Wednesday 23 October 2019

Richard Curran: 'Big forces are stacking up against us on Corporation Tax haul'

Finance Minister Paschal Donohoe set out what he would like to see when it comes to taxing the profits of digital multinationals. Photo: PA
Finance Minister Paschal Donohoe set out what he would like to see when it comes to taxing the profits of digital multinationals. Photo: PA
Richard Curran

Richard Curran

Finance Minister Paschal Donohoe didn't have a very bright picture to paint when he addressed the Global Tax Policy conference in Dublin last week.

Having raked in a record €10bn in corporation tax last year, you might think he would be upbeat.

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Instead, he warned that change was coming on the issue of corporation tax and the digital economy. Naturally he emphasised how Ireland is all up for change - at the forefront of change, in fact.

He even outlined the eight different corporation tax initiatives Ireland has introduced in recent years which have done away with the so-called Double Irish and companies that are stateless for tax purposes.

He also suggested that the spin-out of the Double Irish structure, known as the "single Malt" because it involves Malta, would soon be on the way out too.

But there was a somewhat downbeat tone to his speech as he used it to set out his red lines on what sort of compromises or future structure he would like to see when it comes to taxing the profits of digital economy multinationals in the future.

Red lines are all very well when you have some leverage. Ireland has very little. Donohoe warned against the risks of having some countries go ahead and develop new methods for capturing taxes on digital profits without global agreements. But he also suggested that global agreement on these issues will be very hard to reach.

Ireland's position seems to be that corporate tax should be paid where value is created in accordance with the arm's length principle. But the Government wants to see a rather wide definition of where value is created.

Donohoe wants it to recognise that some value "may arise in scale, from brands or from access to markets". In other words if millions of consumers use a digital platform to buy something in Germany, rather than the company pay corporation tax in Germany, it should also take account of where its operations are located, its marketing and branding and this presumably involves its intellectual property.

Taxing companies where the consumer transaction takes place would benefit bigger economies and hit Ireland quite hard. Donohoe also wants to see any agreed outcome follow the "well-established principle of aligning taxing rights with value creation" and it should cause "as little disruption as possible to the long-established international corporate tax framework."

So, he wants change, but not too much change.

Ireland has some allies in the EU who share a similar view, but it also has powerful EU member countries who want action right now, including France.

The Irish position has always been that the OECD is the best place to resolve these issues because the EU could shoot itself in the foot by making its tax rules too uncompetitive, resulting in a loss of foreign direct investment.

There is a certain logic to that position but the problem is that the mood music is changing in the US. The arrival of US president Donald Trump, and his appetite for trade wars and putting "America first", brings a whole new uncertainty.

Ireland has limited its reputational damage in recent years by making concessions when it was absolutely necessary. But it is still referred to, somewhat controversially, as a tax haven.

Tens of billions in intellectual property has been shifted by mainly US multinationals to Ireland in recent years. It has helped bring in extra corporation tax and the Government has become worryingly dependent on it. The minister has laid out his views quite clearly at the conference but bigger forces are stacking up against him.

The boys in Green Reit aren't hanging around on sale

The board of €1.1bn property giant Green Reit isn't hanging around when it comes to the sale of the company or its assets. Its shares are up 11pc since it put itself up for sale just five weeks ago.

It was reported during the week that it set a deadline of June 12 for indicative bids for the company or its assets. It is understood that there has been plenty of interest from a number of prospective buyers. The mechanics of the deal are interesting because it's a bit like selling a house with a small farm attached. You can offer the two together as one lot, or offer the house and farm separately, and then see which option delivers the best outcome.

Anyone bidding for individual assets will have to compete with others on each asset. Alternatively, make a bid for the company and you must compete only once. The new owner could then sell off what it didn't want.

But bids to buy assets are clean and straightforward. Bidding to buy a PLC can be arduous, expensive and uncertain.

The company with the contract to manage Green Reit is owned primarily by Stephen Vernon and Pat Gunne. Their contract was renewed for a further three years beginning last July. That management contract is terminated once all of the assets of the group are sold. If there are new owners of the company through a takeover, the contract can be terminated with 12 months' notice.

They have done well out of Green having received a total of €78.3m in cash and stock between flotation in 2013 and December 2017. Performance fees at the management company peaked at €20.9m for the year to June 2015. Its base fees are determined at a 1pc charge on the net asset value of its properties. No matter what happens now, they have done very well.

First look inside Quinn Insurance

Public hearings of the Central Bank inquiry into alleged regulatory breaches at Quinn Insurance will begin this week. It all seems like a long time ago. The inquiry is looking at whether two former executives of Quinn Insurance, Kevin Lunney and Liam McCaffrey, were in breach of insurance regulations between 2005 and 2008 when the insurer collapsed into administration.

The bill left behind from the collapse has already hit €1.2bn and could yet hit €1.6bn by the time the administration is fully wound up. This is money retrieved from the Insurance Compensation Fund which is covered by all of us through an insurance levy of 2pc.

Just to jog people's memories further, Sean Quinn paid a penalty of €200,000 - yes €200,000 - as part of a settlement with the Central Bank back in 2008. The company paid a fine of €3.25m and a later fine of €5m was waived in the public interest because it would essentially have come out of the insurance levy anyway.

Lunney and McCaffrey challenged the Central Bank's inquiry through the courts back in 2016 but lost, which cleared the way for the inquiry to proceed.

The public hearings will seem a little historic when questions are asked about who did or didn't do what 13 years ago. They may not make for comfortable listening for the Central Bank and its former role either.

Nevertheless, regardless of the outcome for the two men, it should provide the first real insight for the public into the operations of the insurer during those crucial years. There are other legal cases involving the insurer's administrators and its former auditors, but nothing has been aired in the open so far.

These few days of public hearings will be the first real glimpse of how the company was run despite a bill of €1.2bn we are all paying for its collapse.

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