Revenue to close ‘single malt’ tax loophole

Revenue is closing a loophole that allows US multinationals to avoid tax by channelling cash through Malta.

Using a structure dubbed the “single malt”, some US multinationals have been using Irish-registered, Malta-resident, companies to cut tax liabilities in countries where they sell their goods and services.

Minister for Finance Paschal Donohoe confirmed on Tuesday that a new agreement between Revenue and the Maltese tax authorities will close the loophole.

Tax

The two jurisdictions have agreed that the Irish-registered, Malta-resident company will have to pay corporation tax in the Republic on the income involved.

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Mr Donohoe said he was confident that US tax reforms introduced at the end of last year would have substantially cut the single malt’s benefits. Nevertheless, he asked his officials to see if further action was needed.

“I am pleased that this agreement has been reached which should eliminate any remaining concerns about such structures,” the Minister said. “This is another sign of Ireland’s commitment to tackling aggressive tax planning, as set out in Ireland’s Corporation Tax Roadmap.”

Under the single malt, US multinationals place intellectual property, such as patents and copyright, in an Irish-registered company that is resident in Malta, which means that it pays tax in that jurisdiction.

The multinational then channels payment for sales outside the US through a second Irish-registered company that is resident here.

The second Irish company then pays large sums to the Maltese-resident firm for a licence – the right to use the first entity’s intellectual property – substantially cutting the tax it has to pay in the Republic.

Deal

The new deal between Revenue and Malta, called a competent authority agreement, holds that the first company is tax resident in the Republic and so will have to pay tax on the income it receives for licensing its intellectual property.

The agreement will take effect as soon as an Organisation for Economic Co-operation and Development (OECD) convention, designed to limit tax avoidance by multinationals, applies to both the Republic and Malta.

The Republic is taking the last steps to ratify this treaty, called the Base Erosion and Profit Shifting Multilateral Convention, in this year’s Finance Bill.

The Government intends to give the final documents relating to the convention to the OECD in early January. Malta has already ratified the convention.

Advocacy group Christian Aid, which first identified the single malt structure in a 2017 report, welcomed the move to close down the loophole.

“This will have benefits not just for the Irish exchequer, but for countries around the world,” head of advocacy and policy Sorley McCaughey said.

“Now that they clearly recognise the problem, we urge the Government to stop replacement structures being put in place.”

Mr Donohoe’s statement noted that the Republic remained committed to implementing international tax reforms that addressed mismatches between jurisdictions.