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Ireland resists closing corporation tax ‘loophole’

Tech firms lobbied Noonan not to adopt new OECD rules about where they pay tax

Corporation tax: Microsoft and other US tech firms told Michael Noonan that “keeping the current standard will make Ireland a more attractive location for a regional headquarters”. Photograph: Aidan Crawley/Bloomberg

Ireland is one of 40 countries that have not signed up to a tax reform that would change where multinational companies pay corporation tax on their profits.

The base-erosion and profit-shifting, or Beps, reforms were launched in 2015 by the Organisation for Economic Co-operation and Development to reduce corporate tax avoidance. One Beps measure that Ireland has not signed up to, article 12, would redefine when multinationals have a taxable presence in a country. They can currently avoid significant amounts of corporation tax in some countries they operate in by doing business through a third party, in what the OECD calls commissionaire arrangements.

The global legal firm Baker McKenzie, representing a coalition of 24 multinational US software firms, including Microsoft, lobbied Michael Noonan, as minister for finance, to resist the proposals in January 2017.

In a letter to him the group recommended Ireland not adopt article 12, as the changes “will have effects lasting decades” and could “hamper global investment and growth due to uncertainty around taxation”. The letter said that “keeping the current standard will make Ireland a more attractive location for a regional headquarters by reducing the level of uncertainty in the tax relationship with Ireland’s trading partners”.

Other jurisdictions that have not signed up to the measure include the Isle of Man, Mauritius, Jersey, Malta, Luxembourg, Switzerland, Germany, Greece, Italy, Portugal and the United Kingdom. Countries that have adopted the measure include France, Norway, Turkey, Spain, Japan, Argentina and Nigeria.

Corporation tax: Microsoft and other US tech firms told Michael Noonan that “keeping the current standard will make Ireland a more attractive location for a regional headquarters”. Photograph: Aidan Crawley/Bloomberg

Tax loophole

Oxfam said the tax loophole allows corporations to avoid paying tax in many developing countries. Michael McCarthy Flynn, a policy co-ordinator at the aid charity, said it was disappointing that Ireland did not sign up to the reform. “This article would have closed a loophole that currently allows multinational companies in Ireland to remove their tax liability in other countries where they do business by contracting agents to act on their behalf.”

Taoiseach Leo Varadkar told the Dáil this week that the OECD “has designated Ireland as one of only 22 countries, of nearly 200 in the world, which are entirely compliant when it comes to tax transparency”.

In June Ireland adopted 13 of 17 measures in the OECD Multilateral Instrument reform package; it can still sign up to further measures. The Department of Finance said work is under way to determine the full effect on where companies pay corporation tax of redefining “permanent establishment”, which is what gives rise to a taxable presence. “A significant number of the countries who have signed the Multilateral Instrument, including a majority of EU member states, have indicated they are not planning to adopt article 12 . . . at this time.”

This week a huge leak of documents entitled the Paradise Papers revealed how wealthy individuals and companies can legally avoid paying taxes through offshore financial systems and other measures. The records were obtained by the International Consortium of Investigative Journalists, whose media partners includes The Irish Times.