Select Committee on Finance, Public Expenditure and Reform, and Taoiseach debate -
Wednesday, 3 Jul 2024

I am pleased to be here today to bring before the committee two draft Government orders giving force of law in Ireland to a new double taxation agreement with Oman and, separately, a new protocol to the existing limited-scope double taxation agreement with Jersey. The new double taxation agreement with Oman was signed by ambassador H.E. Gerry Cunningham, Ireland’s representative to Saudi Arabia, and Nasser bin Khamis bin Ali Al Jashmi, on behalf of Oman, on 30 May 2024 in the Omani capital of Muscat.

The protocol to the agreement with Jersey was signed on 23 November 2023 by then Minister for Finance, Deputy Michael McGrath, and then Jersey Minister for Treasury and Resources, Deputy Ian Gorst, in Dublin.

Our network of double taxation agreements is an important aspect of our competitiveness in attracting investment and facilitating Irish business in operating internationally. In addition, double taxation agreements are a cornerstone of Ireland's trade policy and a key element in stimulating trade and investment flows between countries. They provide greater certainty and fairness for taxpayers regarding their tax obligations in foreign jurisdictions and they are key to the prevention of double taxation. Furthermore, they provide for dispute resolution mechanisms and exchange of taxpayer information to enhance tax transparency. The benefits of double taxation agreements are well known but concerns were expressed that treaties may inadvertently facilitate aggressive tax planning. Considerable work, therefore, has been undertaken to address such concerns in recent years. These reforms were central to the base erosion and profit shifting, BEPS, project and led to the development of the OECD Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting. Updating our existing double taxation agreements, whether via the multilateral convention or bilaterally, helps us to ensure that they cannot be used for aggressive tax planning arrangements.

As the committee may recall, arising from the OECD BEPS process, Ireland ratified the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS in 2018. The convention was discussed at this committee and was included in the Finance Act 2018. The BEPS multilateral convention came into force for Ireland in 2019 and updated the majority of Ireland’s existing double taxation agreements to make them BEPS compliant. However, our existing agreement with Jersey was not updated by the multilateral convention but will instead be updated bilaterally to reflect the BEPS changes. This is what the Jersey protocol before the committee now seeks to do.

We are committed to ensuring that all of our double taxation agreements meet the minimum standards agreed in the BEPS process. A common feature of both the new agreement with Oman and the protocol with Jersey is the incorporation of strong tools for tackling tax treaty abuse and anti-avoidance measures. As such, both contain the minimum standards committed to during the OECD BEPS project. The new double taxation agreement with Oman is comprehensive in scope and generally follows the OECD model convention. The treaty with Oman will enhance economic relations and co-operation in tax matters between Ireland and Oman. The treaty is designed to eliminate double taxation without creating opportunities for non-taxation. The reduced rates of withholding tax on certain dividends, interest and royalties, and the safeguards against discriminatory taxation in the agreement, will support existing trade and facilitate further trade and investment between both states.

In 2009, Ireland and Jersey signed a limited-scope agreement to afford relief from double taxation. A protocol is now required in order to incorporate tax treaty-related measures, agreed as part of the G20-OECD BEPS project, as I outlined, into the 2009 agreement. The Jersey authorities contacted the Revenue Commissioners seeking to update the 2009 agreement to ensure it was BEPS compliant. The 2009 agreement had been intentionally drafted to afford relief in a very limited number of cases. For this reason, it was considered that it was not appropriate to amend the agreement by way of the multilateral convention and a protocol was required. This method of updating tax treaties is consistent with the procedure adopted previously for such limited-scope treaties and ensures BEPS compliance through those amendments.

Should Dáil Éireann approve the making of these orders by the Government, the Minister for Finance will include the orders in the Taxes Consolidation Act 1997 by way of an amendment to the upcoming Finance Bill. This will enable Ireland to complete the necessary notification to finalise the ratifications of the new Oman tax treaty and the protocol to the Jersey agreement as soon as possible thereafter.

I commend these draft orders to the committee. If required, I will be happy to answer whatever questions members may have to the best of my ability.

I thank the Minister of State. I have just a few questions to clarify a number of matters. The Minister of State highlighted the potential of the OECD tax agreement in respect of our current double taxation agreement with Jersey. Can that be used for aggressive tax planning? How are we measuring and assessing that?

As stated, the protocol incorporates two minimum standards to combat the abuse of tax treaties as agreed under action six of the BEPS project, which relates to tax planning. The first is contained in Article 1 of the protocol and inserts a new preamble into the original agreement. The preamble contains an express statement emphasising the role of the treaty in combating abuse. The second minimum standard provides for an anti-abuse rule, which denies treaty benefits where obtaining the benefit was one of the principal purposes of the arrangement or transaction entered into. The test is more commonly known as the principal purposes test, PPT, which is contained in Article 4 of the protocol with Jersey.

I am asking how we are measuring how the tax agreement is being used. What are the outcomes of the agreement? Is it being used for aggressive tax planning? Is there any way of measuring it? Are we measuring it in terms of the outcome?

I will ask a few more questions-----

I am trying to get a better understanding of this myself. It was recently stated in the official statement from the Jersey Government that "most companies in Jersey will be outside the scope of the OECD two-pillar solution and should therefore see no change in their corporation tax". Is that right? Will the Minister of State outline his understanding of the zero-ten corporate rate applied in Jersey? What safeguards are in place, other than the OECD agreement, that are applied to the largest multinationals to guard against tax avoidance? Do we know how many companies operating in Ireland are registered or have subsidiaries in Jersey? Will he clarify what the maximum personal tax rate is in Jersey?

Is the Minister of State familiar with the policy around the golden visa system for high-income individuals? Is it possible, under the double taxation agreement with Ireland, for the very wealthy to use it to avoid taxation? How many people living in Ireland are tax resident in Jersey? There are a few questions there; somebody has written them down. It is to tease out what the relationship and agreement mean, and what the tax is in Jersey as opposed to here. How does it work, how do we measure it, and what are the outcomes? What are the rates in Jersey? Will the Minister of State give us some information on the zero-ten tax rate? If he does not have all the information, he can give it to the committee later because some of it is technical.

Absolutely. I appreciate the technical nature of the questions. It is important to state that the treaty only covers a limited class, namely, the income of individuals. It does not cover corporations, as such, or businesses. It is just individuals. It is focused on that and allows for the usual sort of monitoring of individual compliance. The monitoring relates to what those sources of income are. The first is pensions from past employment, which is very relevant, including the salaries and pensions of government employees, in addition to the income of students. This is to ensure those who want to move between the two jurisdictions are not double taxed. As the Deputy will appreciate, it is very similar to someone who paid into a pension in the UK, for example, and still wants to be able to get the benefits of that. That was a long-running issue she and I discussed at length when we were Senators during the Brexit process. The nature of this double taxation agreement is that it only impacts those individuals where such taxation could be a factor.

On the specifics, we will absolutely send on a note, perhaps on zero-ten. It might be a little easier than fleshing it out as part of the committee, if that is okay.

If they are paying their tax in Jersey, they should be domiciled there. That is how it works. If they are living in Ireland for an extended period, they are liable to pay tax here. However, if they are living in Jersey for an extended period, and that is where they are based and domiciled, they are liable for taxation in Jersey.

No. A person can only be resident in one country and he or she has to pay tax in the country in which he or she is resident. The treaty has very clear rules on that. It is quite similar in any example. A person cannot simply live here and pay tax in Jersey. If someone is primarily living here, he or she pays tax here. Equally, if he or she is primarily living in Jersey, there is nothing to stop him or her visiting, coming over as a student, coming for business reasons, personal reasons, to see a match, take a holiday or whatever it might be. However, where a person lives is where he or she pays tax.

London is a bit different, as the Deputy will appreciate, because of Jersey's status in the United Kingdom. This is obviously a protocol between Ireland and Jersey. It would be inappropriate for me to comment on the rules of the Treasury, but it is a totally different situation for one thing and perhaps also a slightly different time as well with respect to the advent of double taxation agreements. As we have been discussing, the updating and the protocol at an OECD level was achieved in 2018.