Government faces new challenges on tax front as it goes on Double Irish charm offensive

 

The Government has moved quickly to explain its decision to close down the “Double Irish” tax avoidance scheme. This allows multinational companies to exploit differences in Irish and US corporate tax residency laws, and enables them to cut their tax bills dramatically. This tax loophole has faced strong international criticism: from the US and the UK, the European Commission – which threatened to launch a formal inquiry – and the OECD, which is completing a major report on the reform of international tax rules.

Government ministers, State agencies and others, have sought to reassure those most affected by the change; the multinational companies using the double Irish structure to channel huge profits to tax havens. Companies, including Apple, Google and Microsoft, that use the tax avoidance scheme, will now have six years to plan for the scheme’s closure in 2020. For non-users and new companies, the Double Irish will close from January 1st. As Minister for Finance, Michael Noonan explained: the Government wanted to remove the “slur” associated with this aggressive form of tax avoidance, which has damaged Ireland’s reputation.

The Government has rightly sought to make a virtue out of a necessity, by closing the scheme sooner, before it was forced to do so later. It has sought to offset the loss of a competitive advantage on one aspect of Ireland’s corporate tax regime, by promising attractive alternatives – both to encourage companies located here to stay here, and to attract others to come. One proposal is for a low tax rate on intellectual property, to attract companies to base their research activities in Ireland.

Revenue Commissioners figures show how much Ireland relies on foreign direct investment. Between 2008 and 2012, foreign-owned multinationals accounted for nearly three quarters of corporation tax receipts. Since 1956, when Ireland introduced a zero tax rate on export profits, successive governments have overcome challenges to the corporate tax regime. This time should be no different.