Concern tax reforms could threaten foreign investment

An internal Government report has raised concern that international moves to tackle tax avoidance could make it much less attractive for multinational firms to be based here.

The report, Principal Risks to Ireland's Corporation Tax Strategy, was prepared by the Department of Finance over last summer as controversy flared over Apple's tax status.

It states that moves by the Organisation for Economic Co-operation and Development (OECD) to tackle large-scale tax avoidance could result in multinationals being forced to pay tax on their foreign profits.

This would affect legal but controversial accountancy moves such as the "double Irish", which allow firms such as Google to exploit differences between tax codes in various countries.

Ireland’s regime for attracting multinationals – the cornerstone of which is the 12.5 per cent corporation tax rate – has proved highly successful.

Corporation tax is a vital source of revenue to fund public services, amounting to more than €4 billion in 2012, or 11.5 per cent of our total tax take during the year. It is estimated there are about 167,000 people employed in multinational firms , the majority of which are US multinationals.

Tax havens
The report says the main concern relates to an OECD action plan on erosion of the tax base and proposed "anti-abuse" rules aimed at firms using tax havens abroad. "If the issue of minimum tax rates was to get traction in discussions around anti-abuse rules more generally, it could present difficulties for Ireland, " the report – released under the Freedom of Information Act – states. "The concern is that if other countries introduce anti-abuse/CFC [controlled foreign corporation] rules which stipulate minimum tax rates, multinational company subsidiaries located in Ireland could suffer additional foreign tax rates."

It also warns US plans to reform its tax system were another risk, given American firms account for about one-third of all our corporation tax payments.

“The corporate tax changes being considered focus on applying additional US tax to the foreign income of US companies, which is taxed at a ‘low’ effective rate,” it states.

Despite these concerns, the report says Ireland’s long-standing engagement with international tax rules means it is “aligned with best international practice with most areas” and should have little to fear.

Reputational damage
Other records show the Government closed a loophole in last October's budget which allowed Irish-registered multinationals to be "stateless" following concerns over the reputational damage it caused.

This loophole allowed a subsidiary of Apple to avoid tax on more than €30 billion of income.