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DÁIL ÉIREANN AN COMHCHOISTE UM AIRGEADAS, CAITEACHAS POIBLÍ AGUS ATHCHÓIRIÚ, AGUS AN TAOISEACH JOINT COMMITTEE ON FINANCE, PUBLIC EXPENDITURE AND REFORM, AND TAOISEACH Déardaoin, 26 Aibreán 2018 Thursday, 26 April 2018 Tháinig an Comhchoiste le chéile ag 10 a.m. The Joint Committee met at 10 a.m. Comhaltaí a bhí i láthair / Members present: Teachtaí Dála / Deputies Seanadóirí / Senators Joan Burton, Paddy Burke, Michael McGrath, Rose Conway-Walsh. Paul Murphy. Teachta / Deputy John McGuinness sa Chathaoir / in the Chair. 1 JFPERT Business of Joint Committee Chairman: We will begin our meeting. I propose that we go into private session. Is that agreed? Agreed. The joint committee went into private session at 10.07 a.m. and resumed in public session at 10.19 a.m. EU Proposals on Taxation of the Digital Economy: Discussion Chairman: We are now dealing with engagement on EU proposals for the taxation of the digital economy and other matters. I welcome Mr. Brian Hayes, MEP, and Mr. Matt Carthy, MEP. I advise that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are pro- tected by absolute privilege in respect of their evidence to the committee. However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to do so, they are entitled thereafter only to a qualified privilege in respect of their evidence. Wit- nesses are directed that only evidence connected with the subject matter of these proceedings is to be given and are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable. 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 House or an official either by name or in such a way as to make him or her identifiable. I understand both witnesses have an opening statement. I call Mr. Hayes. Mr. Brian Hayes: I thank the Chairman for giving me the opportunity to appear before my colleagues at the Joint Committee of Finance, Public Expenditure and Reform, and Taoiseach. I sent a statement to the secretariat and will take it as read. I will address the issues to which the Chairman asked me to speak. It is good to be before the joint committee. About 70% of the work I do in the European Parliament relates to my work as a full member of the Economic and Monetary Affairs Commit- tee. Most of the debates that happen in this Parliament are related directly to the work we are doing on a pan-European level. I welcome the efforts of the Chairman, which I am assisting, to get the president of the ECB to attend the committee. It is really important and I congratulate the Chairman on the initiative. I am confident that we will get there between now and the end of the mandate of the president of the ECB. The regulatory supervisory element has changed radically as a consequence of the crisis. If one looks at what the Single Supervisory Mechanism, SSM, and the ECB do in terms of the 253 banks at which they look, four of which are in Ireland, it is a totally new landscape. It is really important that those who are involved in the detail of work in the European Parliament relate directly to colleagues back home. I have listed the files I have done thus far and the files on which I am working and I am happy to take questions on them. I will deal with the four issues I was requested to deal with. First, on the taxation of the digital economy, any taxation matter in the European Union requires unanimity at the European Council; thankfully, it is not an issue for the European Parliament. Ireland does not have a 2 26 APRIL 2018 majority on the key issues that face us on these files, but that is not to say the Parliament does not have a view on this issue; of course, it does, but my sense is we cannot be forced to do something we do not want to do. Ultimately, we have a veto. It is not a good place to be in to constantly say we want to use the veto, but on the question of a digital tax, we are not alone in our view as a country. A large number of member states in the east of Europe, the Scandinavian countries and the more export oriented economies in the north agree with our views. Let us be frank about the taxation of the digital economy. Companies are not paying enough; the effective tax rate is under 10%. We have to find a means to have a fairer taxation system in circumstances where their intellectual property is in one location and their distribution system is elsewhere. We have not been good because our traditional means of taxing the corporate sector has been based on the question of profits, where somebody is domiciled and where real value is added. We have to address this issue. The interim measure Commissioner Moscovici has proposed is not fit for purpose in that it is a turnover tax, effectively a tax on the clicks on Google, Airbnb or whatever else. In that way it would be a radical departure, but it would not be a major tax. Mr. Moscovici has suggested to those of us on the Economic and Monetary Af- fairs Committee that it would be about €5 billion on an annualised basis and affect the biggest corporate companies with a turnover of more than €750 million, but there are issues that we must address. It could be perceived as an attack on US businesses because essentially it would affect large US tech companies, many of which are based in Ireland. Where the trade disputes are with the new US Administration and the European Union is of concern. The other question is what is and is not digital. Is the German car manufacturer BMW which produces something at €50,000, 40% of which is digital, in the digital category? Should it be taxed? I cannot see too many people in Germany putting their hands up. If it is just a surcharge on digital companies, it would be a pretty blunt instrument. A better way to approach the issue is to do what the OECD has done on the base erosion and profit shifting, BEPS, side, where the report is available and it wants a period of time within which to see if it can be organ- ised on an international basis. Let me be very frank with my colleagues. We all know that taxation is a highly political issue, no matter from which political family we come. If one were to ask Google or Facebook whether it was okay with them that a percentage of what they pay in tax on an annual basis should relate to the location of users, I think they would probably say yes. If they can see the principle, the next question is what percentage of the tax payable should it be. If a significant number of the people who are clicking on their services come from the larger member states, is it appropriate that some of the money should go to these member states? The question is about percentages. The bigger issue for Ireland is related to the common consolidated corporate tax base, CCCTB, not a digital tax, because a digital tax is about more than taking away something we currently have. We must box clever. I have made a suggestion to the Commissioner on a sunset clause, that we could have such a tax for a number of years. That is not Commissioner Moscovici’s proposal, but this proposal is fit for purpose. The correct approach, as the Minister for Finance said, is to work with other member states and stay at the table in order that we can come up with a proposal that will resolves the issue. This is still a piece of work that has to be done, but for me, the digital companies have to pay more but how they pay more is the question. Certainly, we need to be open-minded about it. I do not need to tell members who have done sterling work on the issue of non-performing loans, NPLs, how important this issue is in the European Union. We have to solve the problem and it has to be solution oriented. If we do not solve the problem of NPLs, the implications 3 JFPERT are that it will dull the investment in new borrowings to businesses, families and individuals. Second, if we do not solve the problem of NPLs, it means that a larger percentage of a bank’s capital will have to be used to offset the NPLs on the balance sheet, which is not a good posi- tion in which to be. Historically, banks that have large NPLs on balance sheets are ones that overcharge on mortgages and other services. We must address that question. There are Single Supervisory Mechanism, SSM, guidelines, but the question is whether we should move to a more exacting standard. That is not yet clear from what the SSM has stated, but progress has been made. We have reduced the debt on NPLs in Ireland from €80 billion to €30 billion. The current rate is about 13%, a reduction from 27%.