions to shift part of their profits. Capital flight, including tax evasion and avoidance, and illicit financial flows are major obstacles to domestic resource mobilisation. A recent study commission by the Norwegian Government, for example, found that illegal money flows from developing countries were at least seven times greater than official development assistance.
The Christian Aid report estimates that abusive transfer pricing cost Irish Aid programme countries almost €450 million in lost tax revenue between 2005 and 2007. Although the vast majority of this figure, €365 million, was attributed to Vietnam, it is a significant problem and results in money being diverted from what could otherwise be increased expenditure on social services such as education, health and water. It is important to note that Christian Aid is not suggesting there is a direct cost to Irish Aid, but it is highly relevant, especially in the current global economic environment, that such potential resources for development assistance are being lost to poor countries and communities. These are issues that need to be addressed at different levels, national and international. The Department of Foreign Affairs and the Department of Finance are collaborating to ensure a strong and coherent Irish response in the European Union, at the OECD and the United Nations.
Irish Aid is supporting a number of important initiatives aimed at supporting domestic resource mobilisation in Africa. These include support for regional efforts such as the African Taxation Administrators Forum and, through AWEPA, support for the East African Community Customs Union. The AWEPA programme complements the work of the investment climate facility for Africa, a public private partnership, also supported by Irish Aid, which partners with governments and regional organisations throughout Africa on a range of legal, regulatory and administrative projects. This work includes improving the efficiency of revenue and customs administrations. ICF projects include tax and customs projects with the East African Community Customs Union Directorate and the Governments of Lesotho, Rwanda, Senegal, Liberia, Mali, Tanzania and Zambia.
Irish Aid has been glad to support the fruitful collaboration between the Revenue Commissioners and the Rwanda Revenue Authority. Technical assistance and information exchange are being carried out in areas such as the risk-based system for tax audit selection. An innovative and affordable computerised risk profiling system is being rolled out. Our colleagues from Revenue will be able to give much more detail on this initiative.
More generally, our partnership with Ireland’s nine programme countries — seven of which are in Africa — places a strong emphasis on strengthening the management of the public finances and ensuring the revenues raised are used effectively and efficiently to tackle poverty. However, there needs to be better coordination of efforts among donors, while a more concerted approach is required to the development of the capacity of tax administrations in Africa in order that they are better able to take advantage of the increasing transparency in international taxation.
For our part, we have been a very active member of the OECD Development Assistance Committee governance network which facilitates exchange and dialogue among donors and experts and provides guidance on increased engagement by donors in the field of taxation. The European Union is also renewing efforts aimed at strengthening support for domestic resource mobilisation, again with active engagement by Ireland.
Irish Aid and the Department of Foreign Affairs, together with the Department of Finance, are actively engaging in efforts to ensure the issues surrounding international taxation and tax dodging are adequately addressed. Much of our collective effort is channelled through the OECD and the European Union. At OECD level, the renewed collaboration between the Committee on Fiscal Affairs, on which we are represented by the Department of Finance, and the Development Assistance Committee, on which we are represented by Irish Aid, has an important role to play in ensuring developing countries receive a fair share of taxes in a more transparent international tax environment. An OECD task force on tax and development has been established which also has members from developing countries, as well as civil society, including Christian Aid. It met for the first time on 11 May and agreed on an ambitious agenda in the coming period when it will look at strengthening transfer pricing implementation measures in developing countries, including identifying best practice and encouraging south-south co-operation. The issue of country-by-country reporting of multinationals will also be examined, while support will be provided in the implementation of tax information exchange agreements by developing countries. In addition, the European Union supports the adoption and implementation of the OECD guidelines on transfer pricing.
A recent European Commission communication on tax and development charts the way forward for the European Union in terms of its role in support of the wider OECD agenda on international taxation. That provides the basis for European Council conclusions that will be adopted in June when the Foreign Ministers next meet and Development Ministers will participate.
Finance and taxation also feature prominently in the European Union’s work on policy coherence for development. There is agreement, however, that a more focused approach to policy coherence is required. The Council agreed last November to focus on five priority issues: trade and finance, climate change, food security, migration and security. Ireland worked hard to ensure the inclusion of trade and finance in the key priorities for this policy coherence work. The EU policy coherence work plan for the next three years includes the following: a commitment to encourage closer co-operation in developing international tax standards; supporting the implementation of principles of good governance in the area of tax; the adoption and implementation of the OECD transfer pricing guidelines in developing countries; research on reporting standards for multinational corporations; and enhancing support for the extractive industries transparency initiative. There has been considerable work done and a lot achieved in moving this agenda forward in the past year.
A more transparent, co-operative and fair international tax environment is essential to enable developing countries to finance their development and reduce their dependency on aid. This is not a technical issue, rather it goes to the heart of our shared commitment in the fight against global poverty and hunger and to the achievement of the millennium development goals. It is relevant to the Government’s commitment at home to place development at the heart of Ireland’s foreign policy and in the European Union to ensuring, post the Lisbon treaty, we achieve a more coherent approach to the Union’s external actions, including strengthened development policies based on a clear commitment to poverty reduction.
Mr. Gary Tobin: I thank the Chairman and committee members for giving us the opportunity to meet them today to discuss the important issue of the inter-relationship between international tax policy and development assistance. The inter-relationship between them is an important and topical issue which is receiving increased attention in the European Union and the OECD. For example, in January the OECD hosted a joint meeting, bringing together for the first time the tax and development communities. The Department of Finance participated at the meeting alongside Irish Aid.
As the joint committee will well appreciate, given the current challenging economic environment, the primary focus of the tax policy division of the Department of Finance in the past 18 months has been on assisting the Minister for Finance in the production of three separate budgets and three accompanying Finance Bills. Nonetheless, we have also tried in that time to open dialogue with Irish Aid and civic society on tax and development issues. For example, in the past year the Department has met Christian Aid and the Debt and Development Coalition on a number of occasions. In addition, we have also met the Washington DC based civic society group New Rules for Global Finance Coalition.
We read with interest the recent Christian Aid report, Tax of Life, which contains a number of recommendations directed at the Government. I would like to respond briefly to four of the key recommendations. In so doing I hope to set out the main pillars of our approach to these issues from a tax policy perspective. The four key recommendations relate to the exchange of tax information, transfer pricing, country-by-country reporting and supporting the capacity needs of tax authorities in developing countries.
Ireland fully supports tax transparency and, in particular, the exchange of tax information. We insist on it as a prerequisite for agreeing new double tax treaties with other countries. In fact, our insistence on the need for tax information exchange has inhibited our ability to rapidly grow our tax treaty network. Nonetheless, it is such a fundamental principle of good governance that we have stuck with it, despite the fact that it may have adversely impacted our bilateral trade.
In the most recent Finance Act provisions were inserted in section 148 which will allow Ireland to become a party to the multilateral Council of Europe Convention on Mutual Assistance in Tax Matters. The convention is being updated to conform with the new OECD standard on the exchange of information and it is also intended to open it up for signature by a wider range of countries and territories outside the OECD. These developments should serve to greatly increase the range of information exchange instruments that Ireland and other OECD countries can use to counter cross-border tax evasion.
Turning to transfer pricing, in general, abusive transfer pricing occurs when multinational companies manipulate the prices charged for goods or services by group companies to each other in order to report more profits in countries that charge lower rates of tax. To counteract this and also to avoid the possibility of double taxation, the OECD has developed internationally accepted transfer pricing guidelines which are based on the arm’s length principle which requires that multinationals price their inter-company transactions at the same price that would arise between two independent companies carrying out the same transactions. Ireland fully supports this principle which is included in all of its 56 double taxation treaties. In the recent Finance Act it was specifically and comprehensively codified in Irish tax legislation.
To improve tax transparency and compliance in developing countries, civic society groups have proposed that multinational enterprises report on a country-by-country basis in their annual financial statements. Proponents of country-by-country reporting suggest this would discourage profit-shifting between countries. Critics of the proposal point to the potentially heavy compliance burden on companies and the increased auditing and reporting costs which could be incurred. They also note that it may not produce significant and sufficient evidence which could be used by a revenue authority against a particular company. Ireland supports the ongoing work at EU level on tax and development issues, including work on country-by-country reporting.
Turning to the issue of building the capacity of tax authorities in developing countries, a critical issue is whether there is the capacity within the tax authorities of developing countries to analyse complex tax and accounting information in order to ensure tax compliance. The Revenue Commissioners have been working for a number of years to provide technical assistance for Rwanda, in particular. In 2005 the International Monetary Fund asked the Revenue Commissioners about the possibility of making some of their senior officers available to work on short technical assistance missions in developing countries. Revenue agreed to this and three assistant secretaries, including my colleague, Mr. Norman Gillanders, worked with the fund in Rwanda, Uganda, Namibia, Nigeria and Jordan.
Contacts with Rwanda have been maintained and in March 2008 the Revenue Commissioners signed a co-operation agreement with the Rwanda Revenue Authority. Activities under the programme have been funded by a grant from Irish Aid. This co-operation project will continue and the Revenue Commissioners and the Rwanda Revenue Authority have renewed the agreement for a further two years. In addition, the UK Department for International Development has led the reconstruction of tax administration in Rwanda. The Revenue Commissioners work closely with that UK Department which has funded a number of visits of Rwanda Revenue Authority staff to Dublin to work on specific issues with our experts.
Deputy Billy Timmins: I thank Mr. Gaffey and Mr. Tobin for their contributions. It is interesting to note in Mr. Gaffey’s statement the Norwegian study which shows that illegal money flows from developing countries are at least seven times greater than development funding. On transfer pricing, will Mr. Gaffey put a figure on it in the case of sub-Saharan Africa? Christian Aid has estimated the amount of money involved in transfer pricing. How was this figure arrived at? Do the delegates have any view on the Nairobi declaration on taxation and development? I have examined the declaration and imagine it would be difficult to implement in Ireland. Do the delegates have any idea what are the views of the countries to which it will apply on its implementation?
The Joint Committee on Foreign Affairs has a real problem in getting an opportunity to discuss the assumptions made in the fundamental policy strategy. By this I mean there are assumptions we never get an opportunity to discuss. I cite as examples the model of economic development being pursued and the connection between an externally imposed model of economic development based on growth and neo-liberal assumptions and the struggle of receiving countries of Irish aid to achieve self-sufficiency in food production.
Where the contradiction strikes us in the face is in the economic partnership agreements, a matter the Select Committee on Foreign Affairs might perhaps discuss. Yesterday the Dáil made a decision to flash through the select committee, providing for possible later consideration by the Dáil, three economic partnership agreements with southern African countries, east African countries and a third group of countries. I will not delay the committee, but I will illustrate the point by stating ten out of 47 countries in Africa have signed initial economic partnership agreements. However, the atmosphere in which the negotiations have reached this point contradicts much of what I have heard. Sticking to the example of southern Africa, it has been pointed out by the representatives of Namibia that the Southern African Customs Union could be destabilised by forcing some countries to register with the WTO, leading to the exclusion of some other countries. A meeting is being held on 18 June to put the southern African development community together at which some fundamental matters that are flaws in the agreement will be debated by African countries and will be discussed later by their parliaments.
Regarding dialogue with us as elected representatives in Ireland, everyone else in the European Union has signed, so why are people like me getting in the way? It is a moral point. I do not see consistency between requiring people to end 80% of their tariffs, interfering with their capacity to put tariffs on extractive industries, requiring them to accept the thin end of the wedge regarding matters which have been discounted at Doha and are now coming back as additions in regard to the WTO and so on. That is my fundamental point. The EPAs are an illustration of inconsistency.
As this is such a valuable and rare opportunity to put my points, which I appreciate, I would like to hear the views of the interdepartmental committee on international transfer pricing and transaction tax. We do not dare to mention the phrase “Tobin tax” because it has gone out of fashion, but allowing for poor Mr. Tobin——
The Christian Aid report is a very valuable document. If the mining companies in Tanzania are fraudulently increasing their costs and declaring losses of 500 million to the point where this interferes with the right to spend money on education and health, how can one say one is producing guidelines which will encourage rapacious people suddenly to be converted to want to care for Tanzanian children? That is the issue.
The interdepartmental committee is dealing with the Institute for International Integration Studies in Trinity College. I do not recall that being discussed at this committee. There is a fundamental difference between my assumptions about development and those of the Trinity College Institute of International Integration Studies. It is a proponent of the de Soto model regarding land titles whereby the peasants would get titles to land, which means they would have collateral and, if the banks are privatised, they could get loans. This is the path to development, the de Soto model which was implemented disastrously in Mexico. The institute’s view is that it modernised Mexico. Rather it opened up the country to exploitation and a brutal transfer of resources and ownership outside of the country. I oppose the model. Who decided that institute would decide on the indicators of good development co-operation? It was not a decision taken by this committee.
The presentation referred to the identification of indicators for monitoring policy coherence. I want transparency on the issue of policy coherence because, apart from being an elected representative for more than 24 years, I have worked in the area of development theory for almost 30 years, and I found the presentation technically ill-informed and theoretically bereft of modern models, such as the balance between indigenous development theory and imposed development.
On the brief before us and what we might do, we cannot go on as we are although I am very proud of our aid effort. Everyone should be and I never understand why people quibble about the details of its implications. I always ask what the criticisms would be if one was under a mango tree and saw bricks arriving to build a school. One has to have a sense of perspective. Notwithstanding that, most of the abuses by the extractive industries take place in the poorest countries. We are fairly silent on the policy strategy that if one changes the tax, instead of the extractive industries robbing a country of its minerals and whatever, such as in the Democratic Republic of the Congo, and this being a source of conflict, it could be a powerful tool for resource-based, post-conflict reconstruction. That requires changing the international tax regime.
All the documents we receive have the correct emphasis, namely, the willingness of the people of a country to pay their taxes and its ratio to GDP, total aid or whatever. How can one expect the poorest of the poor to be volunteering to pay tax when the small industries in which they work, such as producing chickens, are being told they had better sign up quickly? That is what is happening. African countries and townships are awash with heavily subsidised agricultural products at the same time their governments are being asked to sign agreements which will stop the infant food sustenance programmes being put in place.
Deputy Michael D. Higgins: There are enough highly paid researchers and professors in the Institute for International Integration Studies in Trinity College who, were they to go back to their textbooks and open their minds, should be willing to consider alternative economic models.
Senator David Norris: Despite Deputy Higgins’s criticism of some of my former colleagues in the University of Dublin, the College of the Holy and Undivided Trinity of Queen Elizabeth near Dublin, I share virtually everything he has said. He is right and there is an element of looking down on people to a certain extent in imposing a model from outside. I very much favour the domestically generated respect for local people.
I welcome the members of the distinguished group. There are more of them than there are of us, which suggests it has the resources to answer any questions we have. I have a few and they are quite specific. Like Deputy Timmins, I noticed what Mr. Gaffey said about multinationals. I get the feeling he is very much on our side and that of Christian Aid which made a very persuasive case in its excellent, detailed and factually based document which quoted substantial figures. We are not dealing with an airy fairy concoction. Mr. Gaffey said multinationals may also take advantage of lower than normal tax regimes to shift out part of their profits and that capital flight, including tax evasion and avoidance and illicit financial flows are a major obstacle to domestic force mobilisation. This has been demonstrated and there is no question of argument about that. It is not just that they may do it; they routinely do so. That is my position. This is part of the nature of the beast.
Mr. Gaffey said immediately after that concerning the figures compiled by the Norwegian Government, to which Deputy Timmins referred, states that the flows of illegal money are seven times higher than the overseas development aid, ODA. That is an utterly shocking figure and it must be addressed. I am not sure I heard a very keen appetite for it to be addressed and perhaps I can be reassured on this matter.
I understand the situation Mr. Tobin outlines that the current challenging economic times have meant there has been a heavy drain on expertise. That is understandable but the tragic political consequences of that, which I see every day in the Seanad, is that human rights issues and similar concerns are blown right off the agenda. That is a disaster. They were blown off the agenda domestically, as exemplified when I tried to ask questions about the crippling of a series of domestic organisations, such as the Combat Poverty Agency, the Equality Authority and so on, in advance of the real landing of the economic storm and I went unheard. I am afraid it may also be the case in some measure in the international field. I understand the difficulties but we must not take our eye off the issue of injustice just because we are trying to straighten the books, although I approve of attempts to do the latter. I welcome the fact Mr. Tobin has met Christian Aid and I expect he was very largely persuaded by its arguments.
Much of what was said about the exchange of tax information and transfer pricing was a kind of pat on the back for our own internal policies. That is fair enough but they are not quite as relevant because the real game is played off these shores. I am interested in the international aspect of these things, what clear positions we have at international level and what can be done here.
The arm’s length principle was mentioned. That is a very good and potentially powerful principle, but it is only a principle. How effective is it? What is its degree of implementation, especially at international level?
I get very concerned when it comes to country by country reporting because there is a noticeable degree of fence sitting in what Mr. Tobin said. Opponents suggest it would discourage profits. Of course, it would. There is no doubt about. It is not just a suggestion; it is a fact. If this is implemented properly, it will stop it, so it is not just a suggestion but a fact. Then there is the balance. I do not like balance when it is balance in favour of injustice. Critics point to the potentially heavy compliance burden and possible increased auditing and reporting which will be incurred by companies. I am inclined to use horrible ugly-sounding clichés such as “Break my heart, Brigid” or “Am I bothered?”. Do I care about multinationals? It is grossly unrealistic to suggest that the amount of effort and expenditure necessary for compliance by these groups would have any impact on their grossly distorted profits. I do not accept this for one second. That argument does not hold the slightest amount of water.
Then there is the question that it might not produce sufficient evidence. It would do so if it was applied properly and rigorously and pushed through. That is something the Department should request. I am very pleased there was an exchange of personnel between the donor countries, which was very necessary.
I go back to the figures produced by Christian Aid. In one of our prime target countries, the amount of tax bleed exactly paralleled the more than €400 million the Irish taxpayer contributed. In other words, we are putting money into the pockets of the multinationals. We are just supplying that deficit. Let us plug that hole.
I ask Mr. Tobin the following question, although not in any accusatory way, and perhaps the Office of the Revenue Commissioners will comment on it as well. What position is Ireland taking on country by country reporting and automatic tax information in the discussions at OECD and EU levels? That is a clear question and I seek a specific factual response.
As elected representatives, committee members want to be reassured our country is playing a positive role and pushing for progressive language on the issues of tax and development in order that some positive statement and decisions — not just a lot of waffle — come out of the European Council conclusions in June. I have made some general comments and asked some specific questions about the attitudes that will be taken on the behalf of the people by representatives of Ireland.
Deputy Rory O’Hanlon: I thank Mr. Gaffney and Mr. Tobin for their contributions. Perhaps they might say something about the ongoing discussion on the European Commission communication on tax and development. They said it would be drawing up conclusions in the coming weeks.
The two speakers placed much emphasis on our role, mainly through the EU, OECD, UN and IMF. Are we involved in these tax issues in a bilateral way, in particular with the nine programme countries? What changes and improvements have we seen to date as a result of the initiatives that have been taken, in particular with the transfer pricing and the multinational companies?
Mr. Joe Higgins, MEP: I thank the Chairman for the invitation to attend. By coincidence, there has been quite some discussion at some committees of the European Parliament on the question of policy coherence. Very recently the development committee did an opinion on whether there was policy coherence between the European Union and its trade policies, in other words, whether the high-minded rhetoric in some of the treaties about the EU standing for democracy, human rights, justice and fair play was actually reflected in the countries in Africa, Asia and Latin America with which the European Union traded.
As a member of the international trade committee of the European Parliament, I did an opinion on that question as part of the process. My view is that far from policy coherence, there is a serious disconnect between what the European Union says it stands for and its actual practice in how it deals with the countries and the dramatic effects on working people, small producers and indigenous communities, in particular in the role the European-based multinationals play once they are given a free hand.
Unfortunately, the Government of this country is part and parcel of that disconnect. Only the week before last in Madrid, the Irish Government was part of the signing of a free trade agreement with Peru and Colombia against all the requests and demands of civil society, trade unions and organisations working on the ground in Colombia given the horrific human rights——
Mr. Joe Higgins, MEP: ——travesty of the Government there. Giving it the legitimacy of the entire European Union, including Ireland, begs the question of how seriously the Irish Government and the European Union takes the question of human rights. Aside from human rights, there are serious implications for other Andean countries such as Bolivia which were cut out of the deal because they were not prepared to go the same neoliberal distance as Colombia and Peru in the sell-out of natural resources, opening up the Amazon to European transnationals and liberalising services by force. The European Union is driving an horrific bargain in terms of bursting open public procurement and contracts for state services to European multinationals. There is no coherence in this regard. Unfortunately, by the time my opinion was concluded within the committee on international trade, Deputy Timmins’s party, the EPP, had shredded it beyond recognition and I had to withdraw my name from it.
I will conclude by putting two questions to the representatives from Irish Aid and the Department of Finance. There must be a fundamental contradiction between pushing Ireland as a low tax country for multinational corporations on the one hand, while saying that we stand for absolute tax transparency and are opposed to transfer pricing arrangements on the other. If the Government is serious in its position, as outlined by Mr. Tobin today, what investigations have been carried out into abuses of transfer pricing? When I was a Member of the Oireachtas, I had occasion to challenge the then Taoiseach on one little known multinational which, despite having fewer than 100 employees in Ireland, reported fabulous profits here of up to €1 billion. That money was clearly reported here for tax purposes but where was it earned? How much is robbed annually from Africa in terms of the taxes that should be paid there to fund education and other desperately needed services? Has an across-the-board examination been conducted into this matter and can we be given hard figures on it?
Senator Norris referred to the multinationals’ argument that reporting country by country would create an intolerable burden. Prior to the recession, the profits reported in Ireland were of the order of €30 billion to €35 billion annually. The idea that spending a few million euro on additional reporting requirements would cause hardship simply does not add up. Will the Department estimate the amount of money declared in this country that should be declared elsewhere and indicate what is being done to end this practice? If we can get this information, we can begin to believe the issue of tax coherence for development is being taken seriously.
Deputy John Deasy: My question is for the Department of Finance. As far as I am aware, the most comprehensive report on transfer pricing produced by any US Administration was published at the end of the Bush Administration. While Ireland was not specifically targeted by the report, we have received close attention over the past four or five years. The report identified large volumes of transfer pricing whereby US multinationals shifted money in an effort to reduce their tax rates. Mr. Gaffey caught my attention with his remarks on Vietnam and the €365 million that he attributed to transfer pricing in that country. Does Vietnam not allow transfer pricing within its own jurisdiction as an incentive to multinationals? What is the official Vietnamese position on the Christian Aid report? I acknowledge we are forming a view of one of our programme countries but do these countries not have good reasons for permitting this practice to attract foreign direct investment?
Chairman: Perhaps the delegation can say a little more about the fruitful collaboration between the Revenue Commissioners and the Rwanda Revenue Authority. We have visited Rwanda and found this relationship to be very interesting. I understand Mr. Gillanders has also travelled to Rwanda.
Mr. Norman Gillanders: I went to Rwanda for the first time in 2006 after being invited by the IMF in 2005 to support its technical assistance programme in east Africa. I have since visited the country on a further five occasions. We worked with Rwandans and instead of writing another report, we established and trained an operations planning and policy unit in the head office of the Rwanda Revenue Authority, RRA. This facilitated improvements in the design of the country’s audit and tax collection programmes and the operational design of its core tax programmes.
I am glad to say this unit is still in existence and we have returned several times to support it. Thanks to funding we have received from Irish Aid and our UK colleagues in DFID, our Rwandan counterparts have made several visits to Ireland to work with us and the programme has proven successful.
For the first several years, we worked under the auspices of the IMF’s east African technical assistance centre but subsequently began to operate under a co-operation agreement between the Revenue Commissioners and the RRA which was signed in April 2008 and renewed last month for a further two years.
I believe my Rwandan counterparts would agree that we have enjoyed several successes with the programme, including the establishment of the operations policy unit. Last autumn, Revenue’s collector general travelled to Rwanda to help improve the design of its tax collection and enforce programmes. For the past 15 months I have worked with Rwandan officials to develop a simplified version of our risk analysis procedures for selecting cases for audit.
The programme is relatively inexpensive and has received logistical and technical support from Revenue’s management. It has been an interesting learning experience for senior managers in Revenue and I believe the Rwandans have got good value from it. I am glad it has been continued for another couple of years.
Mr. Gary Tobin: I will do my best to answer them. Deputy Timmins asked about estimates of the amount of tax that is being lost. It is difficult to estimate the figure. Across the world, multinational companies have long been accused of utilising difficulties in applying the arm’s length standard to facilitate so-called income or profit shifting from high tax to low tax countries. While it is not my job to try to defend these companies, I will briefly mention some of the issues that arise in trying to estimate some of the transfers.
Given the difficulties in determining arm’s length comparisons and setting transfer prices in terms of intercompany transactions, it is incredibly difficult to estimate the scale of the abuse of transfer pricing. A number of technical papers have tried to examine the available empirical data for evidence of so-called profit shifting. Typically, these approaches tend to use aggregate level data. The data is nearly all aggregated to different sectors of different industries. As far as I am aware, very little data is available at company level.
The data can be misleading as it does not allow for genuine differences at company levels. The Oxford University Centre for Business Taxation has commented that some of the existing estimates of tax revenue losses due to tax avoidance and evasion by firms systematically overstate the losses. I am not arguing that tax avoidance and evasion do not take place but simply referring to the availability of data.
Mr. Gary Tobin: I do not know who funds Oxford University. The centre in question is internationally regarded. Michael Devereux, the professor of taxation economics at the centre, is an acknowledged expert. I admit, however, that I do not know from where it gets its funding. Irish Aid does not give it any money.
Senator David Norris: In light of the performance of the ratings agencies, it is reasonable to ask this question and I did not put it in a malign way. The ratings agencies have been allowed to get away with financial murder. They were reputable and everyone, including the markets, believed them but they have been wrong on every occasion.
Mr. Gary Tobin: I will briefly try to respond to some of the other questions. Several members, including Deputy Higgins, referred to the Tobin tax. Unfortunately, due to my surname, I cannot but respond on this point. One of the benefits of a person, like me, with the name Tobin working in taxation is that everyone always remembers it, for good or ill.
The idea of the Tobin tax was essentially based on foreign currency transactions. The original proposal was put forward by the late Nobel Laureate, James Tobin, and was limited to foreign exchange transactions. It was intended to reduce the volume of such transactions rather than specifically to raise revenue. While some contemporary advocates of a transaction tax view it as a means to shrink the size of the financial sector, others consider such a measure a possible source of finance for the development sector. Many people talk about a Tobin tax but there are many different ideas about what it should be and do.
The G20 has tasked the International Monetary Fund to prepare a report for its June 2010 meeting, laying out a range of options as to how the financial sector could make a fair and substantial contribution towards paying for any of the burdens associated with government interventions to repair the banking system. Again, this does not necessarily refer to a Tobin tax but it is a related issue and one which the joint committee may be interested to note.
The European Union is also examining the issue of financial sector contributions, a matter referred to by Deputy Higgins, in terms of crisis resolution. As it happens, the European Commission will issue a communication on bank resolution funds today. As we have been preparing for this meeting with the joint committee, we have not had an opportunity to study the communication although we can make it available to members.
Senator Norris asked about exchange of tax information and what Ireland is doing at international level. I am proud of what Ireland is trying to do internationally. As members will be aware, on foot of the G20 meeting in April 2009, the issue of the exchange of tax information has acquired considerable international importance. To monitor and ensure this exchange of information takes place, the global forum on tax transparency, which is to some extent under the auspices of the OECD, has been restructured and strengthened. The forum now includes 91 members, including all G20 members, all OECD countries and all the main offshore jurisdictions. It has a three-year mandate to peer review all of the member countries. Ireland is a member of the peer review group that is centrally involved in trying to organise the whole process. The global forum is trying to take a lead in ensuring tax transparency and exchange of information globally. Ireland is one of the countries that is heavily involved in the organising committee driving the process.
The first set of peer reviews of the tax information exchange mechanisms used by countries is under way. A number of countries will be reviewed for the first time under this process in the first half of this year. Ireland has volunteered to be among the first group of countries to be peer reviewed by other countries and I believe New Zealand and Bermuda will carry out the peer review of this country. The process is lengthy and contacts are being made with a variety of other international revenue authorities to assess their view of how we exchange tax information with them. Observers from the revenue authorities of New Zealand and, I believe, Bermuda will visit Ireland to carry out the peer review process.
Senator David Norris: Mr. Tobin may have slightly misunderstood the question, although it may well be the case that I am thick. While he gave a useful historical account of the current position and the role Ireland plays in this area, he hedged his bets. I am curious to ascertain whether Ireland is actively in favour of country-by-country reporting and if this support is expressed at international levels.
I have to say I am a stranger to this area. Joe Higgins, MEP, indicated — it is at the back of all our minds — that Ireland may believe to a certain extent that we benefit from some of these practices as an economy with particular tax rates and facilities in the International Financial Services Centre. For this reason, this may be a delicate area for the Irish revenue authorities. I seek, therefore, to ascertain if we are pro or contra country-by-country reporting. Mr. Tobin adopted the line, “on the one hand and on the other”, which does not convince me that we are in favour of country-by-country reporting. I assume he is informing me that Ireland is in favour of this type of reporting.
Mr. Gary Tobin: I can honestly say that it is rare for the Department of Finance to sit on the fence. We tend to take either a black or white position on issues. Irish Aid views country-by-country reporting as a multilateral issue. Ireland can and does contribute to the debate but the issue is essentially being driven at——
Mr. Gary Tobin: We have absolutely no objection to country-by-country reporting. We are participating in the OECD and EU processes that are trying to drive it forward. Having said that, if country-by-country reporting is agreed and implemented, then we want it to work. Part of the problem with the financial crisis that has engulfed the world is not a lack of financial information, but financial information that was of poor quality and not very relevant in trying to estimate——
Mr. Gary Tobin: If this information is to be made available, then it has to be useful information. We are working with our EU and OECD colleagues to try to make this system work. I do not believe that there will be a magic bullet solution. Mr. Gillanders has spoken about the need for technical assistance for these administrations and this is arguably far more important. We could give a revenue authority all the information in the world about a particular company, but if it does not have the resources and skills to use that information, then it will not achieve anything.
Mr. Eamonn O’Dea: The arm’s length standard is the current international standard for determining the apportionment of profits between the component companies of a multinational group. The Churchillian comment that democracy is the worst system until we look at all the others applies to the arm’s length standard. There are difficulties in applying it, but when we consider the alternatives, it may not be such a bad standard at all.
Mr. Joe Higgins has asked a very relevant question. Deputy Deasy also referred to Ireland’s low rate and whether this is inconsistent with us favouring transparency. The answer is “absolutely not”. We have been very active in our advocacy of transparency. We are not the least bit apologetic or defensive about our 12.5% rate. It is an exercise of our sovereign discretion on our corporate rate to attract inward investment and to assist indigenous business. We do this on the basis that an appropriate arm’s length profit taken here can benefit from a lower tax rate. There is absolutely no under the counter suggestion that we want companies to exploit this. Taking an appropriate arm’s length profit here at a lower tax rate is advantageous to the companies concerned, and it should be part of a package of motivations that would attract multinational companies to invest here.
Mr. Eamonn O’Dea: The answer to the Mr. Higgins’s question is “absolutely not”. I would hope that there is no hint or suggestion in what I have said of a justification of a declaration of profits in Ireland that ought to have been declared in Africa. In fact, I am saying quite the contrary. Ireland is offering a 12.5% rate for the appropriate profit earned in Ireland. That provides an advantage to the multinational company concerned. Taking an absolutely appropriate properly measured profit here can give us an advantage if only 12.5% has to be paid in comparison to 30% to 35% in other jurisdictions. The advantage is multiplied if there is an abuse of transfer pricing involved, but Ireland has absolutely no truck with, nor does it defend or advocate of such abuses. We want a straight application of the international arm’s length standard in the determination of the profits arising here. There is an advantage and incentives to that, because we offer a lower rate of tax on those properly measured profits.
There is no contradiction between our strong support for arm’s length standard on the one hand, and our low rate of corporate taxation on the other hand. It is true that a low rate may present attractions to companies that go beyond the arm’s length standard, but we do not condone or advocate that or tolerate a “nod and wink” approach to that. There clearly is a potential for multinational companies operating across borders to look at the distribution of profits between developing countries, high-rate jurisdictions, low-rate jurisdictions and havens. We cannot ignore those factors, but multinational investment in Ireland is typically sourced from high-rate jurisdictions that have tremendous expertise and capacity in respect of transfer pricing. States such as Germany, Japan and the US are well able to monitor what the subsidiaries of their companies are doing here. They are well able to ensure that the subsidiaries operating here are staying in line with this international standard.
There may be criticisms of the international standard, but the alternatives may not look attractive in many respects. The standard we have at the moment is about protection for smaller jurisdictions from undue pressure being brought to bear by larger countries with more economic power and larger markets. Ireland is resolutely opposed to the common consolidated tax base that is proposed in the EU partly because instead of arm’s length pricing, there would be a formulary apportionment of profits across borders. When criticisms are made of arm’s length pricing, one needs to consider the alternative. If that alternative is to give undue apportionment of profits to larger countries, then that is not to Ireland’s advantage. It is not just a case of north versus south. It is a case of size, our choice to adopt a low rate and our attempt to ensure that there is international respect for a common standard for apportionment of profits that does not create a presumption against Ireland just because we have chosen to have a 12.5% tax rate on companies.
Mr. Michael Gaffey: There are many relevant questions but I will pick on a few of them. We share the concern that we hear at this committee. Irish Aid has to implement an aid programme this year involving €635 million of Irish taxpayers’ money. The EU provides 60% of global ODA and the EU’s concern is very great when we see figures such as $500 billion to €800 billion in illegal money flowing from developing countries per annum. It may be $120 billion to $160 billion per annum in tax dodging. The figure for transnational organised crime is approximately $1.5 trillion to $2 trillion per year. There is no sense of complacency on our part about how this might undermine our efforts which are focused on the reduction of global poverty. The transfer pricing issue is one on which we also share concern. The Christian Aid report is particularly welcome because it draws attention to an area that has come to the fore in the past year or so. Much progress has been genuinely achieved at the multilateral level in the past year — more than might have been expected. Deputy Deasy made a point about competition for foreign direct investment in asking whether countries might in a way encourage these behaviours. There is very strong competition for investment and in order to avoid what might be called a race to the bottom it is crucial that the efforts taken to tackle these phenomena are at the multilateral level.
Deputy John Deasy: I agree fully with Mr. O’Dea’s comments. I favour the 12.5% corporation tax in order to incentivise corporations, for example US multinationals, locating in Ireland. If they shift profits and transfer price, that is a problem for the US Administration and not for us. I do not have a difficulty with that.
Deputy John Deasy: I am at odds with Deputy Higgins in that regard. I do not have any difficulty with that. The point I was trying to make is that if the Vietnamese finance Minister were in this room would he agree to change his tax code to take care of this or would he suggest that we stop meddling on the basis that the Vietnamese know exactly what they are doing on transfer pricing and what they permit in their jurisdiction?
The Council conclusions that are being prepared for discussion and approval by Ministers in the middle of June — they will not be approved until Ministers have agreed them — focus very much on the areas we have been discussing today, including the importance of strengthening domestic revenue mobilisation, but not as an alternative to aid. There may be some cynical suggestion that in this economic climate people would say it is an alternative to aid. It is not; it is essential to development. However, this must go hand in hand with work we are carrying out on building accountability and transparency in developing countries. That is why Irish Aid is devoting approximately €150 million a year to these governance issues. It explains why we work with country systems and governments to promote sustainable development and do not tolerate corruption in the aid programme. I believe the Department of Finance and Revenue Commissioners have handled most of the questions on transfer pricing.
Deputy Higgins raised some issues relating to the role of the interdepartmental committee on development co-operation. I emphasise that this is a co-ordinating information-sharing committee across Departments to try to ensure to the greatest extent possible that different Departments are not operating in different directions and that we are not implementing policies and actions in Irish Aid that might be undermined by some other policy in the Department of Agriculture, Fisheries and Food. However, it is not a policymaking committee. Policy will be made by the departmental officials making recommendations to the Minister, who is accountable to the Dáil and to this committee. That is a very important point to make. It is not the interdepartmental committee, which is broadly a co-ordinating committee, that is making this policy.
The Institute for International Integration Studies in Trinity was commissioned by that committee to undertake some independent research, but not in policy formation and more in terms of how to approach the very difficult issue of getting movement on policy coherence. It produced a first report which the Deputy may have seen — if not we can forward it to him. It covered areas in which policy coherence actions might be taken. However, they are only recommendations and choices need to be made. I assure him that across a series of Departments there are elements of that report that would not be accepted by particular Departments.
The other work it is undertaking at the moment is to try to determine a set of indicators that might be used to determine whether we are achieving policy coherence. The really important point is that while these are recommendations to the committee, policy making remains for the Minister. He is accountable and would be happy as we would be to discuss those issues with the Deputy or with the committee at any time.
Mr. Michael Gaffey: While perhaps it should have happened, the economic partnership agreements have not yet been discussed even by the interdepartmental committee. The Department of Foreign Affairs is leading on this issue. I am very much aware of the points the Deputy made to the Taoiseach in the Dáil yesterday. There are three interim economic partnership agreements that need Dáil approval. We are very aware of the concerns expressed by Deputy Higgins and other members of the committees and by the NGOs on the economic partnership agreement process in recent years. The Deputy will be aware that we shared many of those concerns, especially at an earlier stage, where the trade aspects of the agreements were not being balanced by sufficient concern for the development needs of the countries involved and where there was a concern that perhaps the European Union was pushing ahead too quickly without taking into account the needs of the developing countries.
By their nature the agreements are negotiated by the Commission on the basis of a mandate from the Council. Ireland has been one of those countries along with a number of like-minded countries, including Denmark, the Netherlands and others, which have been pushing very strongly to reassert the development aspect of these agreements and consulting with our development partners who have different views on them. For example, South Africa refused to sign the interim agreement and at the moment is engaging in the negotiations for the full agreement on economic partnership agreements.
Deputy Michael D. Higgins: Yesterday I was defeated by a Government majority of five votes in an attempt not to have the matter rushed to be considered by a select committee before the African countries have an opportunity to discuss it at a special meeting on 18 June.
Deputy Michael D. Higgins: However, there is a problem with the Commission. Baroness Ashton in her previous activity sought to make an intervention that would address some of the African concerns and was very helpful. The current Commissioner is anything but helpful. I do not believe there is any fundamental disagreement. However, the EPA process is quite dishonest because it suggests that it is essential for the sake of compliance with the WTO. It contains more than that because some items that were dropped at Doha were added into the EPAs, so it is not even transparent. Mr. Gaffey is being very helpful because he says that the Minister will decide policy. The one place I cannot decide policy is in here. The point about it is that I might sign up to the Institute for International Integration Studies and I learn to do old-fashioned and dead accounting, but I have no intention of doing that. Methodologically it is a very limited outfit. I am glad its Senator is not here.
Mr. Michael Gaffey: It is true that these three interim economic partnership agreements have been signed. One of them in particular, the east Africa community one, has been signed by all other member states. I was very pleased this morning to be able to ask somebody in Brussels to point to the article in The Irish Times reporting Deputy Higgins raising the issue with the Taoiseach in order to show that in Ireland for both legal and democratic reasons, these agreements must receive Dáil approval and that we cannot be pushed to sign them. The agreements will serve to help promote trade and development in the countries involved and regional integration in Africa. At any stage of the process when the development needs of our partners, with which we discuss these issues in Africa, have been raised, we have been to the fore in raising their concerns with the Commission and ensuring the relevant Commissioner, Baroness Ashton, comes to the Council to explain the position.
Deputy Michael D. Higgins: How can the agreements help regional integration if the South African development community has already been divided, which is the reason a meeting is being held on 18 June?
Mr. Michael Gaffey: There is a division in approach which developed in the middle of the negotiations. The parties are currently negotiating and want to agree a position for full economic partnership agreements.
Deputy Michael D. Higgins: Membership of the Select Committee on Foreign Affairs is confined to Dáil Deputies. All the select committee can do is make a recommendation to be considered in plenary session. Then everybody could state where they stood. I am grateful to Mr. Gaffey for his elaboration.
Deputy Michael D. Higgins: Lest I appear cross in regard to the Institute for International Integrational Studies, perhaps in the future the joint committee might procure from all third level institutions an opinion on the indicators used. If one does not do so, one is locking oneself in to the indicators of an ancient method in a dying paradigm. At this stage we all want to be as intellectually diverse and rich as possible to achieve the best value. We should, therefore, procure from third level colleges an assessment of the indicators of performance used. The European Union should do likewise.
My second question is important in that it relates to the opening up of the process of recruitment to the new European system. It is equally important that the Irish public be invited to participate, for example, in regard to Baroness Ashton’s new agency.
Mr. Michael Gaffey: We have not locked into any indicators at this stage, rather we are awaiting the outcome of the work of the institute. However, I take the Deputy’s point. We are engaging more with third level institutions in our partnership with them. In terms of the external action service, while this is not a direct response to what the Deputy stated, we are emphasising the absolute need to ensure strong development experience in the service. If it is available, the current institutional arrangements can serve to improve coherence and the pace of development in the external policies of the European Union.
Mr. Gary Tobin: As my colleague, Mr. O’Dea, stated, our principal objective is to ensure Ireland receives “a fair share” of tax revenue from the activity which takes place here. While I cannot swear to this, I believe in the order of two thirds of world trade is now intra-group trade; therefore, transfer pricing is now very much part of normal day-to-day business. There is nothing wrong with it as such. As Mr. O’Dea stated, it is the best system we have. Our concern and that of members centres on abusive transfer pricing. The Revenue Commissioners try to ensure Ireland receives a fair share of tax revenue. Without going into too much detail, we have safeguards in our system. For example, we operate what is known as a credit rather than an exemption system which many other countries operate. It is mechanisms such as this that ensure Ireland is not used as a location for abusive transfer pricing.
Mr. Gary Tobin: We are not allowed to comment on individual cases. In the order of 50% of all manufacturing jobs in Ireland are created in foreign owned companies. There is vast and substantive activity in Ireland engaged in by multinational corporations. It is true that some multinational corporations organise their activities in such a way that high value added activity takes place in lower tax jurisdictions, but that is the nature of international trade and business. We work closely with our treaty partners to ensure abusive transfer pricing does not occur. If we, or any of our treaty partners, are concerned about individual cases, there are in place mechanisms, including the mutual assistance procedure, to ensure the issues involved are dealt with by the revenue authorities.
Chairman: I thank all of the delegates who attended the meeting to listen to and discuss what we had to say on these matters. There is great value in understanding Ireland’s relationship with developing countries as being much broader than simply a relationship between aid donor and aid recipient. What is clear from this discussion is how globalised trade has become. By way of example, the volume of trade between Africa and Ireland is now €1.4 billion per annum and likely to increase significantly in the short to medium term. It is essential, therefore, that the international financial and taxation architecture is in place to ensure the benefits of increased trade will be felt equally in developing and developed countries.
I welcome the work being done by the Revenue Commissioners to build capacity in Rwanda and elsewhere. I also welcome the increased focus which the European Union and the OECD are placing on the exchange of tax information and transfer pricing issue. However, it is clear that we need to look, at a macro level, at the development models underpinning the dialogue between developed and developing countries.
I suggest to Irish Aid that, when it receives from the Institute for International Integration Studies, Trinity College, Dublin indicators for monitoring policy coherence, it should examine them through a critical lens, given the concerns raised by members of the committee. We cannot accept a continuation of the status quo where the illegal flow of moneys from developing countries is seven times greater than total official development assistance. I thank the delegates for explaining the methodology used in regard to taxation and how it applied. This has been accepted as being bona fide in the United States. Therefore, as a country, we can continue to operate the process we have in place. As stated, abuses are not taking place in Ireland.
The committee has much to consider. A large amount of correspondence has been circulated to members. Without examining all of it in detail — we have gone through all of it at this point — and if members are agreeable, I propose that it be noted. Is that agreed? Agreed.
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