OECD tax proposals threaten Irish deals with multinationals

Key features of Ireland’s role in the

tax affairs of major technology companies such as Google and Microsoft are being targeted by the OECD's base-erosion and profit-shifting (Beps) project, it has emerged.

Ideas being worked on by the Paris-based organisation could reduce the attractiveness of Ireland as a location for global tech companies, while at the same time reducing the amount of taxable profits such companies would be allowed book here.

Commissionaire arrangements, where distinct legal entities promote and help organise sales that are then booked by affiliated subsidiaries in Ireland, may be designated as artificial arrangements under the new global rules the Beps project is working to put in place.

In the UK and elsewhere, politicians and policymakers have been critical of the way the sales made by major technology companies in their jurisdictions are booked by subsidiaries based in Ireland, despite the fact that the companies concerned may have major sales and marketing operations in the countries where the sales are being made.

The chairwoman of the public accounts committee in the UK, Margaret Hodge, has repeatedly attacked the way Google's sales in Britain end up being taxed in Ireland, despite the existence of substantial Google operations in her jurisdiction.

During a webcast, Marlies de Ruiter of the tax treaty, transfer pricing and financial transactions division at the OECD said the new rules being worked on would prevent commissionaire arrangements continuing as they have up to now, by focusing on “the actual dealings taking place” and not just the “legal arrangements” put in place for the various related subsidiaries.

The object of the exercise would be to stop multinationals from “artificially” shifting profits between jurisdictions within the multinational group, she said.

A number of major technology multinationals have structured their non-US networks so that sales made in Europe and further afield are booked by their Irish subsidiaries, often with the taxable profits then being shifted onwards to tax havens such as Bermuda by way of the so-called double Irish structure.

Double Irish Minister for Finance

Michael Noonan has said the double Irish structure will be closed down by 2020. It will no longer be available for those not already using the structure from the end of this year.

The comments from the senior OECD official are another indication that aspects of the role played by Ireland in multinationals’ tax affairs are under pressure.

Ms de Ruiter also said the treatment of warehousing operations was being reviewed. This will be of concern to Amazon which books its profits in Luxembourg despite having major warehousing operations around Europe.

She said the Beps project was also working on “anti-fragmentation” rules that would stop a corporation organising its affairs into separate legal activities. This would prevent it from qualifying as having a “permanent establishment” in a particular jurisdiction.

Having a designated permanent establishment is usually a trigger for a business being taxed in a particular jurisdiction. Again, the move could serve to shift where profits on sales become liable for tax.

Other measures raised during the webcast included work on ensuring that patent box regimes only lead to tax advantages that are proportionate to the associated research and development.