OECD plan to put focus on Irish tax rules

Ireland’s business tax regime is set to come under renewed scrutiny today as the OECD sets out the first phase of a plan to stamp out aggressive avoidance by big multinational groups.

Moves by the OECD to overhaul global corporate tax rules have already led the Government to examine whether it should take pre-emptive steps to recast the most contentious elements of the Irish system.

The Government remains undecided, but there is anxiety in the business community that any Irish move before changes in other countries would be unwise.

Tax changes

At issue is whether Minister for Finance Michael Noonan signals tax changes as early as the budget next month.

Following a public consultation during the summer by the Department of Finance, the Government’s examination of the matter is understood to be “carefully balanced”.

It is recognised, however, that submissions to the Department reflect a greater degree of resistance to any unilateral Government move than was anticipated at the outset of the process.

The OECD proposals, to be unveiled today in Paris, are said to include a blueprint for a binding multilateral plan to eliminate strategies used by global companies to cut the tax on their profits to a minimum.

Such a plan would not be executed until the OECD completes its formal review of global corporate tax rules late next year.

While it is acknowledged in Government circles that the OECD process will ultimately change some Irish rules, there is no decision as to when the rules will change or on the scope of such changes.

The initiative led by the OECD comes on foot of demands from G20 leaders, among them US president Barack Obama, to tackle tax seepage through collective action around the world.

After huge public bailouts of the banking system at the height of the financial crisis, this followed a political push for assertive international action to ensure business pays its fair share of tax.

The OECD proposals to be released today are said to concentrate on offshore tax havens in locations such as the Caribbean.

However, contentious schemes such as the “double Irish” play on the difference between tax law in Ireland and the law in offshore jurisdictions such as Bermuda.

Major beneficiaries of this scheme are known to include Google, which has a big operation in Dublin.

The argument was made in Dublin that an early signal of change to the Irish regime would be advantageous for reputational reasons and help maximise the phasing-out period for such schemes.

‘Critical juncture’

Still, many Irish and US-based participants in the Department’s consultation argued against early moves to unwind Irish tax rules.

The Irish Tax Institute, which adopted a questioning approach to the notion of pre-emptive change in its observations to the Department, said in advance of the OECD proposals that Ireland was at a “critical juncture” in relation to corporate and income tax strategy.

The institute’s president, Andrew Gallagher, said the OECD process would open opportunities for Ireland.

“However, we will need to move swiftly on the key elements of our corporate tax offering including our intellectual property regime, our special assignee relief programme regime and personal income tax regime if we’re going to take advantage of those opportunities,” he said.